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NOTE 10—STOCKHOLDER'S EQUITY
AMCE has one share of Common Stock issued as of March 29, 2012 which is owned by Parent.
On June 20, 2005, Holdings entered into a merger agreement ("Merger Agreement") with LCE Holdings, Inc. ("LCE Holdings"), the parent of Loews Cineplex Entertainment Corporation ("Loews"), pursuant to which LCE Holdings merged with and into Holdings, with Holdings continuing as the holding company for the merged businesses, and Loews merged with and into AMCE, with AMCE continuing after the merger (the "Merger" and collectively, the "Mergers"). The transaction closed on January 26, 2006.
Pursuant to the terms of the Merger Agreement, on January 26, 2006, in connection with the consummation of the Merger, Holdings issued 256,085.61252 voting shares of Class L-1 Common Stock, par value $0.01 per share ("Class L-1 Common Stock"), 256,085.61252 voting shares of Class L-2 Common Stock, par value $0.01 per share ("Class L-2 Common Stock" and, together with the Class L-1 Common Stock, the "Class L Common Stock"), 382,475 voting shares of Class A-1 Common Stock, par value $0.01 per share (the "Class A-1 Common Stock"), 382,475 voting shares of Class A-2 Common Stock, par value $0.01 per share (the "Class A-2 Common Stock" and, together with the Class A-1 Common Stock, the "Class A Common Stock"), and 5,128.77496 nonvoting shares of Class N Common Stock, par value $0.01 per share (the Class N Common Stock"), such that (i) the former non-management stockholders of LCE Holdings, including the Bain Investors, the Carlyle Investors and the Spectrum Investors (collectively, the "Former LCE Sponsors"), hold all of the outstanding shares of Class L Common Stock, (ii) the pre-existing non-management stockholders of Holdings, including the JPMP Investors and the Apollo Investors (collectively, the "Pre-Existing Holdings Sponsors" and, the Pre-Existing Holdings Sponsors together with the Former LCE Sponsors, the "Sponsors") and other co-investors (the "Co-investors"), held all of the outstanding shares of Class A Common Stock, and (iii) management stockholders of Holdings (the "Management Stockholders" and, together with the Sponsors and Co-investors, the "Stockholders") hold all of the non-voting Class N Common Stock.
The Class L Common Stock, Class A Common Stock and Class N Common Stock will automatically convert on a one-for-one basis into shares of Residual Common Stock, par value $0.01 per share, upon (i) written consent of each of the Sponsors or (ii) the completion of an initial public offering of capital stock of Parent, Holdings or AMCE (an "IPO").
The issuance of the equity securities was exempt from registration under the Securities Act of 1933 and the rules promulgated thereunder (the "Securities Act") in reliance on Section 4(2) of the Securities Act, as transactions by an issuer not involving a public offering.
On June 11, 2007, Marquee Merger Sub Inc. ("merger sub"), a wholly-owned subsidiary of Parent, merged with and into Holdings, with Holdings continuing as the surviving corporation ("holdco merger"). As a result of the holdco merger, (i) Holdings became a wholly owned subsidiary of Parent, a newly formed entity controlled by the Sponsors, (ii) each share of Holdings' common stock that was issued and outstanding immediately prior to the effective time of the holdco merger was automatically converted into a substantially identical share of common stock of Parent, and (iii) as further described in this report, each of Holdings' governance agreements was superseded by a substantially identical governance agreement entered into by and among Parent, the Sponsors and Holdings' other stockholders. The holdco merger was effected by the Sponsors to facilitate a previously announced debt financing by Parent and a related dividend to its stockholders.
During fiscal 2012, AMCE used cash on hand to pay a dividend distribution to Parent in an aggregate amount of $109,581,000. Parent used the available funds to pay corporate overhead expenses incurred in the ordinary course of business and to redeem its Term Loan Facility due June 2012, plus accrued and unpaid interest of $219,405,000.
During fiscal 2011, AMCE made dividend distributions to Holdings in an aggregate amount of $278,258,000, and Holdings used the available funds to make a principal payment related to a tender offer for the Discount Notes due 2014, plus interest payments, and to make dividend distributions to its stockholder, Parent. Holdings and Parent used the available funds to pay corporate overhead expenses incurred in the ordinary course of business.
During fiscal 2010, AMCE made dividend distributions to Holdings in an aggregate amount of $329,981,000, and Holdings used the available funds to make a cash interest payment on the Discount Notes due 2014 and to make dividend distributions to its stockholder, Parent. Parent made payments to purchase term loans and reduced the principal balance of its Parent Term Loan Facility from $466,936,000 to $193,290,000 with a portion of the dividend proceeds. In addition, Holdings and Parent used the available funds to pay corporate overhead expenses incurred in the ordinary course of business.
