UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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 0-12252
PATHE COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2624802
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/O THE LAW OFFICES OF FREDRIC S. NEWMAN
10 EAST 40TH STREET
NEW YORK, NEW YORK 10016
(Address of principal executive offices)
(Zip Code)
(212) 545-1900
(Registrant's telephone number, including area code)
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
As of November 10, 1994 there were 116,746,810 shares of common stock,
par value $.01 per share, of the registrant outstanding.
PATHE COMMUNICATIONS CORPORATION
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PATHE COMMUNICATIONS CORPORATION
CONDENSED BALANCE SHEETS
(in thousands)
September 30, December 31,
1994 1993
(unaudited)
ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 50 $ 343
Accounts and notes receivable . . . . . . . . . . . . . . . - 264
Other assets . . . . . . . . . . . . . . . . . . . . . . . 612 749
$ 662 $ 1,356
LIABILITIES AND STOCKHOLDERS' DEFICIT:
LIABILITIES:
Accounts payable and accrued liabilities . . . . . . . . . $ 59,104 $ 47,930
Bank and other debt . . . . . . . . . . . . . . . . . . . . 176,009 173,412
Other liabilities . . . . . . . . . . . . . . . . . . . . . 564 564
Subordinated debt . . . . . . . . . . . . . . . . . . . . . 47,754 47,156
Total liabilities . . . . . . . . . . . . . . . . . . . 283,431 269,062
STOCKHOLDERS' DEFICIT:
Preferred stock - $.01 par value, authorized
200,000,000 shares, none outstanding . . . . . . . . . - -
Common stock - $.01 par value, authorized
200,000,000 shares; issued and outstanding,
116,746,810 shares in 1994 and 1993 . . . . . . . . . . 1,167 1,167
Additional paid-in capital . . . . . . . . . . . . . . . . 906,808 906,808
Accumulated deficit . . . . . . . . . . . . . . . . . . . . (1,190,744) (1,175,681)
Total stockholders' deficit . . . . . . . . . . . . . . (282,769) (267,706)
$ 662 $ 1,356
The accompanying Notes to Condensed Financial Statements are an integral
part of these statements.
PATHE COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Quarter Ended September 30,
1994 1993
General corporate administration expenses . . . . . . . . . . $ 232 $ 909
Operating loss . . . . . . . . . . . . . . . . . . . . . . . (232) (909)
Other income (expenses):
Interest expense, net . . . . . . . . . . . . . . . . (4,941) (4,120)
Interest and other income (expense), net . . . . . . . - 59
Loss before income taxes . . . . . . . . . . . . . . . . . . (5,173) (4,970)
Provision for income taxes . . . . . . . . . . . . . . . . . - -
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,173) $ (4,970)
Net loss per common share . . . . . . . . . . . . . . . . . . $ (0.04) $ (0.04)
The accompanying Notes to Condensed Financial Statements are an integral
part of these statements.
PATHE COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Nine Months Ended September 30,
1994 1993
General corporate administration expenses . . . . . . . . . $ 1,146 $ 5,696
Operating loss . . . . . . . . . . . . . . . . . . . . . . (1,146) (5,696)
Other income (expenses):
Interest expense, net . . . . . . . . . . . . . . . . . (13,917) (12,079)
Interest and other income (expense), net . . . . . . . - 85
Loss before income taxes . . . . . . . . . . . . . . . . . (15,063) (17,690)
Provision for income taxes . . . . . . . . . . . . . . . . - -
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (15,063) $ (17,690)
Net loss per common share . . . . . . . . . . . . . . . . . $ (0.13) $ (0.15)
The accompanying Notes to Condensed Financial Statements are an integral
part of these statements.
PATHE COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended September 30,
1994 1993
Net cash used in operating activities . . . . . . . . . . . $ (2,890) $ (9,778)
Financing activities:
Net additions to borrowed funds . . . . . . . . . . . . 2,597 9,740
Cash provided by financing activities . . . . . . . . . . . 2,597 9,740
Increase (decrease) in cash from operating
and financing activities . . . . . . . . . . . . . . . (293) (38)
Beginning balance - cash and cash equivalents . . . . . . . 343 44
Ending balance - cash and cash equivalents . . . . . . . . $ 50 $ 6
The accompanying Notes to Condensed Financial Statements are an integral
part of these statements.
