-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bxned/rNjldNFA7EmfXoEPFdRSPhflyV326uOTeqBZMu8+U48bS8XUsgbHK0R2Zv 9ptXAlcZn/SdE9Mij68fMw== 0000722077-98-000015.txt : 19980619 0000722077-98-000015.hdr.sgml : 19980619 ACCESSION NUMBER: 0000722077-98-000015 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980402 FILED AS OF DATE: 19980618 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMC ENTERTAINMENT INC CENTRAL INDEX KEY: 0000722077 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 431304369 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08747 FILM NUMBER: 98650316 BUSINESS ADDRESS: STREET 1: 106 W 14TH ST STREET 2: P O BOX 419615 CITY: KANSAS CITY STATE: MO ZIP: 64141-6615 BUSINESS PHONE: 8162214000 10-K 1 1998 FORM 10-K 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.
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 --------- -------- --------- -------- -------- ----- - ----- 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 ==== ====== ===== =====
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.
Total Total Theatres Domestic Screens Theatres Multiplex Megaplex - ------------- ------ -------- -------- --------- 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 ======= ====== ===== =====
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.
U.S. Box Attendance Average Office Sales Year (in millions) Ticket Price (in millions) ----- ------------- ------------ --------------- 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
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.
Fiscal 1998 Fiscal 1997 -------------------- -------------------- 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
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.
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) -------- --------- -------- ---------- ---------- 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
(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
52 Weeks Ended 53 Weeks Ended April 2, April 3, (Dollars in thousands) 1998 1997 % Change - -------------------------------------------------------------------------- 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%.
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.
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 - -------------------------------------------------------------------------- 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% ================================
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
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 ------------------------------------------- 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.
AMC ENTERTAINMENT INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) April 2, April 3, 1998 1997 ------------------- 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
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: 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
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 - ---------------------------------------------------------------------------------------------- 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.
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
A summary of property is as follows: (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 ====================
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:
(In thousands) 1998 1997 - -------------------------------------------------------------------------- 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 ===================
NOTE 5 - CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS A summary of corporate borrowings and capital lease obligations is as follows:
(In thousands) 1998 1997 - ------------------------------------------------------------------------- $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 ===================
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:
Capital Lease Obligations ---------------------------------- Minimum Net Lease Less Present Corporate (In thousands)Payments Interest Value Borrowings Total - ---------------------------------------------------------------------- 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 =====================================================
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:
(In thousands, except per share data) 1998 1997 1996 - ---------------------------------------------------------------------- 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
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 - - -
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 ----------------------------------------------------------- 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 ======== ======= =======
The following table summarizes information about stock options as of April 2, 1998:
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 $ 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 =================================================
NOTE 7 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
(In thousands, except per share data) 1998 1997 1996 - -------------------------------------------------------------------------- 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 ================================
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:
(In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- 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 ====================================
The difference between the effective tax rate on earnings before extraordinary item and the U.S. federal income tax statutory rate is as follows:
1998 1997 1996 - -------------------------------------------------------------------------- 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% ====================================
The significant components of deferred income tax assets and liabilities as of April 2, 1998 and April 3, 1997 are as follows:
1998 1997 Deferred Income Tax Deferred Income Tax (In thousands) Assets Liabilities Assets Liabilities - -------------------------------------------------------------------------- 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 ======== ========
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:
(In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- 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 ==================================
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:
(In thousands) 1998 1997 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 ======================
Net pension expense includes the following components: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- 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 ===================================
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:
(In thousands) 1998 1997 - -------------------------------------------------------------------------- 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 ======================
Postretirement expense includes the following components: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- Service cost $ 229 $ 199 $ 192 Interest cost 218 172 208 Net amortization and deferral 50 50 66 --------------------------------- Postretirement expense $ 497 $ 421 $ 466 =================================
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:
1998 1997 ----------------------------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value - ------------------------------------------------------------------------ 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
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 - ---------------------------------------------------------------------------------------------------- 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 ==============================================================
(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.
The Directors and Executive Officers of the Company are as follows: Years Associated with the Name Age(1) Positions Company(1) - ----- ------ ------------------ ------------ 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 ______________________________
(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.
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) 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 - -
(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.
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 ---- ---------- -------------- ---------- ------------- ----------- ------------- 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
(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.
Highest Consecutive Five year Average Annual Compensation Years of Credited ------------------------------------------------- 15 20 25 30 35 --- --- --- --- --- $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
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:
Name and Address Number of Shares Percent Title of Class of Beneficial Owner Beneficially Owned of Class 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
(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.
Name of Amount and Nature Percent Title of Class Beneficial Owner of Beneficial Ownership of Class - -------------- ----------------- ----------------------- -------- 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%
____________________________________ *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
EXHIBIT NUMBER DESCRIPTION 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
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 EX-27 2 FDS98
5 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. YEAR APR-02-1998 APR-02-1998 9,881 0 72,028 706 0 107,645 895,749 333,591 795,780 173,836 399,595 0 1,200 13,595 124,660 795,780 256,017 846,795 42,062 685,540 117,115 0 35,679 (41,099) (16,600) (24,499) 0 0 0 (24,499) (1.59) (1.59)
EX-10.25 3 PLANET MOVIES AGREEMENT 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. 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: LIMITED PARTNERSHIP AGREEMENT of PLANET MOVIES COMPANY, L.P. Dated October 17, 1997 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 -----END PRIVACY-ENHANCED MESSAGE-----