Document:

THIS IS NOT A  SOLICITATION  OF ACCEPTANCES OF THE CHAPTER 11 PLAN OF LOEWS
CINEPLEX  ENTERTAINMENT  CORPORATION AND THE OTHER DEBTORS IN THESE CHAPTER
11 CASES. ACCEPTANCES MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT HAS
BEEN APPROVED BY THE BANKRUPTCY COURT.  THIS DISCLOSURE  STATEMENT IS BEING
SUBMITTED  FOR  APPROVAL  BUT HAS NOT YET BEEN  APPROVED BY THE  BANKRUPTCY
COURT.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - -x
                                                   :
                                                   :
In re:                                             : Chapter 11
                                                   :
 LOEWS CINEPLEX ENTERTAINMENT CORPORATION, et al., : Case Nos. 01-40346 (ALG)
                                           -- --   :
                                                   : through   01-40582 (ALG)
            Debtors.                               :
                                                   : (Jointly Administered)
                                                   :
- - - - - - - - - - - - - - - - - - - - - - - - - -x

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             DISCLOSURE STATEMENT FOR DEBTORS' CHAPTER 11 PLAN
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Dated:        New York, New York
              November 11, 2001

                                           FRIED, FRANK, HARRIS, SHRIVER
                                               & JACOBSON
                                           (A Partnership Including
                                               Professional Corporations)
                                           Attorneys for Debtors and
                                               Debtors-In-Possession
                                           One New York Plaza
                                           New York, New York  10004
                                           (212) 859-8000
                                           Attn:  Brad Eric Scheler, Esq.
                                                  Lawrence A. First, Esq.
                                                  Bonnie Steingart, Esq.

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                             TABLE OF CONTENTS

                                                                                                             Page

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I.       INTRODUCTION AND SUMMARY.................................................................................1
         A.       THE SOLICITATION................................................................................1
         B.       RECOMMENDATIONS.................................................................................2
         C.       SUMMARY OF KEY PROVISIONS OF THE PLAN...........................................................3
         D.       SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS.................................3
         E.       NOTICE TO HOLDERS OF CLAIMS AND INTERESTS.......................................................8

II.      DEFINITIONS.............................................................................................10

III.     BACKGROUND..............................................................................................20
         A.       BUSINESS AND PROPERTIES OF THE DEBTORS.........................................................20
                  1.       Introduction..........................................................................20
                  2.       Employees.............................................................................21
                  3.       Executive Offices.....................................................................21
                  4.       Competition...........................................................................21
         B.       FINANCIAL INFORMATION..........................................................................21
         C.       CORPORATE STRUCTURE OF DEBTORS.................................................................21
         D.       CAPITAL STRUCTURE OF THE DEBTORS...............................................................22
                  1.       Equity................................................................................22
                  2.       Debt..................................................................................23
                           (a)   Pre-Petition Credit Agreement...................................................23
                           (b)   Mortgage Debt...................................................................23
                           (c)   Pre-Petition Notes..............................................................23
         E.       BACKGROUND AND EVENTS LEADING TO CHAPTER 11 FILING.............................................24
                  1.       The Theatre Industry..................................................................24
                  2.       The Debtors' Pre-Petition Attempt to Restructure......................................25
                  3.       Pre-Petition Defaults.................................................................26
                  4.       Pre-Petition Financing and Restructuring Negotiations.................................27
                  5.       February 2001 Letter of Intent........................................................28
                  6.       Filing of the Chapter 11 Cases and the Cineplex Odeon Proceedings Under the
                           CCAA..................................................................................28
         F.       EVENTS LEADING TO THE FORMULATION OF THE PLAN..................................................29
                  1.       The Debtors' Underperforming and Burdensome Leases....................................29
                  2.       Creditors' Committee Attempt to Terminate Exclusivity.................................29
                  3.       Negotiations Leading to the Filing of a Plan..........................................30

IV.      THE CHAPTER 11 CASES....................................................................................34
         A.       APPOINTMENT OF CREDITORS' COMMITTEE............................................................34
                  1.       Members of the Creditors' Committee...................................................34
                  2.       Professionals retained by the Creditors' Committee....................................35
         B.       OTHER SIGNIFICANT CHAPTER 11 EVENTS............................................................36
                  1.       The DIP Agreement.....................................................................36
                  2.       Claims of Critical Film Distributors..................................................37
                  3.       Assumption of an Unexpired Nonresidential Real Property Lease Relating to a
                           Theatre Being Constructed in Boston, Massachusetts....................................38
                  4.       Assumption of Construction Contracts..................................................38
                  5.       Financing and Assumption of an Unexpired Nonresidential Real Property Lease
                           Relating to a Theatre Being Constructed in New York, New York.........................38
                  6.       Rejection of Certain Unexpired Nonresidential Real Property Leases and
                           Abandonment of Certain Fixtures and Equipment.........................................39
                  7.       Lease Modifications...................................................................39
                  8.       Schedules and Statements of Financial Affairs.........................................39
                  9.       Bar Date..............................................................................39
                  10.      Litigation Relating to Certain Former Theatre Location................................40
                  11.      Litigation with Six West Retail Acquisition, Inc......................................41
                  12.      Motion for Appointment of an Examiner.................................................41
                  13.      CCAA Proceedings......................................................................42

V.       EFFECT OF CONSUMMATION OF THE PLAN......................................................................42

VI.      SUMMARY OF THE PLAN.....................................................................................43
         A.       BRIEF EXPLANATION OF CHAPTER 11................................................................43
         B.       GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS AND INTERESTS...............................43
                  1.       Administrative Expenses, Priority Tax Claims and Unimpaired Classes...................43
                  2.       Pre-Petition Credit Agreement Claims..................................................44
         C.       CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS...........................................47
                  1.       Unclassified Claims...................................................................48
                           (a)   Administrative Expenses.........................................................48
                           (b)   Priority Tax Claims.............................................................51
                  2.       Classified Claims and Interests.......................................................52
                           (a)   Class 1-Priority Claims.........................................................52
                           (b)   Class 2-Pre-Petition Credit Agreement Claims....................................52
                           (c)   Class 3-Miscellaneous Secured Claims............................................54
                           (d)   Class 4-PBGC Claims.............................................................54
                           (e)   Class 5A-Subsidiary General Unsecured Claims....................................55
                           (f)   Class 5B-LCE General Unsecured Claims...........................................55
                           (g)   Class 6-Convenience Claims......................................................56
                           (h)   Class 7A-Holders of Intercompany LCE Claims.....................................57
                           (i)   Class 7B-Holders of Intercompany Subsidiary Claims..............................57
                           (j)   Class 7C-Holders of Intercompany Cineplex Odeon Claims..........................57
                           (k)   Class 8-Holders of Old LCE Common Stock Interests...............................58
                           (l)   Class 9-Subsidiary Common Stock Interests.......................................58
         D.       SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN.........................................59
                  1.       New Term Notes........................................................................59
                  2.       New Common Stock......................................................................59
                           (a)   Distributions...................................................................59
                           (b)   Voting..........................................................................59
                           (c)   Election of Directors...........................................................59
         E.       SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS.....................................................59
         F.       UNEXPIRED LEASES AND EXECUTORY CONTRACTS.......................................................60
                  1.       Generally.............................................................................60
                  2.       Assumption and Rejection..............................................................60
                  3.       Deadline for Filing Rejection Damage Claims...........................................60
         G.       IMPLEMENTATION OF THE PLAN.....................................................................61
                  1.       Substantive Consolidation.............................................................61
                  2.       Vesting of Property...................................................................63
                  3.       Transactions on Business Days.........................................................63
                  4.       Corporate Action for Reorganized Debtors..............................................63
                  5.       Implementation........................................................................64
                  6.       Issuance of New Securities............................................................64
                  7.       Cancellation of Existing Securities and Agreements....................................64
                  8.       Board of Directors and Officers of Reorganized LCE....................................64
                  9.       Management Employment Agreements......................................................65
                  10.      Employee Benefit Plans................................................................65
                  11.      Survival of Indemnification and Contribution Obligations..............................66
                  12.      Retention and Enforcement of Causes of Action.........................................66
                  13.      Senior Executive Employment Agreements................................................66
                  14.      Stock Plan............................................................................66
                  15.      Rule 9019 Settlement and Compromise of Alleged Causes of Action with Respect
                           to Pre-Petition Credit Agreement Claims...............................................66
                  16.      Funding of the Unsecured Creditors Distribution.......................................67
         H.       PROVISIONS COVERING DISTRIBUTIONS..............................................................67
                  1.       Timing of Distributions Under the Plan................................................67
                  2.       Allocation of Consideration...........................................................67
                  3.       Cash Payments.........................................................................68
                  4.       Payment of Statutory Fees.............................................................68
                  5.       No Interest...........................................................................68
                  6.       Fractional Securities.................................................................68
                  7.       Withholding of Taxes..................................................................68
                  8.       Persons Deemed Holders of Registered Securities.......................................68
                  9.       Surrender of Existing Securities......................................................69
                  10.      Undeliverable or Unclaimed Distributions..............................................69
                  11.      Distributions on Account of Pre-Petition Notes........................................70
         I.       PROCEDURES FOR RESOLVING DISPUTED CLAIMS.......................................................70
                  1.       Objections to Claims..................................................................70
                  2.       Procedure.............................................................................70
                  3.       Payments and Distributions With Respect to Disputed Claims............................70
                  4.       Claims Reserve........................................................................70
                           (a)   Estimation......................................................................70
                           (b)   Creation of Class 5 Claims Reserve..............................................71
                  5.       Distributions After Allowance of Disputed General Unsecured Claims....................71
                  6.       Distributions After Disallowance of Disputed General Unsecured Claims.................71
                  7.       Procedure for Resolution of Intercreditor Disputes....................................72
                  8.       Effect of Distributions in the CCAA Cases.............................................72
                  9.       Setoffs...............................................................................72
         J.       DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS......................................72
                  1.       Discharge of All Claims and Interests and Releases....................................72
                  2.       Injunction............................................................................73
                  3.       Exculpation...........................................................................73
                  4.       Guaranties and Claims of Subordination................................................73
                           (a)   Guaranties......................................................................73
                           (b)   Claims of Subordination.........................................................74
         K.       CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE..................................75
                  1.       Conditions Precedent to Entry of the Confirmation Order...............................75
                  2.       Conditions Precedent to the Effective Date............................................75
                  3.       Waiver of Conditions..................................................................76
                  4.       Effect of Failure of Conditions.......................................................76
         L.       MISCELLANEOUS PROVISIONS.......................................................................76
                  1.       Bankruptcy Court to Retain Jurisdiction...............................................76
                  2.       Required Regulatory Approvals.........................................................77
                  3.       Binding Effect of the Plan............................................................77
                  4.       Nonvoting Stock.......................................................................77
                  5.       Authorization of Corporate Action.....................................................77
                  6.       Retiree Benefits......................................................................77
                  7.       Withdrawal of the Plan................................................................78
                  8.       Dissolution of Committees.............................................................78
                  9.       Amendments and Modifications to the Plan..............................................78
                  10.      Section 1125(e) of the Bankruptcy Code................................................78