PATHE COMMUNICATIONS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Pathe Communications Corporation ("Pathe" or the "Company") has no
operating assets or sources of income and is currently dependent on Credit
Lyonnais Bank Nederland N.V. ("CLBN") to fund its ongoing cash
requirements. CLBN controls the voting rights with respect to
approximately 97% of the Company's common stock. On May 7, 1992, CLBN
foreclosed on 59,100,000 shares constituting 98.5% of the common stock of
Metro-Goldwyn-Mayer, Inc. ("MGM"), which shares constituted substantially
all of the assets of the Company. The accompanying unaudited condensed
financial statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
NOTE 2 - MARKET FOR THE COMPANY'S COMMON STOCK
On August 28, 1992, the Securities and Exchange Commission, in response to
the application by the New York Stock Exchange (the "Exchange"), issued an
order removing the Company's common stock from listing and registration on
the Exchange. At this time the Company has no knowledge of the existence
of any established public trading market for the Company's common stock.
The Company does not have any present plans that would result in the
repurchase or redemption of its common stock or in the admission for
trading of such stock on other exchanges or markets.
NOTE 3 - BANK AND OTHER DEBT
The Company's bank and other debt are summarized as follows (in thousands):
September 30, December 31,
1994 1993
(unaudited)
Credit facilities . . . . . . . . . . . . . . . . . . . . . $ 26,009 $ 23,412
Sealion note payable . . . . . . . . . . . . . . . . . . . 150,000 150,000
$ 176,009 $ 173,412
CREDIT FACILITIES. The Company has an arrangement with CLBN upon which the
Company's borrowings are made under the form of demand promissory notes,
with interest accruing quarterly at LIBOR plus two percent. Any future
advances are at the absolute discretion of CLBN. CLBN provided funding to
the Company to enable it to make interest and principal payments under the
Company's subordinated debt agreements during the period through November
1, 1994 on such obligations not owned by CLBN. CLBN has made no commitment
to the Company that it will fund any future interest payments or other
obligations, and the Company currently has no other source of funding.
SEALION NOTE PAYABLE. In November 1990, the Company borrowed $150,000,000
from Sealion Corporation N.V. ("Sealion"), a company affiliated with SASEA
Holding, S.A. (SASEA), which is affiliated with prior management of the
Company, and lent the proceeds to Melia International N.V. ("Melia"), the
Company's major stockholder. Sealion assigned, as collateral security, its
receivable from the Company to Credit Lyonnais S.A., the parent of CLBN.
The obligation is guaranteed by Melia and collateralized by approximately
51 percent of the Company's outstanding stock. The obligation bears
interest at LIBOR plus 2 percent payable monthly and, as amended, calls for
principal payments of $30,000,000 a month beginning in January 1992. None
of these interest or principal payments have been made by the Company, and
this facility is currently in default.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company has a credit arrangement with CLBN (see Note 3). Interest of
approximately $453,000 and $1,197,000 was charged on such facility in the
quarter and nine months ended September 30, 1994, respectively.
In connection with the foreclosure by CLBN on the shares of MGM common
stock owned by the Company, the Company acquired, by right of subrogation,
a claim against Melia in the amount of $343,125,754. This claim
represented the amount of Melia debt owed to CLBN, which amount was secured
by the pledge of the Company's MGM common stock, and which was bid-in at
the foreclosure auction on May 7, 1992. On April 16, 1993, the Company
filed a bankruptcy petition against Melia with the Bankruptcy Chamber of
the Amsterdam District Court. Subsequent to this petition, which was
joined by CLBN and other creditors, Melia was declared bankrupt on April
27, 1993 (see Note 5).
NOTE 5 - COMMITMENTS AND CONTINGENCIES
LITIGATION. The Company is subject to a consent decree (the "Consent
Decree") entered in the United States District Court for the Central
District of California in a Securities and Exchange Commission civil action
commenced against the Company on November 19, 1987, entitled Securities and
Exchange Commission v. The Cannon Group. Inc. et al., Case No. 87-07590.
