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
For the fiscal year ended April 2, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________
to______________________
Commission file number 1-8747
AMC ENTERTAINMENT INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1304369
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
106 West 14th Street
P.O. Box 419615
Kansas City, Missouri 64141-6615
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 221-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, 66 2/3 cents par value American Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's voting stock held by non-
affiliates as of May 15, 1998, computed by reference to the closing price
for such stock on the American Stock Exchange on such date, was
$184,867,949.
Number of shares
Title of each class of common stock Outstanding as of May 15, 1998
Common Stock, 66 2/3 cents par value 18,453,434
Class B Stock, 66 2/3 cents par value 5,015,657
PART I
Item 1. Business.
(a) General Development of Business
AMC Entertainment Inc. ("AMCE") is a holding company. AMCE's
principal subsidiaries are American Multi-Cinema, Inc. ("AMC"), AMC
Entertainment International, Inc., National Cinema Network, Inc. and AMC
Realty, Inc. Unless the context otherwise requires, references to "AMCE"
or the "Company" refer to AMC Entertainment Inc. and its subsidiaries.
All of the Company's domestic theatrical exhibition business is conducted
through AMC. The Company is developing theatres in international markets
through AMC Entertainment International, Inc. and its subsidiaries. The
Company engages in the on-screen advertising business through National
Cinema Network, Inc. The Company's real estate activities are conducted
through AMC Realty, Inc. and its subsidiary, Centertainment, Inc.
The Company's predecessor was founded in Kansas City, Missouri in
1920 by the father of Mr. Stanley H. Durwood, the current Co-Chairman of
the Board and Chief Executive Officer of AMCE. As part of its succession
planning and with the approval of Mr. Stanley H. Durwood, the Company's
Board of Directors has recently appointed the Company's President and
Chief Financial Officer, Mr. Peter C. Brown, as Co-Chairman of the Board
of AMCE. Mr. Brown will oversee all Company matters with Mr. Durwood.
AMCE was incorporated under the laws of the state of Delaware on June
13, 1983 and maintains its principal executive offices at 106 West 14th
Street, P.O. Box 419615, Kansas City, Missouri 64141-6615. Its telephone
number at such address is (816) 221-4000.
Effective August 15, 1997, the Company completed a merger with its
majority stockholder, Durwood, Inc. ("DI"), with the Company remaining as
the surviving entity (the "Merger"). In connection with the Merger,
2,641,951 shares of the Company's Common Stock and 11,157,000 shares of
the Company's Class B Stock owned by DI were canceled and the Company
issued 8,783,289 shares of its Common Stock and 5,015,657 shares of its
Class B Stock to the DI stockholders. The Merger was accounted for as a
corporate reorganization and the recorded balances for consolidated
assets, liabilities, total stockholders' equity and results of operations
were not affected.
(b) Financial Information about Industry Segments
The Registrant operates in the motion picture exhibition industry.
(c) Narrative Description of Business
General
The Company is one of the leading theatrical exhibition companies in
North America, based on revenues. In the fiscal year ended April 2, 1998,
the Company's revenues were $846,795,000. As of April 2, 1998, the Company
operated 229 theatres with an aggregate of 2,442 screens located in 23
states, the District of Columbia, Portugal and Japan. Approximately 61% of
the screens operated by the Company are located in California, Florida,
Texas, Missouri and Arizona, and approximately 70% of the Company's
domestic screens are located in areas among the 20 largest "Designated
Market Areas" (television market areas as defined by Nielsen Media
Research).
The Company is an industry leader in the development and operation of
"megaplex" and "multiplex" theatres, primarily in large metropolitan
markets. Megaplexes are theatres with predominantly stadium-style seating
(seating with an elevation between rows to provide unobstructed viewing)
and other amenities to enhance the movie-going experience. Multiplexes are
theatres generally without stadium-style seating. All but one of the
Company's megaplexes have 14 or more screens. The Company believes that
its strategy of developing megaplexes has prompted the current theatrical
exhibition industry trend in the United States and Canada toward the
development of larger theatre complexes. This trend has accelerated the
obsolescence of many existing movie theatres, including certain
multiplexes, by setting new standards for moviegoers, who have
demonstrated their preference for the more attractive surroundings, wider
variety of films, better customer services and more comfortable seating
typical of megaplexes.
In addition to providing a superior entertainment experience,
megaplexes generally realize economies of scale by serving more patrons
from common support facilities, thereby spreading costs over a higher
revenue base. The Company's megaplexes have consistently ranked among its
top grossing facilities on a per screen basis and are among the top
grossing theatres in North America. During fiscal 1998, attendance per
screen at the Company's domestic megaplexes (those opened at the beginning
of the period) was 77,400 compared to 57,700 for the Company's domestic
multiplexes. (During 1997, the last period for which data is available,
the theatrical exhibition industry in the United States averaged
approximately 45,000 patrons per screen). In addition, during fiscal 1998,
average revenue per patron at such megaplexes was $6.83 compared to $6.18
for such multiplexes, and operating cash flow before rent of such
megaplexes was 37.1% of total revenues of such theatres, whereas operating
cash flow before rent of the Company's multiplexes was 33.8% of total
revenues of such theatres. Operating cash flow before rent is an internal
statistic used by the Company to measure theatre level cash flow. As of
April 2, 1998, 987 screens, or 40.4%, of the Company's screens were
located in megaplexes. The average number of screens per theatre operated
by the Company as of April 2, 1998 was 10.7, compared to an average of 6.5
for the ten largest North American theatrical exhibition companies (based
on number of screens) and 5.3 for all North American theatrical exhibition
companies, based on the listing of exhibitors in the National Association
of Theatre Owners ("NATO") 1997-98 Encyclopedia of Exhibition, as of
May 1, 1997.
The Company continually upgrades its theatre circuit by opening new
theatres (primarily megaplexes), adding new screens to existing theatres
and selectively closing or disposing of unprofitable multiplexes. Since
April 1996, the Company has opened 41 new theatres with 878 screens,
representing 36% of its current number of screens, and has added 44
screens to existing theatres. Of the 878 screens, 845 screens were located
in an aggregate of 37 megaplexes. As of April 2, 1998, the Company had 13
megaplexes under construction with an aggregate of 283 screens.
Revenues for the Company are generated primarily from box office
admissions and theatre concessions sales, which accounted for 65% and 30%,
respectively, of fiscal 1998 revenues. The balance of the Company's
revenues are generated primarily by the Company's on-screen advertising
business, video games located in theatre lobbies and the rental of theatre
auditoriums.
Strategy
The Company's strategy is to expand its theatre circuit primarily by
developing new megaplexes in major markets in the United States and select
international markets. New theatres will primarily be megaplexes which
will also be equipped with SONY Dynamic Digital SoundO (SDDSO) and AMC
LoveSeatr style seating (plush, high-backed seats with retractable
armrests). Other amenities may include auditoriums with TORUSO Compound
Curved Screens and High Impact Theatre SystemsO (HITSO), which enhance
picture and sound quality, respectively.
The Company's strategy of establishing megaplexes enhances attendance
and concessions sales by enabling it to exhibit concurrently a variety of
motion pictures attractive to different segments of the movie-going
public. Megaplexes also allow the Company to match a particular motion
picture's attendance patterns to the appropriate auditorium size (ranging
from approximately 90 to 450 seats), thereby extending the run of a motion
picture and providing superior theatre economics. The Company believes
that megaplexes enhance its ability to license commercially popular motion
pictures and to economically access prime real estate sites due to its
desirability as an anchor tenant.
The Company believes that the megaplex format has created a new
replacement cycle for the industry. The new format raises moviegoers'
expectations by providing superior viewing lines, comfort, picture and
sound quality as well as increased choices of films and start times. The
Company believes that consumers will increasingly choose theatres based on
the quality of the movie-going experience rather than simply upon the
location of the theatre. As a result, the Company believes that older,
smaller theatres will become obsolete as the megaplex concept matures.
The Company believes that significant market opportunities exist for
development of modern megaplexes in select international markets. The
theatrical exhibition business has become increasingly global and box
office receipts from international markets exceed those of the U.S.
market. In addition, the production and distribution of feature films and
demand for American motion pictures is increasing in many countries. The
Company believes that its experience in developing and operating
megaplexes provides it with a significant advantage in developing
megaplexes in international markets, and the Company intends to utilize
this experience, as well as its existing relationships with domestic
motion picture studios, to enter select international markets. The
Company's strategy in these markets is to operate leased theatres.
Presently, the Company's activities in international markets are directed
toward Japan, Portugal, Spain, China (Hong Kong) and Canada, which the
Company believes are under screened.
The costs of constructing new theatres are funded by the Company
through internally generated cash flow or borrowed funds. The Company
generally leases its theatres pursuant to long-term non-cancelable
operating leases which require the developer, who owns the property, to
reimburse the Company for a portion of the construction costs. However,
the Company may decide to own the real estate assets of new theatres and,
following construction, sell and leaseback the real estate assets pursuant
to long-term non-cancelable operating leases. Historically, the Company
has owned and paid for the equipment necessary to fixture a theatre;
however, it is considering other methods of providing for its equipment
needs, including operating leases. Recently, the Company engaged in a sale
and leaseback transaction with Entertainment Properties Trust ("EPT"), a
real estate investment trust, through which the Company has sold to and
leased back from EPT 13 megaplexes, and granted an option to purchase and
lease back one additional megaplex scheduled to open by September 1998.
The Company also has granted EPT, for a period of five years subsequent to
November 1997, a right of first refusal and first offer to purchase and
lease back to the Company any other megaplex theatre owned or ground
leased by the Company or its subsidiaries, exercisable upon the Company's
intended disposition of such property.
The Company intends to consider partnerships or joint ventures, where
appropriate, to share risk and leverage resources. Such ventures may
include interests in projects that include restaurant, retail and other
concepts. The Company has formed a joint venture with Planet Hollywood
that will develop, own and operate megaplexes under the brand name Planet
Movies by AMCO. Each megaplex facility will feature an entertainment
center that will include restaurants, as well as refreshment and
merchandise kiosks. The first Planet Movies by AMCO megaplex is projected
to open in the first half of calendar year 1999 near Columbus, Ohio and
will consist of a 30 screen megaplex theatre, a Planet Hollywoodr
restaurant and Official All Star Cafer, each with its own integrated
merchandise store, and various refreshment kiosks. Although the Company
anticipates that the joint venture will develop and operate additional
units, no minimum number of units has been agreed upon and the development
of additional sites will require the approval of both parties to the joint
venture.
Through AMC Realty, Inc., the Company plans to enhance the operating
performance of its megaplexes by facilitating the addition of
complementary entertainment properties adjacent to such megaplexes. AMC
Realty, Inc.'s subsidiary, Centertainment, Inc., presently is involved in
the pre-development of several retail/entertainment projects, including a
project in downtown Kansas City, Missouri known as the "Power and Light
District."
The Company continually monitors the performance of its theatres and
has improved the profitability of certain of its older theatres by
converting them to "dollar houses" which display second-run movies and
charge lower admission prices (ranging from $1.00 to $1.75). It operated 7
such theatres with 40 screens as of April 2, 1998 (1.6% of the Company's
total screens). Other strategies for underperforming theatres include
selling them to discount operators and closing them. Divestiture
strategies for theatres with longer leases include selling them to other
exhibitors, closing them or converting such theatres to other uses and
subleasing them.
Theatre Circuit
The following table sets forth information concerning additions and
dispositions of theatres and screens during, and the number of theatres
and screens operated as of the end of, the last five fiscal years. The
Company adds and disposes of theatres based on industry conditions and its
business strategy.
<TABLE>
<CAPTION>
Changes in Theatres Operated
Additions Dispositions Total Theatres
Operated
Fiscal Year Ended Number of Number of Number of Number of Number of Number of
Theatres Screens Theatres Screens Theatres Screens
--------- -------- --------- -------- -------- -----
- -----
<S> <C> <C> <C> <C> <C> <C>
March 31, 1994 2 15 9 29 236 1,603
March 30, 1995 3 53 7 26 232 1,630
March 28, 1996 7 150 13 61 226 1,719
April 3, 1997 17 314 15 76 228 1,957
April 2, 1998 24 608 23 123 229 2,442
----- ------ ----- ------
Total 53 1,140 67 315
==== ====== ===== =====
</TABLE>
As of April 2, 1998, the Company operated 44 megaplex theatres having
an aggregate of 987 screens, representing 40.4% of its screens. The
following table provides greater detail with respect to the Company's
theatre circuit as of such date.
<TABLE>
<CAPTION>
Total Total Theatres
Domestic Screens Theatres Multiplex Megaplex
- ------------- ------ -------- -------- ---------
<S> <C> <C> <C> <C>
California 425 36 28 8
Florida 398 39 34 5
Texas 370 27 19 8
Missouri 151 14 11 3
Arizona 146 14 10 4
Georgia 116 9 6 3
Michigan 106 17 17 -
Pennsylvania 103 14 14 -
Colorado 102 9 6 3
Ohio 62 5 4 1
Illinois 60 2 - 2
Virginia 58 7 7 -
Kansas 56 3 1 2
New Jersey 46 7 7 -
Maryland 42 5 5 -
Oklahoma 42 4 3 1
Nebraska 24 1 - 1
North Carolina 22 1 - 1
Louisiana 20 3 3 -
Washington 20 3 3 -
New York 16 2 2 -
Massachusetts 10 2 2 -
District Of Columbia 9 1 1 -
Delaware 5 2 2 -
-------- ------ ------ ------
Total Domestic 2,409 227 185 42
-------- ------ ------ ------
International
Portugal 20 1 - 1
Japan 13 1 - 1
-------- ------ ------ ------
Total International 33 2 - 2
-------- ------ ------ ------
Total Theatre Circuit 2,442 229 185 44
======= ====== ===== =====
</TABLE>
Film Licensing
The Company predominantly licenses "first-run" motion pictures from
distributors owned by major film production companies and from independent
distributors that generally distribute films for smaller production
companies. Films are licensed on a film-by-film and theatre-by-theatre
basis. The Company obtains these licenses either by negotiations directly
with, or by submitting bids to, distributors. Negotiations with
distributors are based on several factors, including theatre location,
competition, season of the year and motion picture content. Rental fees
are paid by the Company under a negotiated license and are made on either
a "firm terms" basis, where final terms are negotiated at the time of
licensing, or are adjusted subsequent to the exhibition of a motion
picture in a process known as "settlement." Firm term fee arrangements
generally are more favorable to the distributor than settlement fee
arrangements with respect to the percentage of admissions revenue
ultimately paid to license a motion picture. When motion pictures are
licensed through a bidding process, the distributor decides whether to
accept bids on a previewed basis or a non-previewed ("blind-bid") basis,
subject to certain state law requirements. In most cases, the Company
licenses its motion pictures on a previewed basis. When a film is bid on a
previewed basis, exhibitors are permitted to review the film before
bidding, whereas they are not permitted to do so when films are licensed
on a non-previewed or "blind-bid" basis. In the past few years, bidding
has been used less frequently by the industry. Presently, the Company
licenses substantially all of its films on a negotiated basis.
Film distributors typically establish geographic film licensing zones
and allocate available film to one theatre within that zone. Film zones
generally encompass a radius of three to five miles in metropolitan and
suburban markets, depending primarily upon population density. In film
zones where the Company is the sole exhibitor, the Company obtains film
licenses by selecting a film from among those offered and negotiating
directly with the distributor. In film zones where there is competition, a
distributor will either require the exhibitors in the zone to bid for a
film or will allocate its films among the exhibitors in the zone. When
films are allocated, a distributor will choose which exhibitor is offered
a film and then that exhibitor will negotiate film rental terms directly
with the distributor for the film. Allocation of films among exhibitors
may differ from film to film.
Licenses entered into through both negotiated and bid processes
typically state that rental fees shall be based on the higher of a gross
receipts formula or a theatre admissions revenue sharing formula. Under a
gross receipts formula, the distributor receives a specified percentage of
box office receipts, with the percentages declining over the term of the
run. First-run motion picture rental fees are generally the greater of
(i) 70% of box office admissions, gradually declining to as low as 30%
over a period of four to seven weeks, and (ii) a specified percentage
(i.e., 90%) of the excess of box office receipts over a negotiated
allowance for theatre expenses (commonly known as a "90/10" clause).
Second-run motion picture rental fees typically begin at 35% of box office
admissions and often decline to 30% after the first week. The Company may
pay non-refundable guarantees of film rentals or make advance payments of
film rentals, or both, in order to obtain a license in a negotiated or bid
process, subject, in some cases, to a per capita minimum license fee.
The Company licenses films through film buyers who enable the Company
to capitalize on local trends and to take into account actions of local
competitors in the Company's negotiation and bidding strategies. Criteria
considered in licensing each motion picture include cast, director, plot,
performance of similar motion pictures, estimated motion picture rental
costs and expected rating by the Motion Pictures Association of America
(the "MPAA"). Successful licensing depends greatly upon knowledge of the
tastes of the residents in markets served by each theatre and insight into
the trends in those tastes, as well as the availability of commercially
popular motion pictures. The Company at no time licenses any one motion
picture for all of its theatres.
The Company's business is dependent upon the availability of
marketable motion pictures. There are several distributors which provide a
substantial portion of quality first-run motion pictures to the exhibition
industry. These include Buena Vista Pictures (Disney), Warner Bros.
Distribution, SONY Pictures Releasing (Columbia Pictures and Tri-Star
Pictures), Twentieth Century Fox, Universal Film Exchanges, Inc. and
Paramount Pictures. There are numerous other distributors and no single
distributor dominates the market. From year to year, the Company's
revenues attributable to individual distributors may vary significantly
depending upon the commercial success of each distributor's motion
pictures in any given year. In fiscal 1998, no single distributor
accounted for more than 13% of the motion pictures licensed by the Company
or for more than 21% of the Company's box office admissions. Poor
relationships with distributors, poor performance of motion pictures or
disruption in the production of motion pictures by the major studios
and/or independent producers may have an adverse effect upon the business
of the Company. Some of the major distributors have announced their
intention to reduce production of films.
During the period from January 1, 1990 to December 31, 1997, the
annual number of first-run motion pictures released by distributors in the
United States ranged from a low of 370 in 1995 to a high of 458 in 1997,
according to the MPAA. If a motion picture still has substantial potential
following its first-run, the Company may license it for a "sub-run."
Although average daily sub-run attendance is often less than average daily
first-run attendance, sub-run film rentals are also generally lower than
first-run film rentals. Sub-runs enable the Company to exhibit a variety
of motion pictures during periods in which there are few new film
releases.
Concessions
Concessions sales are the second largest source of revenue for the
Company after box office admissions. Concessions items include popcorn,
soft drinks, candy and other products. The Company's strategy emphasizes
prominent and appealing concessions counters designed for rapid service
and efficiency.
The Company's primary concessions products are various sizes of
popcorn, soft drinks, candy and hot dogs, all of which the Company sells
at each of its theatres. However, different varieties of candy and soft
drinks are offered at theatres based on preferences in that particular
geographic region. The Company has also implemented "combo-meals" for
children which offer a pre-selected assortment of concessions products.
Newer megaplex theatres are designed to have more concessions service
capacity per seat than multiplex theatres and typically have three
concessions stands, with each stand having multiple service stations to
make it easier to serve larger numbers of customers. In addition, the
primary concessions stand in such theatres generally features the
"pass-through" concept, which provides a staging area behind the
concessions equipment to prepare concessions products. This permits the
concessionist serving patrons to simply sell concessions items instead of
also preparing them, thus providing more rapid service to customers.
Strategic placement of large concessions stands within theatres heightens
their visibility, aids in reducing the length of concessions lines and
improves traffic flow around the concessions stands.
The Company negotiates prices for its concessions supplies directly
with concessions vendors on a national or regional basis to obtain high
volume discounts or bulk rates.
Theatrical Exhibition Industry Overview
Motion picture theatres are the primary initial distribution channel
for new motion picture releases and the Company believes that the
theatrical success of a motion picture is often the most important factor
in establishing its value in the cable television, videocassette and other
ancillary markets. The Company further believes that the emergence of new
motion picture distribution channels has not adversely affected attendance
at theatres and that these distribution channels do not provide an
experience comparable to that of viewing a movie in a theatre. The Company
believes that the public will continue to recognize the advantages of
viewing a movie on a large screen with superior audio and visual quality,
while enjoying a variety of concessions and sharing the experience with a
larger audience.
Annual domestic theatre attendance has averaged approximately one
billion persons since the early 1960s. In 1997, estimated domestic
attendance was 1.4 billion. Fluctuations and variances in year-to-year
attendance are primarily related to the overall popularity and supply of
motion pictures.
The theatrical exhibition industry in North America is comprised of
over 400 exhibitors, approximately 250 of which operate four or more
screens. Based on the May 1, 1997 listing of exhibitors in the NATO
1997-98 Encyclopedia of Exhibition, the ten largest exhibitors (in terms
of number of screens) are believed to operate approximately 60% of the
total screens, with no one exhibitor operating more than 11% of the total
screens.
The following table represents the results of a survey by NATO for
1992 through 1996, outlining the historical trends in U.S. theatre
attendance, average ticket prices and box office sales, and information
obtained from the MPAA on attendance and box office revenues for 1997.
<TABLE>
<CAPTION>
U.S. Box
Attendance Average Office Sales
Year (in millions) Ticket Price (in millions)
----- ------------- ------------ ---------------
<S> <C> <C> <C>
1992 1,173 $4.15 $4,871
1993 1,244 $4.14 $5,154
1994 1,292 $4.18 $5,396
1995 1,263 $4.35 $5,493
1996 1,339 $4.41 $5,911
1997 1,388 $4.59 $6,366
</TABLE>
Competition
The Company competes against both local and national exhibitors, some
of which may have substantially greater financial resources than the
Company. There are over 400 companies competing in the domestic theatrical
exhibition industry. Industry participants vary substantially in size,
from small independent operators to large international chains. Recently,
four of the industry's largest companies have announced proposed mergers.
The Company has not determined how these mergers will affect competition.
The Company's theatres are subject to varying degrees of competition
in the geographic areas in which they operate. Competition is often
intense with respect to licensing motion pictures, attracting patrons and
finding new theatre sites. Theatres operated by national and regional
circuits and by smaller independent exhibitors compete aggressively with
the Company's theatres. The competition for patrons is dependent upon
factors such as the availability of popular motion pictures, the location
and number of theatres and screens in a market, the comfort and quality of
the theatres and pricing.
The Company believes that the principal competitive factors with
respect to film licensing include licensing terms, seating capacity and
location and condition of an exhibitor's theatres. The Company expects
that in the long term the addition of new megaplexes will help it obtain
more favorable allocation of film product and other licensing terms from
distributors than its competitors. However, the earnings of new megaplexes
initially may be negatively impacted because of competition from existing
theatres that have established relationships with distributors. (See
"Film Licensing.") As with other exhibitors, the Company's smaller
multiplexes are subject to deteriorating financial performance and to
being rendered obsolete through the introduction of new, competing
megaplexes by the Company and other exhibitors.
The theatrical exhibition industry also faces competition from other
distribution channels for filmed entertainment, such as cable television,
pay per view and home video systems, as well as from all other forms of
entertainment.
Regulatory Environment
The distribution of motion pictures is in large part regulated by
federal and state antitrust laws and has been the subject of numerous
antitrust cases. The consent decrees resulting from one of those cases, to
which the Company was not a party, have a material impact on the industry
and the Company. Those consent decrees bind certain major motion picture
distributors and require the motion pictures of such distributors to be
offered and licensed to exhibitors, including the Company, on a
film-by-film and theatre-by-theatre basis. Consequently, the Company
cannot assure itself of a supply of motion pictures by entering into
long-term arrangements with major distributors, but must compete for its
licenses on a film-by-film and theatre-by-theatre basis.
Bids for new motion picture releases are made, at the discretion of
the distributor (subject to state law requirements), either on a previewed
basis or blind-bid basis. Certain states have enacted laws regulating the
practice of blind-bidding. Management believes that it may be able to make
better business decisions with respect to film licensing if it is able to
preview motion pictures prior to bidding for them, and accordingly
believes that it may be less able to capitalize on its expertise in those
states which do not regulate blind-bidding.
The Company must comply with Title III of the Americans with
Disabilities Act of 1990 (the "ADA") to the extent that its properties are
"public accommodations" and/or "commercial facilities" as defined by the
ADA. Compliance with the ADA requires that public accommodations
"reasonably accommodate" individuals with disabilities and that new
construction or alterations made to "commercial facilities" conform to
accessibility guidelines unless "structurally impracticable" for new
construction or technically infeasible for alterations. Noncompliance with
the ADA could result in the imposition of injunctive relief, fines, an
award of damages to private litigants or additional capital expenditures
to remedy such noncompliance. (See Item 3. "Legal Proceedings.") The
Company believes that its theatres substantially comply with all present
requirements under the ADA and applicable state laws.
As the Company expands internationally, it becomes subject to
regulation by foreign governments. There are significant differences
between the theatrical exhibition industry regulatory environment in the
United States and in international markets. Regulatory barriers affecting
such matters as the size of theatres, the issuance of licenses and the
ownership of land may restrict market entry. Vertical integration of
production and exhibition companies in international markets may also have
an adverse effect on the Company's ability to license motion pictures for
international exhibition. The Company's international operations also face
the additional risks of fluctuating currency values. The Company does not
hedge against currency risks. Quota systems used by some countries to
protect their domestic film industry may adversely affect revenues from
theatres that the Company develops in such markets. Such differences in
industry structure and regulatory and trade practices may adversely affect
the Company's ability to expand internationally or to operate at a profit
following such expansion.
Seasonality
As with other exhibitors, the Company's business is seasonal in
nature, with the highest attendance and revenues generally occurring
during the summer months and holiday seasons. As a result, the Company
sometimes incurs net losses in the first and, less frequently, the fourth
fiscal quarters. See Statements of Operations by Quarter (Unaudited) on
page 42.
Employees
As of April 2, 1998, the Company had approximately 1,700 full-time
and 11,000 part-time employees. Approximately 19% of the part-time
employees were minors paid the minimum wage.
Fewer than one percent of the Company's employees, consisting
primarily of motion picture projectionists, are represented by a union,
the International Alliance of Theatrical Stagehand Employees and Motion
Picture Machine Operators. The Company believes that its relationship with
this union is satisfactory.
As an employer covered by the ADA, the Company must make reasonable
accommodations to the limitations of employees and qualified applicants
with disabilities, provided that such reasonable accommodations do not
pose an undue hardship on the operation of the Company's business. In
addition, many of the Company's employees are covered by various
government employment regulations, including minimum wage, overtime and
working conditions regulations.
Item 2. Properties.
Of the Company's 229 theatres and 2,442 screens operated as of
April 2, 1998, American Multi-Cinema, Inc. was the owner or lessee of 224
theatres with 2,394 screens, and AMC Entertainment International, Inc.
leased one theatre with 13 screens and its subsidiary, Actividades
Multi-Cinemas E Espectaculos, LDA, leased one theatre with 20 screens.
American Multi-Cinema, Inc. also operated three theatres with 15 screens
owned by a third party.
Of the 229 theatres operated by the Company as of April 2, 1998, 8
theatres with 62 screens were owned, 11 theatres with 101 screens were
leased pursuant to ground leases, 207 theatres with 2,264 screens were
leased pursuant to building leases and three theatres with 15 screens were
managed. The Company's leases generally have terms ranging from 13 to 25
years, with options to extend the lease for up to 20 additional years. The
leases typically require escalating minimum annual rent payments and
additional rent payments based on a percentage of the leased theatre's
revenue above a base amount and require the Company to pay for property
taxes, maintenance, insurance and certain other property-related expenses.
In some cases, the Company's rights as tenant are subject and
subordinate to the mortgage loans of lenders to its lessors, so that if a
mortgage were to be foreclosed, the Company could lose its lease.
Historically, this has never occurred.
The majority of the concessions, projection, seating and other
equipment required for each of the Company's theatres is owned.
The Company leases its corporate headquarters, located in Kansas
City, Missouri. Division and film licensing offices are leased in Los
Angeles, California; Clearwater, Florida; Voorhees, New Jersey
(Philadelphia); and Woodland Hills, California.
Item 3. Legal Proceedings.
From time to time the Company is party to legal proceedings in the
ordinary course of business, none of which is expected to have a material
adverse effect on the Company.
On June 9, 1998, the Civil Rights Division of the Department of
Justice advised the Company that a lawsuit has been authorized against the
Company to remedy an alleged pattern or practice of violations of Title
III of the ADA at the Company's newly constructed and renovated theatres
having stadium-style seating. The threat of litigation followed an
investigation of private complaints initially involving two megaplexes,
during which the Company voluntarily provided the Department of Justice
with information on and access to other theatres. Based on its
investigation, the Department of Justice alleges that the Company has
violated section 303 of the ADA at newly constructed and renovated
theatres by failing to comply with published "Standards for Accessible
Design" involving lines of sight and other matters, and is operating
theatres in violation of section 302 of the ADA because persons whose
disabilities prevent them from climbing stairs are denied access to
stadium-style seating.
On March 5, 1998, in an unrelated action filed in the United States
District Court for the District of Arizona, Howard Bell v. AMC 24 Theatre,
CIV 98 0390, a private plaintiff alleges that the Company has violated the
ADA for not dispersing accessible seating or providing accessible signage
at a megaplex theatre located in Phoenix, Arizona. The plaintiff seeks an
injunction against continued operation of the theatre in violation of the
ADA.
Item 4. Submission Of Matters to a Vote of Security Holders.
There has been no submission of matters to a vote of security holders
during the thirteen weeks ended April 2, 1998.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
AMC Entertainment Inc. Common Stock is traded on the American and
Pacific Stock Exchanges under the symbol AEN. There is no established
public trading market for Class B Stock.
The table below sets forth, for the periods indicated, the high and
low closing prices of the Common Stock as reported on the American Stock
Exchange composite tape.
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
High Low High Low
First Quarter $23 3/8 $17 7/8 $33 7/8 $23 1/8
Second Quarter 20 3/4 17 5/8 27 7/8 15 7/8
Third Quarter 23 18 3/4 19 1/2 13 3/4
Fourth Quarter 27 3/4 21 3/4 20 1/4 13 7/8
</TABLE>
Stock Ownership
On May 15, 1998, there were 480 shareholders of record of Common
Stock and one shareholder of record (the 1992 Durwood, Inc. Voting Trust
dated December 12, 1992) of Class B Stock.
The Company's Certificate of Incorporation provides that holders of
Common Stock and Class B Stock shall receive, pro rata per share, such
cash dividends as may be declared from time to time by the Board of
Directors. Certain provisions of the Indenture respecting the Company's 9
1/2% Senior Subordinated Notes due 2009 and the Company's $425 million
revolving credit facility (the "Credit Facility") restrict the Company's
ability to declare or pay dividends on and purchase capital stock.
Presently, it is not anticipated that the most restrictive of these
provisions, which are set forth in the Credit Facility, will affect the
Company's ability to pay dividends in the foreseeable future should it
choose to do so. Except for a $1.14 per share dividend declared in
connection with a recapitalization that occurred in August 1992, the
Company has not declared a dividend on shares of Common Stock or Class B
Stock since fiscal 1989. Any payment of cash dividends on Common Stock in
the future will be at the discretion of the Board and will depend upon
such factors as earnings levels, capital requirements, the Company's
financial condition and other factors deemed relevant by the Board.
Currently, the Company does not contemplate declaring or paying any
dividends on its Common Stock.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data.