VII.     RISK FACTORS............................................................................................79
         A.       CERTAIN RISKS OF NON-CONFIRMATION..............................................................79
         B.       RISKS OF NON-CONSUMMATION OF PLAN..............................................................80
         C.       BUSINESS RISK FACTORS..........................................................................80
                  1.       Results of Operations Subject to Variable Influences; Intense Competition.............80
                  2.       History of Losses; Effect of Transaction..............................................81
                  3.       Cash Flow From Operations.............................................................81
                  4.       Declines in Attendance and Gross Profits..............................................81
                  5.       Leverage and Debt Service.............................................................81
                  6.       Need for Sustained Trade Support......................................................82

VIII.    APPLICATION OF SECURITIES ACT TO THE ISSUANCE AND  RESALE OF NEW SECURITIES UNDER THE PLAN..............82
                  1.       New Common Stock......................................................................82
                  2.       Section 1145 of the Bankruptcy Code...................................................82

IX.      FINANCIAL PROJECTIONS, VALUATION AND ASSUMPTIONS USED...................................................84

X.       CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................................................84
         A.       TAX CONSEQUENCES TO HOLDERS OF PRE-PETITION CREDIT AGREEMENT CLAIMS AND GENERAL
                  UNSECURED CLAIMS...............................................................................85
                  1.       General...............................................................................85
                  2.       Consequences of the Exchange..........................................................85
                  3.       Market Discount.......................................................................86
                  4.       Allocation of Consideration Received..................................................87
         B.       TAX CONSEQUENCES TO THE DEBTORS................................................................87
                  1.       Cancellation of Indebtedness..........................................................87
                  2.       Limitation on Net Operating Losses....................................................88

XI.      REQUIREMENTS FOR CONFIRMATION OF PLAN...................................................................89
         A.       CONFIRMATION HEARING...........................................................................89
         B.       FEASIBILITY OF THE PLAN........................................................................91
         C.       BEST INTERESTS TEST............................................................................92
         D.       LIQUIDATION ANALYSIS...........................................................................93
         E.       NONCONSENSUAL CONFIRMATION.....................................................................94
                  1.       No Unfair Discrimination..............................................................94
                  2.       Fair and Equitable Test...............................................................94

XII.     ALTERNATIVES TO CONFIRMATION AND  CONSUMMATION OF THE PLAN..............................................95
         A.       CONTINUATION OF THE CHAPTER 11 CASES...........................................................95
         B.       LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11......................................................95

XIII.    VOTING AND CONFIRMATION OF THE PLAN.....................................................................96
         A.       VOTING DEADLINE................................................................................96
         B.       HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE........................................97
         C.       VOTE REQUIRED FOR ACCEPTANCE BY A CLASS........................................................97
         D.       VOTING PROCEDURES..............................................................................97
                  1.       Holders of Class 5B LCE General Unsecured Claims......................................98

XIV.     CONCLUSION AND RECOMMENDATION..........................................................................101

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SCHEDULE I* - LIST OF DEBTORS AND DEBTORS-IN-POSSESSION

SCHEDULE II - PROJECTIONS

SCHEDULE III - LIQUIDATION ANALYSIS

EXHIBIT A - PRE-PETITION LENDER AGREEMENT, AS AMENDED

EXHIBIT B - TERM SHEET FOR NEW TERM NOTES

APPENDIX I - PLAN

APPENDIX II - FORM 10K

APPENDIX III - FORM 10Q

*    The Debtors intend to file all exhibit and schedules prior to the
     hearing on the adequacy of the Disclosure Statement.

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          Loews Cineplex  Entertainment  Corporation  ("LCE") and the other
debtors and  debtors-in-possession  set forth on Schedule I  (collectively,
the "Debtors")  under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"),  hereby propose and file this Disclosure Statement (the
"Disclosure Statement") for the Debtors' Chapter 11 Plan of Reorganization,
dated November 11, 2001 (the "Plan").

          THE PLAN IS THE RESULT OF EXTENSIVE NEGOTIATIONS AMONG THE
DEBTORS, THE CREDITORS' COMMITTEE, THE AGENT AND THE INVESTORS. THE
DEBTORS, THE CREDITORS' COMMITTEE, THE AGENT AND THE INVESTORS BELIEVE THAT
THE PLAN PROVIDES THE BEST POSSIBLE RESULT FOR ALL HOLDERS OF CLAIMS AND
THEREFORE BELIEVE THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF
THE DEBTORS' CREDITORS AND STRONGLY URGE ALL HOLDERS OF CLAIMS IN IMPAIRED
CLASSES RECEIVING BALLOTS TO ACCEPT THE PLAN.

          THIS DISCLOSURE STATEMENT IS DESIGNED TO SOLICIT YOUR ACCEPTANCE
OF THE ATTACHED PLAN AND CONTAINS INFORMATION RELEVANT TO YOUR DECISION.
PLEASE READ THIS DISCLOSURE STATEMENT, THE PLAN AND THE OTHER MATERIALS
COMPLETELY AND CAREFULLY. THE PLAN IS ATTACHED AS APPENDIX I TO THIS
DISCLOSURE STATEMENT. PLAN SUMMARIES AND STATEMENTS MADE IN THIS DISCLOSURE
STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PLAN, OTHER
APPENDICES ANNEXED HERETO AND OTHER DOCUMENTS REFERENCED AS FILED WITH THE
COURT BEFORE OR CONCURRENTLY WITH THE FILING OF THIS DISCLOSURE STATEMENT.
FURTHERMORE, THE PROJECTED FINANCIAL INFORMATION CONTAINED HEREIN HAS NOT
BEEN THE SUBJECT OF AN AUDIT. SUBSEQUENT TO THE DATE HEREOF, THERE CAN BE
NO ASSURANCE THAT: (A) THE INFORMATION AND REPRESENTATIONS CONTAINED HEREIN
WILL CONTINUE TO BE MATERIALLY ACCURATE; OR (B) THE DISCLOSURE STATEMENT
CONTAINS ALL MATERIAL INFORMATION.

          THE CLASSES OF CLAIMS AND INTERESTS IMPAIRED (AS DEFINED IN THE
BANKRUPTCY CODE) UNDER THE PLAN AND ENTITLED TO VOTE ON THE PLAN ARE CLASS
2 PRE-PETITION CREDIT AGREEMENT CLAIMS, CLASS 5A SUBSIDIARY GENERAL
UNSECURED CLAIMS AND CLASS 5B LCE GENERAL UNSECURED CLAIMS. CLASS 1
PRIORITY CLAIMS, CLASS 3 MISCELLANEOUS SECURED CLAIMS, CLASS 4 PBGC CLAIMS,
CLASS 6 CONVENIENCE CLAIMS AND CLASS 9 SUBSIDIARY COMMON STOCK INTERESTS
ARE UNIMPAIRED, AND HOLDERS OF CLAIMS OR INTERESTS IN SUCH CLASSES ARE
CONCLUSIVELY PRESUMED TO HAVE ACCEPTED THE PLAN PURSUANT TO SECTION 1126(f)
OF THE BANKRUPTCY CODE. CLASS 7A INTERCOMPANY LCE CLAIMS, CLASS 7B
INTERCOMPANY SUBSIDIARY CLAIMS, CLASS 7C INTERCOMPANY CINEPLEX ODEON CLAIMS
AND CLASS 8 OLD LCE COMMON STOCK INTERESTS ARE IMPAIRED AND WILL NOT
RECEIVE OR RETAIN ANY PROPERTY UNDER THE PLAN ON ACCOUNT OF THEIR CLAIMS OR
INTERESTS AND, THEREFORE, ARE DEEMED NOT TO HAVE ACCEPTED THE PLAN PURSUANT
TO SECTION 1126(g) OF THE BANKRUPTCY CODE. HOWEVER, AS CO-PROPONENTS OF THE
PLAN, HOLDERS OF CLASS 7A INTERCOMPANY LCE CLAIMS AND CLASS 7B INTERCOMPANY
SUBSIDIARY CLAIMS SUPPORT THE PLAN. IN ADDITION, THE HOLDERS OF CLASS 7C
INTERCOMPANY CINEPLEX ODEON CLAIMS HAVE INFORMED THE DEBTORS THAT THEY
SUPPORT THE PLAN.