This proceeding against the Company and certain of its former directors and
officers alleged, among other things, violations or aiding and abetting of
violations of the antifraud, reporting, proxy, record keeping and internal
controls provisions of the federal securities laws. Without admitting or
denying the allegations in the Commission's complaint, the Company and
certain individuals settled the action and consented to the entry of a
final judgment enjoining them from violating the aforementioned provisions
of the federal securities laws.
The Consent Decree required the Company to appoint an independent
person to examine transactions between the Company and related parties for
the period January 1, 1984 through December 31, 1986. The independent
person is required to deliver a report to the Company's Board of Directors
regarding such transactions together with recommendations regarding what
action the Board should take as a result of the examination. The Company
appointed a law firm as the independent person. In November 1991, the
independent person resigned without having delivered a report to the Board
of Directors. In its resignation letter, the independent person stated it
had been unable to complete their examination because of the Company's
failure to pay the independent person's fees and because certain members of
the former management of the Company had failed to cooperate in the
examination.
Current management also believes that the Company under prior
management may have violated other provisions of the Consent Decree.
Violations of the Consent Decree could result in further proceedings by the
Commission. If the Company were found to have violated the Consent Decree,
the Company could be held in contempt of court and could be subjected to
substantial penalties. The Company has informed the Commission of its
concerns regarding compliance with the Consent Decree and is cooperating
with the Commission in its review of this matter. While no assurances can
be given, management believes that any punitive measures which may be
imposed as a result of violations of the Consent Decree would be imposed
upon those persons responsible for such violations (as opposed to the
Company's current management) and would not have a material adverse effect
upon the Company.
The Commission is currently conducting an investigation into
certain transactions effected by prior management of the Company. The
Company is cooperating fully with the Commission in its investigation. The
Company cannot presently determine what, if any, action the Commission
might take as a result of its investigation.
On January 22, 1991, Century West Financial Corporation ("Century
West") filed a complaint in Los Angeles Superior Court against the Company,
Renta Properties and others for breach of contract, breach of third party
beneficiary contract, bad faith denial of contract, breach of the implied
covenant of good faith and fair dealing, and tortious interference with
prospective economic advantage. Century West alleges that it acted as
broker for the sale of 6420 Wilshire Boulevard and is owed a commission.
Century West seeks compensatory damages in the amount of $470,000, interest
thereon and punitive damages. A Third Amended Complaint was filed in this
action on January 14, 1994. On March 31, 1993, certain defendants filed a
cross-complaint against the Company, Metro-Goldwyn-Mayer Inc. and others,
alleging causes of action for fraud and breach of contract, and seeking
compensatory damages in the amount of $1 million, plus interest, and
special and punitive damages in an amount subject to proof. In addition,
the Company is advancing defense costs to a former employee and will
indemnify him subject to an undertaking for reimbursement under certain
circumstances. The Company intends vigorously to defend this action.
On June 18, 1991, a complaint was filed in the United States
District Court for the Central District of California against the Company,
MGM, Messrs. Parretti, Fiorini, Globus and Aurelio Germes and Maria Cecconi
(Mr. Parretti's wife) on behalf of a purported class which acquired MGM's
13% Subordinated Debentures due 1996. On October 10, 1991, J. Phillip
Williams, on behalf of a group of MGM bondholders, filed a complaint in the
United States District Court for the Central District of California against
the Company, MGM, CLBN and Mr. Parretti which alleges that the defendants
violated U.S. securities laws, and conspired to deceive plaintiffs about
MGM's financial condition, markets, and business prospects, thereby
artificially inflating the price of MGM's securities. The complaint seeks
unspecified damages. The Company answered the complaint on February 3,
1992. Limited discovery was conducted regarding class certification. On
March 23, 1992, the court heard and denied Williams' motion for class
certification. On May 18, 1992, the court denied Williams' motion for
reconsideration. On July 22, 1992, another bondholder, Herbert Eisen,
moved to intervene in the lawsuit. After limited discovery was conducted
regarding intervention, the court granted Mr. Eisen's motion to intervene.