Years Ended
(In thousands, except per April 2, April 3, March 28, March 30, March 31,
share and operating data) 1998(1)(4) 1997(1)(4) 1996(1)(4) 1995(1)(4) 1994(1)(4)
-------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Total revenues $846,795 $749,597 $655,972 $563,344 $586,300
Total cost of operations 685,540 580,002 491,358 432,763 446,957
General and administrative 54,354 56,647 52,059 41,639 40,559
Depreciation and amortization 70,117 52,572 42,087 37,913 38,048
Impairment of long-lived assets 46,998 7,231 1,799 - -
-------- ------- ------- ------- --------
Operating income (loss) (10,214) 53,145 68,669 51,029 60,736
Interest expense 35,679 22,022 28,828 35,908 36,375
Investment income 1,090 856 7,052 10,013 1,156
Minority interest - - - - 1,599
Gain (loss) on disposition of assets 3,704 (84) (222) (156) 296
-------- ------- ------- ------- --------
Earnings (loss) before income taxes
and extraordinary item (41,099) 31,895 46,671 24,978 27,412
Income tax provision (16,600) 12,900 19,300 (9,000) 12,100
-------- ------- ------- ------- --------
Earnings (loss) before
extraordinary item (24,499) 18,995 27,371 33,978 15,312
Extraordinary item - - (19,350) - -
-------- ------- ------- ------- --------
Net earnings (loss) $(24,499) $ 18,995 $ 8,021 $ 33,978 $ 15,312
======== ======== ======== ======== ========
Preferred dividends 4,846 5,907 7,000 7,000 538
-------- ------- ------- ------- --------
Net earnings (loss) for common shares $(29,345) $ 13,088 $ 1,021 $ 26,978 $ 14,774
======== ======== ======== ======== ========
Earnings (loss) per share before
extraordinary item:
Basic $(1.59) $ .75 $ 1.23 $ 1.64 $ .90
Diluted (1.59) .74 1.15 1.45 .89
Earnings (loss) per share:
Basic $(1.59) $ .75 $ .06(2) $ 1.64 $ .90
Diluted (1.59) .74 .34 1.45 .89
Weighted average number of
shares outstanding:
Basic 18,477 17,489 16,513 16,456 16,365
Diluted 18,477 17,784 23,741 23,489 16,521
Balance Sheet Data (at period end)
Cash, equivalents and investments $ 9,881 $ 24,715 $ 10,795 $140,377 $ 151,469
Total assets 795,780 719,055 483,458 522,154 501,276
Total debt (including capital
lease obligations) 403,612 373,724 188,172 267,504 268,188
Stockholders' equity 139,455 170,012 158,918 157,388 130,404
Other Financial Data
EBITDA (as adjusted)(3) $106,901 $112,948 $112,555 $ 88,942 $ 98,784
Capital expenditures 389,217 253,380 120,796 56,403 10,651
Proceeds from sale/leasebacks 283,800 - - - -
Operating Data (at period end)
Number of megaplexes operated 44 19 5 - -
Number of megaplex screens operated 987 379 98 - -
Number of multiplexes operated 185 209 221 232 236
Number of multiplex screens operated 1,455 1,578 1,621 1,630 1,603
Screens per theatre circuit wide 10.7 8.6 7.6 7.0 6.8
</TABLE>
(1) Fiscal 1997 consists of 53 weeks. All other fiscal years have 52
weeks.
(2) Fiscal 1996 includes a $19,350 extraordinary loss equal to $1.17 per
common share.
(3) Represents net earnings (loss) plus interest, income taxes,
depreciation and amortization and adjusted for impairment losses, gain
(loss) on disposition of assets, equity in earnings of unconsolidated
affiliates and extraordinary item. Management of the Company has included
EBITDA because it believes that EBITDA provides lenders and stockholders
additional information for estimating the Company's value and evaluating
its ability to service debt. Management of the Company believes that
EBITDA is a financial measure commonly used in the Company's industry and
should not be construed as an alternative to operating income (as
determined in accordance with GAAP). EBITDA as determined by the Company
may not be comparable to EBITDA as reported by other companies. In
addition, EBITDA is not intended to represent cash flow (as determined in
accordance with GAAP) and does not represent the measure of cash available
for discretionary uses.
(4) There were no cash dividends declared on Common Stock during the last
five fiscal years.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This report contains certain "forward-looking statements" intended to
qualify for the safe harbor from liability established by the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements generally can be identified by use of statements that include
words or phrases such as the Company or its management "believes,"
"expects," "anticipates," "intends", "plans," "foresees" or other words or
phrases of similar import. Similarly, statements that describe the
Company's objectives, plans or goals also are forward-looking statements.
All such forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
those contemplated by the relevant forward-looking statement. Important
factors that could cause actual results to differ materially from the
expectations of the Company include, among others: (i) the Company's
ability to enter into various financing programs; (ii) the performance of
films licensed by the Company; (iii) competition; (iv) construction
delays; (v) the ability to open new theatres and screens as currently
planned; (vi) general economic conditions, including adverse changes in
inflation and prevailing interest rates; (vii) demographic changes; (viii)
increases in the demand for real estate; and (ix) changes in real estate,
zoning and tax laws. Readers are urged to consider these factors
carefully in evaluating the forward-looking statements. The Company
undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
OPERATING RESULTS
YEARS (52/53 WEEKS) ENDED APRIL 2, 1998 AND APRIL 3, 1997
<TABLE>
<CAPTION>
52 Weeks Ended 53 Weeks Ended
April 2, April 3,
(Dollars in thousands) 1998 1997 % Change
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Domestic
Admissions $530,653 $479,629 10.6%
Concessions 251,025 222,945 12.6
Other 16,052 15,763 1.8
----------------------------------
797,730 718,337 11.1
International
Admissions 22,918 13,322 72.0
Concessions 4,992 2,222 *
Other 59 49 20.4
----------------------------------
27,969 15,593 79.4
On-screen advertising and other 21,096 15,667 34.7
----------------------------------
Total revenues $846,795 $749,597 13.0%
==================================
Cost of Operations
Domestic
Film exhibition costs $287,516 $251,090 14.5%
Concession costs 40,109 36,045 11.3
Rent 100,928 75,116 34.4
Other 215,656 186,945 15.4
----------------------------------
644,209 549,196 17.3
International
Film exhibition costs 12,410 7,719 60.8
Concession costs 1,953 703 *
Rent 5,791 4,945 17.1
Other 5,844 5,377 8.7
----------------------------------
25,998 18,744 38.7
On-screen advertising and other 15,333 12,062 27.1
---------------------------------
Total cost of operations $685,540 $580,002 18.2%
==================================
* Percentage change in excess of 100%.
52 Weeks Ended53 Weeks Ended
April 2, April 3,
(Dollars in thousands) 1998 1997 % Change
- --------------------------------------------------------------------------
General and Administrative
Corporate and domestic $ 42,636 $ 45,558 (6.4)%
International 6,879 6,864 .2
On-screen advertising and other 4,839 4,225 14.5
----------------------------------
Total general and administrative $ 54,354 $ 56,647 (4.0)%
==================================
Depreciation and Amortization
Corporate and domestic $ 65,168 $ 49,392 31.9%
International 2,534 1,436 76.5
On-screen advertising and other 2,415 1,744 38.5
----------------------------------
Total depreciation and
amortization $ 70,117 $ 52,572 33.4%
==================================
* Percentage change in excess of 100%.
</TABLE>
Revenues. Total revenues increased 13.0%, or $97,198,000, during the
year (52 weeks) ended April 2, 1998 compared to the year (53 weeks) ended
April 3, 1997.
Total domestic revenues increased 11.1%, or $79,393,000, from the
prior year. Admissions revenues increased 10.6%, or $51,024,000, due to a
5.4% increase in attendance, which contributed $25,960,000 of the
increase, and a 5.0% increase in average ticket prices, which contributed
$25,064,000 of the increase. Attendance at megaplexes (theatres with
predominantly stadium-style seating) increased as a result of the addition
of 23 new megaplexes with 564 screens since April 3, 1997, offset by a
4.7% decrease in attendance at comparable megaplexes (theatres opened
before fiscal 1997). Attendance at multiplexes (theatres generally without
stadium-style seating) decreased due to a 11.9% decrease in attendance at
comparable multiplexes and the closure or sale of 23 multiplexes with 123
screens since fiscal 1997. The decline in attendance at comparable
multiplexes was related primarily to certain multiplexes experiencing
competition from new megaplexes operated by the Company and other
competing theatre circuits, a trend the Company generally anticipates will
continue. The increase in average ticket prices was due to price increases
and the growing number of megaplexes in the Company's theatre circuit,
which yield higher average ticket prices than multiplexes. Concessions
revenues increased 12.6%, or $28,080,000, due to a 6.8% increase in
average concessions per patron, which contributed $16,013,000 of the
increase, and the increase in total attendance, which contributed
$12,067,000 of the increase. The increase in average concessions per
patron was attributable to the increasing number of megaplexes in the
Company's theatre circuit, where concession spending per patron is higher
than in multiplexes.
Total international revenues increased 79.4%, or $12,376,000, from
the prior year. Admissions revenues increased 72.0%, or $9,596,000, due
to an increase in attendance, offset by a decrease in average ticket
prices. Attendance increased as a result of the opening of the Arrabida
20 in Portugal during December of fiscal 1997 and improved attendance at
the Canal City 13 in Japan. Concessions revenues increased $2,770,000 due
to the increase in total attendance, offset by a decrease in average
concessions per patron. The decrease in average ticket prices and
concessions per patron was due to the lower ticket and concessions prices
at the theatre in Portugal compared to the theatre in Japan.
International revenues were also impacted by the strengthening of the U.S.
dollar relative to the Japanese yen.
On-screen advertising and other revenues increased 34.7%, or
$5,429,000, from the prior year due to an increase in the number of
screens served, a result of an expansion program, and a change in the
number of periods included in the results of operations from the Company's
on-screen advertising business.
Cost of Operations. Total cost of operations increased 18.2%, or
$105,538,000, during the year (52 weeks) ended April 2, 1998 compared to
the year (53 weeks) ended April 3, 1997.
Total domestic cost of operations increased 17.3%, or $95,013,000,
from the prior year. Film exhibition costs increased 14.5%, or
$36,426,000, due to higher attendance, which contributed $26,712,000 of
the increase, and an increase in the percentage of admissions paid to film
distributors, which contributed $9,714,000 of the increase. As a
percentage of admissions revenues, film exhibition costs was 54.2% in the
current year compared with 52.4% in the prior year. This increase
occurred because more popular films released during fiscal 1998 were
licensed from distributors that generally have higher film rental terms
and because of the concentration of attendance in the early weeks of
several films released during the year, which typically results in higher
film exhibition costs. The 11.3%, or $4,064,000, increase in concession
costs was attributable to the increase in concessions revenues. As a
percentage of concessions revenues, concession costs was 16.0% in the
current year compared with 16.2% in the prior year. Rent expense
increased 34.4%, or $25,812,000, due to the higher number of screens in
operation, the growing number of megaplexes in the Company's theatre
circuit, which generally have higher rent per screen than multiplexes, and
the sale and lease back during the year of the real estate assets
associated with 13 megaplexes, including seven theatres opened during
fiscal 1998, to EPT, a real estate investment trust (the "Sale and Lease
Back Transaction"). Other cost of operations increased 15.4%, or
$28,711,000, from the prior year due to the higher number of screens in
operation and higher expenses associated with the Company's theatre
management development program.
Total international cost of operations increased 38.7%, or
$7,254,000, from the prior year. Film exhibition costs increased 60.8%,
or $4,691,000, due to higher attendance, offset by a decrease in the
percentage of admissions paid to film distributors. The $1,250,000
increase in concession costs was primarily attributable to the increase in
concessions revenues. Rent expense increased 17.1%, or $846,000, and
other cost of operations increased 8.7%, or $467,000, from the prior year
due primarily to the full year of operations of the Arrabida 20, which
opened in December of fiscal 1997. International expenses were also
impacted by the strengthening of the U.S. dollar relative to the Japanese
yen.
On-screen advertising and other cost of operations increased 27.1%,
or $3,271,000, as a result of the higher number of screens served and a
change in the number of periods included in the results of operations of
the Company's on-screen advertising business.
General and Administrative. General and administrative expenses
decreased 4.0%, or $2,293,000, during the year (52 weeks) ended April 2,
1998.
Corporate and domestic general and administrative expenses decreased
6.4%, or $2,922,000, due primarily to decreases in costs associated with
the Company's development of theatres and the reversal of $1,358,000 of
compensation expense recognized in prior years for performance stock
awards which were not earned at the end of the three-year performance
period ended April 2, 1998. These decreases were partially offset by
increases in payroll and related costs and professional and consulting
expenses.
International general and administrative expenses increased .2%, or
$15,000, and on-screen advertising and other general and administrative
expenses increased 14.5%, or $614,000. The increase in on-screen
advertising and other resulted from an increase in costs to support the
expansion program at the Company's on-screen advertising business.
Depreciation and Amortization. Depreciation and amortization
increased 33.4%, or $17,545,000, during the year (52 weeks) ended April 2,
1998. This increase was caused by an increase in employed theatre assets
resulting from the Company's expansion plan, which was partially offset by
lower depreciation and amortization as a result of the reduced carrying
amounts of impaired multiplex assets. The reduced carrying amount of the
impaired assets from fiscal 1998 will result in reduced depreciation and
amortization in future periods. For fiscal 1998, depreciation and
amortization was reduced by approximately $10,500,000.
Impairment of Long-lived Assets. During the second quarter of the
current year, the Company recognized a non-cash impairment loss of
$46,998,000 ($27,728,000 after tax, or $1.50 per share) on 59 multiplexes
with 412 screens in 14 states (primarily California, Texas, Missouri,
Arizona and Florida) including a loss of $523,000 associated with 10
theatres that were included in impairment losses recognized in previous
periods. The estimated future cash flows of these theatres, undiscounted
and without interest charges, were less than the carrying value of the
theatre assets.
The summer of 1997 was the first summer film season, generally the
highest grossing period for the film industry, that a significant number
of megaplexes of the Company and its competitors were operating (the first
megaplex, Grand 24, was opened by the Company in May 1995). During this
period, the financial results of certain multiplexes of the Company were
significantly less than anticipated at the beginning of fiscal 1998 due
primarily to competition from the newer megaplexes. The Company is
evaluating its future plans for many of its multiplexes, which may include
selling theatres, subleasing properties to other exhibitors or for other
uses, retrofitting certain theatres to the standards of a megaplex or
closing theatres and terminating the leases. Any or all of these options
could result in a significant impact to results of operations and
financial position. During fiscal 1998, the Company closed or sold 23
multiplexes with 123 screens.
During the year (53 weeks) ended April 3, 1997, the Company
recognized a non-cash impairment loss of $7,231,000 ($4,266,000 after tax,
or $.24 per share) on 18 multiplexes with 82 screens in nine states
(primarily Michigan, Pennsylvania, California, Florida and Virginia).
Interest Expense. Interest expense increased 62.0%, or $13,657,000,
during the year (52 weeks) ended April 2, 1998 compared to the prior year.
The increase in interest expense resulted primarily from an increase in
average outstanding borrowings related to the Company's expansion plan and
higher average interest rates as a result of the issuance of $200,000,000
of 9 1/2% Senior Subordinated Notes on March 19, 1997.
Gain on Disposition of Assets. Gain on disposition of assets
increased $3,788,000 during the year (52 weeks) ended April 2, 1998
primarily from the sale of three of the Company's multiplexes during the
current year.
Income Tax Provision. The provision for income taxes decreased
$29,500,000 to a benefit of $16,600,000 during the current year from an
expense of $12,900,000 in the prior year. The effective tax rate was
40.4% for the current and the prior year.
Net Earnings. Net earnings
decreased $43,494,000 during the year (52 weeks) ended April 2, 1998 to a
loss of $24,499,000 from earnings of $18,995,000 in the prior year. Net
loss per common share, after deducting preferred dividends, was $1.59
compared to earnings of $.75 in the prior year.
<TABLE>
<CAPTION>
YEARS (53/52 WEEKS) ENDED APRIL 3, 1997 AND MARCH 28, 1996
53 Weeks Ended 52 Weeks Ended
April 3, March 28,
(Dollars in thousands) 1997 1996 % Change
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Domestic
Admissions $479,629 $431,361 11.2%
Concessions 222,945 196,645 13.4
Other 15,763 15,096 4.4
---------------------------------
718,337 643,102 11.7
International
Admissions 13,322 - -
Concessions 2,222 - -
Other 49 - -
---------------------------------
15,593 - -
On-screen advertising and other 15,667 12,870 21.7
---------------------------------
Total revenues $749,597 $655,972 14.3%
=================================
Cost of Operations
Domestic
Film exhibition costs $251,090 $227,780 10.2%
Concession costs 36,045 30,417 18.5
Rent 75,116 64,813 15.9
Other 186,945 159,406 17.3
---------------------------------
549,196 482,416 13.8
International
Film exhibition costs 7,719 - -
Concession costs 703 - -
Rent 4,945 - -
Other 5,377 - -
---------------------------------
18,744 - -
On-screen advertising and other 12,062 8,942 34.9
---------------------------------
Total cost of operations $580,002 $491,358 18.0%
=================================
General and Administrative
Corporate and domestic $45,558 $44,200 3.1%
International 6,864 4,550 50.9
On-screen advertising and other 4,225 3,309 27.7
---------------------------------
Total general and administrative $56,647 $52,059 8.8%
=================================
Depreciation and Amortization
Corporate and domestic $49,392 $40,751 21.2%
International 1,436 - -
On-screen advertising and other 1,744 1,336 30.5
---------------------------------
Total depreciation and amortization $52,572 $42,087 24.9%
================================
</TABLE>
Revenues. Total revenues increased 14.3%, or $93,625,000, during the
year (53 weeks) ended April 3, 1997 compared to the year (52 weeks) ended
March 28, 1996.
Total domestic revenues increased 11.7%, or $75,235,000, from the
prior year. Admissions revenues increased 11.2%, or $48,268,000, due to a
6.4% increase in attendance, which contributed $27,658,000 of the
increase, and a 4.7% increase in average ticket prices, which contributed
$20,610,000 of the increase. The increase in attendance was due primarily
to the Company's megaplexes. Attendance at megaplexes increased as a
result of the addition of 12 new megaplexes with 248 screens since March
28, 1996 and from the operation for a full fiscal year of the five
megaplexes with 98 screens that were opened in fiscal 1996. The increase
in attendance from megaplexes was partially offset by a decrease in
attendance at multiplexes and the closure or sale of 15 multiplexes with
76 screens. Attendance at multiplexes decreased as a result of
competitive factors, including competition from the Company's megaplexes.
Also, during the first nine months of the fiscal year, attendance at all
theatres was impacted by film product from the Company's key suppliers
which did not deliver the results achieved in the prior fiscal year. The
increase in average ticket prices was due to price increases and the
growing number of megaplexes in the Company's theatre circuit, which yield
higher average ticket prices than multiplexes. Concessions revenues
increased 13.4%, or $26,300,000, due to a 6.9% increase in average
concessions per patron, which contributed $13,692,000 of the increase, and
the increase in total attendance, which contributed $12,608,000 of the
increase. The increase in average concessions per patron was attributable
to the introduction of new concessions products and the increasing number
of megaplexes in the Company's theatre circuit, where concession spending
per patron is higher than in multiplexes.
Total international revenues consists of admissions and concessions
revenues from the Company's two international theatres, the Canal City 13
located in Fukuoka, Japan and the Arrabida 20 located in Porto, Portugal,
which opened during the first and third quarters of fiscal 1997,
respectively. Admissions and concessions revenues accounted for 85% and
14% of total international revenues, respectively. The Company's initial
attendance at the Canal City 13 was negatively impacted by film
distributors in Japan who restricted the Company's ability to obtain film
product until approximately two weeks after its competitors had received
it. This delay in releasing films to the Company has generally been
eliminated.
On-screen advertising and other revenues increased 21.7%, or
$2,797,000, due to an increase in the number of screens served by the
Company's on-screen advertising business, a result of an expansion
program.
Cost of Operations. Total cost of operations increased 18.0%, or
$88,644,000, during the year (53 weeks) ended April 3, 1997 compared to
the year (52 weeks) ended March 28, 1996.
Total domestic cost of operations increased 13.8%, or $66,780,000,
from the prior year. Film exhibition costs increased 10.2%, or
$23,310,000, due to higher attendance, which contributed $25,488,000 of
the increase, offset by a decrease in the percentage of admissions paid to
film distributors of $2,178,000. As a percentage of admissions revenues,
film exhibition costs was 52.4% in the current year compared with 52.8%
in the prior year. The 18.5%, or $5,628,000, increase in concession costs
was attributable to the increase in concessions revenues. As a percentage
of concessions revenues, concession costs increased from 15.5% to 16.2%
due primarily to increases in raw popcorn costs and lower margins on new
concessions products. Rent expense increased 15.9%, or $10,303,000, due
to the higher number of screens in operation. Other cost of operations
increased 17.3%, or $27,539,000, from the prior year due to the higher
number of screens in operation, $1,825,000 of advertising expenses
associated with the opening of new theatres and higher expenses associated
with the Company's theatre management development program.
Total international cost of operations consists of expenses
associated with the Company's new theatres in Japan and Portugal. As a
percentage of admissions revenues, film exhibition costs was 57.9%,
primarily because film rentals in Japan are generally higher than those
domestically. Concession costs were 31.6% of concessions revenues due to
the high procurement costs of concessions products sourced from the United
States. As a percentage of total revenues, rent expense was 31.7% as a
result of low initial attendance and admissions revenues and higher real
estate costs in Japan.
On-screen advertising and other cost of operations increased 34.9%,
or $3,120,000, as a result of the higher number of screens served and
related start-up expenses.
General and Administrative. General and administrative expenses
increased 8.8%, or $4,588,000, during the year (53 weeks) ended April 3,
1997.
Corporate and domestic general and administrative expenses increased
3.1%, or $1,358,000, due primarily to increases in costs associated with
the Company's development of theatres and increased pension and retirement
expenses of $1,992,000. These increases were partially offset by a
decrease of $3,500,000 in the current year's bonus expense and severance
payments of $967,000 for two former executive officers made during the
prior year.
International general and administrative expenses increased 50.9%, or
$2,314,000, due primarily to increases in costs associated with the
Company's development of new theatres and other expenses to support the
Company's international operations and expansion plan.
General and administrative expenses associated with on-screen
advertising and other increased 27.7%, or $916,000, due primarily to an
increase in payroll and related costs to support the expansion program at
the Company's on-screen advertising business.
Depreciation and Amortization. Depreciation and amortization
increased 24.9%, or $10,485,000, during the year (53 weeks) ended April 3,
1997. This increase was caused by an increase in employed theatre assets
resulting from the Company's expansion plan.
Impairment of Long-lived Assets. During the year (53 weeks) ended
April 3, 1997, the Company recognized a non-cash impairment loss of
$7,231,000 ($4,266,000 after tax, or $.24 per share) on 18 multiplexes
with 82 screens in nine states (primarily Michigan, Pennsylvania,
California, Florida and Virginia) due to expected declines in future cash
flows resulting primarily from competition from newer megaplexes. During
the year (52 weeks) ended March 28, 1996, the Company recognized a non-
cash impairment loss of $1,799,000 ($1,061,000 after tax, or $.06 per
share) on four multiplexes with 21 screens in Arizona, Florida and
California in connection with the adoption of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of. The future cash flows
of these theatres, undiscounted and without interest charges, were less
than the carrying value of the theatre assets.
Interest Expense. Interest expense decreased 23.6%, or $6,806,000,
during the year (53 weeks) ended April 3, 1997 compared to the prior year.
The decrease in interest expense resulted from lower rates under the
Company's Credit Facility, which was partially offset by an increase in
average outstanding borrowings related to the Company's expansion plan.
Investment Income. Investment income decreased 87.9%, or $6,196,000,
during the year (53 weeks) ended April 3, 1997 due to a decrease in
outstanding cash and investments compared to the prior year. Cash and
investments decreased as a result of the Company's redemption of
substantially all of its 11 7/8% Senior Notes due 2000 (the "Senior
Notes") and 12 5/8% Senior Subordinated Notes due 2002 (the "12 5/8%
Senior Subordinated Notes") on December 28, 1995.
Net Earnings. Net earnings before extraordinary item decreased
$8,376,000 during the year (53 weeks) ended April 3, 1997 to $18,995,000
from $27,371,000 in the prior year. Net earnings for the period were
$18,995,000 compared to $8,021,000 in the prior year, which included an
extraordinary item (a loss of $19,350,000, or $1.17 per share, in
connection with the early extinguishment of debt). Net earnings before
extraordinary item per common share, after deducting preferred dividends,
was $.75 compared to $1.23 in the prior year. Net earnings per common
share, after deducting preferred dividends, was $.75 compared to $.06 in
the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's revenues are collected in cash, principally through box
office admissions and theatre concessions sales. The Company has an
operating "float" which partially finances its operations and which
generally permits the Company to maintain a smaller amount of working
capital capacity. This float exists because admissions revenues are
received in cash, while exhibition costs (primarily film rentals) are
ordinarily paid to distributors from 30 to 45 days following receipt of
box office admissions revenues. The Company is only occasionally required
to make advance payments or non-refundable guaranties of film rentals.
Film distributors generally release during the summer and holiday seasons
the films which they anticipate will be the most successful.
Consequently, the Company typically generates higher revenues during such
periods. Cash flows from operating activities, as reflected in the
Consolidated Statements of Cash Flows, were $90,799,000, $109,339,000 and
$96,140,000 in fiscal years 1998, 1997 and 1996, respectively.
The Company is currently expanding its domestic theatre circuit and
entering select international markets. During fiscal 1998, the Company
opened 23 megaplexes with 564 screens and one multiplex with six screens
and expanded three existing multiplexes by 38 screens. In addition, the
Company closed or sold 23 multiplexes with 123 screens resulting in a
circuit total of 44 megaplexes with 987 screens and 185 multiplexes with
1,455 screens as of April 2, 1998. The Company plans to continue this
expansion by opening approximately 350 screens, including 95 in
international markets, in 16 megaplexes during fiscal 1999.
The costs of constructing new theatres are funded by the Company
through internally generated cash flow or borrowed funds. The Company
generally leases its theatres pursuant to long-term non-cancelable
operating leases which require the developer, who owns the property, to
reimburse the Company for a portion of the construction costs. However,
the Company may decide to own the real estate assets of new theatres and,
following construction, sell and leaseback the real estate assets pursuant
to long-term non-cancelable operating leases. Historically, the Company
has owned and paid for the equipment necessary to fixture a theatre;
however, it is considering other methods of providing for its equipment
needs, including operating leases. During fiscal 1998, 17 new theatres
and 412 screens were leased from developers and seven new theatres with
182 screens were constructed by the Company and then sold and leased back.
As of April 2, 1998, the Company had construction in progress and
reimbursable construction advances (amounts due from developers on leased
theatres) of $65,914,000 and $58,488,000, respectively. The Company had
13 megaplexes with 283 screens under construction on April 2, 1998.
During fiscal 1998, the Company had capital expenditures of
$389,217,000 and estimates that total capital expenditures for 1999 will
aggregate approximately $280 million. Included in these amounts are
assets which the Company has placed or may place into sale and leaseback
or other comparable financing programs, which will have the effect of
reducing the Company's net cash outlays. During fiscal 1998, the Company
received $283,800,000 from such programs.
The Company's Credit Facility permits borrowings at interest rates
based on either the bank's base rate or LIBOR and requires an annual
commitment fee based on margin ratios that could result in a rate of
.1875% to .375% on the unused portion of the commitment. The Credit
Facility matures on April 10, 2004. The commitment thereunder will be
reduced by $25 million on each of December 31, 2002, March 31, 2003, June
30, 2003 and September 30, 2003 and by $50 million on December 31, 2003.
As of April 2, 1998, the Company had outstanding borrowings of
$150,000,000 under the Credit Facility at an average interest rate of 6.2%
per annum, and approximately $245,000,000 was available for borrowing
under the Credit Facility.
Covenants under the Credit Facility impose limitations on
indebtedness, creation of liens, change of control, transactions with
affiliates, mergers, investments, guaranties, asset sales, dividends,
business activities and pledges. In addition, the Credit Facility
contains certain financial covenants. As of April 2, 1998, the Company
was in compliance with all financial covenants relating to the Credit
Facility.
On March 19, 1997, the Company sold $200 million of 9 1/2% Senior
Subordinated Notes due 2009 (the "Notes"). The Indenture to the Notes
contains certain covenants that, among other things, restrict the ability
of the Company and its subsidiaries to incur additional indebtedness and
pay dividends or make distributions in respect of their capital stock. If
the Notes attain "investment grade status" (as defined in the Indenture),
the covenants in the Indenture limiting the Company's ability to incur
additional indebtedness and pay dividends will cease to apply. As of
April 2, 1998, the Company was in compliance with all financial covenants
relating to the Notes.
On November 14, 1997, the Company completed the redemption of
$617,000 of its outstanding Senior Notes and $4,904,000 of its outstanding
12 5/8% Senior Subordinated Notes.
During fiscal 1998, the Company sold the real estate assets
associated with 13 megaplex theatres, including seven theatres opened
during fiscal 1998, to EPT for an aggregate purchase price of
$283,800,000. Proceeds from the Sale and Lease Back Transaction were
applied to reduce indebtedness under the Company's Credit Facility. The
Company leased the real estate assets associated with the theatres from
EPT pursuant to non-cancelable operating leases with terms ranging from 13
to 15 years at an initial lease rate of 10.5% with options to extend for
up to an additional 20 years.
The Company has granted an option to EPT to acquire a theatre under
construction for the cost to the Company of developing and constructing
such property. In addition, for a period of five years subsequent to
November 1997, EPT will have a right of first refusal and first offer to
purchase and lease back to the Company the real estate assets associated
with any megaplex theatre and related entertainment property owned or
ground-leased by the Company, exercisable upon the Company's intended
disposition of such property. As of April 2, 1998, the Company had one
megaplex under construction that would be subject to EPT's right of first
refusal and first offer to purchase should the Company seek to dispose of
such megaplex. The leases are triple net leases that require the Company
to pay substantially all expenses associated with the operation of the
theatres, such as taxes and other governmental charges, insurance,
utilities, service, maintenance and any ground lease payments.
The Company believes that cash generated from operations, existing
cash and equivalents, amounts received from sale and lease back
transactions and the unused commitment amount under its Credit Facility
will be sufficient to fund operations and planned capital expenditures for
the next twelve months. The Company may require additional financing
after fiscal 1999 to continue its expansion program.
During the year (52 weeks) ended April 2, 1998, various holders of
the Company's $1.75 Cumulative Convertible Preferred Stock (the
"Convertible Preferred Stock") converted 1,503,269 shares into 2,591,614
shares of Common Stock at a conversion rate of 1.724 shares of Common
Stock for each share of Convertible Preferred Stock. Convertible
Preferred Stock dividend payments decreased 15.5%, or $929,000, to
$5,064,000 for the year (52 weeks) ended April 2, 1998 from $5,993,000 in
the prior year as a result of the conversions.
Subsequent to April 2, 1998, various holders of the Company's
Convertible Preferred Stock converted 1,796,485 shares into 3,097,113
shares of Common Stock at a conversion rate of 1.724 shares of Common
Stock for each share of Convertible Preferred Stock. On April 14, 1998,
the Company redeemed the remaining 3,846 shares of Convertible Preferred
Stock at a redemption price of $25.75 per share plus accrued and unpaid
dividends.
Year 2000
The Company has performed a review of its computer applications
related to their continuing functionality for the year 2000 and beyond.
Certain of the Company's existing systems have been upgraded and the
Company expects that its remaining systems will be upgraded through
modification or replacement by the end of fiscal 1999. As a result, the
Company does not believe that it has material exposure to the year 2000
issue with respect to its own computer applications. The Company does not
expect that the cost of the modifications will cause reported financial
information not to be indicative of future operating results or financial
condition. The year 2000 issue may impact the operations of the Company
indirectly by affecting the operations of its suppliers, business
partners, customers and other parties that provide significant services to
the Company. The Company expects to complete during fiscal 1999 a review
of potential year 2000 issues with these parties. The Company is
currently unable to predict the extent that the year 2000 will have on
these parties and, consequently, the Company.
Impact of Inflation
Historically, the principal impact of inflation and changing prices
upon the Company has been to increase the costs of the construction of new
theatres, the purchase of theatre equipment and the utility and labor
costs incurred in connection with continuing theatre operations. Film
exhibition costs, the largest cost of operations of the Company, is
customarily paid as a percentage of admissions revenues and hence, while
the film exhibition costs may increase on an absolute basis, the
percentage of admissions revenues represented by such expense is not
directly affected by inflation. Except as set forth above, inflation and
changing prices have not had a significant impact on the Company's total
revenues and results of operations.
New Accounting Pronouncements
During fiscal 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
Reporting Comprehensive Income, Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), Disclosures About Segments of an
Enterprise and Related Information and Statement of Financial Accounting
Standards No. 132 ("SFAS 132"), Employers' Disclosures about Pensions and
Other Postretirement Benefits. SFAS 130 requires disclosure of
comprehensive income and its components in a company's financial
statements and is effective for fiscal years beginning after December 15,
1997. SFAS 131 requires new disclosures of segment information in a
company's financial statements and is effective for fiscal years beginning
after December 15, 1997. SFAS 132 requires disclosures about pension and
other postretirement benefit plans in a company's financial statements and
is effective for fiscal years beginning after December 15, 1997. These
statements will become effective for the Company in fiscal 1999.
Adoption of these statements will not impact the Company's consolidated
financial position, results of operations or cash flows.
During fiscal 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1 ("SOP 98-1"), Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use.
SOP 98-1 requires companies to capitalize certain internal-use software
costs once certain criteria are met. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998. Adoption of this statement is
not expected to have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
In April of 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-5 ("SOP 98-5"), Reporting on
the Costs of Start-up Activities. SOP 98-5 requires costs of start-up
activities to be expensed when incurred. The Company currently
capitalizes such costs and amortizes them over a two-year period. SOP 98-
5 is effective for fiscal years beginning after December 15, 1998. The
Company will adopt this statement in fiscal 2000, which will result in a
cumulative effect adjustment to the Company's results of operations and
financial position based on balances as of April 1, 1999. Had the
Company adopted SOP 98-5 at the beginning of fiscal 1999, such adjustment
would have been approximately $10.6 million, before taxes.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8. Financial Statements And Supplementary Data.