Common Stock Rights and Privileges
Parent's Class A-1 voting Common Stock, Class A-2 voting Common Stock, Class N nonvoting Common Stock, Class L-1 voting Common Stock and Class L-2 voting Common Stock entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions with respect to dividends. Additionally, each share of Class A Common Stock, Class L Common Stock and Class N Common Stock shall automatically convert into one share of Residual Common Stock on a one-for-one basis immediately prior to the consummation of an Initial Public Offering.
Stock-Based Compensation
The Company has no stock-based compensation arrangements of its own, but Parent has an amended and restated 2004 Stock Option Plan ("2004 Stock Option Plan") and the 2010 Equity Incentive Plan. The Company has recorded stock-based compensation expense of $1,962,000, $1,526,000, and $1,384,000 within general and administrative: other during each of the fifty-two weeks ended March 29, 2012, March 31, 2011, and April 1, 2010, respectively. Compensation expense for stock options and restricted stock are recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The Company's financial statements reflect an increase to additional paid-in capital related to stock-based compensation for awards and all outstanding options of $1,962,000 and $1,526,000 during fiscal 2012 and 2011, respectively.
As of March 29, 2012, there was approximately $4,412,000 of total estimated unrecognized compensation cost related to nonvested stock-based compensation arrangements under both the 2010 Equity Incentive Plan and the 2004 Stock Option Plan expected to be recognized over a weighted average 2.3 years.
2004 Stock Option Plan
Parent has adopted a stock-based compensation plan that permits a maximum of 49,107.44681 options to be issued on Parent's stock under the 2004 Stock Option Plan. The stock options have a ten year term and generally step vest in equal amounts from one to three or five years from the date of the grant. Vesting may accelerate for a certain participant if there is a change of control (as defined in the employee agreement). All outstanding options have been granted to employees of the Company.
The Company accounts for stock options using the fair value method of accounting and has elected to use the simplified method for estimating the expected term of "plain vanilla" share option grants, as it does not have enough historical experience to provide a reasonable estimate. The Company has valued the options granted during the fifty-two weeks ended April 1, 2010 using the Black-Scholes option pricing model, which included a valuation prepared by management on behalf of the Compensation Committee of the Board of Directors of Parent. This reflected market conditions as of May 28, 2009 which indicated a fair value price per share of the underlying shares of $339.59 per share, a purchase of 2,542 shares by Parent for $323.95 per share from the Company's former Chief Executive Officer pursuant to his Separation and General Release Agreement dated February 23, 2009 and a sale of 385.862 shares by Parent to the Company's current Chief Executive Officer pursuant to his Employment Agreement dated February 23, 2009 for $323.95 per share. See Assumptions Used to Estimate Option Values below for further information regarding assumptions used in determining fair value.
On July 8, 2010, the Board approved a grant of 1,023 non-qualified stock options to a certain employee of the Company under the amended and restated 2004 Stock Option Plan. These options vest ratably over 5 years with an exercise price of $752 per share. Expense for this award will be recognized on a straight-line basis over the vesting period. The estimated grant date fair value of the options granted on 1,023 shares was $300.91 per share, or $308,000, and was determined using the Black-Scholes option-pricing model. The option exercise price was $752 per share, and the estimated fair value of the shares was $752, resulting in $0 intrinsic value for the option grant. See 2010 Equity Incentive Plan below for further information regarding assumptions used in determining fair value.
On July 23, 2010, the Board of Directors of Parent (the "Board") determined that the Company would no longer grant any awards of shares of common stock of Parent under the 2004 Stock Option Plan.
2010 Equity Incentive Plan
On July 8, 2010, the Board and the stockholders of Parent approved the adoption of the AMC Entertainment Holdings, Inc. 2010 Equity Incentive Plan (the "Plan"). The Plan provides for grants of non-qualified stock options, incentive stock options, stock appreciation rights ("SARs"), restricted stock awards, other stock-based awards or performance-based compensation awards.
Subject to adjustment as provided for in the Plan, (i) the aggregate number of shares of common stock of Parent available for delivery pursuant to awards granted under the Plan is 39,312 shares, (ii) the number of shares available for granting incentive stock options under the Plan will not exceed 19,652 shares and (iii) the maximum number of shares that may be granted to a participant each year is 7,862.