          HOLDERS OF IMPAIRED CLASS 2 PRE-PETITION CREDIT AGREEMENT CLAIMS,
CLASS 5A SUBSIDIARY GENERAL UNSECURED CLAIMS AND CLASS 5B LCE GENERAL
UNSECURED CLAIMS ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THE MATTERS
DESCRIBED IN THIS DISCLOSURE STATEMENT, INCLUDING THOSE UNDER "RISK
FACTORS," PRIOR TO SUBMITTING BALLOTS OR MASTER BALLOTS VOTING ON THE PLAN.
IN MAKING A DECISION TO ACCEPT OR REJECT THE PLAN, EACH HOLDER OF A CLASS 2
PRE-PETITION CREDIT AGREEMENT CLAIM, CLASS 5A SUBSIDIARY GENERAL UNSECURED
CLAIMS OR CLASS 5B LCE GENERAL UNSECURED CLAIM MUST RELY ON ITS OWN
EXAMINATION OF THE DEBTORS AS DESCRIBED IN THIS DISCLOSURE STATEMENT AND
THE TERMS OF THE PLAN, INCLUDING THE MERITS AND RISKS INVOLVED. IN
ADDITION, CONFIRMATION AND CONSUMMATION OF THE PLAN ARE SUBJECT TO
CONDITIONS PRECEDENT THAT COULD LEAD TO DELAYS IN CONSUMMATION OF THE PLAN.
THERE CAN BE NO ASSURANCE THAT EACH OF THESE CONDITIONS WILL BE SATISFIED
OR WAIVED (AS PROVIDED IN THE PLAN) OR THAT THE PLAN WILL BE CONSUMMATED.
EVEN AFTER THE EFFECTIVE DATE, DISTRIBUTIONS UNDER THE PLAN MAY BE SUBJECT
TO SUBSTANTIAL DELAYS FOR HOLDERS OF CLAIMS AND INTERESTS THAT ARE
DISPUTED. AS DISCUSSED HEREIN, DUE TO THE DISPUTE BETWEEN THE HOLDERS OF
CLASS 5A AND CLASS 5B CLAIMS, DISTRIBUTIONS, IF ANY, TO HOLDERS OF CLASS 5B
LCE GENERAL UNSECURED CLAIMS WILL NOT BE MADE UNTIL ENTRY OF AN ORDER BY
THE BANKRUPTCY COURT DIRECTING A DISTRIBUTION WITH RESPECT THERETO. THERE
CAN BE NO ASSURANCE WHEN SUCH AN ORDER WILL BE ENTERED OR THAT SUCH ORDER
WILL DIRECT THAT ANY DISTRIBUTION WITH RESPECT TO CLASS 5B LCE GENERAL
UNSECURED CLAIMS BE MADE. NOTHING IN THE PLAN OR THIS DISCLOSURE STATEMENT
IS INTENDED TO LIMIT, AFFECT OR PREJUDICE ANY ARGUMENTS OR DEFENSES THAT
MAY BE ASSERTED BY THE HOLDERS OF CLASS 5A CLAIMS AND CLASS 5B CLAIMS IN
CONNECTION WITH THE INTERCREDITOR DISPUTE BETWEEN SUCH HOLDERS. IN
ADDITION, WITH RESPECT TO THE HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS,
WHILE INTERIM DISTRIBUTIONS MAY BE MADE PERIODICALLY, FINAL DISTRIBUTIONS
WILL NOT BE MADE UNTIL ALL DISPUTED GENERAL UNSECURED CLAIMS ARE RESOLVED.

          EACH OF CLASS 2 (PRE-PETITION CREDIT AGREEMENT CLAIMS), CLASS 5A
(SUBSIDIARY GENERAL UNSECURED CLAIMS) AND CLASS 5B (LCE GENERAL UNSECURED
CLAIMS) WILL BE DEEMED TO HAVE ACCEPTED THE PLAN IF THE HOLDERS OF CLAIMS
IN EACH SUCH CLASS (OTHER THAN ANY HOLDER DESIGNATED UNDER SUBSECTION
1126(E) OF THE BANKRUPTCY CODE) WHO CAST VOTES IN FAVOR OF THE PLAN HOLD AT
LEAST TWO-THIRDS IN DOLLAR AMOUNT AND MORE THAN ONE-HALF IN NUMBER OF THE
ALLOWED CLAIMS THAT ARE HELD BY HOLDERS OF CLAIMS ACTUALLY VOTING IN SUCH
CLASS.

          THE DEBTORS WILL REQUEST THAT THE BANKRUPTCY COURT CONFIRM THE
PLAN UNDER BANKRUPTCY CODE SECTION 1129(b). SECTION 1129(b) PERMITS
CONFIRMATION OF THE PLAN DESPITE REJECTION BY ONE OR MORE CLASSES IF THE
BANKRUPTCY COURT FINDS THAT THE PLAN "DOES NOT DISCRIMINATE UNFAIRLY" AND
IS "FAIR AND EQUITABLE" AS TO THE CLASS OR CLASSES THAT DO NOT ACCEPT THE
PLAN. BECAUSE CLASS 8 IS DEEMED NOT TO HAVE ACCEPTED THE PLAN, THE DEBTORS
WILL REQUEST THAT THE BANKRUPTCY COURT FIND THAT THE PLAN IS FAIR AND
EQUITABLE AND DOES NOT DISCRIMINATE UNFAIRLY AS TO CLASS 8 (AND ANY OTHER
CLASS THAT FAILS TO ACCEPT THE PLAN, INCLUDING, WITHOUT LIMITATION, CLASS
5B). AS CO-PROPONENTS OF THE PLAN, CLASS 7A AND CLASS 7B SUPPORT THE PLAN.
THE DEBTORS HAVE BEEN INFORMED THAT CLASS 7C ALSO SUPPORTS THE PLAN. FOR A
MORE DETAILED DESCRIPTION OF THE REQUIREMENTS FOR ACCEPTANCE OF THE PLAN
AND OF THE CRITERIA FOR CONFIRMATION, SEE SECTION X HEREIN, ENTITLED
"REQUIREMENTS FOR CONFIRMATION OF PLAN."

          [THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE
BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION OF A KIND AND IN
SUFFICIENT DETAIL TO ENABLE HOLDERS OF CLAIMS AND INTERESTS TO MAKE AN
INFORMED JUDGMENT WITH RESPECT TO VOTING TO ACCEPT OR REJECT THE PLAN.
HOWEVER, THE BANKRUPTCY COURT'S APPROVAL OF THIS DISCLOSURE STATEMENT DOES
NOT CONSTITUTE A RECOMMENDATION OR DETERMINATION BY THE BANKRUPTCY COURT
WITH RESPECT TO THE MERITS OF THE PLAN.]

          NO PARTY IS AUTHORIZED BY THE DEBTORS TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS WITH RESPECT TO THE PLAN, THE NEW TERM NOTES OR
THE NEW COMMON STOCK OTHER THAN THAT WHICH IS CONTAINED IN THIS DISCLOSURE
STATEMENT. NO REPRESENTATIONS OR INFORMATION CONCERNING THE DEBTORS, THEIR
FUTURE BUSINESS OPERATIONS OR THE VALUE OF THEIR PROPERTIES HAVE BEEN
AUTHORIZED BY THE DEBTORS OTHER THAN AS SET FORTH HEREIN.

          THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH
SECTION 1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR
STATE SECURITIES LAWS OR OTHER APPLICABLE NONBANKRUPTCY LAWS. ENTITIES
HOLDING OR TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING
CLAIMS AGAINST, INTERESTS IN OR SECURITIES OF, THE DEBTORS SHOULD EVALUATE
THIS DISCLOSURE STATEMENT ONLY IN LIGHT OF THE PURPOSE FOR WHICH IT WAS
PREPARED.

          IF THE REQUISITE ACCEPTANCES OF THE PLAN ARE RECEIVED, THE PLAN
IS CONFIRMED BY THE BANKRUPTCY COURT AND THE EFFECTIVE DATE OCCURS, ALL
HOLDERS OF CLAIMS OR INTERESTS (INCLUDING THOSE WHO DO NOT SUBMIT BALLOTS
OR MASTER BALLOTS TO ACCEPT OR TO REJECT THE PLAN AND THE TRANSACTIONS
CONTEMPLATED THEREBY) WILL BE BOUND BY THE PLAN AND THE TRANSACTIONS
CONTEMPLATED THEREBY.

          THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR BY ANY STATE
SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL OR REGULATORY
AUTHORITY, AND NEITHER SUCH COMMISSION NOR ANY SUCH AUTHORITY HAS PASSED
UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.

          THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS
OF THE DATE HEREOF AND NEITHER THE DELIVERY OF THIS DISCLOSURE STATEMENT
NOR ANY DISTRIBUTION OF PROPERTY HEREUNDER PURSUANT TO THE PLAN WILL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE
AFFAIRS OF THE DEBTORS SINCE THE DATE HEREOF.

          EACH CREDITOR OF THE DEBTORS SHOULD CONSULT WITH SUCH CREDITOR'S
LEGAL, BUSINESS, FINANCIAL AND TAX ADVISORS AS TO ANY SUCH MATTERS
CONCERNING THE SOLICITATION OF VOTES TO ACCEPT OR REJECT THE PLAN, THE PLAN
AND THE TRANSACTIONS CONTEMPLATED THEREBY.

<PAGE>

                   I.      INTRODUCTION AND SUMMARY

          This Disclosure Statement is being furnished by the Debtors,
pursuant to section 1125 of the Bankruptcy Code, in connection with the
solicitation of votes to accept or reject the Plan (as it may be altered,
amended, modified or supplemented as described herein) from Holders of (i)
the Pre-Petition Credit Agreement Claims, (ii) Subsidiary General Unsecured
Claims and (iii) LCE General Unsecured Claims. All capitalized terms used
in this Disclosure Statement have the meanings ascribed to such terms in
Section II of this Disclosure Statement, except as otherwise indicated. The
following introduction and summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and
financial statements and notes thereto appearing elsewhere in this
Disclosure Statement.

A.  THE SOLICITATION

          On the Filing Date, each of the Debtors filed separate petitions
under chapter 11 of the Bankruptcy Code. On November 11, 2001, the Debtors
filed the Plan with the Bankruptcy Court. Concurrently therewith, the
Debtors filed this Disclosure Statement with the Bankruptcy Court pursuant
to section 1125 of the Bankruptcy Code and in connection with the
solicitation of votes to accept or reject the Plan (the "Solicitation").