RESPONSIBILITY FOR PREPARATION
OF FINANCIAL STATEMENTS
AMC Entertainment Inc.
TO THE STOCKHOLDERS OF AMC ENTERTAINMENT INC.
The accompanying consolidated financial statements and related notes of
AMC Entertainment Inc. and subsidiaries were prepared by management in
conformity with generally accepted accounting principles appropriate in
the circumstances. In preparing the financial statements, management has
made judgments and estimates based on currently available information.
Management is responsible for the information; representations contained
elsewhere in this Annual Report are consistent with the financial
statements.
The Company has a formalized system of internal accounting controls
designed to provide reasonable assurance that assets are safeguarded and
that its financial records are reliable. Management monitors the system
for compliance to measure its effectiveness and recommends possible
improvements. In addition, as part of their audit of the consolidated
financial statements, the Company's independent accountants review and
test the internal accounting controls on a selected basis to establish a
basis of reliance in determining the nature, extent and timing of audit
tests to be applied.
The Board of Directors oversees financial reporting and internal
accounting control through its Audit Committee. This committee meets
(jointly and separately) with the independent accountants, management and
internal auditors to monitor the proper discharge of responsibilities
relative to internal accounting controls and consolidated financial
statements.
/s/ Peter C. Brown
Co-Chairman of the Board,
President and Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF AMC ENTERTAINMENT INC.
KANSAS CITY, MISSOURI
We have audited the accompanying consolidated balance sheets of AMC
Entertainment Inc. and subsidiaries as of April 2, 1998 and April 3,
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year (52 weeks) ended April 2, 1998, the
year (53 weeks) ended April 3, 1997 and the year (52 weeks) ended March
28, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AMC
Entertainment Inc. and subsidiaries as of April 2, 1998 and April 3,
1997, and the consolidated results of their operations and their cash
flows for the year (52 weeks) ended April 2, 1998, the year (53 weeks)
ended April 3, 1997 and the year (52 weeks) ended March 28, 1996, in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
May 1, 1998
<TABLE>
<CAPTION>
AMC ENTERTAINMENT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
52 Weeks Ended 53 Weeks Ended52 Weeks Ended
April 2, April 3, March 28,
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
Revenues
Admissions $553,571 $492,951 $431,361
Concessions 256,017 225,167 196,645
Other 37,207 31,479 27,966
----------------------------------
Total revenues 846,795 749,597 655,972
Expenses
Film exhibition costs 299,926 258,809 227,780
Concession costs 42,062 36,748 30,417
Other 343,552 284,445 233,161
----------------------------------
Total cost of operations 685,540 580,002 491,358
General and administrative 54,354 56,647 52,059
Depreciation and amortization 70,117 52,572 42,087
Impairment of long-lived assets 46,998 7,231 1,799
----------------------------------
Total expenses 857,009 696,452 587,303
----------------------------------
Operating income (loss) (10,214) 53,145 68,669
Other expense (income)
Interest expense
Corporate borrowings 26,353 12,016 18,099
Capital lease obligations 9,326 10,006 10,729
Investment income (1,090) (856) (7,052)
Loss (gain) on disposition
of assets (3,704) 84 222
----------------------------------
Earnings (loss) before income
taxes and extraordinary item (41,099) 31,895 46,671
Income tax provision (16,600) 12,900 19,300
----------------------------------
Earnings (loss) before
extraordinary item (24,499) 18,995 27,371
Extraordinary item -
Loss on extinguishment of debt
(net of income tax benefit
of $13,400) - - (19,350)
----------------------------------
Net earnings (loss) $(24,499) $ 18,995 $ 8,021
==================================
Preferred dividends 4,846 5,907 7,000
----------------------------------
Net earnings (loss) for
common shares $(29,345) $ 13,088 $ 1,021
==================================
Earnings (loss) per share
before extraordinary item:
Basic $(1.59) $ .75 $ 1.23
==================================
Diluted $(1.59) $ .74 $ 1.15
==================================
Earnings (loss) per share:
Basic $(1.59) $ .75 $ .06
==================================
Diluted $(1.59) $ .74 $ .34
==================================
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
AMC ENTERTAINMENT INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 2, April 3,
1998 1997
-------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 9,881 $ 24,715
Receivables, net of allowance
for doubtful accounts of $706
as of April 2, 1998 and $704 as of April 3, 1997 13,540 9,837
Reimbursable construction advances 58,488 33,193
Other current assets 25,736 16,769
-------------------
Total current assets 107,645 84,514
Property, net 562,158 543,058
Intangible assets, net 22,066 28,679
Other long-term assets 103,911 62,804
-------------------
Total assets $795,780 $719,055
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 72,633 $ 61,876
Construction payables 24,588 26,491
Accrued expenses and other liabilities 72,598 43,301
Current maturities of corporate
borrowings and capital lease obligations 4,017 3,441
-------------------
Total current liabilities 173,836 135,109
Corporate borrowings 348,990 315,046
Capital lease obligations 50,605 55,237
Other long-term liabilities 82,894 43,651
-------------------
Total liabilities 656,325 549,043
Commitments and contingencies
Stockholders' equity:
$1.75 Cumulative Convertible Preferred
Stock, 66 2/3 par value; 1,800,331 and
3,303,600 shares issued and outstanding
as of April 2, 1998 and April 3, 1997,
respectively (aggregate liquidation preference
of $45,008 and $82,590 as
of April 2, 1998 and April 3, 1997,
respectively) 1,200 2,202
Common Stock, 66 2/3 par value;
15,376,821and 6,604,469 shares
issued as of April 2, 1998 and
April 3, 1997, respectively 10,251 4,403
Convertible Class B Stock, 66 2/3
par value; 5,015,657 and 11,157,000 shares
issued and outstanding as of
April 2, 1998 and April 3, 1997, respectively 3,344 7,438
Additional paid-in capital 107,676 107,781
Foreign currency translation adjustment (3,689) (2,048)
Retained earnings 21,042 50,605
------------------
139,824 170,381
Less - Common Stock in treasury, at cost,
20,500 shares as of
April 2, 1998 and April 3, 1997 369 369
------------------
Total stockholders' equity 139,455 170,012
------------------
Total liabilities and stockholders' equity $795,780 $719,055
===================
See Notes to Consolidated Financial Statements.
25
</TABLE>
<TABLE>
<CAPTION>
AMC ENTERTAINMENT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
52 Weeks Ended 53 Weeks Ended 52 Weeks Ended
April 2, April 3, March 28,
1998 1997 1996
------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings (loss) $(24,499) $ 18,995 $ 8,021
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Impairment of long-lived assets 46,998 7,231 1,799
Depreciation and amortization 70,117 52,572 42,087
Deferred income taxes (37,325) (2,476) (1,328)
Extraordinary item - - 19,350
Loss (gain) on disposition of long-term assets (3,704) 84 222
Change in assets and liabilities:
Receivables (3,703) (1,451) (1,537)
Other current assets (4,835) 1,578 10,167
Accounts payable 6,066 16,751 6,751
Accrued expenses and other liabilities 42,231 13,283 7,640
Other, net (547) 2,772 2,968
------------------------------------------
- ----------------
Net cash provided by operating activities 90,799 109,339 96,140
-------------------------------------------
- ----------------
Cash flows from investing activities:
Capital expenditures (389,217) (253,380) (120,796)
Proceeds from sale/leasebacks 283,800 - -
Investments in real estate (4,349) (7,692) -
Purchases of available for sale investments - - (424,134)
Proceeds from maturities of available
for sale investments - - 493,278
Proceeds from disposition of long-term assets 18,111 15,054 2,243
Net change in reimbursable
construction advances (25,295) (21,076) (10,394)
Other, net (16,264) (16,823) (7,045)
------------------------------------------
Net cash used in investing
activities (133,214) (283,917) (66,848)
-------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments)
under Credit Facility 40,000 (10,000) 120,000
Proceeds from issuance of 91/2%
Senior Subordinated Notes - 198,938 -
Principal payments under capital lease
obligations and other (3,385) (2,835) (2,859)
Repurchase of 11 7/8% Senior and 12 5/8%
Senior Subordinated Notes (5,817) - (220,734)
Cash overdrafts 4,691 (11,673) 22,848
Change in construction payables (1,903) 24,735 707
Proceeds from exercise of
options on Common Stock 647 140 878
Dividends paid on $1.75 Preferred Stock (5,064) (5,993) (7,000)
Other, net (1,466) (4,595) (3,570)
-------------------------------------------
Net cash provided by (used in)
financing activities 27,703 188,717 (89,730)
-------------------------------------------
Effect of exchange rate changes
on cash and equivalents (122) (219) -
-------------------------------------------
Net increase (decrease) in cash and equivalents (14,834) 13,920 (60,438)
Cash and equivalents at beginning of year 24,715 10,795 71,233
-------------------------------------------
Cash and equivalents at end of year $ 9,881 $ 24,715 $ 10,795
===========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized
of $8,264, $3,344 and $3,003) $ 42,901 $24,188 $34,775
Income taxes, net 22,287 6,285 9,787
See Notes to Consolidated Financial Statements.
26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMC ENTERTAINMENT INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
$1.75 Cumulative
Convertible
Preferred Stock
Common Stock
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, March 31, 1995 4,000,000 $2,667 5,306,380 $3,538
Net earnings - - - -
Exercise of options on Common Stock - - 82,500 55
Dividends declared: $1.75 Preferred Stock - - - -
Acquisition of Common Stock in Treasury - - - -
------------------------------------------------
Balance, March 28, 1996 4,000,000 2,667 5,388,880 3,593
Net earnings - - - -
Exercise of options on Common Stock - - 15,000 10
$1.75 Preferred Stock conversions (696,400) (465) 1,200,589 800
Dividends declared: $1.75 Preferred Stock - - - -
Foreign currency translation adjustment - - - -
------------------------------------------------
Balance, April 3, 1997 3,303,600 2,202 6,604,469 4,403
Net loss - - - -
Exercise of options on Common Stock - - 39,400 26
$1.75 Preferred Stock conversions (1,503,269) (1,002) 2,591,614 1,728
Dividends declared: $1.75 Preferred Stock - - - -
Cancellation of Common and
Class B Stock owned by Durwood, Inc. - - (2,641,951) (1,762)
Issuance of Common and Class B Stock - - 8,783,289 5,856
Foreign currency translation adjustment - - - -
------------------------------------------------
Balance, April 2, 1998 1,800,331 $ 1,200 15,376,821 $10,251
=================================================
Convertible
Additional Foreign Currency
Class B Stock Paid-in Translation
Shares Amount Capital Adjustment
Balance, March 31, 1995 11,157,000 $7,438 $107,163 $ -
Net earnings - - - -
Exercise of options on Common Stock - - 823 -
Dividends declared: $1.75 Preferred Stock - - - -
Acquisition of Common Stock in Treasury - - - -
------------------------------------------------
Balance, March 28, 1996 11,157,000 7,438 107,986 -
Net earnings - - - -
Exercise of options on Common Stock - - 130 -
$1.75 Preferred Stock conversions - - (335) -
Dividends declared: $1.75 Preferred Stock - - - -
Foreign currency translation adjustment - - - (2,048)
------------------------------------------------
Balance, April 3, 1997 11,157,000 7,438 107,781 (2,048)
Net loss - - - -
Exercise of options on Common Stock - - 621 -
$1.75 Preferred Stock conversions - - (726) -
Dividends declared: $1.75 Preferred Stock - - - -
Cancellation of Common and
Class B Stock owned by Durwood, Inc. (11,157,000) (7,438) - -
Issuance of Common and Class B Stock 5,015,657 3,344 - -
Foreign currency translation adjustment - - - (1,641)
------------------------------------------------
Balance, April 2, 1998 5,015,657 $3,344 $107,676 $(3,689)
=================================================
Common Stock Total
Retained in Treasury Stockholders'
Earnings Shares Amount Equity
- -------------------------------------------------------------------------------------------------
Balance, March 31, 1995 $36,582 - $ - $157,388
Net earnings 8,021 - - 8,021
Exercise of options on Common Stock - - - 878
Dividends declared: $1.75 Preferred Stock (7,000) - - (7,000)
Acquisition of Common Stock in Treasury - 20,500 (369) (369)
------------------------------------------------
Balance, March 28, 1996 37,603 20,500 (369) 158,918
Net earnings 18,995 - - 18,995
Exercise of options on Common Stock - - - 140
$1.75 Preferred Stock conversions - - - -
Dividends declared: $1.75 Preferred Stock (5,993) - - (5,993)
Foreign currency translation adjustment - - - (2,048)
------------------------------------------------
Balance, April 3, 1997 50,605 20,500 (369) 170,012
Net loss (24,499) - - (24,499)
Exercise of options on Common Stock - - - 647
$1.75 Preferred Stock conversions - - - -
Dividends declared: $1.75 Preferred Stock (5,064) - - (5,064)
Cancellation of Common and
Class B Stock owned by Durwood, Inc. - - - (9,200)
Issuance of Common and Class B Stock - - - 9,200
Foreign currency translation adjustment - - - (1,641)
------------------------------------------------
Balance, April 2, 1998 $21,042 20,500 $(369) $139,455
=================================================
See Notes to Consolidated Financial Statements.
</TABLE>
AMC ENTERTAINMENT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year (52 Weeks) Ended April 2, 1998, Year (53 Weeks) Ended April 3, 1997
and
Year (52 Weeks) Ended March 28, 1996
NOTE 1 - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
AMC Entertainment Inc. ("AMCE") is a holding company which, through its
direct and indirect subsidiaries, including American Multi-Cinema, Inc.
("AMC") (collectively with AMCE, unless the context otherwise requires,
the "Company"), is principally involved in the operation of motion picture
theatres throughout the United States and in Japan and Portugal. The
Company is also involved in the business of providing on-screen
advertising and other services to AMC and other theatre circuits through a
wholly-owned subsidiary, National Cinema Network, Inc.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Although these estimates are
based on management's knowledge of current events and actions it may
undertake in the future, they may ultimately differ from actual results.
Principles of Consolidation: The consolidated financial statements include
the accounts of AMCE and all subsidiaries. All significant intercompany
balances and transactions have been eliminated.
Fiscal Year: The Company has a 52/53 week fiscal year ending on the
Thursday closest to the last day of March. The 1998 fiscal year reflects
a 52 week period, fiscal year 1997 reflects a 53 week period and fiscal
year 1996 reflects a 52 week period. Fiscal year 1999 will reflect a 52
week period.
Revenues and Film Exhibition Costs: Revenues are recognized when
admissions and concessions sales are received at the theatres. Film
exhibition costs are recognized based on the applicable box office
receipts and the terms of the film licenses.
Cash and Equivalents: Cash and equivalents consist of cash on hand and
temporary cash investments with original maturities of less than thirty
days. The Company invests excess cash in deposits with major banks and
in temporary cash investments. Such investments are made only in
instruments issued or enhanced by high quality financial institutions
(investment grade or better). Amounts invested in a single institution
are limited to minimize risk.
Under the Company's cash management system, checks issued but not
presented to banks frequently result in overdraft balances for accounting
purposes and are classified within accounts payable in the balance sheet.
The amount of these checks included in accounts payable as of April 2,
1998 and April 3, 1997 was $15,866,000 and $11,175,000, respectively.
Reimbursable Construction Advances: Reimbursable construction advances
consist of amounts due from developers to fund a portion of the
construction costs of new theatres that are to be operated by the Company
pursuant to lease agreements. The amounts are repaid by the developers
either during construction or shortly after completion of the theatre.
Property: Property is recorded at cost. The Company uses the straight-
line method in computing depreciation and amortization for financial
reporting purposes and accelerated methods, with respect to certain
assets, for income tax purposes. The estimated useful lives are generally
as follows:
Buildings and improvements 20 to 40 years
Leasehold improvements 5 to 25 years
Furniture, fixtures and equipment 3 to 10 years
Expenditures for additions (including interest during construction), major
renewals and betterments are capitalized, and expenditures for maintenance
and repairs are charged to expense as incurred. The cost of assets
retired or otherwise disposed of and the related accumulated depreciation
and amortization are eliminated from the accounts in the year of disposal.
Gains or losses resulting from property disposals are credited or charged
to operations currently.
Intangible Assets: Intangible assets are recorded at cost and are
comprised of lease rights, amounts assigned to theatre leases assumed
under favorable terms, and location premiums on acquired theatres, both of
which are being amortized on a straight-line basis over the estimated
remaining useful life of the theatre. Accumulated amortization on
intangible assets was $39,381,000 and $41,690,000 as of April 2, 1998 and
April 3, 1997, respectively.
Other Long-term Assets: Other long-term assets are comprised principally
of costs incurred in connection with the issuance of debt securities which
are being amortized over the respective life of the issue; investments in
real estate; preopening costs related to new theatres which are being
amortized over two years; and long-term deferred income taxes.
Impairment of Long-lived Assets: The Company reviews long-lived assets,
including intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
fully recoverable. If the sum of the estimated future cash flows,
undiscounted and without interest charges, is less than the carrying
amount of the asset, an impairment loss is recognized on the amount by
which the carrying value of the asset exceeds its estimated fair value.
Assets are evaluated for impairment on an individual theatre basis, which
management believes is the lowest level for which there are identifiable
cash flows. The fair value of assets is determined as either the expected
selling price less selling costs or the present value of the estimated
future cash flows.
During 1996, the Company recognized a non-cash impairment loss of
$1,799,000 ($1,061,000 after tax, or $.06 per share) on four multiplexes
with 21 screens. During 1997, as a result of expected declines in future
cash flows of certain theatres, the Company recognized a non-cash
impairment loss of $7,231,000 ($4,266,000 after tax, or $.24 per share) on
18 multiplexes with 82 screens. During 1998, the financial results of
certain multiplexes of the Company were significantly less than
anticipated due primarily to competition from newer megaplexes. As a
result, the Company recognized an impairment loss of $46,998,000
($27,728,000 after tax, or $1.50 per share) on 59 multiplexes with 412
screens.
The reduced carrying amount of the impaired assets from 1998 will result
in reduced depreciation and amortization in future periods. For 1998,
depreciation and amortization was reduced by approximately $10,500,000.
Foreign Currency Translation: Operations outside the United States are
generally measured using the local currency as the functional currency.
Assets and liabilities are translated at the rates of exchange at the
balance sheet date. Income and expense items are translated at average
rates of exchange. The resultant translation adjustments are included in
foreign currency translation adjustment, a separate component of
stockholders' equity. Gains and losses from foreign currency transactions
are included in net earnings and have not been material.
Earnings per Share: During 1998, the Company adopted the provisions of
Statement of Financial Standards No. 128 ("SFAS 128"), Earnings per Share.
Under SFAS 128, basic earnings per share is computed by dividing net
earnings (loss) for common shares by the weighted-average number of common
shares outstanding. Diluted earnings per share includes the effects of
the conversion of the $1.75 Cumulative Convertible Preferred Stock,
outstanding stock options and contingently issuable shares, if dilutive.
All prior period earnings per share data has been restated to conform with
the new statement.
Stock-based Compensation: The Company accounts for stock-based awards
using the intrinsic value-based method.
New Accounting Pronouncements: During 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130
("SFAS 130"), Reporting Comprehensive Income, Statement of Financial
Accounting Standards No. 131 ("SFAS 131"), Disclosures About Segments of
an Enterprise and Related Information and Statement of Financial
Accounting Standards No. 132 ("SFAS 132"), Employers' Disclosures about
Pensions and Other Postretirement Benefits. SFAS 130 requires disclosure
of comprehensive income and its components in a company's financial
statements and is effective for fiscal years beginning after December 15,
1997. SFAS 131 requires new disclosures of segment information in a
company's financial statements and is effective for fiscal years beginning
after December 15, 1997. SFAS 132 requires disclosures about pension and
other postretirement benefit plans in a company's financial statements and
is effective for fiscal years beginning after December 15, 1997. These
statements will become effective for the Company in 1999. Adoption of
these statements will not impact the Company's consolidated financial
position, results of operations or cash flows.
During 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 ("SOP 98-1"), Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1
requires companies to capitalize certain internal-use software costs once
certain criteria are met. SOP 98-1 is effective for fiscal years
beginning after December 15, 1998. Adoption of this statement is not
expected to have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
In April of 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), Reporting on the Costs of
Start-up Activities. SOP 98-5 requires costs of start-up activities to be
expensed when incurred. The Company currently capitalizes such costs and
amortizes them over a two-year period. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998. The Company will adopt this
statement in 2000, which will result in a cumulative effect adjustment to
the Company's results of operations and financial position based on
balances as of April 1, 1999. Had the Company adopted SOP 98-5 at the
beginning of fiscal 1999, such adjustment would have been approximately
$10.6 million, before taxes.
Presentation: Certain amounts have been reclassified from prior period
consolidated financial statements to conform with the current year
presentation.
NOTE 2 - MERGER WITH PARENT
Effective August 15, 1997, the Company completed a merger with its
majority stockholder, Durwood, Inc. ("DI"), with the Company remaining as
the surviving entity (the "Merger"). In connection with the Merger,
2,641,951 shares of the Company's Common Stock and 11,157,000 shares of
the Company's Class B Stock owned by DI were canceled and the Company
issued 8,783,289 shares of its Common Stock and 5,015,657 shares of its
Class B Stock to the DI stockholders. The Merger was accounted for as a
corporate reorganization and the recorded balances for consolidated
assets, liabilities, total stockholders' equity and results of operations
were not affected. During 1998, a company affiliated with Stanley H.
Durwood, Co-Chairman of the Board of Directors, Chief Executive Officer
and majority voting stockholder, and members of his family reimbursed the
Company $1,000,000 for expenses related to the Merger.
In connection with the Merger, the DI stockholders granted a proxy to the
Company to vote their shares of the Company's Common Stock for each
candidate for the Company's Board of Directors in the same proportion as
the aggregate votes cast in such elections by all other holders of the
Company's Common Stock not affiliated with the Company, its directors and
officers. The proxy will remain in effect for a period of three years
commencing on the date of the Merger.
NOTE 3 - PROPERTY
<TABLE>
<CAPTION>
A summary of property is as follows:
<S> <C> <C>
(In thousands) 1998 1997
- ------------------
Property owned:
Land $ 32,102 $ 60,090
Buildings and improvements 115,260 221,396
Leasehold improvements 320,410 211,720
Furniture, fixtures and equipment 364,022 264,619
-------------------
831,794 757,825
Less-accumulated depreciation and amortization 288,503 246,476
-------------------
543,291 511,349
Property leased under capital leases:
Buildings and improvements 63,955 66,074
Less-accumulated amortization 45,088 34,365
-------------------
18,867 31,709
-------------------
$562,158 $543,058
====================
</TABLE>
Included in property is $65,914,000 and $83,558,000 of construction in
progress as of April 2, 1998 and April 3, 1997, respectively.
NOTE 4 - SUPPLEMENTAL BALANCE SHEET INFORMATION
Other assets and liabilities consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Other current assets:
Prepaid rent $ 10,843 $ 7,366
Deferred income taxes 10,542 6,376
Other 4,351 3,027
-------------------
$ 25,736 $16,769
===================
Other long-term assets:
Investments in real estate $ 14,702 $15,329
Deferred financing costs 8,098 7,539
Deferred income taxes 56,972 23,813
Preopening costs 10,614 6,519
Other 13,525 9,604
-------------------
$103,911 $62,804
===================
Accrued expenses and other liabilities:
Taxes other than income $ 13,952 $10,030
Income taxes 4,180 6,017
Interest 1,498 1,512
Payroll and vacation 5,297 4,982
Casualty claims and premiums 5,295 4,655
Deferred income 22,056 10,042
Accrued bonus 5,621 3,974
Other 14,699 2,089
-------------------
$ 72,598 $43,301
===================
</TABLE>
NOTE 5 - CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS
A summary of corporate borrowings and capital lease obligations is as
follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -------------------------------------------------------------------------
<S> <C> <C>
$425 million Credit Facility due 2004 $150,000 $110,000
11 7/8% Senior Notes due 2000 - 615
9 1/2% Senior Subordinated Notes due 2009 198,990 198,940
12 5/8% Senior Subordinated Notes due 2002 - 4,882
Capital lease obligations, interest ranging
from 7 1/4% to 20% 54,622 58,652
Other indebtedness - 635
-------------------
403,612 373,724
Less-current maturities 4,017 3,441
-------------------
$399,595 $370,283
===================
</TABLE>
The Company maintains a $425 million credit facility (the "Credit
Facility"), which permits borrowings at interest rates based on either the
bank's base rate or LIBOR and requires an annual commitment fee based on
margin ratios that could result in a rate of .1875% to .375% on the unused
portion of the commitment. The Credit Facility matures on April 10, 2004.
The commitment thereunder will be reduced by $25 million on each of
December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003
and by $50 million on December 31, 2003. As of April 2, 1998, the Company
had outstanding borrowings of $150,000,000 under the Credit Facility at an
average interest rate of 6.2% per annum, and approximately $245,000,000
was available for borrowing under the Credit Facility.
Covenants under the Credit Facility impose limitations on indebtedness,
creation of liens, change of control, transactions with affiliates,
mergers, investments, guaranties, asset sales, dividends, business
activities and pledges. In addition, the Credit Facility contains
certain financial covenants. As of April 2, 1998, the Company was in
compliance with all financial covenants relating to the Credit Facility.
Costs related to the establishment of the Credit Facility were capitalized
and are charged to interest expense over the life of the Credit Facility.
Unamortized issuance costs of $2,970,000 as of April 2, 1998 are included
in other long-term assets.
On March 19, 1997, the Company sold $200 million of 9 1/2% Senior
Subordinated Notes due 2009 (the "Notes"). As required by the Indenture
to the Notes, the Company consummated a registered offer on August 5, 1997
to exchange the Notes for notes of the Company with terms identical in all
material respects to the Notes. The Notes bear interest at the rate of 9
1/2% per annum, payable in March and September. The Notes are redeemable
at the option of the Company, in whole or in part, at any time on or after
March 15, 2002 at 104.75% of the principal amount thereof, declining
ratably to 100% of the principal amount thereof on or after March 15,
2006, plus in each case interest accrued to the redemption date. Upon a
change of control (as defined in the Indenture), each holder of the Notes
will have the right to require the Company to repurchase such holder's
Notes at a price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. The Notes are
subordinated to all existing and future senior indebtedness, as defined in
the Indenture, of the Company.
The Indenture contains certain covenants that, among other things,
restrict the ability of the Company and its subsidiaries to incur
additional indebtedness and pay dividends or make distributions in respect
of their capital stock. If the Notes attain "investment grade status" (as
defined in the Indenture), the covenants in the Indenture limiting the
Company's ability to incur additional indebtedness and pay dividends will
cease to apply. As of April 2, 1998, the Company was in compliance with
all financial covenants relating to the Notes.
The discount on the Notes is being amortized to interest expense following
the interest method. Costs related to the issuance of the Notes were
capitalized and are charged to interest expense, following the interest
method, over the life of the securities. Unamortized issuance costs of
$5,128,000 as of April 2, 1998 are included in other long-term assets.
On December 28, 1995, the Company completed the redemption of $99,383,000
of its outstanding 11 7/8% Senior Notes due 2000 (the "Senior Notes") at a
price of $1,117.90 per $1,000 principal amount and $95,096,000 of its
outstanding 12 5/8% Senior Subordinated Notes due 2002 (the "12 5/8%
Senior Subordinated Notes") at a price of $1,144.95 per $1,000 principal
amount. In addition, the terms of the Indentures governing the remaining
Senior Notes and 12 5/8% Senior Subordinated Notes were amended to
eliminate certain restrictive covenants. Premiums paid to redeem the
Senior Notes and 12 5/8% Senior Subordinated Notes, together with the
write-off of unamortized debt issue costs and other costs directly related
to the debt redemptions, resulted in an extraordinary loss of $19,350,000,
net of income tax benefit of $13,400,000. The extraordinary loss reduced
earnings per share by $1.17 for the year (52 weeks) ended March 28, 1996.
On November 14, 1997, the Company completed the redemption of $617,000 of
its outstanding Senior Notes and $4,904,000 of its outstanding 12 5/8%
Senior Subordinated Notes.
Minimum annual payments required under existing capital lease obligations
(net present value thereof) and maturities of corporate borrowings as of
April 2, 1998, are as follows:
<TABLE>
<CAPTION>
Capital Lease Obligations
----------------------------------
Minimum Net
Lease Less Present Corporate
(In thousands)Payments Interest Value Borrowings Total
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $ 12,638 $ 8,621 $ 4,017 $ - $ 4,017
2000 12,049 7,943 4,106 - 4,106
2001 11,777 7,224 4,553 - 4,553
2002 10,949 6,476 4,473 - 4,473
2003 10,332 5,715 4,617 - 4,617
Thereafter 59,503 26,647 32,856 348,990 381,846
-----------------------------------------------------
Total $117,248 $62,626 $54,622 $348,990 $403,612
=====================================================
</TABLE>
The Company maintains a letter of credit in the normal course of its
business. The unused portion of the letter of credit was $3,108,000 as
of April 2, 1998.
NOTE 6 - STOCKHOLDERS' EQUITY
The authorized common stock of AMCE consists of two classes of stock.
Except for the election of directors, each holder of Common Stock (66 2/3
cemts par value; 45,000,000 shares authorized) is entitled to one vote per
share, and each holder of Class B Stock (66 2/3 cents par value; 30,000,000
shares authorized) is entitled to 10 votes per share. Common stockholders
voting as a class are presently entitled to elect two of the seven members
of AMCE's Board of Directors with Class B stockholders electing the
remainder.
Holders of the Company's stock have no pre-emptive or subscription rights.
Holders of Common Stock have no conversion rights, but holders of Class B
Stock may elect to convert at any time on a share-for-share basis into
Common Stock.
The Company has authorized 10,000,000 shares of Preferred Stock (66 2/3 cents
par value), of which 1,800,331 shares of $1.75 Cumulative Convertible
Preferred Stock (66 2/3 cents par value) (the "Convertible Preferred Stock")
are issued and outstanding. Dividends are payable quarterly at an annual
rate of $1.75 per share.
The Convertible Preferred Stock has preference in liquidation in the
amount of $25 per share plus accrued and unpaid dividends. The
Convertible Preferred Stock is convertible at the option of the holder
into shares of Common Stock at a conversion price of $14.50 per share of
Common Stock, subject to change in certain events. During 1998 and 1997,
various holders of the Company's Convertible Preferred Stock converted
1,503,269 and 696,400 shares into 2,591,614 and 1,200,589 shares,
respectively, of Common Stock at a conversion rate of 1.724 shares of
Common Stock for each share of Convertible Preferred Stock. In lieu of
conversion, the Company may, at its option, pay to the holder cash equal
to the then market value of the Common Stock. The Company may redeem in
whole or in part the Convertible Preferred Stock at a redemption price
beginning at $26.00 per share after March 15, 1997, declining ratably to
$25.00 per share after March 15, 2001.
Subsequent to April 2, 1998, various holders of the Company's Convertible
Preferred Stock converted 1,796,485 shares into 3,097,113 shares of Common
Stock at a conversion rate of 1.724 shares of Common Stock for each share
of Convertible Preferred Stock. On April 14, 1998, the Company redeemed
the remaining 3,846 shares of Convertible Preferred Stock at a redemption
price of $25.75 per share plus accrued and unpaid dividends.
Stock-Based Compensation
In November 1994, AMCE adopted a stock option and incentive plan (the
"1994 Plan"). This plan provides for three basic types of awards: (i)
grants of stock options which are either incentive or non-qualified stock
options, (ii) grants of stock awards, which may be either performance or
restricted stock awards, and (iii) performance unit awards. The number of
shares of Common Stock which may be sold or granted under the plan may not
exceed 1,000,000 shares. The 1994 Plan provides that the exercise price
for stock options may not be less than the fair market value of the stock
at the date of grant and unexercised options expire no later than ten
years after date of grant. Options issued under the 1994 Plan vest over
two years from the date of issuance.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. Accordingly, no compensation expense has been recognized
for the Company's stock-based compensation other than for performance-
based stock awards. In 1997 and 1996, the Company granted stock awards to
certain individuals which are issuable at the end of a performance period
ended April 2, 1998 based on certain performance criteria. No performance-
based stock awards were earned at the end of the performance period. The
Company recognized compensation expense for performance stock awards of
($1,358,000), $586,000 and $772,000 in 1998, 1997 and 1996, respectively.