On July 8, 2010, the Board approved the grants of 5,399 non-qualified stock options, 5,399 restricted stock (time vesting), and 5,404 restricted stock (performance vesting) to certain of its employees. On February 1, 2011, the Board approved the grants of 137 non-qualified stock options, 137 restricted stock (time vesting), and 138 restricted stock (performance vesting) to certain of its employees. The estimated fair value of the stock at the grant date of July 8, 2010 was approximately $752 per share. The common stock value of $752 per share was based upon a contemporaneous valuation reflecting market conditions on July 8, 2010, which was prepared by an independent third party valuation specialist, and was used to estimate grants of 6,167 options and 6,431 shares of restricted stock granted in July 2010. The third party valuation was reviewed by management and provided to the Company's board of directors and the Compensation Committee of the board of directors. In determining the fair market value of the common stock, the board of directors and the Compensation Committee of the board of directors considered the valuation report and other qualitative and quantitative factors that they considered relevant. The common stock value of $752 per share was used to estimate the fair value of each of the remaining grants of options and shares of restricted stock granted on each of August 2, 2010, December 23, 2010, March 22, 2011, and April 6, 2011 as the Company believed at the time of grant that the valuation reflected current market conditions on each of such grant dates. The Company believes that market conditions had not changed significantly over the course of these grant dates.
On June 22, 2011, the restricted stock (performance vesting) shares for fiscal 2012 were granted and the target was communicated following ASC 718-10-55-95. The grant date common stock value of $755 per share was based upon a contemporaneous valuation reflecting market conditions on June 22, 2011, which was prepared by an independent third party valuation specialist, and was used to estimate grant value of 1,346 shares of restricted stock (performance vesting) granted on June 22, 2011. The third party valuation was reviewed by management and provided to the Company's Board of Directors and the Compensation Committee of the Board of Directors. In determining the fair market value of the common stock, the Board of Directors and the Compensation Committee of the Board of Directors considered the valuation report and other qualitative and quantitative factors that they considered relevant.
The award agreements under the Plan generally have the following features, subject to discretionary approval by Parent's compensation committee:
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- Non-Qualified Stock Option Award Agreement: The Board approved the grant of 5,536 stock options, of which 5,491 stock options have been granted. Twenty-five percent of the options will vest on each of the first four anniversaries of the date of grant; provided, however, that the options will become fully vested and exercisable if within one year following a Change of Control (as defined in the Plan), the participant's service is terminated by the Company without cause. The stock options have a ten year term from the date of grant. The estimated grant date fair value of the options granted on 5,491 shares was $293.72 per share, or $1,613,000, and was determined using the Black-Scholes option-pricing model. The option exercise price was $752 per share, and the estimated fair value of the shares was $752, resulting in $0 intrinsic value for the option grants.
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- Restricted Stock Award Agreement (Time Vesting): The Board approved the grant of 5,536 shares of restricted stock (time vesting), of which 5,491 shares have been granted. The restricted shares will become vested on the fourth anniversary of the date of grant; provided, however, that the restricted shares will become fully vested if within one year following a Change of Control, the participant's service is terminated by the Company without cause. The estimated grant date fair value for the 5,491 shares of restricted stock (time vesting) granted was $4,129,000, or approximately $752 per share.
- •
- Restricted Stock Award Agreement (Performance Vesting): The Board approved the grant of 5,542 shares of restricted stock (performance vesting), of which approximately 1,346 shares and 1,372 shares have been granted in fiscal 2012 and fiscal 2011, respectively. Approximately twenty-five percent of the total 5,542 restricted shares approved by the Board will be granted each year over a four-year period. Each grant has a vesting term of approximately one year upon the Company meeting certain pre-established annual performance targets; provided, however, that the restricted shares will become fully vested if within one year following a Change of Control, the participant's service is terminated by the Company without cause. The fiscal 2012 and fiscal 2011 performance targets were established at the grant date following ASC 718-10-55-95 and the estimated grant date fair values were $1,016,000 (or approximately $755 per share) and $1,032,000, (or approximately $752 per share), respectively. During the third quarter of each year, it was determined to be improbable for the Company to meet its pre-established annual performance target for fiscal 2012 and fiscal 2011. The Company discontinued recognizing compensation cost for the restricted stock (performance vesting) grant for fiscal 2012 and fiscal 2011 and reversed compensation cost previously recognized in prior quarters.