          [On ____ __, 2001, the Bankruptcy Court determined that this
Disclosure Statement contains "adequate information" in accordance with
section 1125 of the Bankruptcy Code. Pursuant to section 1125(a)(1) of the
Bankruptcy Code, "adequate information" is defined as "information of a
kind, and in sufficient detail, as far as is reasonably practicable in
light of the nature and history of the debtor and the condition of the
Debtors' books and records, that would enable a hypothetical reasonable
investor typical of holders of claims or interests of the relevant class to
make an informed judgment about the plan . . ." 11 U.S.C. ss. 1125(a)(1).]

          THE BANKRUPTCY COURT HAS SCHEDULED A HEARING TO CONSIDER
CONFIRMATION OF THE PLAN FOR ______ __, 2002 BEFORE THE HONORABLE ALLAN L.
GROPPER, UNITED STATES BANKRUPTCY JUDGE, UNITED STATES BANKRUPTCY COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK, ALEXANDER HAMILTON CUSTOMS HOUSE, ONE
BOWLING GREEN, NEW YORK, NEW YORK 10004. THE HEARING MAY BE ADJOURNED FROM
TIME TO TIME WITHOUT FURTHER NOTICE OTHER THAN BY ANNOUNCEMENT IN THE
BANKRUPTCY COURT ON THE SCHEDULED DATE OF SUCH HEARING. ANY OBJECTIONS TO
CONFIRMATION OF THE PLAN MUST BE IN WRITING AND MUST BE FILED WITH THE
CLERK OF THE BANKRUPTCY COURT AND SERVED ON THE COUNSEL LISTED BELOW TO
ENSURE RECEIPT BY THEM ON OR BEFORE ______ __, 2002 AT 4:00 P.M. (EASTERN
TIME). COUNSEL ON WHOM OBJECTIONS MUST BE SERVED ARE:

Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attn:   Brad Eric Scheler, Esq.
        Lawrence A. First, Esq.
        Bonnie Steingart, Esq.       Attorneys for the Debtors

Pachulski, Stang, Ziehl, Young & Jones
10100 Santa Monica Boulevard, 11th Floor
Los Angeles, California 90067
Attn:  Marc Beilinson, Esq.
        Werner Disse, Esq.           Attorneys for the Creditors' Committee

Kronish, Lieb, Weiner & Hellman
1114 Avenue of the Americas
New York, New York 10036
Attn:  Jay Randall Indyke, Esq.      Attorneys for the Creditors' Committee
       Charles Shaw, Esq.

Office of the United States Trustee
33 Whitehall Street, 21st Floor
New York, New York 10004
Attn:  Wendy Rosenthal, Esq.         United States Trustee

O'Melveny & Myers LLP
1999 Avenue of the Stars, Suite 900
Los Angeles, California  90067
Attn:  Robert White, Esq.            Attorneys for the Agent

Paul Weiss Rifkind
Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019             Attorneys for Onex Corporation and
Attn:  Robert Drain, Esq.            Oaktree Capital Management LLC

B.  RECOMMENDATIONS

          THE DEBTORS, THE CREDITORS' COMMITTEE, THE AGENT AND THE
INVESTORS RECOMMEND THAT EACH ENTITY ENTITLED TO VOTE ON THE PLAN VOTE TO
ACCEPT THE PLAN. The Debtors, the Creditors' Committee, the Agent and the
Investors believe that:

          1. the Plan provides the best possible result for the Holders of
Claims;

          2. with respect to each Impaired Class of Claims, the
distributions under the Plan, if any, are not less than the amounts that
would be received if the Debtors were liquidated under Chapter 7 of the
Bankruptcy Code;

          3. acceptance of the Plan is in the best interests of holders of
Claims.

C.  SUMMARY OF KEY PROVISIONS OF THE PLAN

          The purpose of the plan is to restructure the Debtors'
outstanding indebtedness and resolve the Debtors' liquidity problems,
thereby enhancing the recoveries for the Debtors' creditors and enabling
the Debtors to continue as a going concern. In addition, the Plan is the
product of extensive negotiations between the Investors, the Pre-Petition
Lenders and the Creditors' Committee. The Plan represents a compromise
between the divergent viewpoints held by the Debtors' major creditor
constituencies regarding the value of the Debtors and the consideration to
be distributed, and the allocation of the consideration to be distributed,
in connection with the reorganization of the Debtors. In particular, the
Creditors' Committee has suggested that various causes of actions exist
against the Pre-Petition Lenders. The Plan incorporates a settlement of the
claims against the Pre-Petition Lenders, whereby the Investors will pay to
LCE up to $45 million that will be distributed to Holders of General
Unsecured Claims and all claims against the Pre-Petition Lenders will be
released.

          The Plan provides for the issuance to Holders of Allowed
Pre-Petition Credit Agreement Claims of (a) 100% of the New Common Stock
and (b) 100% of the New Term Notes; provided, however, that in
consideration for funding the Unsecured Settlement Distribution, the
Investors shall receive 100% of the New Common Stock, and provided,
further, that pursuant to the settlement, each Holder of a Pre-Petition
Credit Agreement Claim (including the Investor Pre-Petition Credit
Agreement Claims in excess of $300 million aggregate principal amount)
shall receive its Pro-Rata share of the New Term Notes based on the ratio
of such Pre-Petition Credit Agreement Claim to all Pre-Petition Credit
Agreement Claims (other than $300 million aggregate principal amount of the
Investor Pre-Petition Credit Agreement Claims).

          Holders of Allowed General Unsecured Claims will receive their
pro rata share of the Unsecured Settlement Distribution (i.e., $45 million
in Cash); however, the Plan provides that the Holders of LCE General
Unsecured Claims shall not receive any distribution until entry of the
Class 5B Final Order. Priority Claims, Miscellaneous Secured Claims, PBGC
Claims, and Convenience Claims shall be Unimpaired by the Plan. The Plan
provides for the extinguishment of Intercompany LCE Claims, Intercompany
Subsidiary Claims, Intercompany Cineplex Odeon Claims and the Old LCE
Common Stock Interests.

D.  SUMMARY OF CLASSIFICATION AND
    TREATMENT OF CLAIMS AND INTERESTS

          The Plan categorizes the Claims against, and Interests in, the
Debtors which exist on the Filing Date into twelve Classes. The Plan also

          (i)   provides that each holder of an Allowed Administrative
Expense will be paid in full in Cash on the later of (a) the Effective
Date, (b) the date on which the Bankruptcy Court enters an order allowing
such Administrative Expense and (c) the date on which the Debtors and the
Holder of such Allowed Administrative Expense otherwise agree; provided,
however, that Allowed Administrative Expenses representing (a) obligations
incurred under the DIP Facility Agreement shall be paid in full in Cash on
the Effective Date, and (b) obligations incurred in the ordinary course of
business consistent with past practice, or assumed by the Debtors shall be
paid in full or performed by the Debtors or Reorganized Debtors in the
ordinary course of business, consistent with past practice; provided
further, however, that Allowed Administrative Expenses incurred by the
Debtors or Reorganized Debtors after the Confirmation Date, including
(without limitation) claims for professionals' fees and expenses, shall not
be subject to application and may be paid by the Debtors or Reorganized
Debtors, as the case may be, in the ordinary course of business and without
further Bankruptcy Court approval;

          (ii)  provides that Allowed Priority Tax Claims will receive (a)
Cash payments made in equal annual installments beginning on or before the
first anniversary following the Effective Date with the final installment
being payable no later than the sixth anniversary of the date of the
assessment of such Allowed Priority Tax Claim, together with interest on
the unpaid balance of such Allowed Priority Tax Claim from the Effective
Date calculated at the Market Rate, or (b) such other treatment agreed to
by the Holder of such Allowed Priority Tax Claim and the Debtors or
Reorganized Debtors, as the case may be; and

          (iii) specifies the manner in which the Claims and Interests in
each Class are to be treated.

For a more precise explanation, please refer to the discussion in Section
VI herein, entitled "SUMMARY OF THE PLAN" and to the Plan itself.

          The table below provides a summary of the classification,
treatment, and distributions to be made in respect of, Claims and Interests
in each Class under the Plan.

---------------------------------------------------------------------------
            TYPE OF CLAIM
  CLASS   OR EQUITY INTEREST                  TREATMENT
---------------------------------------------------------------------------