Had compensation expense for the Company's stock options and awards been
determined based on the fair value at the grant dates, the Company's net
earnings (loss) and net earnings (loss) for common shares would have been
the following:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1998 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss)
As reported $(24,499) $18,995 $8,021
Pro forma $(26,007) $18,664 $8,210
Net earnings (loss) per common share
As reported $(1.59) $ .75 $ .06
Pro forma $(1.67) $ .73 $ .07
</TABLE>
The following table reflects the weighted average fair value per option
granted during the year, as well as the significant weighted average
assumptions used in determining fair value using the Black-Scholes option-
pricing model:
1998 1997 1996
Fair value on grant date $9.69 $11.63 $ 6.96
Risk-free interest rate 6.0% 6.2% 5.6%
Expected life (years) 5 5 5
Expected volatility 42.0% 42.9 % 46.0 %
Expected dividend yield - - -
<TABLE>
<CAPTION>
A summary of stock option activity under all plans is as follows:
1998 1997 1996
- --------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
of Shares Per Share of Shares Per Share of Shares Per Share
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 558,500 $12.47 487,500 $ 9.67 776,500 $ 9.57
Granted 2,250 $21.21 103,250 $ 24.80 23,250 $ 14.50
Canceled (1,500) $26.38 (17,250) $ 10.04(229,750) $ 9.46
Exercised (39,400) $ 9.49 (15,000) $ 9.38 (82,500) $ 10.65
-----------------------------------------------------------
Outstanding at
end of year 519,850 $12.69 558,500 $ 12.47 487,500 $ 9.67
==========================================================
Exercisable at
end of year 487,975 $11.90 365,875 $ 10.51 233,250 $ 9.45
==========================================================
Available for
grant at
end of year 845,750 630,500 746,500
======== ======= =======
</TABLE>
The following table summarizes information about stock options as of April
2, 1998:
<TABLE>
<CAPTION>
Outstanding Stock Options Exercisable Stock Options
- -------------------------------------------------------------------------
Weighted- Average
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of of Contractual Exercise of Exercise
Exercise Prices Shares Life Price Shares Price
<S> <C> <C> <C> <C> <C>
$ 9.25 to $ 11.75 398,600 5.3 years $ 9.48 398,600 $ 9.48
$ 14.50 to $ 20.75 29,250 7.8 years $16.26 22,500 $15.43
$ 22.13 to $ 26.38 92,000 8.1 years $25.47 66,875 $25.18
-------------------------------------------------
$ 9.25 to $ 26.38 519,850 6.0 years $12.69 487,975 $11.90
=================================================
</TABLE>
NOTE 7 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
(In thousands, except per share data) 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Earnings (loss) before
extraordinary item $(24,499) $ 18,995 $ 27,371
Less: Preferred dividends 4,846 5,907 7,000
-------------------------------
Earnings (loss) before
extraordinary item
for basic earnings per share (29,345) 13,088 20,371
Convertible Preferred Stock - - 7,000
-------------------------------
Earnings (loss) before
extraordinary item
for diluted earnings per share $(29,345) $ 13,088 $ 27,371
==============================
Denominator:
Shares for basic earnings per share -
average shares outstanding 18,477 17,489 16,513
Convertible Preferred Stock - - 6,896
Stock options - 237 283
Contingently issuable shares - 58 49
-------------------------------
Shares for diluted earnings per share 18,477 17,784 23,741
===============================
Basic earnings per share before
extraordinary item $(1.59) $ 0.75 $ 1.23
===============================
Diluted earnings per share before
extraordinary item $ (1.59) $ 0.74 $ 1.15
================================
</TABLE>
In 1998 and 1997, dividends and shares from conversion of Convertible
Preferred Stock were excluded from the diluted earnings per share before
extraordinary item calculation because they were anti-dilutive. In 1998,
shares from options to purchase shares of Common Stock were excluded from
the diluted earnings per share before extraordinary item calculation
because they were anti-dilutive. In 1998, contingently issuable shares
were excluded from the diluted earnings per share calculation because the
conditions necessary for their issuance were not satisfied.
NOTE 8 - INCOME TAXES
Income taxes reflected in the Consolidated Statements of Operations for
the three years ended April 2, 1998 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 15,600 $ 11,418 $ 5,134
State 5,125 3,958 2,094
-----------------------------------
Total current 20,725 15,376 7,228
Deferred:
Federal (31,860) (2,114) (1,121)
State (5,465) (362) (207)
-----------------------------------
Total deferred (37,325) (2,476) (1,328)
------------------------------------
Total provision (16,600) 12,900 5,900
Tax benefit of extraordinary
item - extinguishment of debt - - 13,400
------------------------------------
Total provision before
extraordinary item $(16,600) $ 12,900 $ 19,300
====================================
</TABLE>
The difference between the effective tax rate on earnings before
extraordinary item and the U.S. federal income tax statutory rate is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate (35.0%) 35.0% 35.0%
State income taxes, net of
federal tax benefit (6.2) 7.1 6.8
Other, net .8 (1.7) (.4)
------------------------------------
Effective tax rate (40.4%) 40.4% 41.4%
====================================
</TABLE>
The significant components of deferred income tax assets and liabilities
as of April 2, 1998 and April 3, 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
Deferred Income Tax Deferred Income Tax
(In thousands) Assets Liabilities Assets Liabilities
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued reserves and
liabilities $ 14,447 $ - $ 9,189 $ 179
Capital lease obligations 14,660 - 11,464 -
Property 33,832 - 5,587 -
Deferred rents 7,533 - 6,254 -
Other 1,862 4,820 550 2,676
-----------------------------------------------
Total 72,334 4,820 33,044 2,855
Less: Current deferred
income taxes 10,542 - 6,586 210
-----------------------------------------------
Total noncurrent
deferred income taxes $ 61,792 $4,820 $ 26,458 $ 2,645
================================================
Net noncurrent deferred
income taxes $ 56,972 $ 23,813
======== ========
</TABLE>
Based upon positive earnings in recent years and the expectation that
taxable income will continue for the foreseeable future, management
believes it is more likely than not that the Company will realize its
deferred tax assets and, accordingly, no valuation allowance has been
provided as of April 2, 1998 and April 3, 1997.
NOTE 9 - LEASES
The majority of the Company's operations are conducted in premises
occupied under lease agreements with base terms ranging generally from 13
to 25 years, with certain leases containing options to extend the leases
for up to an additional 20 years. The leases provide for fixed rentals
and/or rentals based on revenues with a guaranteed minimum. The Company
also leases certain equipment under leases expiring at various dates. The
majority of the leases provide that the Company will pay all, or
substantially all, taxes, maintenance, insurance and certain other
operating expenses. Assets held under capital lease obligations are
included in property.
During 1998, the Company sold the real estate assets associated with 13
megaplexes to Entertainment Properties Trust ("EPT"), a real estate
investment trust, for an aggregate purchase price of $283,800,000 (the
"Sale and Lease Back Transaction"). The Company leased the real estate
assets associated with the theatres from EPT pursuant to non-cancelable
operating leases with terms ranging from 13 to 15 years at an initial
lease rate of 10.5% with options to extend for up to an additional 20
years. The leases are triple net leases that require the Company to pay
substantially all expenses associated with the operation of the theatres,
such as taxes and other governmental charges, insurance, utilities,
service, maintenance and any ground lease payments. The Company has
accounted for this transaction as a sale and leaseback in accordance with
Statement of Financial Accounting Standards No. 98, Accounting for Leases.
The land and building and improvements have been removed from the
Consolidated Balance Sheet and the gain of $15,130,000 on the sales has
been deferred and is being amortized to rent expense over the life of the
leases.
The Company has granted an option to EPT to acquire a theatre under
construction for the cost to the Company of developing and constructing
such property. In addition, for a period of five years subsequent to
November 1997, EPT will have a right of first refusal and first offer to
purchase and lease back to the Company the real estate assets associated
with any theatre and related entertainment property owned or ground-leased
by the Company, exercisable upon the Company's intended disposition of
such property.
The Co-Chairman of the Board, President and Chief Financial Officer of
AMCE is also the Chairman of the Board of Trustees of EPT.
Following is a schedule, by year, of future minimum rental payments
required under existing operating leases that have initial or remaining
non-cancelable terms in excess of one year as of April 2, 1998:
(In thousands)
- -------------------------------------------------
1999 $ 131,676
2000 132,062
2001 130,161
2002 127,295
2003 123,409
Thereafter 1,376,799
----------
Total minimum payments required $2,021,402
==========
The Company has also entered into agreements to lease space for the
operation of theatres not yet fully constructed. The scheduled completion
of construction and theatre openings are at various dates during 1999.
The future minimum rental payments required under the terms of these
leases total approximately $409 million.
The Company records rent expense on a straight-line basis over the term of
the lease. Included in long-term liabilities as of April 2, 1998 and
April 3, 1997 is $19,862,000 and $16,278,000, respectively, of deferred
rent representing pro rata future minimum rental payments for leases with
scheduled rent increases.
Rent expense is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 94,103 $ 69,845 $ 54,727
Common area expenses 12,011 10,555 9,930
Percentage rentals based on revenues 2,869 2,278 2,354
-----------------------------------
$108,983 $ 82,678 $ 67,011
==================================
</TABLE>
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company sponsors a non-contributory defined benefit pension plan
covering, after a minimum of one year of employment, all employees age 21
or older who have completed 1,000 hours of service in their first twelve
months of employment or in a calendar year and who are not covered by a
collective bargaining agreement.
The plan calls for benefits to be paid to eligible employees at retirement
based primarily upon years of credited service with the Company (not
exceeding thirty-five) and the employee's highest five year average
compensation. Contributions to the plan reflect benefits attributed to
employees' services to date, as well as services expected to be earned in
the future. Plan assets are invested in a group annuity contract with an
insurance company pursuant to which the plan's benefits are paid to
retired and terminated employees and the beneficiaries of deceased
employees.
The following table sets forth the plan's funded status as of December 31,
1997 and 1996 (plan valuation dates) and the amounts included in the
Consolidated Balance Sheets as of April 2, 1998 and April 3, 1997:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation,
including vested benefits of $12,550 and $11,139 $ 12,777 $ 11,309
======================
Projected benefit obligation for service
rendered to date $21,346 $ 18,489
Plan assets at fair value (12,991) (10,857)
----------------------
Projected benefit obligation in excess
of plan assets 8,355 7,632
Unrecognized net loss from past
experience different from that
assumed and effects of changes in assumptions (490) (686)
Unrecognized net obligation upon adoption
being recognized over 15 years (1,235) (1,411)
----------------------
Pension liability $ 6,630 $ 5,535
======================
</TABLE>
<TABLE>
<CAPTION>
Net pension expense includes the following components:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,274 $ 1,191 $ 855
Interest cost 1,290 1,188 966
Actual return on plan assets (1,674) (1,218) (1,630)
Net amortization and deferral 918 563 1,096
------------------------------------
Net pension expense $ 1,808 $ 1,724 $ 1,287
===================================
</TABLE>
The Company also sponsors two non-contributory deferred compensation plans
which provide certain employees additional pension benefits. The
actuarial present value of accumulated plan benefits related to the plans
was $1,051,000 and $856,000 as of April 2, 1998 and April 3, 1997,
respectively, which is reflected in the Consolidated Balance Sheets.
The weighted average discount rate used to measure the plans' projected
benefit obligations was 7.0% for 1998, 1997 and 1996. The rate of
increase in future compensation levels was 6.0% for 1998, 1997 and 1996
and the expected long-term rate of return on assets was 8.5% for 1998,
1997 and 1996. A limited number of employees are covered by collective
bargaining agreements under which payments are made to a union-
administered fund.
The Company sponsors a voluntary thrift savings plan covering the same
employees eligible for the pension plan. Since inception of the savings
plan, the Company has matched 50% of each eligible employee's elective
contributions, limited to 3% of the employee's salary. The Company's
expense under the thrift savings plan was $1,308,000, $1,270,000 and
$1,032,000 for 1998, 1997 and 1996, respectively.
The Company currently offers eligible retirees the opportunity to
participate in a health plan (medical and dental) and a life insurance
plan. Substantially all employees may become eligible for these benefits
provided that the employee must be at least 55 years of age and have 15
years of credited service at retirement. The health plan is contributory,
with retiree contributions adjusted annually; the life insurance plan is
noncontributory. The accounting for the health plan anticipates future
modifications to the cost-sharing provisions to provide for retiree
premium contributions of approximately 20% of total premiums, increases in
deductibles and co-insurance at the medical inflation rate and
coordination with Medicare. Retiree health and life insurance plans are
not funded. The Company is amortizing the transition obligation on the
straight-line method over a period of 20 years.
The following table sets forth the plans' accumulated postretirement
benefit obligation reconciled with the amounts included in the
Consolidated Balance Sheets as of April 2, 1998 and April 3, 1997:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 616 $ 618
Fully eligible active plan participants 537 513
Other active plan participants 2,175 1,777
--------------------
Accumulated postretirement benefit obligation 3,328 2,908
Unrecognized net obligation upon adoption being
recognized over 20 years (647) (697)
Unrecognized loss (195) (190)
--------------------
Postretirement benefit liability $ 2,486 $ 2,021
======================
</TABLE>
<TABLE>
<CAPTION>
Postretirement expense includes the following components:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 229 $ 199 $ 192
Interest cost 218 172 208
Net amortization and deferral 50 50 66
---------------------------------
Postretirement expense $ 497 $ 421 $ 466
=================================
</TABLE>
For measurement purposes, the annual rate of increase in the per capita
cost of covered health care benefits assumed for 1998 was 7.0% for medical
and 4.5% for dental. The rates were assumed to decrease gradually to 5.0%
for medical and 3.0% for dental at 2020 and remain at that level
thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of April 2, 1998 by
$997,000 and the aggregate of the service and interest cost components of
postretirement expense for 1998 by $176,000. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% for 1998, 1997 and 1996.
NOTE 11 - CONTINGENCIES
The Company, in the normal course of business, is party to various legal
actions. Management believes that the potential exposure, if any, from
such matters would not have a material adverse effect on the financial
condition, cash flows or results of operations of the Company.
NOTE 12 - FUTURE DISPOSITION OF ASSETS
The Company has provided reserves for estimated losses from discontinuing
the operation of fast food restaurants, for theatres which have been or
are expected to be closed and for other future dispositions of assets.
In conjunction with the opening of certain new theatres in 1986 through
1988, the Company expanded its food services by leasing additional space
adjacent to those theatres to operate specialty fast food restaurants.
The Company discontinued operating the restaurants due to unprofitability.
The Company continues to sub-lease or to convert to other uses the space
leased for these restaurants. The Company is obligated under long-term
lease commitments with remaining terms of up to 13 years. As of April 2,
1998, the base rents aggregated approximately $1,159,000 annually, and
$9,654,000 over the remaining terms of the leases. As of April 2, 1998,
the Company had subleased approximately 64% of the space with remaining
terms ranging from two months to 153 months. Non-cancelable subleases
aggregated approximately $913,000 annually, and $5,664,000 over the
remaining terms of the subleases.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it was practicable to
estimate that value.
The carrying value of cash and equivalents approximates fair value because
of the short duration of those instruments. The fair value of publicly
held corporate borrowings was based upon quoted market prices. For other
corporate borrowings, the fair value was based upon rates available to the
Company from bank loan agreements or rates based upon the estimated
premium over U.S. treasury notes with similar average maturities.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and equivalents $ 9,881 $ 9,881 $ 24,715 $ 24,715
Financial liabilities:
Cash overdrafts $ 15,866 $ 15,866 $ 11,175 $ 11,175
Corporate borrowings 348,990 361,000 315,072 315,804
</TABLE>
<TABLE>
<CAPTION>
AMC ENTERTAINMENT INC.
STATEMENTS OF OPERATIONS BY QUARTER
(In thousands, except per share amounts) (Unaudited)
July 3, June 27, October 2,
September 26, January 1,
1997 1996 1997 1996 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $194,462 $161,927 $219,589 $202,436 $215,839
Total cost of operations 159,670 132,821 170,469 155,593 172,308
General and administrative 14,755 13,025 12,097 11,647 15,041
Depreciation and amortization 16,367 11,674 16,522 12,740 17,227
Impairment of long-lived assets - - 46,998 - -
---------------------------------------------------------------
Operating income (loss) 3,670 4,407 (26,497) 22,456 11,263
Interest expense 8,245 4,909 9,405 4,852 9,870
Investment income 172 182 509 139 124
Gain (loss) on disposition of assets 1,178 18 1,318 (49) 864
---------------------------------------------------------------
Earnings (loss) before income taxes (3,225) (302) (34,075) 17,694 2,381
Income tax provision (1,386) (125) (13,714) 7,125 950
---------------------------------------------------------------
Net earnings (loss) $(1,839) $ (177) $ (20,361) $ 10,569 $ 1,431
===============================================================
Preferred dividends 1,369 1,546 1,283 1,454 1,198
---------------------------------------------------------------
Net earnings (loss) for
common shares $(3,208) $(1,723) $ (21,644) $ 9,115 $ 233
===============================================================
Earnings (loss) per share:
Basic $ (.18) $ (.10) $ (1.18) $ .51 $ .01
===============================================================
Diluted $ (.18) $ (.10) $ (1.18) $ .45 $ .01
December 26, April 2, April 3, Fiscal Year
1996 1998 1997(1) 1998 1997(1)
- --------------------------------------------------------------------------------------------------
Total revenues $163,192 $216,905 $222,042 $846,795 $749,597
Total cost of operations 130,464 183,093 161,124 685,540 580,002
General and administrative 13,910 12,461 18,065 54,354 56,647
Depreciation and amortization 13,129 20,001 15,029 70,117 52,572
Impairment of long-lived assets - - 7,231 46,998 7,231
--------------------------------------------------------------
Operating income (loss) 5,689 1,350 20,593 (10,214) 53,145
Interest expense 5,275 8,159 6,986 35,679 22,022
Investment income 343 285 192 1,090 856
Gain (loss) on disposition of assets (53) 344 - 3,704
(84)
--------------------------------------------------------------
Earnings (loss) before income taxes 704 (6,180) 13,799 (41,099) 31,895
Income tax provision 285 (2,450) 5,615 (16,600) 12,900
--------------------------------------------------------------
Net earnings (loss) $ 419 $ (3,730) $ 8,184 $(24,499) $ 18,995
==============================================================
Preferred dividends 1,454 996 1,453 4,846 5,907
--------------------------------------------------------------
Net earnings (loss) for
common shares $(1,035) $(4,726) $ 6,731 $(29,345) $ 13,088
==============================================================
Earnings (loss) per share:
Basic $ (.06) $ (0.25) $ .38 $ (1.59) $ .75
==============================================================
Diluted $ (.06) $ (0.25) $ .34 $ (1.59) $ .74
==============================================================
</TABLE>
(1) Fiscal year 1997 consists of 53 weeks and the fiscal quarter ended
April 3, 1997 consists of 14 weeks.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosures.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
<TABLE>
<CAPTION>
The Directors and Executive Officers of the Company are as follows:
Years
Associated
with the
Name Age(1) Positions Company(1)
- ----- ------ ------------------ ------------
<S> <C> <C> <C>
Stanley H. Durwood 77 Co-Chairman of
the Board,
Chief Executive 52(2)
Officer and
Director (AMCE);
Chairman of the Board,
Chief Executive
Officer and Director (AMC)
Peter C. Brown 39 Co-Chairman of the
Board and President 6
(AMCE); Executive Vice
President (AMC);
Chief Financial
Officer and Director
(AMCE and AMC)
Philip M. Singleton 51 President (AMC); Executive 23(2)
Vice President (AMCE);
Chief Operating
Officer and Director
(AMCE and AMC)
Charles J. Egan, Jr. 65 Director (AMCE) 11
William T. Grant, II 47 Director (AMCE) 1
John P. Mascotte 58 Director (AMCE) 1
Paul E. Vardeman 68 Director (AMCE) 14(2)
Richard T. Walsh 44 Senior Vice
President (AMC) 22(2)
Richard J. King 49 Senior Vice
President (AMC) 26(2)
Rolando B. Rodriguez 38 Senior Vice
President (AMC) 22(2)
Richard L. Obert 58 Senior Vice
President-Chief
Accounting
and Information
Officer (AMCE and AMC) 9
Charles P. Stilley 43 President
(AMC Realty, Inc.) 16(2)
Richard M. Fay 48 President
(AMC Film Marketing,
a division of AMC) 2
______________________________
</TABLE>
(1) As of April 2, 1998.
(2) Includes years of service with the predecessor of the Company.
All directors are elected annually, and each holds office until his
successor has been duly elected and qualified or his earlier resignation or
removal. There are no family relationships between any Director and any
Executive Officer of the Company.
All current Executive Officers of the Company hold such offices at the
pleasure of the AMCE Board of Directors, subject, in the case of Messrs.
Stanley H. Durwood, Peter C. Brown, Philip M. Singleton and Richard M.
Fay, to rights under their respective employment agreements.
Mr. Stanley H. Durwood has served as a Director of AMCE from its
organization on June 14, 1983, and of AMC since August 2, 1968. Mr. Durwood
has served as Co-Chairman of the Board of AMCE since May 15, 1998 and
Chairman of the Board of AMCE and AMC since February 1986, and has served
as Chief Executive Officer of AMCE since June 1983, and of AMC since
February 20, 1986. Mr. Durwood served as President of AMCE (i) from
June 1983 through February 20, 1986, (ii) from May 1988 through June 1989,
and (iii) from October 6, 1995 to January 10, 1997. Mr. Durwood served as
President of AMC (i) from August 2, 1968 through February 20, 1986,
(ii) from May 13, 1988 through November 8, 1990, and (iii) from October 6,
1995 to January 10, 1997. Mr. Durwood is a graduate of Harvard University.
Mr. Peter C. Brown has served as Co-Chairman of the Board of AMCE
since May 15, 1998 and has served as a Director of AMCE and AMC since
November 12, 1992. Mr. Brown was elected President of AMCE on January 10,
1997. Mr. Brown served as Executive Vice President of AMCE from August 3,
1994 to January 10, 1997. Mr. Brown has served as Executive Vice President
of AMC since August 3, 1994, and as Chief Financial Officer of AMCE and AMC
since November 14, 1991. Mr. Brown served as Senior Vice President of AMCE
and AMC from November 14, 1991 until his appointment as Executive Vice
President in August 1994. Mr. Brown served as Treasurer of AMCE and AMC
from September 28, 1992 through September 19, 1994. Mr. Brown is a graduate
of the University of Kansas. Mr. Brown also serves as Chairman of the Board
of Trustees of Entertainment Properties Trust, a real estate investment
trust, and serves on the board of directors of Protection One, Inc., a
security alarm monitoring company.
Mr. Philip M. Singleton has served as a Director of AMCE and AMC since
November 12, 1992. Mr. Singleton was elected President of AMC on January
10, 1997. Mr. Singleton has served as Executive Vice President of AMCE
since August 3, 1994 and as Chief Operating Officer of AMCE and AMC since
November 14, 1991. Mr. Singleton served as Executive Vice President of AMC
from August 3, 1994 to January 10, 1997. Mr. Singleton served as Senior
Vice President of AMCE and AMC from November 14, 1991 until his appointment
as Executive Vice President in August 1994. Prior to November 14, 1991,
Mr. Singleton served as Vice President in charge of operations for the
Southeast Division of AMC from May 10, 1982. Mr. Singleton holds an
undergraduate degree from California State University, Sacramento, and an
M.B.A. degree from the University of South Florida.
Mr. Charles J. Egan, Jr., has served as a Director of AMCE since
October 30, 1986. Mr. Egan is Vice President of Hallmark Cards,
Incorporated, and was General Counsel of such company until December 31,
1996. Hallmark Cards, Incorporated is primarily engaged in the business of
greeting cards and related social expressions products, Crayola crayons and
the production of movies for television. Mr. Egan also serves as a member
of the Board of Trustees, Treasurer and Chairman of the Finance Committee
of the Kansas City Art Institute. Mr. Egan holds an A.B. degree from
Harvard University and an LL.B. degree from Columbia University.
Mr. William T. Grant, II has served as a Director of AMCE since
November 14, 1996. Mr. Grant is Chairman of the Board, President, Chief
Executive Officer and a Director of LabOne, Inc. LabOne, Inc. provides
risk appraisal laboratory testing services to the insurance industries in
the United States and Canada. Mr. Grant also serves on the board of
directors of Commerce Bancshares, Inc., Kansas City Power & Light Company,
Business Men's Assurance Company of America, Response Oncology, Inc. and
SLH Corporation. Mr. Grant is a board member of the Boys and Girls Clubs
of Greater Kansas City. Mr. Grant holds a B.A. degree from the University
of Kansas and an M.B.A. degree from the Wharton School of Finance at the
University of Pennsylvania.
Mr. John P. Mascotte has served as a Director of AMCE since
November 14, 1996. Mr. Mascotte assumed the duties of President and Chief
Executive Officer of BlueCross BlueShield of Kansas City on July 1, 1997.
Prior thereto, Mr. Mascotte served as Chairman of Johnson & Higgins of
Missouri, Inc., a privately held insurance broker, from January 1996 to
June 30, 1997, and as Chairman of the Board and Chief Executive Officer of
The Continental Corporation, a large property-casualty insurer, from
December 1982 through December 1995. Mr. Mascotte is also currently a
consultant to the First Episcopal District, African Methodist Episcopal
Church and was Chairman of the Heart of America 1996 United Way General
Campaign. Mr. Mascotte also serves on the board of directors of Hallmark
Cards, Incorporated, Hallmark Entertainment, Inc., Business Men's Assurance
Company of America and American Home Products Corporation in addition to
serving on the boards of BlueCross BlueShield of Kansas City and the
BlueCross and Blue Shield Association. Also, Mr. Mascotte is Vice Chairman
of the Aspen Institute, Chairman of LISC (Local Initiatives Support Corp.)
and a member of the Board of Trustees of the New York Public Library and
Midwest Research Institute. Mr. Mascotte is a board member of the Hall
Family Foundation and the Greater Kansas City Community Foundation and is
Co-Chairman of the Jazz District Redevelopment Corporation in Kansas City,
Missouri. Mr. Mascotte holds B.S. degrees from St. Joseph's College,
Rensselaer, Indiana, and an LL.B. degree from the University of Virginia.
Mr. Mascotte is also a certified public accountant and a chartered life
underwriter.
Mr. Paul E. Vardeman has served as a Director of AMCE since June 14,
1983. Mr. Vardeman was a director, officer and shareholder of the law firm
of Polsinelli, White, Vardeman & Shalton, P.C., Kansas City, Missouri from
1982 until his retirement from such firm in November 1997. Prior thereto,
Mr. Vardeman served as a Judge of the Circuit Court of Jackson County,
Missouri. Mr. Vardeman holds undergraduate and J.D. degrees from the
University of Missouri-Kansas City.
Mr. Richard T. Walsh has served as Senior Vice President in charge of
operations for the West Division of AMC since July 1, 1994. Previously,
Mr. Walsh served as Vice President in charge of operations for the Central
Division of AMC from June 10, 1992, and as Vice President in charge of
operations for the Midwest Division of AMC from December 1, 1988.
Mr. Richard J. King has served as Senior Vice President in charge of
operations for the East Division of AMC since January 4, 1995. Previously,
Mr. King served as Vice President in charge of operations for the East
Division of AMC from June 10, 1992, and as Vice President in charge of
operations for the Southwest Division of AMC from October 30, 1986.
Mr. Rolando B. Rodriguez has served as Senior Vice President in charge
of operations for the South Division of AMC since April 2, 1996.
Previously, Mr. Rodriguez served as Vice President and South Division
Operations Manager of AMC from July 1, 1994, as Assistant South Division
Operations Manager of AMC from February 12, 1993, as South Division Senior
Operations Manager from March 29, 1992, and as South Division Operations
Manager from August 6, 1989.
Mr. Richard L. Obert has served as Senior Vice President - Chief
Accounting and Information Officer of AMCE and AMC since November 9, 1995,
and prior thereto served as Vice President and Chief Accounting Officer of
AMCE and AMC from January 9, 1989.
Mr. Charles P. Stilley has served as President of AMC Realty, Inc., a
wholly owned subsidiary of AMCE, since February 9, 1993, and prior thereto
served as Senior Vice President of AMC Realty, Inc. from March 3, 1986.
Mr. Richard M. Fay has served as President - AMC Film Marketing, a
division of AMC, since September 8, 1995. Previously, Mr. Fay served as
Senior Vice President and Assistant General Sales Manager of Sony Pictures
from 1994 until joining AMC. From 1991 to 1994, Mr. Fay served as Vice
President and Head Film Buyer for the eastern division of United Artists
Theatre Circuit, Inc.
Item 11. Executive Compensation.
Compensation of Management
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the
Company's Chief Executive Officer and each of the four other most highly
compensated Executive Officers of the Company (determined as of the end of
the last fiscal year and hereafter referred to as the "Named Executive
Officers") for the last three fiscal years ended April 2, 1998, April 3,
1997 and March 28, 1996, respectively.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation
Awards-
Securities
Annual Compensation Other Underlying
Name and Principal Fiscal Annual Options/ All Other
Position Year Salary Bonus Compensation(1) SARs Compensation(2)
<S> <C> <C> <C> <C> <C> <C>
Stanley H. Durwood 1998 $536,558 $ - N/A - $ -
Chief Executive Officer 1997 527,322 - N/A 65,000 -
1996 492,634 275,000 N/A - -
Peter C. Brown 1998 296,444 - N/A - 4,960
President and 1997 271,364 25,500 N/A 4,500 4,976
Chief Financial Officer 1996 257,439 137,500 N/A - 4,726
Philip M. Singleton 1998 316,679 - N/A - 4,896
Chief Operating Officer 1997 303,125 28,500 N/A 4,500 5,003
1996 285,311 154,000 N/A - 4,686
Richard T. Walsh 1998 226,441 60,000 N/A - 4,805
Senior Vice President 1997 223,073 41,545 N/A 2,250 4,964
1996 207,204 80,000 N/A 2,250 4,620
Richard M. Fay 1998 286,982 45,000 N/A - 4,676
President-AMC Film 1997 294,369 32,650 N/A 2,250 1,464
Marketing 1996 150,049 55,000 66,283 - -
</TABLE>
(1) N/A denotes not applicable. Fiscal 1996 includes a lump sum payment
of $50,000 paid to Mr. Richard M. Fay for costs associated with
relocation. For the years presented, excluding Mr. Richard M. Fay in
1996, perquisites and other personal benefits did not exceed the
lesser of $50,000 or 10% of total annual salary and bonus.
(2) For fiscal 1998, 1997 and 1996, All Other Compensation is comprised
of AMC's contributions under AMC's 401(k) Savings Plan and Non-
Qualified Deferred Compensation Plan, both of which are defined
contribution plans.
Option Grants. There were no individual grants of stock options made
during the last completed fiscal year to the Named Executive Officers.
Option Exercises and Holdings. The following table provides information
with respect to the Named Executive Officers concerning the exercise of
options during the last fiscal year and unexercised options held as of
April 2, 1998.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option/SAR Values
Value of
Number of Unexercised
Securities Underlying In-The-Money
Unexercised Options/ Options/SARs at
Shares Acquired SARs at FY-End FY-End (1)
-------------------- ------------------
Name on Exercise Value RealizedExercisable Unexercisable Exercisable Unexercisable
---- ---------- -------------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley H. Durwood - $ - 76,250 11,250 $ 267,188 $ -
Peter C. Brown - - 156,750 2,250 2,209,688 -
Philip M. Singleton 25,400 434,086 131,350 2,250 1,844,563 -
Richard T. Walsh 5,000 89,063 28,375 1,125 376,781 -
Richard M. Fay - - 1,125 1,125 5,766 5,766
</TABLE>
(1) Values for "in-the-money" outstanding options represent the positive
spread between the respective exercise prices of the outstanding
options and the value of AMCE's Common Stock as of April 2, 1998.
Defined Benefit Retirement and Supplemental Executive Retirement Plans.
AMC sponsors a defined benefit retirement plan (the "Retirement Plan")
which provides benefits to certain employees of AMC and its subsidiaries
based upon years of credited service and the highest consecutive five-year
average annual remuneration for each participant. For purposes of
calculating benefits, average annual compensation is limited by Section
401(a)(17) of the Internal Revenue Code (the "Code"), and is based upon
wages, salaries and other amounts paid to the employee for personal
services, excluding certain special compensation. A participant earns a
vested right to an accrued benefit upon completion of five years of
vesting service.
AMC also sponsors a Supplemental Executive Retirement Plan to provide
the same level of retirement benefits that would have been provided under
the Retirement Plan had the federal tax law not been changed in the
Omnibus Budget Reconciliation Act of 1993, which reduced the amount of
compensation which can be taken into account in a qualified retirement
plan from $235,840 (in 1993), the old limit, to $160,000 (in 1998).
The following table shows the total estimated annual pension benefits
(without regard to minimum benefits) payable to a covered participant
under AMC's Retirement Plan and the Supplemental Executive Retirement
Plan, assuming retirement in calendar 1998 at age 65 payable in the form
of a single life annuity. The benefits are not subject to any deduction
for Social Security or other offset amounts. The following table assumes
the old limit would have been increased to $265,000 in 1998.