On December 15, 1992, Mr. Eisen filed a complaint-in-intervention that
mirrors the allegations in the Williams' complaint. The Company and MGM
answered Eisen's complaint-in-intervention on December 29, 1992. On
October 26, 1993, the parties entered into a Stipulation of Settlement
which would dispose of this matter subject to Court approval. The
settlement, if approved, would create a fund of $4,500,000 against which
injured class members may make a claim. Any unclaimed portion of the fund
will be returned to the contributing defendants. The settlement has been
fully funded. The Court has not ruled on the settlement.
On September 25, 1991, Century Insurance Ltd. ("Century") filed a
complaint in Superior Court against the Company, MGM, Melia, Comfinance
S.A. ("Comfinance"), CLBN and Mr. Parretti alleging, among other things,
breach of contract, fraud, constructive fraud, conversion and conspiracy.
The claims arise out of certain defendants' failure to pay a purported
$1.75 million premium in connection with plaintiff's purported issuance of
a completion guarantee bond in connection with the financing of the
acquisition of MGM by the Company in 1990 and alleged unpaid premiums in
connection therewith. The plaintiff seeks $34,200,000 in alleged
management fees on three purported insurance investment bonds and
declaratory relief. MGM was voluntarily dismissed from the action on
January 3, 1992. The plaintiff served a second amended complaint on
February 3, 1992. In addition, on December 6, 1991, this case was
consolidated with an earlier declaratory relief suit filed by CLBN against
Century. The Company was not a party to this earlier suit. On February 3,
1993, the court dismissed with prejudice Century's complaint against the
Company and all of the other defendants, for failure to comply with
discovery orders. On July 14, 1993, Century moved to vacate the judgment
in the Company's and other defendants' favor, which motion was denied.
Century has filed a notice of appeal of denial of its motion to vacate.
The parties have not completed the appeal briefing and no date has been set
for the hearing of the appeal.
On July 18, 1991, Andrea Kune, a stockholder of the Company,
filed a derivative lawsuit on behalf of the Company against Messrs.
Parretti, Fiorini, Globus, Valentina Parretti, Ms. Cecconi, Antonio Pares--
Neira and Lewis P. Horwitz, alleging breach of fiduciary duty, abuse of
control, waste of corporate assets, fraud and deceit, negligent
misrepresentation and constructive fraud. Certain other individuals
formerly associated with the Company were subsequently named as defendants.
The Company was named as a nominal defendant only. On September 16, 1991,
the Company filed a Statement of Non-Response asserting that it had no
obligation to respond to the complaint because the complaint seeks no
relief from the Company. A second amended complaint was filed on July 27,
1992 against the same defendants in which the Company was again named as a
nominal defendant. Kune alleges claims for breach of fiduciary duty, fraud
and deceit, negligent misrepresentation and constructive fraud against the
defendants. The amended complaint seeks unspecified damages. The Company
remains a nominal defendant only and no claims for monetary relief are
asserted against it. On September 27, 1994, the parties and the Company's
directors and officers liability insurer signed a formal agreement to
settle the case for $4,000,000, less plaintiff's attorneys' fees, costs and
expenses to be awarded, subject to Court review and approval. A final
hearing is scheduled for November 28, 1994, at which the Company expects
that the settlement will be approved by the Court.
On January 27, 1992, Linda Carter filed an application for award
for employer violation of Section 132(a) of the Labor Code before the
Workers' Compensation Appeals Board of the State of California against the
Company and MGM seeking reinstatement of employment, back wages at
approximately $21,000 per year plus benefits, and costs of suit. The
application alleges Ms. Carter was laid off on March 4, 1991, in
retaliation for filing a workers' compensation claim. The Company is
vigorously defending this action.
On January 21, 1992, CLBN filed an action in the Delaware
Chancery Court in which CLBN asserted various claims against the Company,
Gestione Nuove Attivita Finanziarie S.a.r.l. (a company controlled by Ms.