1          PRIORITY CLAIMS     ON THE LATEST OF (A) THE EFFECTIVE DATE,
            (UNIMPAIRED)       (B) THE DATE ON WHICH SUCH PRIORITY CLAIM
                               BECOMES AN ALLOWED PRIORITY CLAIM, OR (C)
                               THE DATE ON WHICH THE DEBTORS AND THE
                               HOLDER OF SUCH ALLOWED PRIORITY CLAIM
                               OTHERWISE AGREE, EACH HOLDER OF AN ALLOWED
                               PRIORITY CLAIM WILL BE ENTITLED TO RECEIVE
                               CASH IN AN AMOUNT SUFFICIENT TO RENDER SUCH
                               ALLOWED PRIORITY CLAIM UNIMPAIRED UNDER
                               SECTION 1124 OF THE BANKRUPTCY CODE;
                               PROVIDED, HOWEVER, ALLOWED PRIORITY CLAIMS
                               REPRESENTING OBLIGATIONS INCURRED IN THE
                               ORDINARY COURSE SHALL BE PAID IN FULL OR
                               PERFORMED BY THE REORGANIZED DEBTORS IN THE
                               ORDINARY COURSE OF BUSINESS, CONSISTENT
                               WITH PAST PRACTICE.
---------------------------------------------------------------------------
2          PRE-PETITION       ON THE EFFECTIVE DATE, THE HOLDERS OF ALLOWED
           CREDIT AGREEMENT   PRE-PETITION CREDIT AGREEMENT CLAIMS SHALL
           CLAIMS (IMPAIRED)  RECEIVE THEIR PRO-RATA SHARE OF (I) 100% OF
                              THE NEW TERM NOTES AND (II) 100% OF THE NEW
                              COMMON STOCK; PROVIDED, HOWEVER, THAT IN
                              CONSIDERATION FOR PAYING TO LCE UP TO $45
                              MILLION TO FUND THE UNSECURED SETTLEMENT
                              DISTRIBUTION, (I) THE INVESTORS SHALL, ON
                              THE EFFECTIVE DATE, RECEIVE 100% OF THE NEW
                              COMMON STOCK AND (II) EACH HOLDER OF A
                              PRE-PETITIONCREDIT AGREEMENT CLAIM (INCLUDING
                              THE INVESTOR PRE-PETITION CREDIT AGREEMENT
                              CLAIMS IN EXCESS OF $300 MILLION AGGREGATE
                              PRINCIPAL AMOUNT) SHALL, ON THE EFFECTIVE
                              DATE, RECEIVE ITS PRO RATA SHARE OF THE NEW
                              TERM NOTES BASED ON THE RATIO OF SUCH
                              PRE-PETITION CREDIT AGREEMENT CLAIM TO ALL
                              PRE-PETITION CREDIT AGREEMENT CLAIMS (OTHER
                              THAN THE INVESTOR PRE-PETITION CREDIT
                              AGREEMENT CLAIMS).
---------------------------------------------------------------------------
3         MISCELLANEOUS       ON THE LATEST OF (A) THE EFFECTIVE DATE,
          SECURED CLAIMS      (B) THE DATE ON WHICH SUCH MISCELLANEOUS
          (UNIMPAIRED)        SECURED CLAIM BECOMES AN ALLOWED CLAIM, AND
                              (C) THE DATE ON WHICH THE DEBTORS AND THE
                              HOLDERS OF SUCH ALLOWED MISCELLANEOUS
                              SECURED CLAIM OTHERWISE AGREE, AT THE
                              ELECTION OF THE DEBTORS PRIOR TO THE
                              EFFECTIVE DATE EACH HOLDER OF AN ALLOWED
                              CLASS 3 MISCELLANEOUS SECURED CLAIM WILL BE
                              ENTITLED TO RECEIVE ON ACCOUNT OF SUCH
                              HOLDER'S ALLOWED MISCELLANEOUS SECURED
                              CLAIM ONE OF THE FOLLOWING TREATMENTS:
                              (I) THE LEGAL, EQUITABLE AND CONTRACTUAL
                              RIGHTS TO WHICH SUCH ALLOWED MISCELLANEOUS
                              SECURED CLAIM ENTITLES SUCH HOLDER WILL
                              REMAIN UNALTERED, (II) SUCH HOLDER'S ALLOWED
                              MISCELLANEOUS SECURED CLAIM WILL BE
                              REINSTATED AND RENDERED UNIMPAIRED IN
                              ACCORDANCE WITH SECTION 1124(2) OF THE
                              BANKRUPTCY CODE, OR (III) SUCH OTHER
                              TREATMENT AS MUTUALLY AGREED TO BY THE
                              DEBTORS AND SUCH HOLDER.
---------------------------------------------------------------------------
4         PBGC CLAIMS         ON THE EFFECTIVE DATE, THE HOLDER OF THE
          (UNIMPAIRED)        ALLOWED PBGC CLAIMS SHALL BE ENTITLED TO
                              RECEIVE ON ACCOUNT OF  SUCH HOLDER'S ALLOWED
                              PBGC CLAIM ONE OF THE FOLLOWING TREATMENTS:
                              (A) LEGAL, EQUITABLE AND CONTRACTUAL RIGHTS
                              TO WHICH SUCH ALLOWED PBGC CLAIM ENTITLES
                              SUCH HOLDER SHALL REMAIN UNALTERED; (B) SUCH
                              HOLDER'S ALLOWED PBGC CLAIM SHALL BE
                              REINSTATED AND RENDERED UNIMPAIRED IN
                              ACCORDANCE WITH SECTION 1124(2) OF THE
                              BANKRUPTCY CODE, OR (C) SUCH OTHER
                              TREATMENT AS MUTUALLY AGREED TO BY THE
                              DEBTORS AND SUCH HOLDER.
---------------------------------------------------------------------------
5A        SUBSIDIARY GENERAL  AS SOON AS PRACTICABLE FOLLOWING THE EARLIER
           UNSECURED CLAIMS   OF (A) THE FOUR-MONTH ANNIVERSARY OF THE
           (IMPAIRED)         EFFECTIVE DATE AND (B) THE DATE ON WHICH ALL
                              DISPUTED GENERAL UNSECURED CLAIMS HAVE BEEN
                              RESOLVED BY A FINAL ORDER OF THE BANKRUPTCY
                              COURT (INCLUDING THE ISSUANCE OF THE CLASS 5B
                              FINAL ORDER), EACH HOLDER OF AN ALLOWED
                              SUBSIDIARY GENERAL UNSECURED CLAIM SHALL
                              RECEIVE, ON ACCOUNT OF SUCH ALLOWED
                              SUBSIDIARY GENERAL UNSECURED CLAIMS, SUCH
                              HOLDER'S PRO RATA SHARE OF THE UNSECURED
                              SETTLEMENT DISTRIBUTION BASED ON THE RATIO
                              OF SUCH HOLDER'S ALLOWED GENERAL UNSECURED
                              CLAIM TO THE MAXIMUM ALLOWABLE AMOUNT OF ALL
                              GENERAL UNSECURED CLAIMS.
---------------------------------------------------------------------------
5B        LCE GENERAL         SUBJECT TO ENTRY OF THE CLASS 5B FINAL ORDER,
          UNSECURED CLAIMS    UNLESS PROVIDED TO THE CONTRARY IN THE CLASS
          (IMPAIRED)          5B FINAL ORDER, AS SOON AS PRACTICABLE
                              FOLLOWING THE EARLIER OF (A) THE FOUR MONTH
                              ANNIVERSARY OF THE EFFECTIVE DATE AND (B)
                              THE DATE ON WHICH ALL DISPUTED GENERAL
                              UNSECURED CLAIMS HAVE BEEN RESOLVED BY A
                              FINAL ORDER OF THE BANKRUPTCY COURT, EACH
                              HOLDER OF AN ALLOWED LCE GENERAL UNSECURED
                              CLAIM SHALL RECEIVE, ON ACCOUNT OF SUCH
                              ALLOWED LCE GENERAL UNSECURED CLAIM, SUCH
                              HOLDER'S PRO RATA SHARE OF THE UNSECURED
                              SETTLEMENT DISTRIBUTION BASED ON THE RATIO
                              OF SUCH HOLDER'S ALLOWED GENERAL UNSECURED
                              CLAIM TO THE MAXIMUM ALLOWABLE AMOUNT OF ALL
                              GENERAL UNSECURED CLAIMS.
---------------------------------------------------------------------------
6         CONVENIENCE CLAIMS  AS SOON AS PRACTICABLE FOLLOWING THE
          (UNIMPAIRED)        EFFECTIVE DATE, EACH HOLDER OF AN ALLOWED
                              CONVENIENCE CLAIM ($500 OR LESS) SHALL
                              RECEIVE CASH IN AN AMOUNT SUFFICIENT TO
                              RENDER SUCH ALLOWED CONVENIENCE CLAIM
                              (INCLUDING AS REDUCED BY ELECTION OF THE
                              HOLDER OF SUCH CLAIM) UNIMPAIRED UNDER
                              SECTION 1124 OF THE BANKRUPTCY CODE.
---------------------------------------------------------------------------
7A        INTERCOMPANY LCE    ALL INTERCOMPANY LCE CLAIMS WILL BE
          CLAIMS (IMPAIRED)   EXTINGUISHED AND NO DISTRIBUTIONS WILL BE
                              MADE IN RESPECT OF SUCH INTERCOMPANY LCE
                              CLAIMS; PROVIDED, HOWEVER, THE EXTINGUISHMENT
                              OF SUCH CLAIMS SHALL BE WITHOUT PREJUDICE TO
                              ANY ARGUMENTS THAT THE HOLDERS OF LCE GENERAL
                              UNSECURED CLAIMS ON THE ONE HAND AND THE
                              HOLDERS OF SUBSIDIARY GENERAL UNSECURED
                              CLAIMS ON THE OTHER MAY MAKE IN CONNECTION
                              WITH, AND IN FURTHERANCE OF, ITS ARGUMENTS
                              AND POSITIONS IN RESPECT OF THE INTERCREDITOR
                              DISPUTE DESCRIBED IN SECTION 6.5.2 OF THE
                              PLAN.
---------------------------------------------------------------------------
7B        INTERCOMPANY        ALL INTERCOMPANY SUBSIDIARY CLAIMS WILL BE
          SUBSIDIARY CLAIMS   EXTINGUISHED AND NO DISTRIBUTIONS WILL BE
          (IMPAIRED)          MADE IN RESPECT OF SUCH INTERCOMPANY
                              SUBSIDIARY CLAIMS.
---------------------------------------------------------------------------
7C        INTERCOMPANY        ALL INTERCOMPANY CINEPLEX ODEON CLAIMS
          CINEPLEX ODEON      WILL BE EXTINGUISHED AND NO DISTRIBUTIONS
           CLAIMS (IMPAIRED)  WILL BE MADE IN RESPECT OF SUCH INTERCOMPANY
                              CINEPLEX ODEON CLAIMS; PROVIDED, HOWEVER,
                              THAT SOLELY WITH RESPECT TO THOSE CANADIAN
                              DEBTORS AS TO WHICH ANY PARTICULAR DEBTOR
                              HAS A VALID AND ALLOWABLE CLAIM IN THE CCAA
                              CASES (OR ANY SUCCESSOR INSOLVENCY
                              PROCEEDING UNDER APPLICABLE CANADIAN LAW)
                              (A "CANADIAN CLAIM"), IF AND TO THE EXTENT
                              THAT SUCH CANADIAN DEBTOR HAS AN ALLOWABLE
                              INTERCOMPANY CINEPLEX ODEON CLAIM AGAINST
                              THAT PARTICULAR DEBTOR WHICH IS BEING
                              EXTINGUISHED UNDER THE PLAN, AND UNDER
                              APPLICABLE NON-BANKRUPTCY LAW SUCH CANADIAN
                              DEBTOR HAS THE RIGHT TO SET OFF AGAINST
                              SUCH CANADIAN CLAIM HELD BY THAT PARTICULAR
                              DEBTOR, THEN SUCH INTERCOMPANY CINEPLEX
                              ODEON CLAIM SHALL BE PRESERVED SOLELY FOR
                              PURPOSES OF PERMITTING SUCH CANADIAN DEBTOR
                              TO EXERCISE SUCH SET OFF RIGHTS, IF ANY,
                              THAT IT MAY HAVE AGAINST THAT PARTICULAR
                              DEBTOR (AND NO OTHER DEBTOR) AND THEREBY
                              REDUCE THE ALLOWABLE AMOUNT OF THE CANADIAN
                              CLAIM HELD BY SUCH DEBTOR, BUT IN NO EVENT
                              SHALL THIS PROVISO BE CONSTRUED AS
                              PERMITTING ANY CANADIAN DEBTOR TO RECEIVE
                              ANY DISTRIBUTIONS UNDER THE PLAN IN RESPECT
                              OF ANY INTERCOMPANY CINEPLEX ODEON CLAIM
                              HELD BY IT OR OTHERWISE.
---------------------------------------------------------------------------
8         OLD LCE COMMON      ON THE EFFECTIVE DATE, ALL OLD LCE COMMON
          STOCK INTERESTS     STOCK INTERESTS WILL BE EXTINGUISHED AND NO
          (IMPAIRED)          DISTRIBUTIONS WILL BE MADE IN RESPECT OF
                              SUCH OLD LCE COMMON STOCK INTERESTS.
---------------------------------------------------------------------------
9         SUBSIDIARY COMMON   ON THE EFFECTIVE DATE, EACH HOLDER OF A
          STOCK INTERESTS     SUBSIDIARY COMMON STOCK INTEREST SHALL
          (UNIMPAIRED)        RETAIN SUCH INTEREST AND ITS RESPECTIVE
                              SHARE OR SHARES OF COMMON STOCK OF THE
                              DEBTORS REPRESENTING SUCH INTEREST.
---------------------------------------------------------------------------