<TABLE>
<CAPTION>
Highest Consecutive
Five year Average
Annual Compensation Years of Credited
-------------------------------------------------
15 20 25 30 35
--- --- --- --- ---
<S> <C> <C> <C> <C> <C>
$125,000 $17,716 $23,621 $29,527 $35,432 $41,337
150,000 21,466 28,621 35,777 42,932 50,087
175,000 25,216 33,621 42,027 50,432 58,837
200,000 28,966 38,621 48,277 57,932 67,587
225,000 32,716 43,621 54,527 65,432 76,337
250,000 36,466 48,621 60,777 72,932 85,087
265,000 38,716 51,621 64,527 77,432 90,337
</TABLE>
As of April 2, 1998, the years of credited service under the
Retirement Plan for each of the Named Executive Officers were: Mr. Peter
C. Brown, seven years, Mr. Philip M. Singleton, 24 years, Mr. Richard T.
Walsh, 23 years; and Mr. Richard M. Fay, two years. The lump sum cash
value of the benefit Mr. Stanley H. Durwood has accrued under the
Supplemental Executive Retirement Plan in fiscal 1998 is $89,661 and is
not included in the Summary Compensation Table.
AMC has established a Retirement Enhancement Plan ("REP") for the
benefit of officers who from time to time may be designated as eligible
participants therein by the Board of Directors. The REP is a non-
qualified deferred compensation plan designed to provide an unfunded
retirement benefit to an eligible participant in an amount equal to (i)
sixty percent (60%) of his or her average compensation (including paid and
deferred incentive compensation) during the last three full years of
employment, less (ii) the sum of (A) such participant's benefits under the
Retirement Plan and Social Security, and (B) the amount of a straight life
annuity commencing at the participant's normal retirement date
attributable to AMC's contributions under the Supplemental Executive
Retirement Plan, the 401(k) Savings Plan, the Non-Qualified Deferred
Compensation Plan and the Executive Savings Plan. The base amount in
clause (i) will be reduced on a pro rata basis if the participant
completes fewer than twenty-five (25) years of service. The REP benefit
vests upon the participant's attainment of age 55 or completion of fifteen
(15) years of service, whichever is later, and may commence to a vested
participant retiring on or after age 55 (who has participated in the plan
for at least 5 years) on an actuarially reduced basis (6 2/3% for each of
the first five years by which commencement precedes age 65 and an
additional 3 1/3% for each year by which commencement precedes age 60).
Benefits commence at a participant's normal retirement date (i.e., the
later of age 65 or the participant's completion of five years of service
with AMC) whether or not the participant continues to be employed by AMC.
The accrued benefit payable upon total and permanent disability is not
reduced by reason of early commencement. Participants become fully vested
in their rights under the REP if their employment is terminated without
cause or as a result of a change in control, as defined in the REP. No
death, disability or retirement benefit is payable prior to a
participant's early retirement date or prior to the date any severance
payments to which the participant is entitled cease.
Presently, Mr. Stanley H. Durwood, Mr. Peter C. Brown and Mr. Philip
M. Singleton have been designated as eligible to participate in the REP.
The amount payable to Mr. Durwood with respect to fiscal 1998 under the
REP is $345,000 and is not included in the Summary Compensation Table.
The estimated annual amounts that Mr. Brown and Mr. Singleton will be
eligible to receive under the REP at age 65 are $39,000 and $83,000,
respectively; such amounts are based on certain assumptions respecting
their future compensation amounts and the amounts of AMC contributions
under other plans. Actual amounts received by such individuals under the
REP may be different than those estimated.
Compensation of Directors
Each of AMCE's non-employee directors receives an annual fee of
$32,000 for service on the Board of Directors and an additional $4,000 for
each committee of the Board on which he serves and, in addition, receives
$1,500 and $1,000, respectively, for each Board and Board committee
meeting which he attends.
For the fiscal year ended April 2, 1998, Messrs. Charles J. Egan,
Jr., William T. Grant, II, John P. Mascotte and Paul E. Vardeman received
$70,000, $66,000, $64,000 and $56,500, respectively, for their services.
The Board of Directors has also authorized that Messrs. Charles J.
Egan, Jr. and Paul E. Vardeman be paid reasonable compensation for their
services as members of a special committee (the "Special Committee")
appointed to consider the Merger. For the fiscal year ended April 2,
1998, Messrs. Charles J. Egan, Jr. and Paul E. Vardeman each received
$30,000 for their services related to the Special Committee.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
Mr. Stanley H. Durwood has an employment agreement with AMCE and AMC
dated January 26, 1996 retaining him as Chairman and Chief Executive
Officer and President. It provides for an annual base salary of no less
than $500,000, plus payments and awards under AMC's Executive Incentive
Program ("EIP"), the 1994 Stock Option and Incentive Plan, as amended and
other bonus plans in effect for Executive Officers at a level reflecting
his position, plus such other amounts as may be paid under any other
compensatory arrangement as determined in the sole discretion of the
Compensation Committee. Mr. Durwood's current annual base salary is
$567,000. The Company has also agreed to use its best efforts to provide
Mr. Durwood up to $5,000,000 in life insurance and to pay the premiums
thereon and taxes resulting from such payment. Mr. Durwood's employment
agreement has a term of three years and is automatically extended one year
on its anniversary date, January 26, so that as of such date each year the
agreement has a three-year term. The employment agreement is terminable
without severance if he engages in intentional misconduct or a knowing
violation of law or breaches his duty of loyalty to the Company. The
agreement also is terminable (i) by Mr. Durwood, in the event of the
Company's breach, and (ii) by the Company, without cause or in the event
of Mr. Durwood's death or disability, in each case with severance payments
equal to three times the sum of his annual base salary in effect at the
time of termination plus the average of annual incentive or discretionary
cash bonuses paid during the three fiscal years preceding the year of
termination. The Company may elect to pay such severance payments in
monthly installments over a period of three years or in a lump sum after
discounting such amount to its then present value. The aggregate amount
payable under this employment agreement, assuming termination with
severance occurred as of April 2, 1998, was approximately $1,734,000.
Messrs. Peter C. Brown and Philip M. Singleton each have employment
agreements with AMC dated September 26, 1994, providing for annual base
salaries of no less than $227,000 and $266,000, respectively, and bonuses
resulting from the EIP or other bonus arrangement, if any, as determined
from time to time at the sole discretion of the Compensation Committee
upon the recommendation of the Chairman of the Board. The current annual
base salaries of Messrs. Brown and Singleton are $400,000 and $375,000,
respectively. Each employment agreement has a term of two years. On each
September 27, commencing in 1995, one year shall be added to the term of
each employment agreement, so that each employment agreement shall always
have a two-year term as of each anniversary date. Each employment
agreement terminates without severance upon such employee's resignation,
death or his disability as defined in his employment agreement, or upon
AMC's good faith determination that such employee has been dishonest or
has committed a breach of trust respecting AMC. AMC may terminate each
employment agreement at any time, with severance payments in an amount
equal to twice the annual base salary of such employee on the date of
termination. Each employee may terminate his employment agreement if Mr.
Stanley H. Durwood shall fail to control AMC as defined in the employment
agreement and receive severance payments in an amount equal to twice his
annual base salary on the date of termination. AMC may elect to pay any
severance payments in a lump sum after discounting such amount to its then
present value, or over a two-year period. The aggregate value of all
severance benefits to be paid to such employee shall not exceed 299% of
such employee's "base amount" as defined in the Code for the five-year
period immediately preceding the date of termination. The aggregate
amount payable to Messrs. Brown and Singleton under these employment
agreements, assuming termination by reason of a change of control and
payment in a lump sum as of April 2, 1998, were approximately $735,000
and $687,000, respectively.
Mr. Richard M. Fay has an employment agreement with AMC dated April
16, 1996 which provides for an annual base salary of $275,000. Mr. Fay's
current annual base salary is $285,000. Mr. Fay is also eligible to
receive payments resulting from the EIP or other bonus arrangement, if
any, as determined from time to time in the sole discretion of the
Compensation Committee of the Board of Directors of AMC upon the
recommendation of the Chief Executive Officer of AMC. The employment
agreement has a term of three years, from September 8, 1995 through
September 7, 1998. The employment agreement terminates without severance
upon Mr. Fay's resignation, death or disability as defined in his
employment agreement, or upon AMC's good faith determination that Mr. Fay
has been dishonest or has committed a breach of trust respecting AMC. AMC
may terminate the employment agreement at any time, with severance
payments in an amount equal to, at AMC's option, either (i) Mr. Fay's base
salary per month in effect at the time of termination, payable over the
remaining term of his employment, or (ii) the net present value of the
monthly payments described in (i) above, payable within 30 days of the
date of termination. Any severance payable to Mr. Fay shall be reduced by
any wages, compensation or income, cash or otherwise, received by Mr. Fay
from sources other than AMC during the remaining term of his employment
agreement following the date of termination. The aggregate amount payable
under this employment agreement, assuming termination with severance
occurred as of April 2, 1998, was approximately $116,000.
As permitted by the 1994 Stock Option and Incentive Plan, stock
options granted to participants thereunder provide for acceleration upon
the termination of employment within one year after the occurrence of
certain change in control events, whether such termination is voluntary or
involuntary, or with or without cause. In addition, the Compensation
Committee may permit acceleration upon the occurrence of certain
extraordinary transactions which may not constitute a change of control.
AMC maintains a severance pay plan for full-time salaried
nonbargaining employees with at least 90 days of service. For an eligible
employee who is subject to the Fair Labor Standards Act ("FLSA") overtime
pay requirements (a "nonexempt eligible employee"), the plan provides for
severance pay in the case of involuntary termination of employment due to
layoff of the greater of two week's basic pay or one week's basic pay
multiplied by the employee's full years of service up to no more than
twelve weeks' basic pay. There is no severance pay for a voluntary
termination, unless up to two weeks' pay is authorized in lieu of notice.
There is no severance pay for an involuntary termination due to an
employee's misconduct. Only two weeks' severance pay is paid for an
involuntary termination due to substandard performance. For an eligible
employee who is exempt from the FLSA overtime pay requirements, severance
pay is discretionary (at the Department Head/Supervisor level), but will
not be less than the amount that would be paid to a nonexempt eligible
employee.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of May 15,
1998, with respect to beneficial owners of five percent or more of any
class of the Company's voting securities:
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent
Title of Class of Beneficial Owner Beneficially Owned of Class
<S> <C> <C> <C>
Common Stock Brian H. Durwood (1) 1,461,203(1) 7.9%(1)
15840 S.W. Breccia
Beaverton, OR 97007
Edward D. Durwood (1) 1,461,203(1) 7.9%(1)
3001 West 68th Street
Shawnee Mission, KS 66208
Peter J. Durwood (1) 1,461,203(1) 7.9%(1)
666 West End Avenue
New York, NY 10025
Thomas A. Durwood (1) 1,461,203(1)(2) 7.9%(1)(2)
P. O. Box 7208
Rancho Santa Fe, CA 92067
Elissa D. Grodin (1) 1,461,203(1) 7.9%(1)
187 Chestnut Hill Road
Wilton, CT 06897
Carol D. Journagan (1) 1,461,203(1) 7.9%(1)
1323 Granite Creek Drive
Blue Springs, MO 64015
EnTrust Capital Inc.(3) 1,397,776(3) 7.9%(3)
650 Madison Ave.
New York, NY 10022
Class B Stock Stanley H. Durwood (1) 5,015,657(1) 100%
106 West 14th Street
Kansas City, MO 64105
</TABLE>
(1) Mrs. Carol D. Journagan, Mr. Edward D. Durwood, Mr. Thomas A.
Durwood, Mrs. Elissa D. Grodin, Mr. Brian H. Durwood and Mr. Peter J.
Durwood are the children (the "Durwood Children") of Mr. Stanley H.
Durwood, the Co-Chairman of the Board and Chief Executive Officer of
AMCE. Mr. Stanley H. Durwood and the Durwood Children (collectively,
the "Durwood Family Stockholders") formerly held their stock in the
Company through a holding company, DI., and acquired their shares on
August 15, 1997 pursuant to the Merger of the Company and DI. As a
condition to the Merger, the Durwood Family Stockholders entered into
a Stock Agreement and a Registration Agreement with the Company, each
dated August 15, 1997, in which they agreed to offer an aggregate of
at least 3,000,000 shares of Common Stock in a registered secondary
offering, which will be made only by means of a prospectus, between
February 15 and August 15, 1998. Of these 3,000,000 shares,
Mr. Stanley H. Durwood has agreed to offer 500,000 shares, which will
be obtained by converting 500,000 shares of Class B Stock.
Consummation of the Merger and the registered secondary offering were
conditions of a settlement of a stockholders' derivative suit in
which Mr. Stanley H. Durwood and his son, Mr. Edward D. Durwood, who
is also a Durwood Family Stockholder, were defendants.
Pursuant to the terms of an Escrow Agreement among the Durwood Family
Stockholders and Mercantile Bank of Kansas City (the "Escrow
Agreement"), the Durwood Family Stockholders have deposited 3,000,000
shares of stock with the Escrow Agent. A majority of the individual
parties may cause shares held in the escrow to be delivered to
underwriters in connection with a registered secondary offering. As a
result, each of the parties to the Escrow Agreement may be deemed to
share investment power over the shares held in escrow, although each
has disclaimed beneficial ownership of the shares held in escrow
owned of record by the other Durwood Family Stockholders.
Mr. Stanley H. Durwood beneficially owns 5,015,657 shares of the
Company's Class B Stock, which constitute 100% of the outstanding
shares of such class. Mr. Stanley H. Durwood has sole voting power
over all of these shares of the Company's Class B Stock and sole
investment power over 4,515,657 of these shares. The Company's
Class B Stock and Common Stock presently beneficially owned by
Mr. Stanley H. Durwood represent 73.1% of the voting power of the
Company's stock other than in the election of directors. Were all the
shares of the Company's Class B Stock converted into Common Stock,
there would be approximately 23,469,091 shares of Common Stock
outstanding, of which Mr. Stanley H. Durwood would beneficially own
5,015,807 shares (assuming such conversion and disregarding the
exercise of his outstanding options) or 21.4% of the outstanding
number of shares of Common Stock.
The Company's Class B Stock beneficially owned by Mr. Stanley H.
Durwood is held under his Revocable Trust Agreement dated April 14,
1989, as amended, and the 1992 Durwood, Inc. Voting Trust dated
December 12, 1992 (the "Voting Trust"). The Voting Trust is the
record owner of the shares reported as beneficially owned, and
Mr. Stanley H. Durwood is the settlor and sole acting trustee of both
trusts. The named successor trustees are Mr. Charles J. Egan, Jr., a
Director of the Company, and Mr. Raymond F. Beagle, Jr., the
Company's general counsel. Under the terms of his Voting Trust,
Mr. Stanley H. Durwood has all voting powers with respect to shares
held therein during his lifetime. Thereafter, all voting rights with
respect to such shares vest in his successor trustees and any
additional trustees whom they might appoint, who shall exercise such
rights by majority vote. Unless revoked by Mr. Stanley H. Durwood or
otherwise terminated or extended in accordance with its terms, the
Voting Trust will terminate in 2030.
Mr. Stanley H. Durwood has agreed with the Durwood Children that if
the price per share to the public of the 2.5 million shares of Common
Stock proposed to be sold by the children in connection with a
registered secondary offering is less than $18, Mr. Stanley H.
Durwood will pay his children the difference between such sale price
and $18 (net of applicable underwriting commissions) with respect to
2.5 million shares, up to $20 million in aggregate amount, in shares
of Common Stock, as an adjustment to the original allocation of
shares to be received by the Durwood Children in the Merger.
Mr. Stanley H. Durwood's holdings will diminish and the Durwood
Childrens' holdings will increase if the Durwood Children acquire
additional shares under such share adjustment. However, based on the
number of shares of Common Stock and Class B Stock outstanding as of
May 15, 1998, such adjustment should not result in Mr. Stanley H.
Durwood owning shares with less than 50% of the combined voting power
of the outstanding Company stock unless the market value of the
Common Stock at the time of the offering is less than $8.40.
Mr. Stanley H. Durwood's voting control also will be diluted if he is
obligated to dispose of shares to honor tax and other indemnity
obligations made by him and the Company in connection with the Merger
and other related transactions, or if additional shares of Common
Stock are issued under the Company's existing employee benefit plans.
For a period ending on August 15, 2000, the Durwood Children have
agreed to give an irrevocable proxy to the Secretary and each
Assistant Secretary of the Company to vote their shares of Common
Stock in the election of directors for each candidate in the same
proportionate manner as the aggregate votes cast in such elections by
other holders of Common Stock not affiliated with the Company.
(2) Mr. Thomas A. Durwood directly owns 1,315,083 shares of the Common
Stock and indirectly owns 146,120 shares of Common Stock through The
Thomas A. and Barbara F. Durwood Family Investment Partnership, a
California limited partnership. Each of Mr. Thomas A. Durwood and his
wife serve as trustees of The Thomas A. Durwood and Barbara F.
Durwood Family Trust, which is the general partner of this
partnership.
(3) As reported in its Schedule 13G dated January 31, 1998. Of these
shares, EnTrust Capital, Inc. reports that it has shared voting power
with respect to 923,586 shares and shares dispositive power with
respect to 1,397,776 shares.
Beneficial Ownership By Directors and Officers
The following table sets forth certain information as of May 15, 1998,
with respect to beneficial ownership by Directors and Executive Officers
of the Company's Common Stock and Class B Stock. The amounts set forth
below include the vested portion of 589,850 shares of Common Stock subject
to options under the Company's 1983 and 1984 Stock Option Plans and the
1994 Stock Option and Incentive Plan held by Executive Officers. Unless
otherwise indicated, the persons named are believed to have sole voting
and investment power over the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Name of Amount and Nature Percent
Title of Class Beneficial Owner of Beneficial Ownership of Class
- -------------- ----------------- ----------------------- --------
<S> <C> <C> <C>
Common Stock Stanley H. Durwood 152,750(1)(2) *
Peter C. Brown 224,000(2) 1.2%
Philip M. Singleton 148,600(2) *
Richard T. Walsh 29,550(2) *
Richard M. Fay 1,125(2) *
William T. Grant, II 1,500 *
John P. Mascotte 2,000 *
Paul E. Vardeman 300 *
All Directors and
Executive Officers
as a group (13 persons,
including the
individuals
named above) 609,868 3.2%
Class B Stock Stanley H. Durwood 5,015,657(1) 100.0%
</TABLE>
____________________________________
*Less than one percent.
(1) See Note 1 under "Security Ownership of Certain Beneficial Owners and
Management". Mr. Stanley H. Durwood beneficially owns 150 shares of
the Company's Common Stock (not including 100 shares owned by his
wife, Mrs. Mary Pamela Durwood) and options that are presently
exercisable to acquire 152,500 shares of the Company's Common Stock,
over which he has sole voting and investment power, which constitute
less than 1% of the outstanding shares of such class.
(2) Includes shares subject to presently exercisable options to purchase
Common Stock under the Company's 1983 and 1984 Stock Option Plans and
the 1994 Stock Option and Incentive Plan, as follows: Mr. Stanley H.
Durwood - 152,500 shares; Mr. Peter C. Brown - 224,000 shares;
Mr. Philip M. Singleton - 133,600 shares; Mr. Richard T. Walsh -
29,500 shares; Mr. Richard M. Fay - 1,125 shares; and all Executive
Officers as a group - 589,850 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Executive Officers and Directors, and persons who own more than
10% of the Company's Common Stock, to file reports of ownership and
changes in ownership with the SEC and the American and Pacific Stock
Exchanges. Executive Officers, Directors and greater-than-10% beneficial
owners are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of the
copies of such forms furnished to the Company, or written representations
that no Forms 5 were required, the Company believes that during fiscal
1998 its Executive Officers, Directors and greater-than-10% beneficial
owners complied with all Section 16(a) filing requirements applicable to
them except for Forms 4 for the month of August, 1997 for Mr. Brian H.
Durwood, Mr. Peter J. Durwood and Mrs. Elissa D. Grodin (greater-than-10%
beneficial owners), who filed their Forms 4 approximately five days past
the required due date.
ITEM 13. Certain Relationships and Related Transactions.
Since their formation and until August 15, 1997, AMCE and AMC were
members of an affiliated group of companies (the "DI affiliated group")
beneficially owned by Mr. Stanley H. Durwood and members of his family.
Prior to the August 15, 1997 Merger of the Company and DI referred to
below, Mr. Stanley H. Durwood was President, Treasurer and the sole
Director of DI and Chairman of the Board, Chief Executive Officer and a
Director of AMCE and AMC. There have been transactions involving AMCE or
its subsidiaries and the DI affiliated group in prior years. AMCE sought
to ensure that all transactions with DI or other related parties were
fair, reasonable and in the best interests of the Company. In that
regard, the Audit Committee of the Board of Directors of AMCE reviewed all
material proposed transactions between the Company and DI or other related
parties to determine that, in their best business judgment, such
transactions met that standard. The Company believes that all
transactions described below with DI or other related parties were on
terms at least as favorable to the Company as could have been obtained
from an unaffiliated third party. The Audit Committee consists of Messrs.
Egan, Grant and Mascotte, none of whom are or were officers or employees
of the Company nor stockholders, directors, officers or employees of DI.
Set forth below is a description of significant transactions which have
occurred since April 4, 1997 or involve receivables that remain
outstanding as of April 2, 1998.
The Merger
General. Effective August 15, 1997, the Company completed the
Merger with its majority stockholder, DI. In connection with the Merger,
2,641,951 shares of the Company's Common Stock and 11,157,000 shares of
the Company's Class B Stock owned by DI were canceled and the Company
issued 8,783,289 shares of its Common Stock and 5,015,657 shares of its
Class B Stock to the DI stockholders. The Merger was accounted for as a
corporate reorganization and the recorded balances for consolidated
assets, liabilities, total stockholders' equity and results of operations
were not affected.
Mr. Stanley H. Durwood has agreed to indemnify the Company for all
losses resulting from any breach by DI of the Merger Agreement or
resulting from any liability of DI and for all taxes attributable to DI
prior to the effective time of the Merger and all losses in connection
therewith.
Mr. Stanley H. Durwood and Delta Properties, Inc. ("Delta"), a former
subsidiary of DI, have agreed, subject to certain limitations, to
indemnify the Company for any of DI's Merger expenses which were not paid
prior to the effective time of the Merger and for 50% of the Company's
expenses in connection with the Merger. During fiscal 1998, Delta
reimbursed the Company $1,000,000 for expenses related to the Merger.
As promptly as practicable after March 31, 2000, the Company will pay
Mr. Stanley H. Durwood an amount equal to any credit amounts which have
not been used to offset various of his obligations to the Company under
the Stock Agreement, the Indemnification Agreement and the Registration
Agreement, as such terms are defined below. If such benefits are realized
after such date, the related credit amounts will be paid to Mr. Stanley H.
Durwood when they are realized. See "The Indemnification Agreement";
"The Stock Agreement" and "The Registration Agreement; Secondary
Offering".
For a period for three years after the Merger, the Durwood Children
have agreed to give an irrevocable proxy to the Secretary and each
Assistant Secretary of the Company to vote their shares of Common Stock in
the election of directors for each candidate in the same proportionate
manner as the aggregate votes cast in such elections by other holders of
Common Stock not affiliated with the Company, its directors and officers.
See "The Merger" and "The Stock Agreement".
The Registration Agreement; Secondary Offering. As a condition to the
Merger, the Company and the Durwood Family Stockholders have entered into
a registration agreement (the "Registration Agreement") pursuant to which
the Durwood Family Stockholders have agreed to sell at least 3,000,000
shares of Common Stock in a registered secondary offering, so that the
registration statement becomes effective not more than twelve months and
not less than six months after the Merger. Consummation of the secondary
offering is subject to certain conditions and other rights of the parties.
Subject to certain conditions, the expenses of the secondary offering will
be borne by Mr. Stanley H. Durwood and Delta. This obligation may be
offset by certain credit amounts resulting from the realization by the
Company of tax benefits from the utilization of certain tax credits and
operation loss carryforwards of DI. See "The Indemnification Agreement."
The Indemnification Agreement. In connection with the Merger, the Durwood
Family Stockholders and Delta entered into an agreement (the
"Indemnification Agreement") agreeing to indemnify the Company from
certain losses and expenses. Pursuant to this agreement, (i) Mr. Stanley
H. Durwood agreed to indemnify the Company from losses resulting from any
breach by DI of its representations, warranties and covenants in the
Merger Agreement or based upon any liability of DI and for any taxes (or
losses incurred by the Company in connection therewith) attributable to
DI or its subsidiaries for taxable periods prior to the effective time of
the Merger, (ii) each of the Durwood Family Stockholders agreed to
(severally and not jointly) indemnify the Company for any losses which it
might incur as a result of the breach by such party of certain tax related
representations, warranties and covenants made by such party in the Stock
Agreement and (iii) subject to certain conditions, Mr. Stanley H. Durwood
and Delta agreed to indemnify the Company from and against all of DI's
Merger expenses that were not paid prior to the effective time of the
Merger and 50% of the Company's Merger expenses.
Mr. Stanley H. Durwood's obligations (i) to pay DI's unpaid expenses
and 50% of the Company's Merger expenses, as required by the
Indemnification Agreement, (ii) to pay the Company's expenses in the
secondary offering, as required by the Registration Agreement, and (iii)
to pay a $2 million penalty and 100% of the Company's Merger expenses if
the secondary offering does not occur, as required by the Stock Agreement,
may be offset by certain credit amounts resulting from net tax benefits
realized by the Company from the utilization by the Company of DI's
alternative minimum tax credit carryforwards and Missouri operating loss
carryforwards. Any credit amount not so applied will be paid to Mr.
Stanley H. Durwood promptly after March 31, 2000. Any credit amount that
arises after March 31, 2000 also will be paid promptly to Mr. Stanley H.
Durwood. The maximum amount of credit amounts that could be paid Mr.
Durwood or could be used to offset his responsibilities to the Company is
approximately $1,100,000, reduced by any amounts utilized on separate DI
income tax returns for 1996 and the portion of 1997 prior to the effective
time of the Merger.
In Connection with the Merger, the Company has agreed to indemnify
the Durwood Children from losses resulting from any breach by the Company
of any representation, warranty, covenant or agreement made by it in the
Merger Agreement.
The foregoing indemnification obligations generally will lapse on
March 31, 2000.
The Stock Agreement. As a condition precedent to the Merger, the Durwood
Family Stockholders entered into an agreement (the "Stock Agreement")
which, for three years, limits the ability of the Durwood Children to
deposit shares in a voting trust, solicit proxies, participate in election
contests or make a proposal concerning an extraordinary transaction
involving the Company. Under the Stock Agreement, the Durwood Children
have also agreed, among other matters, for a period of three years, (i) to
grant an irrevocable proxy to the Secretary and each Assistant Secretary
of the Company to vote their shares of Common Stock for each candidate to
the Company's Board of Directors in the same proportion as the aggregate
votes cast by all other stockholders not affiliated with the Company, its
directors or officers and (ii) that the Company will have a right of first
refusal with respect to any such shares the Durwood Children wish to sell
in a transaction exempt from registration, except for such shares sold in
brokers' transactions. The Stock Agreement obligates Mr. Stanley H.
Durwood and Delta, whose shares were distributed by DI to the Durwood
Family Stockholders before the Merger, to pay the Company $2 million and
to reimburse the Company for all of its Merger expenses if the registered
secondary offering is not consummated within 12 months after the Merger.
This obligation may be offset by certain credit amounts resulting from the
realization by the Company of tax benefits from the utilization of certain
tax credits and operating loss carryforwards of DI. See "The
Indemnification Agreement."
Other Matters. Periodically, the Company and DI or Delta reconciled any
amounts owed by one company to the other. Charges to the intercompany
account have included payments made by the Company on behalf of DI or
Delta. The largest balance owed by DI or Delta to the Company during
fiscal 1998 was $500,000. As of April 2, 1998, DI or Delta owed the
Company $0.
Ms. Marjorie D. Grant, a Vice President of AMC and the sister of Mr.
Stanley H. Durwood, has an employment agreement with AMCE providing for an
annual base salary of no less than $110,000, an automobile and, at the
sole discretion of the Chief Executive Officer of AMCE, a year-end bonus.
Ms. Grant's current annual base salary is $110,000. During fiscal 1998,
Ms. Grant received a bonus of $10,000 and a lump sum payment in lieu of a
base salary increase of $4,400. Ms. Grant's employment agreement,
executed July 1, 1996, terminates on June 30, 1999, or upon her death or
disability. The agreement provides that in the event Mr. Stanley H.
Durwood fails to control the management of AMCE by reason of its sale,
merger or consolidation, or because of his death or disability, or for any
other reason, then AMCE and Ms. Grant would each have the option to
terminate the agreement. In such event, AMCE would pay to Ms. Grant in
cash a sum equal to the aggregate cash compensation, exclusive of bonus,
to the end of the term of her employment under the agreement, after
discounting such amount to its then present value using a discount rate
equal to the prime rate of interest published in The Wall Street Journal
on the date of termination. The aggregate amount payable under the
employment agreement, assuming termination by reason of a change of
control and payment in a lump sum as of April 2, 1998, was approximately
$130,000.
Since July 1992, Mr. Jeffery W. Journagan, a son-in-law of Mr.
Stanley H. Durwood, has been employed by a subsidiary of AMCE. Mr.
Journagan's current salary is approximately $82,540 and he received a
bonus for fiscal 1998 in the amount of $1,127.
During fiscal 1998, the Company retained Polsinelli, White, Vardeman
& Shalton, P.C., to provide certain legal services to a subsidiary of
AMCE. Mr. Vardeman, who is a director of AMCE, was a director, officer
and shareholder of that firm until his retirement from such firm in
November 1997.
During fiscal 1998, the Company sold the real estate assets
associated with 13 megaplexes to EPT, a real estate investment trust, for
an aggregate purchase price of $283,800,000. The Company leased the real
estate assets associated with the theatres from EPT pursuant to non-
cancelable operating leases with terms ranging from 13 to 15 years at an
initial lease rate of 10.5% with options to extend for up to an additional
20 years. The Company leases two additional theatres from EPT under the
same terms as those included in the Sale and Lease Back Transaction.
Annual rentals for these two theatres are based on an estimated fair value
of $49,000,000 for the theatres. The Company has granted an option to EPT
to acquire a theatre under construction for the cost to the Company of
developing and constructing such property. In addition, for a period of
five years subsequent to November 1997, EPT will have a right of first
refusal and first offer to purchase and lease back to the Company the real
estate assets associated with any theatre and related entertainment
property owned or ground-leased by the Company, exercisable upon the
Company's intended disposition of such property. Mr. Peter C.
Brown, Co-Chairman of the Board, President and Chief Financial Officer of
AMCE is also the Chairman of the Board of Trustees of EPT.
For a description of certain employment agreements between the
Company and Messrs. Stanley H. Durwood, Peter C. Brown, Philip M.
Singleton and Richard M. Fay, see "Employment Contracts, Termination of
Employment and Change in Control Arrangements."
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) The following financial statements are included in
Part II, Item 8:
Page
Report of Independent Accountants 23
Consolidated Statements of Operations -
Fiscal years (52/53 weeks) ended
April 2, 1998, April 3, 1997 and
March 28, 1996 24
Consolidated Balance Sheets - April 2, 1998
and April 3, 1997 25
Consolidated Statements of Cash Flows-
Fiscal years (52/53 weeks)
ended April 2, 1998, April 3, 1997
and March 28, 1996 26
Consolidated Statements of Stockholders' Equity-
Fiscal years (52/53 weeks)
ended April 2, 1998, April 3, 1997 and March 28, 1996 27
Notes to Consolidated Financial Statements-
Fiscal years (52/53 weeks) ended
April 2, 1998, April 3, 1997 and March 28, 1996 28
Statements of Operations By Quarter (Unaudited) -
Fiscal years (52/53 weeks) ended
April 2, 1998 and April 3, 1997 42
(a)(2) Financial Statement Schedules - Not applicable.
(b) Reports on Form 8-K
On January 9, 1998, the Company filed a Form 8-K reporting under Item
5 the sale and subsequent lease back of three megaplex theatres to EPT.
(c) Exhibits
A list of exhibits required to be filed as part of this report on
Form 10-K is set forth in the Exhibit Index, which immediately precedes
such exhibits, and is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMC ENTERTAINMENT INC.
By: /s/ Stanley H. Durwood
Stanley H. Durwood,
Co-Chairman of the Board
Date: June 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Stanley H. Durwood Co-Chairman of the
Stanley H. Durwood Board, Chief June 18, 1998
Executive Officer
and Director
/s/ Charles J. Egan, Jr. Director June 18, 1998
Charles J. Egan, Jr.
