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period, Credit Lyonnais maintained a constant presence at MGM-
Pathe’s corporate offices.
MGM-Pathe’s deepening financial problems, however, strained
its relationship with Credit Lyonnais. For example, during the
quarter ended March 31, 1992, MGM-Pathe’s operating expenses and
financing costs exceeded its operating receipts, and its
management expected that operating expenses and financing costs
would continue to exceed operating receipts for the foreseeable
future. MGM-Pathe’s market share was less than two percent; many
of its valuable assets had either been sold or factored to
finance Pathe’s acquisition of MGM-Pathe. As a result, MGM-Pathe
remained entirely dependent on CLBN for additional capital to
fund its ongoing operations. MGM-Pathe’s deepening financial
problems persisted well into 1993.
As of March 31, 1992, CLBN had lent MGM-Pathe $124,288,000
pursuant to the so-called $250 million facility agreement and
$398,223,000 pursuant to the so-called $145 million facility
agreement. MGM-Pathe was in default on these obligations. On
April 16, 1992, CLBN notified Pathe and MGM-Pathe that it was
exercising its right under the 1991 pledge agreement to foreclose
on 59.1 million shares of the common stock of MGM-Pathe
(representing 98.5 percent of the outstanding common stock of
that company). The letter stated that the foreclosure auction
was scheduled for May 7, 1992, and that CLBN intended to bid-in,
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