          For a more detailed description of the foregoing Classes of
Claims and Interests, see Section VI herein, entitled "SUMMARY OF THE
PLAN."

E.  NOTICE TO HOLDERS OF CLAIMS AND INTERESTS

          All Holders of Impaired Claims against and Interests in the
Debtors should read this Disclosure Statement, together with the Plan, the
form of Ballot and/or Master Ballot, as applicable, and the applicable
Voting Instructions (collectively, the "Solicitation Materials"), in their
entirety before voting on the Plan.

          Pursuant to the provisions of the Bankruptcy Code, only Impaired
Classes of Claims and Interests are entitled to vote to accept or reject
the Plan. The Classes of Claims Impaired under the Plan consist of Class 2
(Prepetition Credit Agreement Claims), Class 5A (LCE General Unsecured
Claims), Class 5B (Subsidiary General Unsecured Claims), Class 7A
(Intercompany LCE Claims), Class 7B (Intercompany Subsidiary Claims) and
Class 7C (Intercompany Cineplex Odeon Claims). The Class of Interests
Impaired under the Plan consists of Class 8. See Section VI herein,
entitled "SUMMARY OF THE PLAN" for a description of these Classes. The
Debtors are seeking acceptance of the Plan from Holders of Pre-Petition
Credit Agreement Claims, LCE General Unsecured Claims and Subsidiary
General Unsecured Claims. Class 1 (Priority Claims), Class 3 (Miscellaneous
Secured Claims), Class 4 (PBGC Claims), Class 6 (Convenience Claims) and
Class 9 (Subsidiary Common Stock Interests) are Unimpaired, and Holders of
Claims or Interests in such Classes are conclusively presumed to have
accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Class
7A Intercompany LCE Claims, Class 7B Intercompany Subsidiary Claims, Class
7C Intercompany Cineplex Odeon Claims and Class 8 Old Common Stock
Interests are impaired and will not receive or retain any property under
the Plan on account of their claims and interests and, therefore, are
deemed not to have accepted the Plan pursuant to Section 1126(g) of the
Bankruptcy Code. However, as co-proponents of the Plan, Holders of Claims
in Class 7A and Class 7B support the Plan. In addition, the Debtors have
been informed that Holders of Claims in Class 7C support the Plan.

          Unless otherwise directed by the Bankruptcy Court, only votes
cast by or at the direction of Holders of Claims in accordance with the
voting instructions will be counted for purposes of voting on the Plan. See
Section XIII herein, entitled "Voting and Confirmation of the Plan."

          The solicitation will expire at 4:00 p.m. (Eastern Time), on
__________ __, 2002 (the "Voting Deadline"), unless the Voting Deadline is
extended or waived by the Debtors. After carefully reviewing this
Disclosure Statement, the Plan and the other applicable Solicitation
Materials, each Holder of a Pre-Petition Credit Agreement Claim, LCE
General Unsecured Claim or Subsidiary General Unsecured Claim should vote
to accept or reject the Plan in accordance with the Voting Instructions,
and return the appropriate Ballot(s) or Master Ballot(s) in accordance with
the instructions set forth therein so they are received prior to the Voting
Deadline. For further information, see Section XIII herein, entitled
"VOTING AND CONFIRMATION OF THE PLAN."

          This Disclosure Statement is being transmitted only to Holders of
Impaired Claims and Interests.

          WHEN CONFIRMED BY THE BANKRUPTCY COURT, THE PLAN WILL BIND ALL
HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS, WHETHER OR NOT THEY
ARE ENTITLED TO VOTE OR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY
RECEIVE OR RETAIN ANY DISTRIBUTIONS OR PROPERTY UNDER THE PLAN. THUS, ALL
HOLDERS OF IMPAIRED CLAIMS AND IMPAIRED INTERESTS ARE ENCOURAGED TO READ
THIS DISCLOSURE STATEMENT AND ITS SCHEDULES, EXHIBITS AND APPENDICES
CAREFULLY AND IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT OR TO REJECT THE
PLAN. THIS DISCLOSURE STATEMENT CONTAINS IMPORTANT INFORMATION ABOUT THE
PLAN, CONSIDERATIONS PERTINENT TO ACCEPTANCE OR REJECTION OF THE PLAN, AND
DEVELOPMENTS CONCERNING THE CHAPTER 11 CASES.

          CERTAIN OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT
IS BY ITS NATURE FORWARD LOOKING AND CONTAINS ESTIMATES, ASSUMPTIONS, AND
PROJECTIONS THAT MAY BE MATERIALLY DIFFERENT FROM ACTUAL FUTURE RESULTS.
Except with respect to the projections referenced in Section IX herein,
entitled "FINANCIAL PROJECTIONS, VALUATION AND ASSUMPTIONS USED" (the
"Projections"), which are only a prediction and not a guaranty of future
results, and except as otherwise specifically and expressly stated herein,
this Disclosure Statement does not reflect any events that may occur
subsequent to the date hereof. Such events may have a material impact on
the information contained in this Disclosure Statement. The Debtors and
Reorganized Debtors do not intend to update the Projections. Thus, the
Projections will not reflect the impact of any subsequent events not
already accounted for in the assumptions underlying the Projections.
Further, the Debtors do not anticipate that any amendments or supplements
to this Disclosure Statement will be distributed to reflect such
occurrences. Accordingly, the delivery of this Disclosure Statement shall
not under any circumstances imply that the information herein is correct or
complete as of any time subsequent to the date hereof.

          EXCEPT WHERE SPECIFICALLY NOTED, THE FINANCIAL INFORMATION
CONTAINED HEREIN HAS NOT BEEN AUDITED BY A CERTIFIED PUBLIC ACCOUNTANT AND
HAS NOT BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES.

          If you did not receive a Ballot in your package of Solicitation
Materials and believe that you should have, please contact the Information
Agent named below at the address or telephone number set forth in Section
XIII of this Disclosure Statement entitled "VOTING AND CONFIRMATION OF THE
PLAN."

                              II. DEFINITIONS

          Whenever from the context it appears appropriate, each term
stated in either the singular or the plural shall include the singular and
the plural, and pronouns stated in the masculine, feminine or neutral
gender shall include the masculine, the feminine and the neutral. Unless
the context requires otherwise, the following words and phrases shall have
the meanings set forth below when used in initially capitalized form in
this Disclosure Statement:

Administrative  Expense:  (a) Any right to payment  constituting  a cost or
-----------------------  expense of  administration of the Chapter 11 Cases
(including,  without  limitation,  professional  fees and  expenses)  under
section 503(b) of the  Bankruptcy  Code, (b) a Claim given the status of an
Administrative  Expense by Final Order of the Bankruptcy Court, and (c) all
fees or charges assessed against the Debtors' estates under section 1930 of
title 28 of the United States Code.

Affiliate: As defined in section 101(2) of the Bankruptcy Code.
---------

Agent:  Bankers Trust, as agent under the Pre-Petition Credit Agreement.
-----

Allowed: With respect to Claims and Interests, (a) Any Claim against or
-------  Interest in a Debtor, proof of which is timely filed, or by order
of the Bankruptcy Court is not or will not be required to be filed, (b) any
Claim or Interest that has been or is hereafter listed in the Schedules as
neither disputed, contingent or unliquidated, and for which no timely proof
of claim has been filed, or (c) any Claim allowed pursuant to the Plan;
provided, however, that with respect to any Claim or Interest described in
clauses (a) or (b) above, such Claim or Interest shall be allowed only if
(i) no objection to the allowance thereof has been interposed within the
applicable period of time fixed by the Plan, the Bankruptcy Code, the
Bankruptcy Rules or the Bankruptcy Court or (ii) such an objection is so
interposed and the Claim or Interest shall have been allowed by a Final
Order (but only if such allowance was not solely for the purpose of voting
to accept or reject the Plan.) Except as otherwise specified in the Plan or
a Final Order of the Bankruptcy Court the amount of an Allowed Claim shall
not include interest on such Claim from and after the Filing Date.