/s/ William T. Grant, II Director June 18, 1998
William T. Grant, II
/s/ John P. Mascotte Director June 18, 1998
John P. Mascotte
/s/ Paul E. Vardeman Director June 18, 1998
Paul E. Vardeman
/s/ Peter C. Brown Co-Chairman of the
Peter C. Brown Board, President, June 18, 1998
Chief Financial
Officer and Director
/s/ Philip M. Singleton Executive Vice
Philip M. Singleton President, Chief June 18, 1998
Operating Officer
and Director
/s/ Richard L. Obert Senior Vice President
Richard L. Obert - Chief Accounting and June 18, 1998
Information Officer
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
2.1 Agreement and Plan of Merger dated as of March 31, 1997 between AMC Entertainment Inc. and
Durwood, Inc. (together with Exhibit A, "Pre-Merger Action Plan")
(Incorporated by reference from Exhibit 2.1 to the Company's Registration
Statement on Form S-4 (File No. 333-25755) filed April 24, 1997).
2.2 Stock Agreement among AMC Entertainment Inc. and Stanley H. Durwood, his children: Carol D.
Journagan, Edward D. Durwood, Thomas A. Durwood, Elissa D. Grodin, Brian H.
Durwood and Peter J. Durwood (the "Durwood Children"), The Thomas A. and
Barbara F. Durwood Family Investment Partnership (the "TBD Partnership") and
Delta Properties, Inc. (Incorporated by reference from Exhibit 99.3 to
Amendment No. 2 to Schedule 13D of Stanley H. Durwood filed September 30,
1997).
2.3 Registration
Agreement among AMC Entertainment Inc. and the Durwood Children and Delta
Properties, Inc. (Incorporated by reference from Exhibit 99.2 to Amendment No.
2 to Schedule 13D of Stanley H. Durwood filed September 30, 1997).
2.4(a) Indemnification Agreement dated as of March 31, 1997 among AMC Entertainment Inc., the Durwood
Family Stockholders and Delta Properties, Inc., together with Exhibit B
thereto (Escrow Agreement) (Incorporated by reference from Exhibit 2.4(a) to
the Company's Registration Statement on Form S-4 (File No. 333-25755) filed
April 24, 1997).
2.4(b) Durwood Family Settlement Agreement (Incorporated by reference from Exhibit 99.1 to Schedule
13D of Durwood, Inc. and Stanley H. Durwood filed May 7, 1996).
2.4(c) First Amendment to Durwood Family Settlement Agreement (Incorporated by reference from Exhibit
2.4(c) to the Company's Registration Statement on Form S-4 (File No. 333-
25755) filed April 24, 1997).
2.4(d) Second Amendment to Durwood Family Settlement Agreement dated as of August 15, 1997, among Stanley
H. Durwood, the Durwood Children and the TBD Partnership (Incorporated by
reference from Exhibit 99.7 to Amendment No. 2 to Schedule 13D of Stanley H.
Durwood filed September 30, 1997).
3.1. Amended and Restated Certificate of Incorporation of AMC Entertainment Inc. (as amended on December
2, 1997) (Incorporated by reference from Exhibit 3.1 to AMCE's Form 10-Q (File
No. 1-8747) dated January 1, 1998).
3.2. Bylaws of AMC Entertainment Inc. (Incorporated by reference from Exhibit 3.3 to AMCE's Form
10-Q (File No. 0-12429) for the quarter ended December 26, 1996).
4.1(a) Amended and Restated Credit Agreement dated as of April 10, 1997, among AMC Entertainment Inc., as
the Borrower, The Bank of Nova Scotia, as Administrative Agent, and Bank of
America National Trust and Savings Association, as Documentation Agent, and
Various Financial Institutions, as Lenders, together with the following
exhibits thereto: significant subsidiary guarantee, form of notes, form of
pledge agreement and form of subsidiary pledge agreement (Incorporated by
reference from Exhibit 4.3 to the Company's Registration Statement on Form S-4
(File No. 333-25755) filed April 24, 1997).
4.1(b) Second Amendment, dated January 16, 1998, to Amended and Restated Credit Agreement dated as of
April 10, 1997 (Incorporated by Reference from Exhibit 4.2 to the Company's
Form 10-Q (File No. 1-8747) for the quarter ended January 1, 1998).
4.2(a) Indenture dated March 19, 1997, respecting AMC Entertainment Inc.'s 9 1/2% Senior Subordinated
Notes due 2009 (Incorporated by reference from Exhibit 4.1 to the Company's
Form 8-K (File No. 1-8747) dated March 19, 1997).
4.2(b) First Supplemental Indenture respecting AMC Entertainment Inc.'s 9 1/2% Senior Subordinated Notes
due 2009 (Incorporated by reference from Exhibit 4.4(b) to Amendment No. 2. to
the Company's Registration Statement on Form S-4 (File No.333-29155) filed
August 4, 1997).
4.3 In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, certain instruments respecting long
term debt of the Registrant have been omitted but will be furnished to the
Commission upon request.
10.1. AMC Entertainment Inc. 1983 Stock Option Plan (Incorporated by reference from Exhibit 10.1 to
AMCE's Form S-1 (File No. 2-84675) filed June 22, 1983).
10.2. AMC Entertainment Inc. 1984 Employee Stock Purchase Plan (Incorporated by reference from Exhibit
28.1 to AMCE's Form S-8 (File No. 2-97523) filed July 3, 1984).
10.3. AMC Entertainment Inc. 1984 Employee Stock Option Plan (Incorporated by reference from Exhibit
28.1 to AMCE's S-8 and S-3 (File No. 2-97522) filed July 3, 1984).
10.3.(a) AMC Entertainment Inc. 1994 Stock Option and Incentive Plan, as amended (Incorporated by
reference from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the
quarter ended December 26, 1996).
10.3.(b) Form of Non-Qualified (NON-ISO) Stock Option Agreement (Incorporated by reference from
Exhibit 10.2 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended
December 26, 1996).
10.4. American Multi-Cinema, Inc. Savings Plan, a defined contribution 401(k) plan, restated
January 1, 1989, as amended (Incorporated by reference from Exhibit 10.6 to
AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended).
10.5.(a) Defined Benefit Retirement Income Plan for Certain Employees of American Multi-Cinema, Inc.
dated January 1, 1989, as amended (Incorporated by reference from Exhibit 10.7
to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended).
10.5.(b) AMC Supplemental Executive Retirement Plan dated January 1, 1994 (Incorporated by reference
from Exhibit 10.7(b) to AMCE's Form 10-K (File No. 0-12429) for the fiscal
year ended March 30, 1995).
10.6. Employment Agreement between American Multi-Cinema, Inc. and Philip M. Singleton (Incorporated by
reference from Exhibit 10(a) to AMCE's Form 10-Q (File No. 1-8747) for the
quarter ended September 29, 1994).
10.7. Employment Agreement between American Multi-Cinema, Inc. and Peter C. Brown (Incorporated by
reference from Exhibit 10(b) to AMCE's Form 10-Q (File No.1-8747) for the
quarter ended September 29, 1994).
10.8. Disability Compensation Provisions respecting Stanley H. Durwood (Incorporated by
reference from Exhibit 10.12 to AMCE's Form S-1 (File No. 33-48586) filed
June 12, 1992, as amended).
10.9. Executive Medical Expense Reimbursement and Supplemental Accidental Death or Dismemberment
Insurance Plan, as restated effective as of February 1, 1991 (Incorporated by
reference from Exhibit 10.13 to AMCE's Form S-1 (File No. 33-48586) filed
June 12, 1992, as amended).
10.10. Division Operations Incentive Program (incorporated by reference from Exhibit 10.15 to AMCE's Form
S-1 (File No. 33-48586) filed June 12, 1992, as amended).
10.11. Partnership Interest Purchase Agreement dated May 28, 1993, among Exhibition Enterprises
Partnership, Cinema Enterprises, Inc., Cinema Enterprises II, Inc., American
Multi-Cinema, Inc., TPI Entertainment, Inc. and TPI Enterprises, Inc.
(Incorporated by reference from Exhibit 10.29 to AMCE's Form 10-K (File No.
1-8747) for the fiscal year ended April 1, 1993).
10.12. Mutual Release and Indemnification Agreement dated May 28, 1993, among Exhibition Enterprises
Partnership, Cinema Enterprises, Inc., American Multi-Cinema, Inc., TPI
Entertainment, Inc. and TPI Enterprises, Inc. (Incorporated by reference from
Exhibit 10.30 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended
April 1, 1993).
10.13. Assignment and Assumption Agreement between Cinema Enterprises II, Inc. and TPI
Entertainment, Inc. (Incorporated by reference from Exhibit 10.31 to AMCE's
Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993).
10.14. Confidentiality Agreement dated May 28,1993, among TPI Entertainment, Inc., TPI
Enterprises, Inc., Exhibition Enterprises Partnership, Cinema
Enterprises, Inc., Cinema Enterprises II, Inc. and American Multi-Cinema, Inc.
(Incorporated by reference from Exhibit 10.32 to AMCE's Form 10-K (File No.
1-8747) for the fiscal year ended April 1, 1993).
10.15. Termination Agreement dated May 28, 1993, among TPI Entertainment, Inc., TPI
Enterprises, Inc. Exhibition Enterprises Partnership, American
Multi-Cinema, Inc., Cinema Enterprises, Inc., AMC Entertainment Inc.,
Durwood, Inc., Stanley H. Durwood and Edward D. Durwood (Incorporated by
reference from Exhibit 10.33 to AMCE's Form 10-K (File No. 1-8747) for the
fiscal year ended April 1, 1993).
10.16. Promissory Note dated June 16, 1993, made by Thomas L. Velde and Katherine G. Terwilliger,
husband and wife, payable to American Multi-Cinema, Inc. (Incorporated by
reference from Exhibit 10.34 to AMCE's Form 10-K (File No. 1-8747) for the
fiscal year ended April 1, 1993).
10.17. Second Mortgage dated June 16, 1993, among Thomas L. Velde, Katherine G. Terwilliger and
American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.35 to
AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993).
10.18. Summary of American Multi-Cinema, Inc. Executive Incentive Program (Incorporated by reference from
Exhibit 10.36 to AMCE's Registration Statement on Form S-2 (File No. 33-51693)
filed December 23, 1993).
10.19. AMC Non-Qualified Deferred Compensation Plans (Incorporated by reference from Exhibit 10.37 to
Amendment No. 2 to AMCE's Registration Statement on Form S-2 (File No.
33-51693) filed February 18, 1994).
10.20. Employment Agreement between AMC Entertainment Inc., American Multi-Cinema, Inc. and Stanley H.
Durwood (Incorporated by reference from Exhibit 10.32 to AMCE's Form 10-K
(File No. 0-12429) for the fiscal year ended March 28, 1996).
10.21. Real Estate Contract dated November 1, 1995 among Richard M. Fay, Mary B. Fay and American
Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.33 to AMCE's
Form 10-K (File No. 0-12429) for the fiscal year ended March 28, 1996).
10.22. American Multi-Cinema, Inc. Retirement Enhancement Plan (Incorporated by reference from
Exhibit 10.26 to AMCE's Registration Statement on Form S-4 (File No. 333-
25755) filed April 24, 1997).
10.23. Employment Agreement between American Multi-Cinema, Inc. and Richard M. Fay (Incorporated by
reference from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the
quarter ended June 27, 1996).
10.24. American Multi-Cinema, Inc. Executive Savings Plan (Incorporated by reference from
Exhibit 10.28 to AMCE's Registration Statement on Form S-4 (File No. 333-
25755) filed April 24, 1997).
*10.25. Limited Partnership Agreement of Planet Movies Company, L.P. dated October 17, 1997.
16. Letter regarding change in certifying accountant (Incorporated by reference from Exhibit 19.6
to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2, 1992).
*21. Subsidiaries of AMC Entertainment Inc.
*23. Consent of Coopers & Lybrand L.L.P. to the use of their report of independent accountants included
in Item 8 of this annual report.
*27. Financial Data Schedule
_______
* Filed herewith
</TABLE>
EXHIBIT 21.
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
AMC ENTERTAINMENT INC.
American Multi-Cinema, Inc.
AMC Entertainment International, Inc.
AMC Entertainment International Limited
AMC Entertainment EspaZa S.A.
Actividades Multi-Cinemas E Espectaculos, LDA
AMC Theatres of U.K., Limited
AMC De Mexico, S.A., De C.V.
AMC Europe S.A.
National Cinema Network, Inc.
AMC Realty, Inc.
Centertainment, Inc.
AMC License Corp.
AMCPH Holdings, Inc.
All subsidiaries are wholly-owned.
EXHIBIT 23.
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of AMC Entertainment Inc.
Kansas City, Missouri
We consent to the incorporation by reference in the registration
statement of AMC Entertainment Inc. on Form S-8 (File Nos. 33-58129, 2-
92048, 2-97522 and 2-97523) of our report dated May 1, 1998, on our
audits of the consolidated financial statements of AMC Entertainment
Inc. as of April 2, 1998 and April 3, 1997, and for each of the three
years (53/52 weeks) ended April 2, 1998, which report is included in
this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
June 17, 1998
EXHIBIT 27
FDS SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted for the
Consolidated Financial Statements of AMC Entertainment Inc. as of and for the
fifty-two weeks ended April 2, 1998, submitted in response to the requirements
to Form 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-02-1998
<PERIOD-END> APR-02-1998
<CASH> 9,881
<SECURITIES> 0
<RECEIVABLES> 72,028
<ALLOWANCES> 706
<INVENTORY> 0
<CURRENT-ASSETS> 107,645
<PP&E> 895,749
<DEPRECIATION> 333,591
<TOTAL-ASSETS> 795,780
<CURRENT-LIABILITIES> 173,836
<BONDS> 399,595
0
1,200
<COMMON> 13,595
<OTHER-SE> 124,660
<TOTAL-LIABILITY-AND-EQUITY> 795,780
<SALES> 256,017
<TOTAL-REVENUES> 846,795
<CGS> 42,062
<TOTAL-COSTS> 685,540
<OTHER-EXPENSES> 117,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,679
<INCOME-PRETAX> (41,099)
<INCOME-TAX> (16,600)
<INCOME-CONTINUING> (24,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,499)
<EPS-PRIMARY> (1.59)
<EPS-DILUTED> (1.59)
</TABLE>
LIMITED PARTNERSHIP AGREEMENT
OF
PLANET MOVIES COMPANY, L.P.
THIS LIMITED PARTNERSHIP AGREEMENT ("Agreement") is
made and entered into as of the 17th day of October, 1997,
by and among PMC MANAGEMENT, INC., a Georgia close
corporation, as general partner (the "General Partner");
PLANET HOLLYWOOD (THEATRES), INC., a Florida corporation
("PHT"); and AMCPH HOLDINGS, INC., a Missouri corporation
("AMCPH") (PHT and AMCPH collectively referred to herein as
the "Limited Partners," and the General Partner and the
Limited Partners collectively referred to herein as the
"Partners").
SECTION ONE
FORMATION, NAME, PRINCIPAL OFFICE, TERM,
PURPOSE, TITLE TO PROPERTY, QUALIFICATION
1.1Formation. The Partnership will be organized as a
Delaware limited partnership by the filing, in accordance
with the Act, of a Certificate of Limited Partnership with
the Office of the Delaware Secretary of State (the
"Certificate") on or before October 20, 1997. The Partners
hereby agree to continue the Partnership as a limited
partnership under and pursuant to the Act and agree that the
rights, duties and liabilities of the Partners shall be as
provided in the Act, except as otherwise provided herein.
1.2Name and Mailing Address. The name of the
Partnership shall be as set forth from time to time in the
Certificate. The Partnership may from time to time adopt
one or more trade names for use in the Partnership's
business as shall be selected by the General Partner. The
mailing address of the Partnership shall be initially at
7380 Sand Lake Road, Orlando, Florida 32819, and
subsequently at such other place as the General Partner may
determine from time to time.
1.3Principal and Other Offices; Registered Office.
The Partnership shall have such offices, as shall be
designated by the General Partner from time to time. The
registered office of the Partnership in Delaware shall be
c/o Corporation Service Company, 1013 Centre Road,
Wilmington, Delaware 19805, or such other locations as may
hereafter be designated by the General Partner from time to
time in the manner provided by applicable law. All of the
records required to be maintained pursuant to the Act shall
be kept at the principal office. The Partnership may have
such other offices as may be determined by the General
Partner from time to time.
1.4Term. The Partnership commenced on the date the
Certificate was filed with the Office of the Delaware
Secretary of State and shall continue in existence until it
is terminated in accordance with the provisions of Section
10 of this Agreement.
1.5Agent for Service of Process. The name and
address of the agent for service of process shall be
Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware 19805 or such other agent at such other location as
may hereafter be designated by the General Partner from time
to time in the manner provided by applicable law.
1.6Purposes of the Partnership.
(a)Ownership of Venture Units. The Partnership is
formed to establish from time to time, alone or with others,
additional limited partnerships and other business entities
that, among other things, directly or indirectly own and
operate certain theatres now under development by AMC (such
theatres being "Day 2 Venture Units") and proprietary
branded theatre-restaurant-retail facilities (such
facilities being "Day 3 Venture Units").
(b)The Partnership is formed to acquire licenses to
use trade names, trademarks, service marks, and other
intellectual property, including in particular intellectual
property owned by Planet Hollywood or its Affiliates and
intellectual property owned by AMC or its Affiliates, and to
own trade names, trademarks, service marks, logos and other
intellectual property that the Partnership itself creates or
otherwise acquires (all of such intellectual property
referred to herein as the "Partnership Intellectual
Property"). The Partnership is also formed to license or
sublicense the use of the Partnership Intellectual Property
to others, including in particular Affiliates of AMC with
respect to certain theatres now owned and operated by AMC
(such theatres being "Day 1 Venture Units"), and also
including in particular the Day 2 Venture Units and the
Day 3 Venture Units.
(c)The Day 1 Venture Units, Day 2 Venture Units, and
Day 3 Venture Units are collectively referred to herein as
the "Venture Units". More detailed agreements of the
Partners regarding the Venture Units are set forth in a
Shareholders' Agreement dated the date hereof between the
shareholders of the General Partner.
(d)The Partnership is further formed to engage in any
other lawful act or activity that is related to the
foregoing purposes or that is related to the use by the
Partnership of the Partnership Intellectual Property, as
determined by the General Partner.
1.7Partners. The names and addresses of the General
Partner and the Limited Partners are as follows:
General Partner: PMC MANAGEMENT, INC., a Georgia
close corporation, initially at
7380 Sand Lake Road, Suite 600,
Orlando, Florida 32819, and
subsequently at such other place
as the General Partner may notify
the Limited Partners in writing
from time to time.
Limited Partners: PLANET HOLLYWOOD (THEATRES), INC.,
a Florida corporation, 7380 Sand
Lake Road, Suite 600, Orlando,
Florida 32819, or such other place
as such Limited Partner may notify
the General Partner in writing from
time to time.
AMCPH HOLDINGS, INC., a Missouri
corporation, 106 West 14th Street, Post
Office Box 419615, Kansas City, Missouri
64141-6615, or such other place as such
Limited Partner may notify the General
Partner in writing from time to time.
1.8Qualification in Other Jurisdictions. The General
Partner shall cause the Partnership to be qualified, formed
or registered under assumed or fictitious name statutes or
similar laws in any jurisdiction in which the Partnership
transacts business in which such qualification, formation,
or registration is required or desirable. The General
Partner shall execute, deliver and file, or cause the
execution, delivery or filing of, any certificates (and any
amendments or restatements thereof) necessary for the
Partnership to qualify to do business in a jurisdiction in
which the Partnership may wish to conduct business.
1.9Title to Property. Legal title to the
Partnership's property, whether real, personal or mixed,
shall be held in the name of the Partnership or in whatever
other manner the General Partner shall determine to be in
the best interests of the Partnership; provided, that if
title is not held in the Partnership's name, the General
Partner shall provide the Limited Partners with notice of
the name in which title is held. Without limiting the
generality of the foregoing, the General Partner may arrange
to have title to Partnership property taken and held in the
name of any trustee or nominee for and on behalf of the
Partnership. Each partner's interest in the Partnership
shall be personal property for all purposes.
SECTION TWO
DEFINITIONS
When used in this Agreement, the following terms have
the following respective meanings (unless otherwise
specifically provided). Also in this Agreement the singular
shall include the plural, the masculine gender shall include
the feminine and neuter, and vice versa, as the context
requires. Any terms not specifically defined herein shall
be construed in accordance with the meaning and understand-
ing given such terms in the trade or business of the Part-
nership.
Act: The Revised Uniform Limited Partnership Act of
the State of Delaware, as amended from time to time.
Adjusted Capital Account Deficit: With respect to any
Limited Partner, the deficit balance, if any, in such
Limited Partner's Capital Account as of the end of the
relevant Fiscal Year, after giving effect to the following
adjustments:
(i)Credit to such Capital Account any
amounts which such Limited Partner is deemed to be obligated
to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii)Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of the
Regulations.
This definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith.
Affiliates: When used with respect to any Person, any
Person which controls, is controlled by, or is under common
control with, the Person; a Person which controls an
Affiliate under the foregoing shall also be deemed to be an
Affiliate of such entity. For purposes of this definition,
the term "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of
the management and policies of an entity, or the power to
veto major policy decisions of any such entity, whether
through the ownership of voting securities, by contract, or
otherwise. Notwithstanding the foregoing, the Partnership,
the General Partner and any entities formed to own the
Venture Units as contemplated by the Shareholders' Agreement
shall not be deemed to be an Affiliate of either AMCPH or
PHT for purposes of this Agreement.
AMC: American Multi-Cinema, Inc., a Missouri
corporation.
Capital Account: With respect to any Partner, the
Capital Account maintained for such Partner in accordance
with the following provisions:
(i)To each Person's Capital Account there
shall be credited the amount of cash and the Gross Asset
Value of property contributed to the Partnership, such
Person's distributive share of Profits and any items in the
nature of income or gain which are specially allocated
pursuant to Section 5.3 or Section 5.4 hereof, and the
amount of any Debt assumed by such Person or which is
secured by any property distributed to such Person.
(ii)To each Person's Capital Account there
shall be debited the amount of cash and the Gross Asset
Value of any property distributed to such Person pursuant to
any provision of this Agreement, such Person's distributive
share of Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Section 5.3
or Section 5.4 hereof, and the amount of any Debt of such
Person assumed by the Company or which is secured by any
property contributed by such Person to the Company.
(iii)In the event all or a portion of a
Partnership Interest is Transferred in accordance with the
terms of this Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates
to the Transferred Interest.
The foregoing provisions and the other provisions of
this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section
1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. If the General Partner
determines that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating
to Debt which is secured by contributed or distributed
property or which is assumed by the Partnership or a
Partner), are computed in order to comply with such
Regulations, the General Partner may make such modification,
provided that it is not likely to have a material effect on
the amounts distributed to any Person pursuant to
Section 10.2 upon the dissolution of the Company. The
General Partner also shall: (i) make any adjustments that
are necessary or appropriate to maintain equality between
the Capital Accounts of the Partners and the amount of
Company capital reflected on the Company's balance sheet, as
computed for book purposes, in accordance with Regulations
Section 1.704-1(b)(2)(iv)(q); and (ii) make any appropriate
modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
Code: The Internal Revenue Code of 1986, as amended.
Debt: Any indebtedness for borrowed money or deferred
purchase price of property evidenced by a note, bonds, or
other instruments, any obligations as lessee under capital
leases, any obligations secured by any mortgage, pledge,
security interest, encumbrance, lien or charge of any kind
existing on any Partnership property whether or not the
Partnership has assumed or become liable for the obligations
secured thereby, and obligations under direct or indirect
guarantees of (including obligations (contingent or
otherwise) to assure a creditor against loss in respect of)
indebtedness or obligations of the kinds referred to in this
Section, provided that Debt shall not include obligations in
respect of any accounts payable that are incurred in the
ordinary course of the Partnership's business and are not
delinquent or are being contested in good faith by
appropriate proceedings. As appropriate in determining the
amount of Debt hereunder, Code Section 752(c) and any other
applicable provisions of the Code shall be taken into
account.
Depreciation: For each Fiscal Year, an amount equal to
the depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such Fiscal
Year under the Code, except that if the Gross Asset Value of
an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such Fiscal Year,
Depreciation shall be an amount which bears the same ratio
to such beginning Gross Asset Value as the federal income
tax depreciation, amortization, or other cost recovery
deduction for such Fiscal Year bears to such beginning
adjusted tax basis; provided, however, that if the adjusted
basis for federal income tax purposes of an asset at the
beginning of such Fiscal Year is zero, Depreciation shall be
determined with reference to such beginning Gross Asset
Value using any reasonable method selected by the General
Partner.
Event of Dissolution: Any of the events that result in
a dissolution of the Partnership as set forth in Section
10.1 hereof.
Fiscal Year: The fiscal period ended on the Sunday
nearest to December 31, 1997, each 52/53 week period ending
on the Sunday nearest to December 31 thereafter, and each
fiscal period that is defined as a Fiscal Year in any other
provision of this Agreement.
General Partner: PMC Management, Inc., a Georgia close
corporation, so long as it is General Partner of the
Partnership, and all predecessor or additional or successor
General Partners of the Partnership. Unless the context
clearly requires otherwise, any reference in this Agreement
to the "General Partner" shall be deemed to apply to all
General Partners collectively at all times during which
there is more than one General Partner.
Gross Asset Value: With respect to any asset, the
asset's adjusted basis for federal income tax purposes,
except as follows:
(i)The initial Gross Asset Value of any
asset contributed by a Partner to the Partnership shall be
the gross fair market value of such asset at the time of the
contribution, as determined by the contributing Partner and
the Partnership;
(ii)The Gross Asset Values of all
Partnership assets shall be adjusted to equal their
respective gross fair market values, as determined by the
General Partner, as of the following times: (a) the
acquisition of an additional interest in the Partnership by
any new or existing Partner in exchange for more than a de
minimis capital contribution; (b) the distribution by the
Partnership to a Partner of more than a de minimis amount of
property as consideration for an interest in the
Partnership; and (c) the liquidation of the Partnership
within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments
pursuant to clauses (a) and (b) above shall be made only if
the General Partner reasonably determines that such
adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the
Partnership;
(iii)The Gross Asset Value of any
Partnership asset distributed to any Partner shall be
adjusted to equal the gross fair market value of such asset
on the date of distribution as determined by the distributee
and the General Partner; and
(iv)The Gross Asset Values of Partnership
assets shall be increased (or decreased) to reflect any
adjustments to the adjusted basis of such assets pursuant to
Code Section 734(b) or Code Section 743(b), but only to the
extent that such adjustments are taken into account in
determining Capital Accounts pursuant to Regulation Section
1.704-1(b)(2)(iv)(m), clause (vi) of the definition of
"Profits" and "Losses" below in this Section, and Section
5.3(g); provided, however, that Gross Asset Values shall not
be adjusted pursuant to this clause (iv) to the extent the
General Partner determines that an adjustment pursuant to
clause (ii) hereof is necessary or appropriate in connection
with a transaction that would otherwise result in an
adjustment pursuant to this clause (iv).
If the Gross Asset Value of an asset has been determined or
adjusted pursuant to clauses (i), (ii), or (iv) hereof, such
Gross Asset Value shall thereafter be adjusted by the
Depreciation taken into account with respect to such asset
for purposes of computing Profits and Losses.
Limited Partners: The parties who are admitted as
Limited Partners during the period in which they own
Partnership Interests. Unless the context clearly requires
otherwise, any reference in this Agreement to a "Limited
Partner" shall be deemed to apply to all Limited Partners
collectively at all times during which there may be more
than one Limited Partner.
Nonrecourse Deductions: Deductions described in Section
1.704-2(b)(1) of the Regulations. The amount of Nonrecourse
Deductions for a Fiscal Year generally equals the net
increase, if any, in the amount of Partnership Minimum Gain
during that Fiscal Year, and specifically shall be an amount
determined in accordance with the provisions of Section
1.704-2(c) of the Regulations.
Nonrecourse Liability: Liability described in Section
1.704-2(b)(3) of the Regulations.
Partner Nonrecourse Debt: A nonrecourse Debt of the
Partnership described in Section 1.704-2(b)(4) of the
Regulations.
Partner Nonrecourse Debt Minimum Gain: An amount, with
respect to each Partner Nonrecourse Debt, equal to the
Partnership Minimum Gain that would result if such Partner
Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
Partner Nonrecourse Deductions: The items of loss,
deduction and expenditure described in Sections
1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.
Partnership: The Limited Partnership created by the
filing of the Certificate and the Partnership continuing the
business of this Partnership in the event of dissolution as
provided in Section 10.
Partnership Assets (or Property): All real and
personal property acquired by the Partnership and any
improvements thereto, and shall include both tangible and
intangible property.
Partnership Interest or Interests: When referring to a
General Partner's, a Limited Partner's, or an assignee, its
interest in the Partnership's capital, profits, losses, and
distributions, its rights (if any) in specific Partnership
property, and its right (if any) to participate in
Partnership management, all as provided in this Agreement,
the Act, and other law.
Partnership Minimum Gain: As of any date, the amount
determined under Sections 1.704-2(b)(2) and 1.704-2(d) of
the Regulations.
Planet Hollywood: Planet Hollywood International,
Inc., a Delaware corporation.
Person: Any individual, partnership, corporation,
trust or other entity.
Profits and Losses: For each Fiscal Year, an amount
equal to the Partnership's taxable income or loss for such
Fiscal Year, determined in accordance with Code Section
703(a) (for this purpose, all items of income, gain, loss,
or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income
or loss), with the following adjustments:
(i)Any income of the Partnership that is
exempt from federal income tax and not otherwise taken into
account in computing Profits or Losses pursuant to this
definition shall be added to such taxable income or loss;
(ii)Any expenditures of the Partnership
described in Code Section 705(a)(2)(B) or treated as Code
Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses pursuant to this
definition shall be subtracted from such taxable income or
loss;
(iii)In the event the Gross Asset Value
of any Partnership asset is adjusted pursuant to the
definition of Gross Asset Value above in this Section, the
amount of such adjustment shall be taken into account as
gain or loss from the disposition of such asset for purposes
of computing Profits or Losses;
(iv)Gain or loss resulting from any
disposition of property with respect to which gain or loss
is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax
basis of such property differs from its Gross Asset Value;
(v)In lieu of the depreciation,
amortization, and other cost recovery deductions taken into
account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Fiscal
Year, computed in accordance with the definition of
Depreciation above in this Section;
(vi)To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code
Section 734(b) or Code Section 743(b) is required pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m) to be taken into
account in determining Capital Accounts as a result of a
distribution other than in complete liquidation of a
Partner's Partnership Interest, the amount of such
adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the
disposition of the asset and shall be taken into account for
purposes of computing Profits or Losses; and
(vii)Notwithstanding any other provision
of this definition, any items which are specially allocated
pursuant to Section 5.3 or Section 5.4 hereof shall not be
taken into account in computing Profits or Losses.
The amounts of the items of Partnership income, gain, loss
or deduction available to be specially allocated pursuant to
Sections 5.3 and 5.4 hereof shall be determined by applying
rules analogous to those set forth in clauses (i) through
(vi) above.
Regulations: The Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such
Regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
Shareholders' Agreement:Shareholders' Agreement dated
this date by and between Planet Hollywood, PHT, AMC
Entertainment Inc., AMCPH and PMC Management, Inc.
Tax Matters Partner: PMC Management, Inc., a Georgia
close corporation.
Unit: A quantitative portion of all Partnership
Interests initially equal to .001 percent (1/100,000) of all
Partnership Interests; provided, the quantitative portion of
all Partnership Interests that is represented by a Unit may
be changed from time to time by the General Partner in
accordance with the provisions of Section 3.2.
SECTION THREE
CAPITAL CONTRIBUTIONS AND LOANS
3.1Initial Capital Contributions.
(a)General Partner. Contemporaneously herewith PMC
Management, Inc. shall contribute Two Hundred Thousand
Dollars ($200,000) in cash to the Partnership, and PMC
Management, Inc. hereby agrees to expose its assets to the
Partnership's liabilities to the extent provided by law and
to undertake all of the obligations of the Partnership's
General Partner. In consideration of and in exchange for
such capital contribution and agreements, PMC Management,
Inc. hereby receives 1,000 Units.
(b)Limited Partners. Contemporaneously with the
execution of this Agreement, the Limited Partners shall make
capital contributions to the Partnership of the following:
(i)PHT shall contribute: (A) a royalty-
free license to use the intellectual property more
particularly described in, and pursuant to that certain
Master License Agreement (PH) dated this date between the
Partnership and an affiliate of PHT; and (B) Eight Million
Nine Hundred Thousand Dollars ($8,900,000) in cash. In
consideration of and in exchange for such capital
contribution, PHT hereby receives 49,500 Units.
(ii)AMCPH shall contribute: (A) a royalty-
free license to use the intellectual property more
particularly described in, and pursuant to that certain
Master License Agreement (AMC) dated this date between the
Partnership and an affiliate of AMCPH; (B) Eight Million
Nine Hundred Thousand Dollars ($8,900,000) in cash. In
consideration of and in exchange for such capital
contribution, AMCPH hereby receives 49,500 Units.