Cecconi) ("GENAF"), Melia and certain subsidiaries of Melia seeking, among
other things, a judicial declaration that: (i) a purported transfer of
common stock of the Company from Melia and certain of its subsidiaries to
GENAF (the "Subject Stock") is null, void and without effect; and (ii) the
Company should issue new stock certificates to CLBN representing the
Subject Stock or impose a constructive trust on the Subject Stock held by
GENAF. On February 4, 1992, the Delaware Chancery Court issued an order
sequestering the Subject Stock. The Company, Melia and its subsidiaries
have answered the complaint. In addition, Melia has filed a third-party
complaint seeking damages and injunctive and declaratory relief against
GENAF, Mr. Parretti and Ms. Cecconi alleging, among other things, fraud and
conversion. On or about February 6, 1992, Mr. Parretti and GENAF applied
to the Civil Court in Rome for the appointment of a custodian of issued
shares in the Company and MGM purportedly held by Mr. Parretti and GENAF
and for precautionary measures to protect the assets of the Company and MGM
against further alleged diminution in value being caused by CLBN. The
Court on or about February 24 and March 6, 1992 issued temporary ex parte
orders decreeing that the shares of the Company and MGM are validly within
the custody of the Court, and appointing Paolo Picozza as custodian of the
shares in dispute. On March 12, 1992, CLBN filed a special appearance with
the Court objecting to the decrees on the ground, among other things, that
the stock certificates presented to the Court as evidence of Mr. Parretti's
controlling interest in the Company and MGM were either already sequestered
by the Delaware Chancery Court on February 12, 1992, pursuant to an order
of that court dated February 4, 1992 or previously certified lost and
replaced, as well as on various procedural and jurisdictional grounds. On
June 10, 1993, the Italian Supreme Court ruled in a decision that was
released to the parties in January 1994 that the courts of Italy lacked
jurisdiction over this matter and granted an award for the costs of CLBN
against the plaintiffs. This decision is final and not subject to appeal.
On May 6, 1992, Robert Solomon filed a complaint in Delaware
Chancery Court against the Company, CLBN, Dennis Stanfill, Alan Ladd, Jr.,
Charles Meeker, Kenneth Meyer, Jay Kanter, William Jones, Thomas Carson,
Rene Claude Jouannet, Bahman Naraghi, Guy Etienne Dufour, G. Goirand and
Jacques Bertholier for breach of defendants' duties of fair dealing and
breach of fiduciary duties to the public stockholders of the Company in
connection with the Foreclosure and CLBN's Tender Offer for the Company's
stock at a price of $1.50 per share. Plaintiff filed the action on his own
behalf and as a class action on behalf of a purported class of public
stockholders of the Company. On March 15, 1994, Solomon filed an amended
class action complaint against the Company, CLBN and certain of the
previously named individuals. No monetary relief is sought against the
Company. The Company has moved to dismiss the amended complaint and plans
vigorously to defend the action.
On December 7, 1992, MGM filed an action against Tracinda
Corporation, Jeffrey Barbakow, Kirk Kerkorian, Stephen Silbert (the
"Kerkorian Defendants") and Houlihan, Lokey, Howard & Zukin, Inc. ("HLHZ")
in the Superior Court. On December 22, 1992, MGM filed an amended
complaint which sets forth claims for breach of fiduciary duty, aiding and
abetting breach of fiduciary duty, breach of contract and negligence in
connection with the sale of MGM to the Company in the fall of 1990. MGM
alleges, among other things, that the Kerkorian Defendants engaged in a
scheme to induce the independent members of MGM's Board to approve the
merger to MGM's detriment. MGM seeks damages in an amount of $750,000,000,
plus punitive damages according to proof at trial, and a declaration that
the indemnity provisions of certain agreements executed in connection with
the merger do not cover any judgment, settlement, fees or costs incurred by
the Kerkorian Defendants in a legal action. On December 17, 1992, the
Kerkorian Defendants filed an answer denying the allegations of the
complaint and a cross-complaint against MGM for breach of contract,
tortious bad faith, breach of indemnification agreements, equitable
indemnity and declaratory relief. The cross-complaint seeks damages
according to proof at trial, exemplary damages, attorneys fees and costs.