Ballot: The form distributed, together with the Disclosure Statement, to
------  Holders of Claims in classes that are Impaired and entitled to vote
on the Plan for the purpose of indicating acceptance or rejection of the
Plan.

Bankers Trust: Bankers Trust Company in its capacity as Agent and as
-------------  Pre-Petition Lender.

Bankruptcy Code: Title 11 of the United States Code, as amended from time
---------------  to time, as applicable to the Chapter 11 Cases.

Bankruptcy Court: The United States Bankruptcy Court for the Southern
----------------  District of New York, or any other court having
jurisdiction over these Chapter 11 Cases.

Bankruptcy Rules: The Federal Rules of Bankruptcy Procedure promulgated
----------------  under Section 2075 of title 28 of the United States Code
and the Local Rules of the Bankruptcy Court, each as amended from time to
time, as applicable to the Chapter 11 Cases.

Bar Date: September 26, 2001.
--------

Board: The board of directors of the Debtors or Reorganized Debtors, as
-----  applicable.

Business Day: Any day other than a Saturday, Sunday or "legal holiday" as
------------  such term is defined in Bankruptcy Rule 9006(a).

By-Laws: The By-Laws of the Debtors (other than LCE) in effect as of the
-------  Filing Date.

Canadian Debtors: Cineplex Odeon, and the other entities listed on Schedule
----------------  II to the Plan, as Applicants, in the CCAA Cases.

Canadian DIP: The loans made by LCE to Cineplex Odeon pursuant to the
------------  Credit Agreement dated February 28, 2001, as amended, between
LCE as lender, Cineplex Odeon as borrower and Deutsche Bank, as agent.

Canadian Plan: The Plan of Arrangement proposed by the Canadian Debtors in
-------------  the CCAA Cases.

Cash: Currency, a certified check, a cashier's check or a wire transfer of
----  good funds from any source, or a check drawn on a domestic bank by the
Debtors, the Reorganized Debtors or other Entity making any distribution
under the Plan.

Cause of Action: Any and all actions, causes of action, suits, accounts,
---------------  controversies, agreements, promises, rights to legal
remedies, rights to equitable remedies, rights to payment, and claims,
whether known or unknown, reduced to judgment, not reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, unsecured and whether asserted or assertable directly
or derivatively, in law, equity or otherwise.

CCAA: The Canadian Companies' Creditors Arrangement Act.
----

CCAA Cases:  Those cases commenced by the Canadian Debtors under the CCAA.
----------

Chapter 11 Cases: The cases under Chapter 11 of the Bankruptcy Code filed
----------------  by the Debtors that were commenced on the Filing Date,
with case numbers 01-40346 through 01-40582.

Cineplex Odeon: Cineplex Odeon Corporation, a corporation organized under
--------------  the laws of Canada, and a wholly-owned subsidiary of LCE.

Claim: Any right to (a) payment from a Debtor, whether or not such right is
-----  reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured or (b) an equitable remedy for breach of performance if such
breach gives rise to a right to payment from a Debtor, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured.

Class: A class of Claims or Interests designated pursuant to the Plan.
-----

Class 5 Claims Reserve: The Unsecured Settlement Distribution that shall be
----------------------  held in a segregated interest bearing account to be
established by the Reorganized Debtors on the Effective Date for the
purpose of making distributions to Holders of Allowed General Unsecured
Claims pursuant to Section 11.4 of the Plan.

Class 5A Designee: A representative to be appointed by the Creditors'
-----------------  Committee prior to the Effective Date to enforce the
rights and claims of Holders of Class 5A Claims with respect to the
intercreditor disputes described in Section 6.5.2 of the Plan.

Class 5B Designee: A representative to be appointed by the Indenture
-----------------  Trustee based upon the written direction of the requisite
Holder or Holders of the Pre-Petition Notes in accordance with, and
pursuant to, the applicable provisions of the Indenture prior to the
Effective Date to enforce the rights and claims of Holders of Class 5B
Claims with respect to the intercreditor disputes described in Section
6.5.2 of the Plan.

Class 5B Final Order: A Final Order, entered subsequent to the Confirmation
--------------------  Date, which determines, among other things, what, if
any, portion of the Unsecured Settlement Distribution should be distributed
to Holders of Allowed LCE General Unsecured Claims.

Combination: The combination completed on May 14, 1998 of the Loews
-----------  Theatres exhibition business of Sony Pictures Entertainment,
Inc., a wholly owned subsidiary of Sony Corporation of America, and
Cineplex Odeon.

Confirmation Date: The date on which the Confirmation Order shall be
-----------------  entered on the docket maintained by the Clerk of the
Bankruptcy Court with respect to the Chapter 11 Cases.

Confirmation Hearing: The hearing held by the Bankruptcy Court pursuant to
--------------------  section 1128(a) of the Bankruptcy Code regarding the
confirmation of the Plan pursuant to section 1129 of the Bankruptcy Code.

Confirmation Order: The order of the Bankruptcy Court confirming the Plan
------------------  pursuant to section 1129 of the Bankruptcy Code.

Convenience Claim: Any Unsecured Claim that is (i) Allowed for an amount of
-----------------  $500 or less or (ii) is Allowed in an amount greater than
$500, but which is reduced to $500 by election of the Holder thereof
pursuant to such Holder's Ballot. In no event shall any Convenience Claim
exceed $500 for purposes of allowance, treatment or distribution under the
Plan.

Creditor: Any Entity that is the Holder of a Claim against a Debtor that
--------  arose on or before the order for relief in these Chapter 11 Cases
or a Claim against a Debtor's estate of the kind specified in section
502(g), 502(h) or 502(i) of the Bankruptcy Code.

Creditors' Committee: The official committee of unsecured Creditors
--------------------  appointed in these Chapter 11 Cases pursuant to
section 1102(a) of the Bankruptcy Code on March 2, 2001, as the same may be
constituted from time to time.

Creditors' Committee Designee: A representative to be appointed by the
-----------------------------  Creditors' Committee on or before the
Effective Date to advise and assist the Debtors or the Reorganized Debtors
in analyzing, objecting to, compromising and settling Disputed Claims.

Debtors: LCE and its subsidiaries listed on Schedule I to the Plan, as
-------  debtors and debtors-in-possession in the Chapter 11 Cases.

DIP Agent: Bankers Trust, as agent for the DIP Lenders.
---------

DIP Facility Agreement: The Debtor In Possession Credit Agreement, as
----------------------  amended from time to time, and ancillary documents,
dated as of February 15, 2001, among the Debtors, the DIP Agent and the DIP
Lenders.

DIP Lenders:  The lenders under the DIP Facility Agreement.
-----------

Disclosure Statement: The disclosure statement that relates to the Plan and
--------------------  that has been approved by the Bankruptcy Court as
containing adequate information as required by section 1125 of the
Bankruptcy Code.

Disputed: With respect to Claims, any Claim that is not Allowed.
--------

Effective Date: The date that is 11 days after the Confirmation Date, or,
--------------  if such date is not a Business Day, the next succeeding
Business Day, or such later date after the Confirmation Date as determined
by the Debtors so long as no stay of the Confirmation Order is in effect on
such date; provided, however, that if, on or prior to such date, all
conditions to the Effective Date set forth in Article Thirteen of the Plan
have not been satisfied or waived, then the Effective Date shall be the
first Business Day following the day on which all such conditions to the
Effective Date have been satisfied or waived or such later date as the
Debtors may determine.

Entity:  Any  individual,  corporation,  limited  or  general  partnership,
------- limited liability company, joint venture, association,  joint stock
company,   estate,   entity,   trust,   trustee,   United  States  trustee,
unincorporated organization,  government,  governmental unit (as defined in
the Bankruptcy Code), agency or political subdivision thereof.

Exchange Act: The Securities Exchange Act of 1934, as amended.
------------

February 2001 Letter of Intent: The letter of intent, dated February 14,
------------------------------  2001, by and between LCE, Cineplex Odeon,
Onex, Oaktree Capital and Pacific Capital Group, Inc.

February LOI Investors: Onex, Pacific Capital and Oaktree.
-----------------------

Filing Date: February 15, 2001, the date on which each of the Debtors filed
-----------  a voluntary petition for relief commencing the Chapter 11
Cases.

Final Decree: A final decree closing the Chapter 11 Cases as described in
------------  Bankruptcy Rule 3022.

Final Dip Order: The final order of the Bankruptcy Court, dated April 4,
---------------  2001, approving the DIP Facility Agreement.

Final Order: An order, ruling or judgment of the Bankruptcy Court or any
-----------  other court of competent jurisdiction as to which the time to
appeal, petition for certiorari, or move for reargument or rehearing has
expired and as to which no appeal, petition for certiorari, or other
proceedings for reargument or rehearing shall then be pending, or as to
which any right to appeal, petition for certiorari, reargue, or rehear
shall have been waived in writing in form and substance satisfactory to the
Debtors or, on and after the Effective Date, the Reorganized Debtors or, in
the event that an appeal, writ of certiorari, or reargument or rehearing
thereof has been sought, such order of the Bankruptcy Court or other court
of competent jurisdiction shall have been determined by the highest court
to which such order was appealed, or certiorari, reargument or rehearing
shall have been denied and the time to take any further appeal, petition
for certiorari or move for reargument or rehearing shall have expired;
provided, however, that the possibility that a motion under Rule 59 or Rule
60 of the Federal Rules of Civil Procedure, or any analogous rule under the
Bankruptcy Rules or applicable state court rules of civil procedure, may be
filed with respect to such order, shall not cause such order not to be a
Final Order.

General Unsecured Claim: All LCE General Unsecured Claims and Subsidiary
-----------------------  General Unsecured Claims, including, without
limitation, any and all environmental Claims and other Claims arising from
or relating to properties that were owned, leased or operated by the
Debtors in Cicero, Illinois.

Holder: Any Entity that holds a Claim or Interest.
------

HSBC Bank: HSBC Bank USA, a New York banking corporation, as Indenture
---------  Trustee.