Stock Option Activity
A summary of Parent's stock option activity under both the 2004 Option Plan and the 2010 Equity Incentive Plan is as follows:
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March 29, 2012 |
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March 31, 2011 |
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April 1, 2010 |
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Number
of
Shares |
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Weighted
Average
Exercise
Price Per
Share |
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Number
of
Shares |
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Weighted
Average
Exercise
Price Per
Share |
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Number
of
Shares |
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Weighted
Average
Exercise
Price Per
Share |
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Outstanding at beginning of year |
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35,684.1680905 |
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$ |
423.70 |
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31,597.1680905 |
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$ |
383.58 |
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26,811.1680905 |
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$ |
391.43 |
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Granted(1) |
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7.00000 |
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752.00 |
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6,507.00000 |
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752.00 |
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4,786.00000 |
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339.59 |
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Forfeited |
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(13.00000 |
) |
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752.00 |
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(1,615.40000 |
) |
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368.18 |
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— |
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— |
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Exercised |
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— |
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— |
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(804.60000 |
) |
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452.57 |
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— |
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— |
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Outstanding at end of year and expected to vest(1)(2) |
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35,678.1680905 |
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$ |
449.88 |
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35,684.1680905 |
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$ |
449.93 |
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31,597.1680905 |
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$ |
383.58 |
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Exercisable at end of year(3) |
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22,594.5380903 |
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$ |
429.74 |
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17,238.4980902 |
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$ |
423.70 |
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14,026.8080901 |
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$ |
452.94 |
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Available for grant at end of year(4) |
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28,580.0000000 |
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28,568.0000000 |
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9,325.7042495 |
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- (1)
- The weighted average remaining contractual life for outstanding options was 6.0 years, 7.0 years, and 7.6 years for fiscal 2012, 2011 and 2010, respectively. During fiscal 2012, 7 options were granted at an exercise price of $752. The options granted were based on an estimated fair value of $752 of common stock, resulting in an intrinsic value for the options on the grant date of $0. During fiscal 2011, 6,507 options were granted at an exercise price of $752. The options granted were based on an estimated fair value of $752 of common stock, resulting in an intrinsic value for the options on the grant date of $0. During fiscal 2010, 4,786 options were granted on May 28, 2009 at an exercise price of $339.59, based on an estimated fair value of $339.59 of common stock on May 28, 2009, resulting in an intrinsic value for the options on the grant date of $0.
- (2)
- The aggregate estimated intrinsic value for these options was approximately $4,578,000 as of March 29, 2012.
- (3)
- The aggregate estimated intrinsic value for these options was approximately $2,824,000 as of March 29, 2012.
- (4)
- At March 29, 2012, the shares available for grant were under the 2010 Equity Incentive Plan, and include all types of shares available for grant under the 2010 Equity Incentive Plan. The shares available for grant at March 29, 2012 were reduced by 5,366 shares of unvested restricted stock (time vesting). Also, at March 29, 2012, the shares available for grant do not include the awards approved by the Board that have not been granted, which includes 45 stock option shares, 45 shares of restricted stock (time vesting), and 2,824 shares of restricted stock (performance vesting).
For options exercised, intrinsic value is calculated as the difference between the market price on the date of exercise (determined using the most recent contemporaneous valuation prior to the exercise) and the exercise price of the options. The total intrinsic value of options exercised was $241,000 during fiscal 2011 and there were no options exercised during fiscal 2012 and fiscal 2010. Parent received outstanding shares, instead of cash, from the exercise of stock options during fiscal 2011 to satisfy the aggregate strike price of approximately $364,000.
Assumptions Used To Estimate Option Values
The following table reflects the weighted average fair value per option granted during each year under the 2004 Option Plan and the 2010 Equity Incentive Plan, as well as the significant assumptions used in determining weighted average fair value using the Black-Scholes option-pricing model:
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March 31, 2011 |
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April 1, 2010 |
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2010 Plan |
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2004 Plan |
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2004 Plan |
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Weighted average fair value of options on grant date |
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$ |
293.72 |
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$ |
300.91 |
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$ |
135.71 |
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Risk-free interest rate |
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2.50 |
% |
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2.58 |
% |
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2.6 |
% |
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Expected life (years) |
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6.25 |
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6.50 |
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6.5 |
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Expected volatility(1) |
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35.0 |
% |
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35.0 |
% |
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35.0 |
% |
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Expected dividend yield |
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— |
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— |
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— |
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- (1)
- The Company uses share values of its publicly traded competitor peer group for purposes of calculating volatility.
Restricted Stock Activity
The following table represents the restricted stock activity:
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Shares of
Restricted
Stock |
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Weighted
Average
Grant Date
Fair Value |
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Unvested at March 31, 2011 |
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5,372 |
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$ |
752.00 |
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Granted |
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1,353 |
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755.00 |
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Forfeited/canceled(1) |
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(1,359 |
) |
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755.00 |
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Unvested at March 29, 2012 |
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5,366 |
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$ |
752.00 |
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- (1)
- The Company did not meet its pre-established annual performance target for fiscal 2012, and therefore, the restricted stock (performance vesting) grant was canceled.
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