On January 27, 1993, HLHZ filed an answer denying the allegations of the
complaint and a cross-complaint against MGM, the Company and CLBN for
declaratory relief, fraud, negligent misrepresentation and equitable
indemnity. The Company answered HLHZ's cross-complaint on March 29, 1993.
HLHZ sought, among other things, indemnification from the Company under the
terms of an engagement letter between HLHZ and the Company and damages for
fraud, negligent misrepresentation and equitable indemnity in an amount
according to proof at trial, plus attorneys fees, costs and expenses. On
October 13, 1993, a Special Referee in this matter recommended that the
Court enter an order declaring that the Company be required to advance to
HLHZ its reasonable attorneys' fees in this matter pursuant to the
engagement letter, subject to repayment if HLHZ were later found to have
committed fraud. The Court did enter such an order. Subsequently,
however, on May 19, 1994, HLHZ entered into a settlement agreement with all
parties and its claims against the Company were dismissed with prejudice,
without any payment from the Company. The dismissals were filed with the
Court on September 2, 1994.
On April 16, 1993, the Company filed a bankruptcy petition
against Melia with the Bankruptcy Chamber of the Amsterdam District Court.
This petition was joined by the Dutch tax authorities, Scotti International
N.V., Cannon Cinema B.V. and CLBN. At a hearing on April 27, 1993, the
Court found that Melia had ceased to pay its debts and declared Melia
officially bankrupt. The Court appointed Mr. R.W. De Ruuk as official
receiver in the bankruptcy. The appeal period under the governing Dutch
Bankruptcy Code has lapsed. Mr. De Ruuk has deposited three public reports
with the Dutch authorities. It appears to the Company from such reports
that no material recovery benefitting it will be forthcoming.
On June 29, 1993, Aurelio Germes, a former officer of the
Company, filed a declaratory relief action against the Company in the
United States District Court for the Central District of California. Mr.
Germes seeks a declaratory judgment that the Company is obligated to pay
Mr. Germes' legal fees in connection with the SEC investigation and in
defense of the Kune matter. The Company filed an answer to this complaint
on August 12, 1993. Subsequently, upon motion by the Company, the Court
determined that the claims relating to the SEC investigation were not ripe,
but that those relating to the Kune case were. Trial of the action has
been continued to November 29, 1994, but the Company has moved to stay the
action pending the final dismissal of the Kune action upon its settlement.
The Company intends to vigorously defend this action.
On March 30, 1994, Giancarlo Parretti, Valentina Parretti, Maria
Cecconi and Comfinance, S.A. filed suit in Los Angeles Superior Court
against the Company and numerous other defendants, including CLBN, CLBN's
parent company Credit Lyonnais S.A., MGM and former officers and directors
of the Company and of MGM. Plaintiffs' complaint arises from alleged acts
in connection with the Company's merger with MGM in November 1990 and
subsequent events by which plaintiffs lost ownership and control of MGM and
the Company. Plaintiffs assert causes of action for violation of the
Racketeer Influenced and Corrupt Organizations Act, fraud, conspiracy to
defraud, rescission, injunctive relief, spoliation of evidence, malicious
prosecution, breach of employment contract, intentional interference with
contract, intentional interference with prospective economic advantage and
indemnification. Plaintiffs also purport to bring derivative claims on
PCC's behalf for breach of fiduciary duty, constructive fraud and waste of
corporate assets. The Company believes that plaintiffs' claims are largely
barred because they were previously adjudicated in a Delaware court. The
Company has moved the Court to dismiss most of Plaintiffs' claims, which
motion will be heard on November 14, 1994. The Company intends to defend
this lawsuit vigorously.
Demands for the advancement of legal fees and indemnification in
the defense of the Kune and Williams actions have been made by Giancarlo
Parretti, Maria Cecconi, and Valentina Parretti (collectively, the
"Parrettis"). In addition, a demand for the advancement of legal fees for
defense of the Kune case has been made by Yoram Globus. The Company has
rejected these demands. A claim has also been made by the Parrettis'
former attorneys in those cases for fees already incurred, in amounts
totalling less than $100,000, and the Company is investigating this matter
to determine, what, if any, liabilities it may have in respect of this
claim. In addition, there have been additional claims for indemnification
and/or the advancement of expenses and legal fees which have been asserted
from time to time by former officers, directors and/or employees of the
Company, and the Company reviews each demand on a case by case basis.