3.2Additional Capital Contributions.
(a)General. If the General Partner from time to time
determines in its sole and absolute discretion that the
Partnership should obtain additional capital contributions
from the Partners, then the General Partner shall give a
written notice to the Partners that sets forth the total
amount of capital contributions that the General Partner has
determined is then needed by the Partnership, the portion of
such total that is to be contributed by each Partner (which
shall be based on the proportion of the Units held by the
Partner at the time the notice is given), and the date on
which these capital contributions should be paid to the
Partnership. Each Partner shall, within 10 days of the due
date specified in such a notice from the General Partner,
contribute cash to the Partnership in the amount required of
such Partner by such notice.
(b)Issuance of Additional Units. Each time that the
General Partner requires the making of additional capital
contributions pursuant to paragraph 3.2(a) the General
Partner shall, at the same time: determine the number of
Units that should be issued by the Partnership to the
Partners in exchange for such contributions, taking into
account the value of the then outstanding Units; change the
quantitative portion of all Partnership Interests that is
represented by one Unit to reflect the issuance of such new
Units; and inform the Partners of such determination and
change in the written notice regarding the making of such
contributions that is given pursuant to paragraph 3.2(a).
Upon receipt by the Partnership from a Partner of an
additional capital contribution required of such Partner
pursuant to paragraph 3.2(a), such Partner shall receive a
portion of the new Units then proposed to be issued by the
Partnership (based on the proportion of the Units held by
the Partner at the time the written notice requiring such
contribution is given), and such new Units shall be fully
paid and nonassessable.
(c)No Third Party Rights. The right of the General
Partner to require any additional capital contributions
under the terms of this Agreement shall not be construed as
conferring any rights or benefits to or upon any Person not
a party to this Agreement.
3.3Election to Make Contribution Loan Upon Default in
Making of Additional Capital Contributions.
(a)Procedure. In the event a Partner fails to make
any additional capital contribution within the time
specified, the General Partner shall give prompt notice of
such failure to the non-defaulting Partners, who shall have
the right (but are not required) to advance directly to the
Partnership, in proportion to their ownership of Units
unless otherwise agreed by them, all or any part of the non-
contributing Partner's additional capital contribution that
is in default. Each amount so advanced shall constitute for
all purposes: (i) a loan by the contributing party to the
noncontributing Partner (a "Contribution Loan"); and (ii) an
additional capital contribution of that sum to the
Partnership by the noncontributing Partner pursuant to the
applicable provisions of this Agreement. Each Contribution
Loan shall bear interest at a rate equal to the lesser of:
(i) a rate equal to three percentage points above the prime
rate in effect from time to time as published in the Midwest
Edition of the Wall Street Journal; or (ii) the maximum rate
of interest then permitted by law. To the extent not
previously paid by the non-contributing Partner, each
Contribution Loan shall be repaid out of the first
subsequent distributions of cash made pursuant to this
Agreement (applied to all Contribution Loans in proportion
to their respective outstanding balances) to which the non-
contributing Partner would otherwise be entitled, which cash
shall be paid directly by the Partnership to the lending
Partners and shall be applied first to interest and then to
principal until the Contribution Loans are paid in full.
(b)Additional Remedies. In the event any
Contribution Loan has not been paid in full within 30 days
after it is made, then the lending Partner may at any time
and from time to time elect to pursue any remedy available
to it at law or in equity including, without limitation,
bringing an action to collect the Contribution Loan and all
accrued interest thereon without further notice to or demand
upon the non-contributing Partner.
3.4Election to Receive Additional Units Upon Default
in Making of Additional Capital Contributions. In the event
a Partner fails to make any additional capital contribution
within the time specified, the General Partner shall give
prompt notice of such failure to the non-defaulting
Partners, who shall have the right (but are not required):
to advance directly to the Partnership cash in an amount
equal to all or any part of the non-contributing Partner's
additional capital contribution that is in default; and
upon making such advance, to receive the Units that the non-
contributing Partner would have received upon contributing
such amount to the Partnership. A non-defaulting Partner
may exercise the rights granted to it pursuant to this
Section 3.4 by giving notice of such exercise to the
Partnership, accompanied by the amount of cash to be
advanced to the Partnership pursuant to such exercise,
within 30 days after the non-contributing Partner's
additional capital contribution was due. Upon such exercise
the Partnership shall treat the amount so advanced to it as
a capital contribution by the contributing Partner and shall
issue the appropriate number of Units to such Partner.
3.5Effect of Change in Proportionate Unit Holdings.
If from time to time as a result of the exercise of rights
provided for in paragraphs 3.3, 3.4, or 3.5 there is a
change in the proportionate Unit holdings of the Partners,
then the fiscal period from the end of the immediately
preceding Fiscal Year to the day before such change shall be
a Fiscal Year of the Partnership for purposes of determining
and allocating the Partnership's Profits or Losses for such
Fiscal Year.
3.6Other Matters Relating to Capital Contributions.
(a)Loans by any Partner to the Partnership shall not
be considered capital contributions.
(b)Except as may be expressly provided herein, no
Partner shall be entitled to withdraw or to the return of
any part of the capital contribution of such Partner or to
receive property or assets other than cash from the
Partnership for any reason whatsoever.
(c)No Partner shall be entitled to priority over any
other Partner with respect to return of its capital
contribution, except to the extent expressly provided in
this Agreement.
(d)No interest shall be paid by the Partnership on
capital contributions (or on any Partner's Capital Account
balance), except to the extent expressly provided in this
Agreement.
(e)The General Partner shall not have any personal
liability for the repayment of any capital contribution of
any Limited Partner.
3.7Loans. In the event the General Partner shall
determine that funds are reasonably necessary for
maintaining and protecting the assets of the Partnership or
conducting its business, the General Partner shall be
authorized to borrow funds on behalf of the Partnership on
commercially reasonable terms from a commercial lending
institution or from one or more of the Partners or their
Affiliates without notification to any of the other Partners
and all or any portion of the Partnership Assets may be
pledged or conveyed as security for such indebtedness. In
the event that any Partner or any Affiliate of a Partner
shall loan money to the Partnership, the principal and
interest with respect to such loan shall be fully paid prior
to any distribution of cash to the Partners under the terms
of this Agreement unless such loan agreement or promissory
note contains a specific provision to the contrary. No
Partner shall be required to make any such loan. No such
loan shall increase any Partner's Partnership Interest. The
exercise and performance of the rights and obligations
created by each loan made hereunder are intended to be and
shall be deemed to be transactions between the Partnership
and one who is not a Partner.
SECTION FOUR
CAPITAL ACCOUNTS; RETURN OF CAPITAL
4.1Capital Accounts. A separate Capital Account
shall be maintained on the accounting books and records of
the Partnership for each Partner. Such Capital Accounts
shall be determined and maintained in strict accordance with
the definition of Capital Account set forth in Section Two.
4.2Return of Capital. If any return of capital in
money or property shall have been deemed to have been made
to a Partner prior to or subsequent to the termination of
the Partnership, and if, at the time of such return of
capital in money or property, there shall have been any
unpaid debts, taxes, liabilities or obligations which the
Partnership shall not have sufficient assets to meet, then,
if and only if required by the Act, each Partner (including
former Partners who may have received distributions or have
transferred their Partnership Interests) shall be obligated
to repay any such return of capital distributed to such
Partner (such repayments to be made in the same proportions
as such returns of capital had been made to all Partners),
to the extent necessary to discharge the liabilities of the
Partnership to all creditors who extended credit or whose
claims arose before such return of capital. All repayments
of returns of capital made pursuant to this Section 4.2 by
Partners shall be made within ten (10) days after the
General Partner shall have repaid the share apportioned to
the General Partner. Failure of any Partner or former
Partner to make repayment required under this Section 4.2
shall subject the defaulting Partner to payment of interest
on the amount due from such payment, at a rate equal to the
lesser of: (i) a rate equal to three percentage points above
the prime rate in effect from time to time as published in
the Midwest Edition of the Wall Street Journal; or (ii) the
maximum rate of interest then permitted by law, plus the
costs and expenses, including reasonable attorneys' fees, of
collection of such amounts.
SECTION FIVE
ALLOCATIONS OF PROFITS AND LOSSES
5.1Profits. After giving effect to the special
allocations set forth in Sections 5.3 and 5.4, the
Partnership's Profits for each Fiscal Year shall be
allocated to and among the Partners for accounting purposes
(including in particular for purposes of maintaining the
Partners' Capital Accounts) as follows:
(a)First, Profits shall be allocated to the General
Partner so as and to the extent necessary to offset Losses
previously allocated pursuant to Section 5.2(b), to the
extent of Losses not previously offset hereunder.
(b)Second, Profits shall be allocated to the Partners
so as and to the extent necessary to offset Losses
previously allocated pursuant to Section 5.2(a), to the
extent of, and in proportion to, Losses not previously
offset hereunder.
(c)Third, all remaining Profits shall be allocated to
and among the Partners in proportion to the number of Units
held by each of them on the last day of such Fiscal Year.
5.2Losses.
(a)General Rule. After giving effect to the special
allocations set forth in Sections 5.3 and 5.4, the
Partnership's Losses for each Fiscal Year shall for
accounting purposes (including in particular for purposes of
maintaining the Partners' Capital Accounts) be allocated to
and among the Partners in proportion to the number of Units
held by each of them on the last day of such Fiscal Year.
(b)Special Limitation. Notwithstanding the general
rule set forth in Section 5.2(a), no Losses shall be
allocated to any Limited Partner to the extent that such
allocation would create or enlarge an Adjusted Capital
Account Deficit. Any Losses which would be allocated to
such Limited Partner but for the preceding sentence shall
instead be allocated to the General Partner.
5.3Special Allocations. The following special
allocations shall be made in the following order:
(a)Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-2(f) of the Regulations,
notwithstanding any other provision of this Section 5.3, if
there is a net decrease in Partnership Minimum Gain during
any Fiscal Year, each Partner shall be specially allocated
items of Partnership income and gain for such Fiscal Year
(and, if necessary, subsequent Fiscal Years) in an amount
equal to such Partner's share of the net decrease in
Partnership Minimum Gain determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the
previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(f)(6) and
1.704-2(j)(2) of the Regulations. This Section 5.3(a) is
intended to comply with the minimum gain chargeback
requirement in Section 1.704-2(f) of the Regulations and
shall be interpreted consistently therewith.
(b)Partner Minimum Gain Chargeback. Except as
otherwise provided in Section 1.704-2(i)(4) of the
Regulations, notwithstanding any other provision of this
Section 5.3, if there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to a Partner
Nonrecourse Debt during any Fiscal Year, each Person who has
a share of the Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in
accordance with Section 1.704-2(i)(5) of the Regulations,
shall be specially allocated items of Partnership income and
gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years) in an amount equal to such Person's share of
the net decrease in Partner Nonrecourse Debt Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be
so allocated shall be determined in accordance with Sections
1.704-2(i)(4) and 1.704-2(j)(2) of the Regulations. This
Section 5.3(b) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(i)(4) of the
Regulations and shall be interpreted consistently therewith.
(c)Qualified Income Offset. If any Limited Partner
unexpectedly receives any adjustments, allocations, or
distributions described in Section 1.704-1(b)(2)(ii)(d)(4),
Section 1.704-1(b)(2)(ii)(d)(5) or Section
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of
Partnership income and gain shall be specially allocated to
each such Limited Partner in an amount and manner sufficient
to eliminate, to the extent required by the Regulations, the
Adjusted Capital Account Deficit of such Limited Partner as
quickly as possible, provided that an allocation pursuant to
this Section 5.3(c) shall be made only if and to the extent
that such Limited Partner would have an Adjusted Capital
Account Deficit after all other allocations provided for in
this Section 5.3 have been tentatively made as if this
Section 5.3(c) were not in the Agreement.
(d)Gross Income Allocation. If any Limited Partner
has a deficit Capital Account at the end of any Fiscal Year
which is in excess of the sum of the amount such Limited
Partner is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1)
and 1.704-2(i)(5), each such Limited Partner shall be
specially allocated items of Partnership income and gain in
the amount of such excess as quickly as possible, provided
that an allocation pursuant to this Section 5.3(d) shall be
made only if and to the extent that such Limited Partner
would have a deficit Capital Account in excess of such sum
after all other allocations provided for in this Section 5
have been made as if Section 5.3(c) hereof and this Section
5.3(d) were not in the Agreement.
(e)Nonrecourse Deductions. Nonrecourse Deductions
for any Fiscal Year shall be allocated in the same manner as
Losses are allocated pursuant to Section 5.2(a).
(f)Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Fiscal Year shall be
specially allocated to the Partner who bears the economic
risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable
in accordance with Regulations Section 1.704-2(i)(1).
(g)754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to
Code Section 734(b) or Code Section 743(b) is required,
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken
into account in determining Capital Accounts as the result
of a distribution to a Partner in complete liquidation of
his interest in the Partnership, the amount of such
adjustment to Capital Accounts shall be treated as an item
of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Partners in
accordance with their interests in the Partnership in the
event that Regulations Section 1.704-1(b)(2)(iv)(m)(2)
applies, or to the Partner to whom such distribution was
made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
5.4Curative Allocations. The allocations set forth
in Sections 5.3(a) through 5.3(g) (the "Regulatory
Allocations") are intended to comply with certain
requirements of the Regulations. It is the intent of the
Partners that, to the extent possible, all Regulatory
Allocations shall be offset either with other Regulatory
Allocations or with special allocations of other items of
Partnership income, gain, loss, or deduction pursuant to
this Section 5.4. Therefore, notwithstanding any other
provision of this Section 5 (other than the Regulatory
Allocations), the Partnership shall make such offsetting
special allocations of Partnership income, gain, loss or
deduction in whatever manner determined by the General
Partner to be appropriate so that, after such offsetting
allocations are made, each Partner's Capital Account balance
is, to the extent possible, equal to the Capital Account
balance such Partner would have had if the Regulatory
Allocations were not part of the Agreement and all
Partnership items were allocated pursuant to Sections 5.1
and 5.2. In exercising its discretion under this
Section 5.4, the General Partner shall take into account
future Regulatory Allocations under Sections 5.3(a) and
5.3(b) that, although not yet made, are likely to offset
other Regulatory Allocations previously made under Sections
5.3(e) and 5.3(f).
5.5Other Allocation and Accounting Rules.
(a)For purposes of determining the Profits, Losses,
or any other items allocable to any period, Profits, Losses,
and any such other items shall be determined on a daily,
monthly, or other basis, as determined by the General
Partner using any permissible method under Code Section 706
and the Regulations thereunder.
(b)To the extent permitted by Section 1.704-2(h)(3)
of the Regulations, the General Partner shall endeavor to
treat distributions of cash from the Partnership as having
been made from the proceeds of a Nonrecourse Liability or a
Partner Nonrecourse Debt only to the extent that such
distributions would cause or increase an Adjusted Capital
Account Deficit for any Partner.
5.6Tax Allocations.
(a)For federal income tax purposes, the Partners'
distributive shares of each item of Partnership income,
gain, loss, deduction, and credit shall be determined in a
manner that is consistent with the allocations of Profits,
Losses, and other items under Sections 5.1 through 5.5. The
Partners are aware of the income tax consequences of the
allocations made by this Section 5, and all Partners shall
be bound by the provisions of this Section 5 in reporting
their shares of Partnership income and loss for federal
income tax purposes.
(b)In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss, and deduction
with respect to any property contributed to the capital of
the Partnership shall, solely for tax purposes, be allocated
among the Partners so as to take account of any variation
between the adjusted basis of such property to the
Partnership for federal income tax purposes and its initial
Gross Asset Value. In the event the Gross Asset Value of
any Partnership asset is adjusted pursuant to the definition
of Gross Asset Value in Section Two, subsequent allocations
of income, gain, loss, and deduction with respect to such
asset shall take account of any variation between the
adjusted basis of such asset for federal income tax purposes
and its Gross Asset Value in the same manner as under Code
Section 704(c) and the Regulations thereunder. Any
elections or other decisions relating to such allocations
shall be made by the General Partner in any manner that
reasonably reflects the purpose and intention of this
Agreement. Allocations pursuant to this Section 5.6(b) are
solely for purposes of federal, state, and local taxes and
shall not affect, or in any way be taken into account in
computing, any Person's Capital Account or share of Profits,
Losses, other items, or distributions pursuant to any
provision of this Agreement.
SECTION SIX
DISTRIBUTIONS
6.1Distributions of Cash. It is anticipated that the
Partnership will not make regular distributions of cash to
the Partners. However, the General Partner may from time to
time decide that cash should be distributed to the Partners.
In such event, and subject to the limitations imposed by the
Act on the aggregate amount which may be distributed by the
Partnership at any given time, the Partnership shall dis-
tribute the amount of cash determined by the General Partner
at the time or times determined by the General Partner.
Each cash distribution made by the Partnership shall be made
to the Partners in proportion to the number of Units held by
each of them on the date of the distribution.
6.2Distributions in Kind. It is anticipated that the
Partnership will not make distributions of property to the
Partners. However, the General Partner may from time to
time decide that specific Partnership property other than
cash should be distributed to the Partners. In such event,
and subject to the limitations imposed by the Act on the
aggregate amount which may be distributed by the Partnership
at any given time, such property shall be valued and
distributed, based on value, to the Partners to whom, and in
the same proportions as, cash in an amount equal to the
value of such property would be distributed on the date such
property is distributed, and the manner in which each such
distribution is made shall be determined by the General
Partner.
6.3Distribution in Cash Only. Except as provided in
Section 10.2, no Partner in its capacity as a Partner shall
have the right to demand or receive property other than cash
from the Partnership for any reason whatsoever and no
Partner shall have the right to sue for partition of the
Partnership or of the Partnership's assets.
6.4Good Faith Distribution by General Partner. Upon
the good faith determination to distribute funds in
accordance with this Section 6, the General Partner shall
incur no liability on account of such distribution, even
though such distribution may have resulted in the
Partnership retaining insufficient funds for the operation
of its business, which insufficiency resulted in loss to the
Partnership or necessitated the borrowing of funds by the
Partnership.
SECTION SEVEN
RIGHTS, POWERS AND OBLIGATIONS OF THE GENERAL PARTNER
7.1Powers of the General Partner. In addition to the
powers granted to any General Partner under the Act and
other provisions of this Agreement, the General Partner
shall have the exclusive right and power to manage the
business and the affairs of the Partnership with all powers
necessary, advisable, or convenient to manage, control,
administer and operate the business and affairs of the
Partnership for purposes herein stated, to make all
decisions affecting such business and affairs, and to do all
things which are necessary or desirable in the conduct of
the business and affairs of the Partnership. The rights and
powers of the General Partner shall include, without
limitation, for Partnership purposes, the powers to:
(a)Represent the Partnership in all administrative
and judicial proceedings involving federal income tax
matters as the "Tax Matters Partner." In connection
therewith, the powers of the General Partner shall include,
but are not limited to, the power to:
(i)appoint an attorney-in-fact to represent
the Partnership in such proceeding;
(ii)engage in any activities enumerated in
subchapter C of chapter 63 of the Internal Revenue Code;
(iii)employ attorneys, accountants,
appraisers, consultants, and such other persons as deemed
appropriate;
(iv)make any and all elections for federal,
state, and local tax purposes, including, without
limitation, any election if permitted by applicable law:
(a) to adjust the basis of Partnership Assets pursuant to
Code Sections 754, 734(b) and 743(b), or comparable
provisions of state or local law; and (b) to extend the
statute of limitations for assessment of tax deficiencies
against Partners with respect to adjustments to the
Partnership's federal, state or local tax returns; and
(v)represent the Partnership and Partners
before taxing authorities or courts of competent
jurisdiction in tax matters affecting the Partnership and
Partners in their capacity as Partners, and to execute any
agreements or other documents relating to or affecting such
tax matters including agreements or other documents that
bind the Partners with respect to such tax matters or
otherwise affect the rights of the Partnership or Partners.
The Tax Matters Partner shall provide all Partners
affected by an Internal Revenue Service Partnership level
proceeding with such notice of the proceeding as is required
by the Code. The preceding sentence shall be deemed to be
satisfied by mailing such notice to each such Partner's last
known address.
The Tax Matters Partner is entitled to reimbursement
for all expenses relating to its representation of the
Partnership, which may include, but are not limited to,
expenses of persons employed by the Partnership in
connection with an examination, audit, administrative or
judicial proceeding relating to federal income tax matters;
(b)Employ, retain or otherwise secure or enter into
contracts with consultants, agents or firms to assist in the
business of the Partnership, all on such terms for such
consideration as the General Partner deems advisable, such
consideration to be a normal operating expense;
(c)Pay all operating costs and expenses associated
with the ownership of Partnership Assets including without
limitation, insurance, ad valorem taxes, maintenance costs,
accounting and legal fees, and principal and interest due on
any indebtedness encumbering the assets of the Partnership;
(d)Acquire, contract to acquire or enter into an
option to acquire, sell, exchange, or convey title to, and
to license, contract to sell or grant an option for the sale
of all or any portion of the Partnership Assets, and any
mortgage or leasehold interest or other property which may
be acquired by the Partnership upon a transfer of the
Partnership Assets;
(e)Borrow money and, if security is required there-
for, to mortgage or subject to any other security device any
portion of the Partnership Assets, to obtain replacements of
any mortgage, security deed or other security device, and to
prepay, in whole or in part, refinance, increase, modify,
consolidate, or extend any mortgage, security deed or other
device, all of the foregoing at such terms and in such
amount as it deems in its absolute discretion, to be in the
best interest of the Partnership;
(f)Sell additional Partnership Interests to
additional limited partners for such price(s) as may be
determined by the General Partner, in its sole discretion;
(g)Enter into joint venture agreements, trust agree-
ments or other fiduciary agreements or arrangements for the
purpose of holding legal or equitable title to the
Partnership Assets and to lease all or any portion of any
real property owned by the Partnership without limit as to
the term thereof, whether or not such term (including
renewal terms) will extend beyond the date of termination of
the Partnership, and whether any property so leased is to be
occupied by the lessee or, in turn, subleased in whole or in
part to others; provided that prior to acquiring more than a
de minimis interest in any property which is subject to an
allowance for depreciation or is otherwise amortizable, or
otherwise allows the Partners to claim such deductions, the
General Partner will consult with tax counsel for the
Partnership to determine whether the Partnership Agreement
needs to be amended;
(h)Form other partnerships (designating the Partner-
ship as a general or limited partner thereof), limited
liability companies, and other entities, including the
entities which will own the Day 2 Venture Units and Day 3
Venture Units, and contribute any and all Partnership Assets
thereto;
(i)Acquire and enter into any contract of insurance
which the General Partner deems necessary and proper for the
protection of the Partnership, for the conservation of its
assets, or for any purpose beneficial to the Partnership;
(j)Invest in short-term government obligations, cer-
tificates of deposit or tax-exempt obligations such funds of
the Partnership as are temporarily not required in its
opinion for use in conducting the business of the
Partnership;
(k)Execute any guaranty or accommodation endorsement
reasonably incident to the conduct of the business of the
Partnership;
(l)Open and maintain bank accounts for the deposit of
Partnership funds, with withdrawals to be made upon such
signature or signatures as the General Partner may
designate;
(m)Obtain licenses to use the Partnership
Intellectual Property that is not owned by the Partnership
and license the Venture Units to use the Partnership
Intellectual Property;
(n)Execute, acknowledge and deliver any and all in-
struments, documents, or agreements to effectuate the
foregoing; and
(o)By way of extension of the foregoing and not by
way of limitation thereof, the General Partner shall possess
all of the powers and rights of partners in a partnership
without limited partners under the Act as amended.
7.2Dealing with Partnership by General Partner. The
fact that the General Partner is directly or indirectly
interested in or connected with any person, firm or
corporation employed by the Partnership to render or perform
a service or from or to which or whom the Partnership may
buy or sell merchandise, services, materials or other
property, shall not prohibit the General Partner, on behalf
of the Partnership, from employing such person, firm or
corporation (including the General Partner) or from
otherwise dealing with them. Each Limited Partner consents
to the payment of fees, remuneration, or other payments paid
for services in accordance with the Shareholders' Agreement.
All transactions made pursuant to this Section 7.2 between
the Partnership and either a Partner or an Affiliate of a
Partner are intended to be and shall be deemed to be
transactions between the Partnership and one who is not a
Partner. Nothing contained in this Section 7.2 shall
restrict the right of the General Partner or any other
Person to receive the income or distributions to which they
would otherwise be entitled to hereunder as a Partner.
7.3Authority of General Partner. No person dealing
with the General Partner shall be required to determine the
General Partner's authority to make any commitment or
undertaking on behalf of the Partnership nor to determine
any fact or circumstance bearing upon the existence of its
authority. No purchaser of any property or interest owned
by the Partnership shall be required to determine the right
to sell and the authority of the General Partner or its
designee to sign and deliver on behalf of the Partnership
any such instrument of transfer, or to see to the
application or distribution of revenues or proceeds paid or
credited in connection therewith.
7.4Duties of the General Partner. The General
Partner's obligations shall include the following:
(a)Manage the Partnership affairs;
(b)Have fiduciary responsibility for the safekeeping
and use of all funds of the Partnership;
(c)Render complete annual reports to the Limited
Partners and any required governmental agency;
(d)Furnish Limited Partners with the reports and
information specified in Section 13.4 hereof;
(e)Maintain complete records of Partnership assets,
including information and reports of architects, appraisers,
engineers, attorneys, accountants or other professionals;
(f)Maintain complete books of account regarding Part-
nership operations and business affairs;
(g)Keep all records of the Partnership available for
inspection and audit by any Limited Partner or its
representative, at the expense of the Limited Partner, upon
reasonable notice during business hours at the principal
place of business of the Partnership; and
(h)Perform all other actions necessary to ensure that
the Partnership complies with the provisions of the Act and
other applicable law.
7.5Removal of the General Partner. The General
Partner may be removed, and a new General Partner may be
appointed, only by a unanimous vote of all of the Partners.
The General Partner may not be removed without its consent.
The Partnership shall hold the removed General Partner
harmless from any and all liabilities, including attorney's
fees, arising from and after the effective date of its ter-
mination of its interest, which liabilities are not
attributable to fraud, gross negligence or willful
misconduct of the General Partner prior to or on such
effective date. A General Partner that is removed hereby
shall be entitled, at its sole and absolute discretion, to
either (i) convert its Partnership Interest to that of a
special Limited Partner, having the same rights to
allocations of Profits, Losses, distributions and the
capital of the Partnership as prior to such conversion (with
such conversion occurring automatically upon the making of
such election), or (ii) receive payment for its Partnership
Interest, in complete termination thereof, in an amount
equal to its fair market value, with payment due upon
termination.
7.6Liability and Indemnification of the General
Partner.
(a)Liability Generally. The General Partner shall
not be liable to the Limited Partners because any taxing
authorities disallow or adjust any deductions or credits in
the Partnership or a Limited Partner's income tax returns,
nor shall the General Partner have any personal liability
for the repayment of capital contributions of the Limited
Partners except as provided in this Agreement. In addition,
the General Partner shall not be liable, responsible or
accountable in damages or otherwise to any of the Limited
Partners or to the Partnership for any act or omission
performed or omitted by it in good faith, and in the
reasonable belief that such act or omission was within the
scope and authority granted to it by this Agreement.
(b)No Liability. Neither the General Partner nor its
agents shall be liable to the Limited Partners for any
actions taken by or on behalf of the General Partner,
including the execution of a settlement agreement with the
Internal Revenue Service so long as the General Partner acts
in good faith in representing the interest of the
Partnership and Limited Partners. The preceding sentence
does not, however, excuse the General Partner from the
notice requirements stated at Section 7.1(a).
(c)Indemnification. The Partnership shall and does
hereby indemnify and save harmless the General Partner and
its successors and assigns from and against loss, damage, or
expenses incurred by them on behalf of or in connection with
any act or omission described in the preceding paragraph,
including reasonable costs and expenses of litigation and
appeal (including reasonable fees and expenses of attorneys
engaged by the General Partner and all applicable sales or
use taxes imposed on such fees and costs), in defense of
such act or omission, without relieving the General Partner
of liability for fraud, bad faith, gross negligence or
malfeasance, or failure to comply in any material respect
with any representation, warranty, covenant, condition or
other agreement herein contained of the General Partner.
The satisfaction of any indemnification and any saving
harmless shall be from and limited to Partnership Assets and
no Partners shall have any personal liability on account
thereof.
7.7Transferability of General Partner's Interest.
Except as otherwise provided in this Agreement and in
addition to any other restrictions set forth herein on the
transfer of the General Partner's Partnership Interest, the
General Partner shall not, without the consent of the
Limited Partners holding at least fifty-one percent (51%) of
the Units, sell, assign, transfer, or otherwise dispose of,
in whole or in part, its Partnership Interest or admit an
additional General Partner, and any attempt by the General
Partner to do so in violation of this Agreement shall be
null and void ab initio. If all or any part of the General
Partner's Partnership Interest is transferred in violation
of this Agreement, the transferee shall be a mere assignee,
and not a substituted Partner, with respect to the interest
that is transferred.
SECTION EIGHT
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
8.1Liability of Limited Partners. Except as provided
in the Act, none of the Limited Partners shall have any
personal liability with respect to the liabilities or the
obligations of the Partnership.
8.2Management of Business. The Limited Partners, as
such, shall not take part in the management of the business
of the Partnership, transact any business for the
Partnership or have the power to sign for or to bind the
Partnership to any agreement or document, said powers being
vested solely and exclusively in the General Partner. No
action taken or attempted to be taken by one or more of the
Limited Partners under the provisions of Sections 7, 10 or
14 or this Section 8 shall be effective or binding upon the
Partnership (i) if a court of competent jurisdiction in the
State of Delaware has held that the taking of such action
would result in the loss of limited liability of the Limited
Partners, or (ii) if the Partnership receives an opinion of
counsel (obtained by any Partner), satisfactory to all of
the Limited Partners, to the effect that the taking of such
action would result in the loss of limited liability of the
Limited Partners.
8.3Duty to Account for Profits. Each Limited Partner
shall be a trustee for the Partnership with respect to any
profit derived by it without the consent of the General
Partner or the Limited Partners from any transaction
connected with the formation, conduct or liquidation of the
Partnership or from any use of Partnership Assets.
8.4Rights of Limited Partners. Each Limited Partner
shall be entitled to:
(a)The rights accorded to limited partners by the
Act, to the extent that such rights cannot be eliminated by
agreement of the Partners;
(b)All rights and powers of Limited Partners as are
set forth elsewhere in this Agreement;
(c)Be indemnified in respect to payments made and
personal liabilities reasonably incurred by it for the
preservation of the Partnership business or property;
(d)Vote its Units as to any amendments to this
Agreement (other than amendments to admit additional limited
partners to the extent such amendments do not affect the
Limited Partner's interest in allocations and distributions
under Sections 5 and 10) or on any other matter which the
General Partner may put to a vote of the Limited Partners;
(e)Have the Partnership books kept at the principal
office of the Partnership, and at all reasonable times to
have access to and the right to inspect and copy any of
them; and
(f)Have, upon reasonable notice, true and full infor-
mation regarding all things affecting the Partnership.
SECTION NINE
TRANSFER OF PARTNERSHIP INTERESTS
9.1Transfer of Interests. Partnership Interests are
transferable only on the books of the Partnership. Each
Limited Partner agrees that no transferee of a Limited
Partner shall have the right to be substituted as a Limited
Partner in the place of his transferor except with the
written consent of the General Partner, which consent may be
withheld for any reason if such transfer was an involuntary
transfer and may not be withheld if such transfer was a
voluntary transfer in compliance with the Shareholders'
Agreement. A transferee admitted as Limited Partner is
referred to herein as a "Substituted Limited Partner." No
such substitution or attempted substitution shall be valid
and enforceable, whether or not the Limited Partner's
Partnership Interests are transferred or are attempted to be
transferred in connection therewith, unless the General
Partner has given such written consent. Subject to the
provisions of this Agreement or the Act, the death,
withdrawal, insanity, bankruptcy, or substitution of any
Limited Partner shall not interrupt the continuity of or
cause the termination or dissolution of the Partnership.
9.2Limitation Upon Transfer of Partnership Interests
Therein.