PCC has been named a third party defendant in an action brought
by CLBN in the United States District Court for the Central District of
California against Tracinda Corporation, Kirk Kerkorian, Jeffrey Barbakow,
and Stephen Silbert. Those parties claim that if they are held liable in
the principal suit, PCC is obligated to indemnify them for their damages
and the attorneys' fees expended in defending themselves. PCC intends to
vigorously defend this claim.
NOTE 6 - SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid was approximately $913,000 and $3,288,000 during the nine
months ended September 30, 1994 and 1993, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Financial Statements and the related notes thereto. References
to Notes refer to the notes to such statements.
GENERAL
The Company has no operating assets or sources of income (see Note 1 and
"Liquidity and Capital Resources").
RESULTS OF OPERATIONS
The Company reported net losses for the quarters ended September 30, 1994
and 1993 of ($5,173,000) and ($4,970,000), or ($.04) and ($.04) per common
share, respectively, based on 116,747,000 weighted average common shares
outstanding. For the nine-month periods ended September 30, 1994 and 1993,
the Company reported net losses of ($15,063,000) and ($17,690,000), or
($.13) and ($.15), respectively.
GENERAL CORPORATE ADMINISTRATION EXPENSES
The decrease in general corporate administration expenses by approximately
$680,000, or 74%, for the quarter and $4,550,000, or 80%, for the nine-
month period arose primarily from higher legal fees associated with
litigation incurred during the 1993 periods and from $3,500,000 in
settlement costs incurred during the second quarter of 1993.
OTHER INCOME (EXPENSE)
The increase in the net interest expense by approximately $820,000 for the
quarter and $1,830,000 for the nine-month period is due primarily to an
increase in the principal amount borrowed from CLBN and an increase in the
applicable interest rates with respect to bank and other debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company is currently dependent on CLBN for additional capital to fund
its cash requirements. CLBN may, in its absolute discretion, decide
whether to advance additional funds to the Company. Additionally, the
Company is in default on its existing indebtedness to Sealion.
The Company's subordinated debt agreements contain cross acceleration
provisions which generally provide that if holders of certain other debt of
the Company accelerate the maturity of such debt, such acceleration would
be a default with respect to the subordinated debt. If such event were to
occur and certain notices are given under the various agreements and
indentures, a substantial portion of the Company's subordinated debt could
be accelerated. The Company has not received any such notices.
The Company currently does not meet the minimum net worth covenant under
its 12 7/8% and 8 7/8% debenture Indentures as its net worth has been below
$37,500,000 for more than two consecutive quarters. Upon the occurrence of
such event, such Indentures, as amended, require the Company to redeem 10
percent of the aggregate principal amount of the debentures then
outstanding (at 100 percent of the principal amount) plus accrued interest
by the last day of the following quarterly period. Similar payments must be
made semi-annually thereafter until all outstanding debentures are
redeemed, unless the net worth is above $37,500,000 as of the last day of
any subsequent quarter. The Company can satisfy the redemption requirement
through previously acquired and canceled debentures. Due to the significant
amount of such debentures previously acquired by the Company, the Company
will not be required to make any cash redemptions for the foreseeable
future.
COMMITMENTS AND CONTINGENCIES
The Company is a party to various lawsuits (see Note 5). A significant
adverse judgment in one or more of the cases could have a material impact
on the Company's liquidity.
IMPACT OF INTEREST RATES
Any significant increase in interest rates would have a substantial adverse
effect on the Company's financial position.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 5 regarding various material legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Computation of loss per common share.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ending
September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
PATHE COMMUNICATIONS
CORPORATION
Date: November 10, 1994 by /s/ Fredric S. Newman
Fredric S. Newman
President
(Principal Financial
and Accounting Officer)
EXHIBIT INDEX
Exhibit Description Page No.
[S] [C] [C]
11 Computation of Loss per Common Share 17