(a)Securities Laws. Partnership Interests shall be
nontransferable and nonassignable unless the registration
provisions of the Securities Act of 1933 (the "1933 Act")
have been complied with through registration, or an
exemption therefrom, and unless made in compliance with the
registration provisions of the securities laws of the states
where interests are offered or sold, or exemptions
therefrom. Furthermore, as a condition precedent to any
assignment or other transfer of any interest in the Partner-
ship, the General Partner may require an opinion of counsel
satisfactory to the General Partner that such assignment or
transfer will be made in compliance with the registration
provisions of the 1933 Act, or an exemption therefrom, and
the securities laws of the states where interests are
offered or sold, or exemptions therefrom. The assignor or
transferor will be responsible for paying the legal fees for
any opinion required by this Section. Any transfer, pledge
or other disposition of Partnership Interests in
contravention of these restrictions is void. Each Limited
Partner agrees to accept the foregoing restrictions on the
transferability of Partnership Interests and assignment of
interests therein and abide by the provisions thereof, and
agrees that the following legend shall be placed on each
certificate of interest evidencing a Partnership Interest,
if any:
THE PARTNERSHIP INTERESTS EVIDENCED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR THE LAWS OF
ANY STATE AND WERE SOLD PURSUANT TO EXEMPTIONS
FROM REGISTRATION UNDER THE ACT AND SUCH STATE
LAWS. THE PARTNERSHIP INTERESTS MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE PARTNERSHIP
INTERESTS UNDER THE ACT AND SUCH STATE LAWS AS MAY
BE APPLICABLE, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE PARTNERSHIP THAT SUCH
REGISTRATION IS NOT REQUIRED.
(b)Tax Rules. No transfer, assignment or encumbrance
of Partnership Interests shall be made if such transfer or
other event would, in the opinion of counsel for the
Partnership, result in the Partnership being considered to
have been terminated under the provisions of the Code. In
addition, the General Partner has the right to refuse to
recognize any transfer of Partnership Interests in a
secondary market or substantial equivalent thereof.
(c)Shareholders' Agreement. No transfer or
assignment of Partnership Interests shall be made except in
accordance with the Shareholders' Agreement.
9.3Holders Who are not Limited Partners. A person
who has possession of a Partnership Interest that has been
transferred but who has not been admitted as a Substituted
Limited Partner as provided in Section 9.1 shall be entitled
solely (a) to allocations of Profits and Losses and
distributions as provided in Section 5, Section 6, and -
Section 10.
9.4Treatment of Transferor. A person who transfers
or attempts to transfer all or any part of a Partnership
Interest shall, with respect to any interest that is
effectively transferred, cease to have any right, title, or
interest to or in the Partnership and, with respect to any
such interest that is not effectively transferred, shall
cease to be a Partner and shall be a mere assignee.
9.5General Conditions on Disposition.
(a)All costs and expenses incurred by the Partnership
in connection with any disposition of any Limited Partner's
Partnership Interest pursuant to this Section and/or in
connection with another person becoming a transferee or
Substituted Limited Partner in the Partnership in respect of
such interest including any filing, recording, and
publishing costs and the fees and disbursements of counsel
shall be paid by and be the responsibility of the Limited
Partner disposing of such interest.
(b)If the Partnership Interest of a Limited Partner
is effectively transferred, the Partnership's Profits,
Losses, and other items shall for accounting and tax
purposes be allocated between the transferring Limited
Partner and the transferee using any reasonable method of
allocation selected by the General Partner. A transferee
of, or Substituted Limited Partner with respect to, a
Limited Partner's Partnership Interest shall be entitled to
receive distributions from the Partnership with respect to
such interest only after the effective date of such
assignment. The transfer by a Limited Partner of any
interest shall become effective on the first day of the
month following satisfaction of the requirements set forth
in this Section 9.5.
9.6Survival of Liabilities. No substitution of an
assignee as a Limited Partner shall operate to relieve the
assignor of any liabilities arising under the Act.
9.7Withdrawal. No Partner may withdraw from the
Partnership. Any Partner that withdraws from the
Partnership in breach of this Agreement shall be liable to
the Partnership for all of the direct and indirect damages
caused by such withdrawal.
SECTION TEN
DISSOLUTION, TERMINATION
10.1Dissolution. It is the intention of the Partners
that the business of the Partnership be continued by the
Partners pursuant to the provisions of this Agreement until
such time as the occurrence of an "Event of Dissolution" (as
hereinafter defined), at which time the Partnership shall
dissolve. The occurrence of any of the following shall be
deemed an "Event of Dissolution":
(a)The sale of all or substantially all of the assets
of the Partnership;
(b)The decision by all of the Partners that the Part-
nership should be dissolved;
(c)The date on which the Partnership or the General
Partner shall suffer a bankruptcy;
(d)December 31, 2097;
(e)The dissolution, removal, or withdrawal of the
General Partner, unless there is a remaining General Partner
that shall elect to continue the business of the Partnership
(with such right to continue being expressly granted hereby)
or, if there is no remaining General Partner, unless all
remaining Partners consent in writing to the admission of a
new General Partner not later than ninety (90) days after
the occurrence of such event; provided, in the event the
Partnership is continued under this Section 10.1(e), the
previous General Partner's Partnership Interest shall, at
such time, be converted to a special class of Limited
Partner having the same rights to allocations of Profits,
Losses, distributions and the capital of the Partnership as
prior to such conversion (with such conversion occurring
automatically upon the making of such election and upon such
holder executing an agreement to join in this Agreement);
(f)The occurrence of a cause of dissolution as set
forth in the Act, and limited by Sections 10.1(a) through
(e) hereof.
10.2Wind-Up. Upon the dissolution of the Partnership,
the General Partner shall make a final accounting of the
business and affairs of the Partnership and shall proceed
with reasonable promptness to liquidate the business,
property and assets of the Partnership and to distribute the
proceeds in the following order of priority:
(a)To the payment of expenses of any sale, disposi-
tion or transfer of the Partnership Assets of the
dissolution and liquidation of the Partnership.
(b)To the payment of just debts and liabilities of
the Partnership (including any to Partners), in the order of
priority provided by law.
(c)To the Partners in an amount equal to their Capi-
tal Accounts, after giving effect to all contributions,
distributions and allocations for all periods.
10.3Compliance With Regulations. In the event the
Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), then distributions
shall be made pursuant to this Section 10 to the Partners
who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2).
10.4No Obligation to Restore Deficit Capital Account
Balance. In the event a Limited Partner's Capital Account
has a deficit balance (after giving effect to all
contributions, distributions and allocations for all taxable
years, including the year during which the dissolution
occurs), notwithstanding any custom or rule of law to the
contrary, such Limited Partner shall have no obligation to
make any contribution to the Partnership and the negative
balance of such Limited Partner's Capital Account shall not
be considered an asset of the Partnership nor a debt owed by
such Limited Partner to the Partnership or to any other
Person for any purpose whatsoever.
10.5Temporary Retention of Liquidation Proceeds. In
the discretion of the General Partner, a pro rata portion of
the distributions that would otherwise be made to the
Partners pursuant to this Section may be:
(i)distributed to a trust established for
the benefit of the Partners for the purposes of liquidating
Partnership Assets and collecting amounts owed to the
Partnership or the Partners arising out of or in connection
with the Partnership. The assets of any such trust shall be
distributed to the Partners from time to time, in the
discretion of the trustee of such trust, in the same
proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the
Partners pursuant to this Agreement; or
(ii)withheld to provide a reasonable reserve
for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment
obligations owed to the Partnership, provided that such
withheld amounts shall be distributed to the Partners from
time to time in the discretion of the General Partner as
such liabilities are paid or settled.
10.6Distributions In Kind. Notwithstanding anything
to the contrary in Section 10.2, if the Partnership at the
time of its dissolution owns any Intellectual Property that
utilizes the words "Planet Hollywood" or any similar words
or any logos or marks that are substantially similar to
logos or marks owned by PHT or its Affiliates, then such
Intellectual Property shall upon the winding up of the
Partnership be distributed in kind to PHT. Similarly, and
notwithstanding anything to the contrary in Section 10.2, if
the Partnership at the time of its dissolution owns any
Intellectual Property that utilizes the words "American
Multi-Cinema" or "AMC" or any similar words or any logos or
marks that are substantially similar to logos or marks owned
by AMCPH or its Affiliates, then such Intellectual Property
shall upon the winding up of the Partnership be distributed
in kind to AMCPH. If Intellectual Property is distributed
in kind to both PHT and AMCPH pursuant to this Section 10.6,
then the property distributed to each shall be deemed to be
equal in value.
10.7Control of Dissolution and Winding-up. The wind-
up of the affairs of the Partnership shall be conducted by
the General Partner. In the event there is no General
Partner, then the wind-up of the affairs of the Partnership
shall be conducted by the Partner so nominated by Partners
who then own a majority of the Units (the "Liquidating
Partner"). In liquidating the assets of the Partnership,
all tangible assets of a saleable value shall be sold at
such price and terms as the General Partner (or the
Liquidating Partner) determines to be fair and equitable.
Any Partner may purchase such assets at such sale. A
reasonable time shall be allowed for the orderly liquidation
of the assets of the Partnership and the discharge of
liabilities to creditors to minimize the losses that might
otherwise occur upon liquidation. Upon the conclusion of
the wind-up of the affairs of the Partnership, the
Partnership shall terminate.
10.8Deemed Distribution and Recontribution.
Notwithstanding any other provisions of this Section 10, in
the event the Partnership is liquidated within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g) but no Event of
Dissolution has occurred, the Partnership Assets shall not
be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not
be wound up. Instead, solely for federal income tax
purposes, the Partnership shall be deemed to have
distributed the Partnership Assets in kind to the Partners,
who shall be deemed to have assumed and taken subject to all
Partnership's liabilities, all in accordance with their
respective Capital Accounts. Immediately thereafter, the
Partners shall be deemed to have recontributed the
Partnership Assets in kind to the Partnership, which shall
be deemed to have assumed and taken subject to all such
liabilities.
10.9Rights of Partners. Except as otherwise provided
in this Agreement, each Partner shall look solely to the
assets of the Partnership for the return of his Capital
Contributions and shall have no right or power to demand or
receive property other than the distributions described
herein. No Partner shall have priority over any other
Partner as to the return of his Capital Contributions,
distributions, or allocations unless otherwise provided in
this Agreement.
10.10Division of Venture Units. Unless otherwise
agreed by the Partners, this Section 10.10 shall govern the
division of the Venture Units of the Partnership upon
dissolution:
(a)The Partnership shall distribute to AMCPH all of
the Partnership's interests in AMC Consolidated Entities
and to PHT all of the Partnership's interests in the PH
Consolidated Entities.
(b)The Management Agreements shall terminate and in
their place shall be new management agreements in the then
current form generally used by each Limited Partner or its
Affiliates with respect to management services of the type
being provided pursuant to the respective Management
Agreement; provided, that such new management agreements
shall be on commercially reasonable terms for similar
facilities and services.
(c)The Master License Agreements shall be amended to
reflect (i) AMCPH as the licensee for purposes of the
operation of the Venture Units distributed to AMCPH, (ii)
PHT as the licensee for purposes of the operation of the
Venture Units distributed to PHT, (iii) that no additional
facilities utilizing the intellectual property rights
licensed by the Master License Agreements may be developed
or operated by AMCPH, PHT or their Affiliates pursuant to
the Master License Agreements, and (iv) that the exclusive
nature of the license granted by the terms of the Master
License Agreements shall terminate.
(d)The Sublicense Agreements shall terminate;
provided, that, with respect to the Day 1 Venture Units, the
operator thereof shall enter into a license agreement with
PHT or its Affiliates similar to the Day 1 Venture Unit
Sublicense Agreement, except that such agreement shall
provide for a royalty equal to one-half the royalty provided
for in the Day 1 Venture Unit Sublicense Agreement.
SECTION ELEVEN
OTHER BUSINESS
No Partner shall be required to devote its entire time
or attention to the business of the Partnership or, in any
event, more time or attention than shall be reasonably
required to carry out its obligations under this Agreement.
SECTION TWELVE
POWER OF ATTORNEY
12.1Granting General Partner Power of Attorney. Each
Limited Partner, by executing this Agreement or a
counterpart thereof, irrevocably constitutes and appoints
the General Partner as its true and lawful attorney-in-fact
and agent with full power and authority to act in such
Limited Partner's name, place, and stead to effect the
purposes of the Partnership, including the execution,
acknowledgment, delivery, filing and recording of all
certificates, documents, deeds, bills of sale, assignments
and other instruments of conveyance, leases, contracts, loan
documents and all other documents which the General Partner
deems necessary or reasonably appropriate to achieve the
following:
(a)To qualify the Partnership as a Limited Partner-
ship under the Act; and
(b)To effect a modification of the Partnership or an
amendment of this Agreement without the consent of the
Limited Partners:
(i)to ensure the continuation of
Partnership tax status, provided however that, in the
opinion of counsel to the Partnership, such amendment does
not adversely affect in any way the rights or interests of
any of the Limited Partners;
(ii)to cure any ambiguity and to correct or
supplement any inconsistent provision in this Agreement; or
(iii)when such modification or amendment
is permitted or required under the terms of this Agreement;
or
12.2Power of Attorney.
(a)The power of attorney granted herein:
(i)is a special power of attorney and shall
be deemed to be coupled with an interest, shall be
irrevocable, and shall survive death, incompetency, or legal
disability of a Limited Partner;
(ii)may be exercised by the General Partner
for each Limited Partner by listing any or all of the
Limited Partners required to execute any such instrument
with a signature of said General Partner acting as
attorney-in-fact for any or all of the Limited Partners; and
(iii)shall survive the delivery of an
assignment by a Limited Partner of the whole or a portion of
its Partnership Interest.
(b)Each of the agreements, certificates, or other
documents made pursuant to the power of attorney granted
herein shall be in such form as counsel for the General
Partner shall deem appropriate. The powers herein conferred
to make agreements, certificates, and other documents shall
be deemed to include the powers to sign, execute,
acknowledge, swear to, verify, deliver, file, record and
publish the same. The General Partner shall notify the
Limited Partners after every time it utilizes this power of
attorney.
SECTION THIRTEEN
BOOKS OF ACCOUNT AND PARTNERSHIP RECORDS
13.1Books of Account. The General Partner shall keep
and maintain, or cause to be maintained, complete and
accurate books, records and accounts of the Partnership.
Such books shall be kept on the basis of a calendar year
using the accrual method of accounting and shall be closed
and balanced at the end of each year. An accounting of all
types of receipts, income, profits, costs, expenses and
losses arising out of or resulting from the business of the
Partnership shall be made by the General Partner annually as
of the end of each Fiscal Year, and also upon termination of
this Agreement. The expense of maintaining the books of
account shall be an expense of the Partnership. All
decisions as to accounting and tax matters (including
elections which the Partnership is permitted to make under
the Code) shall be made by the General Partner.
13.2Inspection. The books, records and accounts of
the Partnership, together with executed copies of this
Agreement and of the Certificate and any amendments to
either document, shall be kept at all times at the principal
office of the Partnership. All Partners and their duly
authorized representatives shall have the right to examine
such books, records and accounts at any and all reasonable
times and to make copies thereof or extracts therefrom.
13.3Bank Accounts. The General Partner shall be
responsible for seeing that one or more accounts are
maintained in a bank which is a member of the Federal
Deposit Insurance Corporation, which accounts shall be used
for the payment of the disbursements properly chargeable to
the Partnership, and in which shall be deposited the
revenues received from the operation of the Partnership. In
addition, there shall be deposited in said accounts all
amounts borrowed from third parties. All such revenues and
amounts required by this Section to be deposited in said ac-
counts, shall be and remain the property of the Partnership,
and shall be received, held and disbursed by the General
Partner to be applied only for Partnership purposes. The
General Partner shall designate the authorized signatories
for all such accounts.
13.4Reports.
(a)Tax Information. Within seventy-five (75) days
after the end of the Partnership's fiscal year, the General
Partner will use its best efforts to furnish each Partner
with all information necessary for the preparation of each
of the Limited Partner's Federal and state income tax
returns.
(b)Financial Statements. Within ninety (90) days
after the end of each fiscal year, the General Partner shall
provide the Limited Partners with a balance sheet and
related statement of profit and loss for such year.
SECTION FOURTEEN
AMENDMENTS
14.1General Rule. Except for amendments permitted by
Section 11, this Agreement may be amended only with the
written consent of the General Partner and those Limited
Partners holding a majority of the Units held by the Limited
Partners. The General Partner may, and at the request of
any Limited Partner shall, submit to the Limited Partners,
in writing by registered or certified mail, the text of any
proposed amendment to this Agreement and a statement by the
proposer of the purpose of any such amendment. The General
Partner shall include in any submission its views as to the
proposed amendment. Any such amendment shall be adopted if,
within ninety (90) days after the mailing of such amendment
to all Partners, the General Partner has consented to such
amendment and has further received written approval
(including a telegraph or facsimile message) thereof from
Limited Partners that hold a majority of the Units held by
the Limited Partners. A written approval may not be
withdrawn or voided once it is filed with the General
Partner. A Limited Partner filing a written objection may
thereafter file a valid written approval. The date of
adoption of an amendment pursuant to this Section 14 shall
be the date set forth in the amendment for the adoption, or
if there is no such date, the date on which the General
Partner shall have received the requisite written approvals.
Any proposed amendment which is not adopted may be
resubmitted. In the event any proposed amendment is not
adopted, any written approval received with respect thereto
shall be void and shall not be effective with respect to any
resubmission of the proposed amendment.
14.2Unanimous Consent Requirement. Notwithstanding
the foregoing provisions of this Section 14, no amendment,
without the prior written approval of all Partners, may (a)
enlarge the obligations of any Partner under this Agreement
without said Partner's written consent, (b) enlarge the
liability of the General Partner to the Limited Partners
without the General Partner's written consent, (c) amend
this Section 14, (d) amend any provision relating to the
removal of the General Partner, (e) except with regard to
the admission of additional limited partners as provided in
Section 7.1, amend any provisions concerning cash
distributions or allocation of Profits and Losses (except
pursuant to the authority granted to the General Partner
under Section 4, with regard to Capital Accounts), or (f)
alter the Partnership in such manner as will result in the
Partnership no longer being classified as a partnership for
Federal income tax purposes.
SECTION FIFTEEN
GENERAL PROVISIONS
15.1Relationship. Nothing contained in this Agreement
shall be deemed or construed to constitute any Partner as a
general partner, employee or agent of any other Partner,
other than in connection with activities included within the
purpose and scope of the Partnership as set forth herein and
subject to limitations upon same, as set forth herein.
15.2Meetings of Partners. Any Partner may cast his
vote on any matter which may be put to a vote of the
Partners by personally casting said vote, by written proxy
or by written consent granted in writing. Meetings of all
Partners may be called by the General Partner in its
discretion, after ten (10) days written notice to all
Partners.
15.3Entire Agreement. This Agreement sets forth all
the promises, covenants, agreements, conditions and
understandings between the parties hereto relating to the
subject matter hereof. However, the parties are
contemporaneously herewith entering into other contracts
relating to the Venture Units and related matters, and this
Agreement does not supersede such other contracts or any
future contracts dealing with similar subject matter.
15.4Binding Effect; No Assignment. This Agreement
shall be binding upon the parties hereto, their heirs,
administrators, transferees, successors and assigns. No
party may assign or transfer its interests herein, or
delegate its duties hereunder, except as expressly provided
herein; provided, however, that each Partner may assign its
Partnership Interest to any other party in which it owns a
majority of the equity interest as long as such entity shall
agree to be bound by the terms of this Agreement.
15.5No Waiver. No waiver of any provision of this
Agreement shall be effective unless it is in writing and
signed by the party against whom it is asserted, and any
such written waiver shall only be applicable to the specific
instance to which it relates and shall not be deemed to be a
continuing or future waiver.
15.6Notices. Any notice, consent, or other com-
munication required or permitted by this Agreement shall be
sufficient if made in writing, signed by the communicator,
and delivered to a Partner personally or by mailing the same
postage prepaid by registered or certified mail, return
receipt requested, to a Partner at its address as set out in
the Partnership's records. Each such communication shall be
deemed to have been received by a person when: delivered
to such person; sent by telecopy to such person at a
telecopy number provided by such person to the Partnership
for notice purposes; on the fifth day after deposit in the
United States mail, postage prepaid and certified (return
receipt requested), addressed to such person at an address
provided by such person to the Partnership for notice
purposes; or on the first day after proper and timely
deposit, freight prepaid or with arrangements for payment
made in advance, with a nationally recognized next-day
delivery service providing next-day service to the location
of the recipient, addressed to such person at an address
provided by such person to the Partnership for notice
purposes. Any person may change its address or telecopy
number or both by notice to the Partnership.
(a)Partnership distributions of cash or property, if
any, shall be made in the manner determined by the General
Partner, but it shall be sufficient if they are made by
mailing the same to the Partners at their addresses as set
out in the Partnership's records.
15.7Counterparts. This agreement and any amendments
may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together will
constitute one and the same instrument.
15.8Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of the
Agreement.
15.9Governing Law. This Agreement is governed by and
shall be construed in accordance with the laws of the State
of Delaware, excluding any conflict-of-laws rule or
principle that might refer the governance of the
construction of this Agreement to the law of another
jurisdiction.
15.10Further Assurances. The parties hereto agree
that they will execute and deliver such further instruments
and do such further acts and things as may be reasonably
required to carry out the intent and purposes of this Agree-
ment.
15.11Litigation. The General Partner shall defend
and prosecute such legal or equitable actions as it deems
necessary to enforce or protect the interests of the
Partnership, and the expense of doing so shall be an
operating cost of the Partnership.
15.12Litigation Among Partners. If any party
hereby is required to engage in litigation against any other
party hereto, either as plaintiff or as defendant, in order
to enforce or defend any of its or his rights under this
Agreement, and such litigation results in a final judgment
in favor of such party ("Prevailing Party"), then the party
or parties against whom said final judgment is obtained
shall reimburse the Prevailing Party for all direct,
indirect or incidental expenses incurred by the Prevailing
Party in so enforcing or defending its or his rights
hereunder, including, but not limited to, all reasonable
attorneys' fees and court costs and other expenses incurred
throughout all negotiations, trials or appeals undertaken in
order to enforce the Prevailing Party's rights hereunder.
15.13Remedies. Each party hereto recognizes and
agrees that the violation of any term, provision or
condition of this Agreement may cause irreparable damage to
the other parties which may be difficult to ascertain, and
that the award of any sum of damages may not be adequate
relief to such parties. Each party, therefore, agrees that,
in addition to the remedies available in the event of a
breach of this Agreement, any other party shall have a right
to equitable relief including, but not limited to, the
remedy of specific performance.
15.14Representations and Warranties. Each Partner
hereby represents to the other Partners as follows:
(a)Such Partner is a corporation duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and has the power and
authority to own its property and carry on its business as
owned and carried on at the date hereof and as contemplated
hereby. Such Partner is duly licensed or qualified to do
business and in good standing in each of the jurisdictions
in which the failure to be so licensed or qualified would
have a material adverse effect on its ability to perform its
obligations hereunder. Neither the execution, delivery nor
performance of this Agreement by the Partner will conflict
with the provisions of the Partner's Articles of
Incorporation, Bylaws, or other organizational instruments,
violate any order, writ, injunction or decree of any court,
administrative agency or governmental body, or constitute or
result in a violation or breach of any term or provision, or
constitute a default under, any contract, mortgage, lease or
other agreement by which the Partner or its assets are
bound.
(b)Such Partner has the power and authority to
execute and deliver this Agreement and to perform its
obligations hereunder, and the execution, delivery, and
performance of this Agreement have been duly authorized by
all necessary corporate action. This Agreement constitutes
the legal, valid, and binding obligation of such Partner.
The Partner has the ability to perform its obligations
hereunder (or will have the ability to do so when such
performance is called for herein).
(c)The representations and warranties made by the
Partners in this Agreement shall survive the execution
hereof.
15.15Arbitration. Any claim, dispute or other
matter in question between the parties hereto arising out of
or relating to this Agreement, or the breach thereof, shall
be decided by arbitration in accordance with the rules of
the American Arbitration Association in effect on the date
hereof before three (3) arbitrators; one designated by each
party and the third in accordance with the Rules of the
American Arbitration Association. Any such arbitration
shall be conducted in New York, New York, unless the parties
mutually agree to another location. The arbitrators shall
be qualified by education, training or experience as may be
appropriate according to the nature of the claim, dispute or
other matter in question. The foregoing agreement to
arbitrate and any other agreement to arbitrate shall be
specifically enforceable under the prevailing arbitration
law. The award rendered by the arbitrators shall be final,
and judgment may be entered upon it in accordance with
applicable law in any court having jurisdiction thereof. To
the extent permitted by law, by agreeing to engage in the
arbitration provided for in this Section, the parties waive
their right to appeal any decision made by the arbitrators.
The demand for arbitration shall be made within a reasonable
time after the claim, dispute or other matter in question
has arisen; and in no event shall it be made after the date
when institution of legal or equitable proceedings based on
such claim, dispute or other matter in question would be
barred by the applicable statute of limitations. All costs
and expenses (including reasonable attorneys' fees and
costs) in connection with any such arbitration shall be
borne in the manner which the arbitrators making the
determination shall direct. Notwithstanding the provisions
of this Section, either party may seek appropriate
injunctive relief for any threatened breach.
15.16Saving Clause. Any requirements imposed
under applicable law, including but not limited to, the
provisions of the Act, as in effect from time to time,
shall, where inconsistent with any provision of this
Agreement, be controlling and shall govern the rights among
the parties hereto, but such inconsistent provisions of law
are hereby waived to the maximum extent permitted by such
law. Any such provisions under applicable law or regulation
which supersede or invalidate any provision hereof shall not
affect the validity of this Agreement, and the remaining
provisions shall be enforced as if the invalid provision or
provisions were deleted.<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement effective as of the day and year first above
written.
THIS AGREEMENT CONTAINS AN ARBITRATION PROVISION
THAT IS BINDING UPON THE PARTIES
GENERAL PARTNER:
PMC MANAGEMENT, INC., a Georgia
close corporation
By:
Name:
Its:
LIMITED PARTNERS:
PLANET HOLLYWOOD (THEATRES), INC.,
a Florida corporation
By:
Name:
Its:
AMCPH HOLDINGS, INC.
a Missouri corporation
By:
Name:
Its:
<PAGE>
LIMITED PARTNERSHIP AGREEMENT
of
PLANET MOVIES COMPANY, L.P.
Dated October 17, 1997
<PAGE>
TABLE OF CONTENTS
SECTION ONE
FORMATION, NAME, PRINCIPAL OFFICE, TERM,
PURPOSE, TITLE TO PROPERTY, QUALIFICATION
. . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Formation.. . . . . . . . . . . . . . . . . .1
1.2 Name and Mailing Address. . . . . . . . . . .1
1.3 Principal and Other Offices; Registered Of
fice.. . . . . . . . . . . . . . . . . . . . . .1
1.4 Term. . . . . . . . . . . . . . . . . . . . .2
1.5 Agent for Service of Process. . . . . . . . .2
1.6 Purposes of the Partnership.. . . . . . . . .2
1.7 Partners. . . . . . . . . . . . . . . . . . .2
1.8 Qualification in Other Jurisdictions. . . . .3
1.9 Title to Property.. . . . . . . . . . . . . .3
SECTION TWO
DEFINITIONS
. . . . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION THREE
CAPITAL CONTRIBUTIONS AND LOANS
. . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Initial Capital Contributions.. . . . . . . 10
3.2 Additional Capital Contributions. . . . . . 10
3.3 Election to Make Contribution Loan Upon De
fault in Making of Additional Capital Contribu
tions. . . . . . . . . . . . . . . . . . . . . 11
3.4 Election to Receive Additional Units Upon
Default in Making of Additional Capital Contribu
tions. . . . . . . . . . . . . . . . . . . . . 12
3.5 Effect of Change in Proportionate Unit Hold
ings.. . . . . . . . . . . . . . . . . . . . . 12
3.6 Other Matters Relating to Capital Contribu
tions. . . . . . . . . . . . . . . . . . . . . 12
3.7 Loans.. . . . . . . . . . . . . . . . . . . 13
SECTION FOUR
CAPITAL ACCOUNTS; RETURN OF CAPITAL
. . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 Capital Accounts. . . . . . . . . . . . . . 13
4.2 Return of Capital.. . . . . . . . . . . . . 13
SECTION FIVE
ALLOCATIONS OF PROFITS AND LOSSES
. . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Profits. . . . . . . . . . . . . . . . . . 14
5.2 Losses. . . . . . . . . . . . . . . . . . . 14
5.3 Special Allocations.. . . . . . . . . . . . 15
5.4 Curative Allocations. . . . . . . . . . . . 16
5.5 Other Allocation and Accounting Rules.. . . 17
5.6 Tax Allocations.. . . . . . . . . . . . . . 17
SECTION SIX
DISTRIBUTIONS
. . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Distributions of Cash.. . . . . . . . . . . 18
6.2 Distributions in Kind.. . . . . . . . . . . 18
6.3 Distribution in Cash Only. . . . . . . . . 18
6.4 Good Faith Distribution by General Partner. 18
SECTION SEVEN
RIGHTS, POWERS AND OBLIGATIONS OF THE GENERAL PARTNER
. . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.1 Powers of the General Partner.. . . . . . . 19
7.2 Dealing with Partnership by General Partner.21
7.3 Authority of General Partner. . . . . . . . 22
7.4 Duties of the General Partner.. . . . . . . 22
7.5 Removal of the General Partner. . . . . . . 23
7.6 Liability and Indemnification of the General
Partner. . . . . . . . . . . . . . . . . . . . 23
7.7 Transferability of General Partner's Inter
est. . . . . . . . . . . . . . . . . . . . . . 24
SECTION EIGHT
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
. . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.1 Liability of Limited Partners.. . . . . . . 24
8.2 Management of Business. . . . . . . . . . . 24
8.3 Duty to Account for Profits.. . . . . . . . 24
8.4 Rights of Limited Partners. . . . . . . . . 24
SECTION NINE
TRANSFER OF PARTNERSHIP INTERESTS
. . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.1 Transfer of Interests.. . . . . . . . . . . 25
9.2 Limitation Upon Transfer of Partnership In
terests Therein. . . . . . . . . . . . . . . . 25
9.3 Holders Who are not Limited Partners. . . . 26
9.4 Treatment of Transferor.. . . . . . . . . . 26
9.5 General Conditions on Disposition.. . . . . 27
9.6 Survival of Liabilities.. . . . . . . . . . 27
9.7 Withdrawal. . . . . . . . . . . . . . . . . 27
SECTION TEN
. . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.1 Dissolution.. . . . . . . . . . . . . . . . 27
10.2 Wind-Up.. . . . . . . . . . . . . . . . . . 28
10.3 Compliance With Regulations.. . . . . . . . 28
10.4 No Obligation to Restore Deficit Capital
Account Balance. . . . . . . . . . . . . . . . 28
10.5 Temporary Retention of Liquidation Proceeds.29
10.6 Distributions In Kind.. . . . . . . . . . . 29
10.7 Control of Dissolution and Winding-up.. . . 29
10.8 Deemed Distribution and Recontribution. . . 30
10.9 Rights of Partners. . . . . . . . . . . . . 30
10.10 Division of Venture Units. . . . . . . 30
SECTION ELEVEN
OTHER BUSINESS
. . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION TWELVE
POWER OF ATTORNEY
. . . . . . . . . . . . . . . . . . . . . . . . . . 31
12.1 Granting General Partner Power of Attorney. 31
12.2 Power of Attorney.. . . . . . . . . . . . . 32
SECTION THIRTEEN
BOOKS OF ACCOUNT AND PARTNERSHIP RECORDS
. . . . . . . . . . . . . . . . . . . . . . . . . . 32
13.1 Books of Account. . . . . . . . . . . . . . 32
13.2 Inspection. . . . . . . . . . . . . . . . . 32
13.3 Bank Accounts. . . . . . . . . . . . . . . 33
13.4 Reports.. . . . . . . . . . . . . . . . . . 33
SECTION FOURTEEN
AMENDMENTS
. . . . . . . . . . . . . . . . . . . . . . . . . . 33
14.1 General Rule. . . . . . . . . . . . . . . . 33
14.2 Unanimous Consent Requirement.. . . . . . . 34
SECTION FIFTEEN
GENERAL PROVISIONS
. . . . . . . . . . . . . . . . . . . . . . . . . . 34
15.1 Relationship. . . . . . . . . . . . . . . . 34
15.2 Meetings of Partners. . . . . . . . . . . . 34
15.3 Entire Agreement. . . . . . . . . . . . . . 34
15.4 Binding Effect; No Assignment.. . . . . . . 34
15.5 No Waiver. . . . . . . . . . . . . . . . . 35
15.6 Notices.. . . . . . . . . . . . . . . . . . 35
15.7 Counterparts. . . . . . . . . . . . . . . . 35
15.8 Headings. . . . . . . . . . . . . . . . . . 35
15.9 Governing Law.. . . . . . . . . . . . . . . 35
15.10 Further Assurances.. . . . . . . . . . 36
15.11 Litigation.. . . . . . . . . . . . . . 36
15.12 Litigation Among Partners. . . . . . . 36
15.13 Remedies.. . . . . . . . . . . . . . . 36
15.14 Representations and Warranties.. . . . 36
15.15 Arbitration. . . . . . . . . . . . . . 37
15.16 Saving Clause. . . . . . . . . . . . . 37