Impaired: Any Class of Claims or Interests that is impaired within the
--------  meaning of section 1124 of the Bankruptcy Code.

Indenture: The Indenture, dated as of August 5, 1998, as amended, between
---------  LCE, as issuer and the Indenture Trustee pursuant to which the
Pre-Petition Notes were issued.

Indenture Trustee: HSBC Bank, as successor-in-interest to Bankers Trust and
----------------- t rustee under the Indenture, or its duly appointed
successor (if any).

Instrument: Any share of stock, security, promissory note or other
----------  "Instrument" within the meaning of that term as defined in
section 9-102(47) of the UCC, as revised in 2001.

Intercompany Cineplex Odeon Claims: All Claims held by a Canadian Debtor
----------------------------------  against any of the Debtors.

Intercompany Claims: All Intercompany LCE Claims, Intercompany Subsidiary
-------------------  Claims and Intercompany Cineplex Odeon Claims.

Intercompany LCE Claims: All Claims (a) held by LCE against any Subsidiary
-----------------------  Debtor or (b) held by any Subsidiary Debtor against
LCE, including, without limitation, all Claims arising as a result of
advances made (i) by LCE to any Subsidiary Debtor or (ii) by any Subsidiary
Debtor to LCE, as the case may be.

Intercompany Subsidiary Claims: All Claims held by a Subsidiary Debtor
------------------------------  against another Subsidiary Debtor,
including, without limitation, Claims arising as a result of advances made
by a Subsidiary Debtor to another Subsidiary Debtor.

Interests: All equity interests in a Debtor, including, but not limited to,
---------  shares of common stock and any rights, options, warrants, calls,
subscriptions or other similar rights or agreements, commitments or
outstanding securities obligating a Debtor to issue, transfer or sell any
shares of capital stock of a Debtor.

Investors: Oaktree Capital and Onex, which, in the aggregate, beneficially
---------  own at least $300 million aggregate principal amount in
Pre-Petition Credit Agreement Claims and $177,700,000 in Pre-Petition Note
Claims, in each case, either directly or through one or more Affiliates.

Investors' Pre-Petition Credit Agreement Claims: All Pre-Petition Credit
-----------------------------------------------  Agreement Claims held by
the Investors.

LCE:  Loews Cineplex Entertainment Corporation, a Delaware corporation.
---

LCE General Unsecured Claim: Any Claim (other than a Convenience Claim, a
---------------------------  Pre-Petition Credit Agreement Claim, a
Miscellaneous Secured Claim, a Priority Claim, a Priority Tax Claim, an
Administrative Expense Claim, a PBGC Claim, an Intercompany Claim, or any
Claim subordinated under section 510(b) of the Bankruptcy Code) against
LCE, including without limitation, any and all Claims including
environmental Claims arising from or related to properties that were owned,
leased or operated by the Debtors in Cicero, Illinois.

Market Rate: The rate of interest per annum (rounded upward, if necessary,
-----------  to the nearest whole 1/100 of 1%) equal to the yield equivalent
(as determined by the Secretary of the Treasury) of the average accepted
auction price for the last auction of one-year United States Treasury bills
settled at least fifteen (15) days prior to the Effective Date.

Maximum Allowable Amount: With respect to any Disputed General Unsecured
------------------------  Claim, the least of the amounts (a) set forth in
the proof(s) of claim filed by the Holder thereof, (b) determined by a
Final Order of the Bankruptcy Court or any other court of competent
jurisdiction as the maximum fixed amount of such General Unsecured Claim or
as the estimated amount of such General Unsecured Claim for allowance,
distribution and reserve purposes, (c) in the case of a proof of claim
filed in an unliquidated, undetermined or contingent amount, as determined
by a Final Order of the Bankruptcy Court or any other court of competent
jurisdiction, or (d) as agreed upon, in writing, by the Debtors and the
Holder of such Disputed Claim.

Miscellaneous Secured Claim: Any Claim, other than a Pre-Petition Credit
---------------------------  Agreement Claim or an Administrative Expense,
that is a secured claim within the meaning of, and to the extent allowable
as a secured claim under, section 506 of the Bankruptcy Code.

National Western: The National Western Life Insurance Company.
----------------

New Common Stock: The 100,000 shares of common stock of Reorganized LCE,
----------------  par value $.01 per share, to be issued by Reorganized LCE
on and after the Effective Date pursuant to the Plan.

New LCE Stock Plan: The stock plan of Reorganized LCE, substantially in the
------------------  form attached as Exhibit A to the Plan.

New Subsidiary Certificates of Incorporation: The new certificates of
--------------------------------------------  incorporation or an amendment
to the current certificate of incorporation for each of the Reorganized
Debtors other than Reorganized LCE.

New Term Loan Agreement: The term loan agreement and ancillary documents
-----------------------  between the Reorganized Debtors, the lenders
thereto and Bankers Trust, as Agent to be effective as of the Effective
Date. A term sheet setting forth the material terms of the New Term Note
Loan Agreement is attached as Exhibit B to the Plan.

New Term Notes: The new term notes in the aggregate principal amount of
--------------  $429,409,000 to be issued pursuant to the New Term Loan
Agreement to the Holders of Allowed Pre-Petition Credit Agreement Claims
pursuant to section 6.2 of the Plan.

New Working Capital Credit Agreement: The working capital credit agreement
------------------------------------  and ancillary documents, dated as of
the Effective Date, between the Reorganized Debtors, the lenders thereto
and Bankers Trust as Agent containing the terms of the New Working Capital
Facility. A term sheet setting forth the material terms of the New Working
Capital Credit Agreement is attached as Exhibit C to the Plan.

New Working Capital Facility: The $100 million credit facility to be
----------------------------  provided to the Reorganized Debtors under the
terms of the New Working Capital Credit Agreement.

Oaktree Capital: Oaktree Capital Management, LLC and/or one or more of its
---------------  Affiliates.

Old LCE By-Laws:  The By-Laws of LCE in effect as of the Filing Date.
---------------

Old LCE Certificate of Incorporation: The certificate of incorporation of
------------------------------------  LCE in effect as of the Filing Date.

Old LCE Common Stock: The common stock of LCE, par value $.01 per share,
--------------------  issued and outstanding as of the Filing Date.

Old LCE Common Stock Interest: Any Interest evidenced by Old LCE Common
-----------------------------  Stock or any Claim, if any, relating to Old
LCE Common Stock that is subordinated under section 510(b) of the
Bankruptcy Code and any other Interest other than Subsidiary Common Stock
Interests.

Onex: Onex Corporation, a corporation organized under the laws of Canada
----  and/or one or more of its Affiliates.

Pacific Capital: Pacific Capital Group, Inc. and/or one or more of its
---------------  affiliates.

PBGC: The Pension Benefit Guaranty Corporation.
----

PBGC Claims: Any and all claims of the PBGC.
-----------

Plan: The chapter 11 plan of reorganization of the Debtors, together with
----  all exhibits thereto, as the same may be amended and modified from
time to time in accordance with Section 1127 of the Bankruptcy Code, a copy
of which is attached as Appendix I.

Pre-Petition Credit Agreement: The Senior Revolving Credit Agreement, dated
-----------------------------  as of May 14, 1998, as amended, modified or
supplemented from time to time, between LCE, the Pre-Petition Lenders and
Bankers Trust, as a lender and Agent for the Pre-Petition Lenders.

Pre-Petition Credit Agreement Claims: Any and all Claims in respect of, or
------------------------------------  in connection with, all or any portion
of the aggregate outstanding and unpaid amount of principal and interest
due and owing under, and subject to the terms and provisions of, the
Pre-Petition Credit Agreement and all other Loan Documents (as defined in
the Pre-Petition Credit Agreement), including, without limitation, any and
all interest, costs, attorneys' fees and other expenses owed by the Debtors
or for which the Debtors may be liable in connection therewith. In
addition, pursuant to paragraph 6 of the DIP Facility Agreement, the DIP
Lenders and the DIP Agent have agreed that for purposes of the Plan, the
DIP Repayment Loan (as defined in the DIP Facility Agreement) will be
treated as secured Pre-Petition Claims. In this regard, any and all Claims
in receipt of the DIP Repayment Loans shall be considered for all purposes
of the Plan Pre-Petition Credit Agreement Claims and shall not be
considered Administrative Expenses.

Pre-Petition Lender Agreement: The agreement, dated August 2001, as amended
-----------------------------  from time to time, by and between Onex,
Oaktree Capital, the Agent, and certain of the other Pre-Petition Lenders.

Pre-Petition Lenders: Bankers Trust, as administrative agent, and the
--------------------  lenders named as party to the Pre-Petition Credit
Agreement.

Pre-Petition Note Claims: Any and all Claims in respect of all or any
------------------------  portion of the aggregate outstanding and unpaid
amount of principal and interest due and owing under the Pre-Petition Notes
(including, without limitation, any and all interest, costs, attorneys'
fees and other expenses owed by the Debtors or for which the Debtors may be
liable in connection therewith) and all other Claims against the Debtors,
if any, directly or indirectly related to or arising out of the
transactions, agreements or Instruments upon which the Pre-Petition Notes
are based.

Pre-Petition Note Holders: The holders of the Pre-Petition Notes.
-------------------------

Pre-Petition Notes: The 8-7/8% Senior Subordinated Notes due 2008 issued by
------------------  LCE pursuant to the Indenture.

Priority Claim: Any Claim, other than a Priority Tax Claim or an
--------------  Administrative Expense, which is entitled to priority of
payment under section 507(a) of the Bankruptcy Code.

Priority Tax Claim: Any Claim which is entitled to priority of payment
------------------  under section 507(a)(8) of the Bankruptcy Code.

Pro Rata Share: A proportionate share, so that the ratio of the amount of
--------------  property distributed on account of an Allowed Claim or
Allowed Interest, as the case may be, in a class is the same as the ratio
such Claim or Interest bears to the total amount of all Claims or Interests
(including Disputed Claims or Disputed Interests until disallowed) in such
class.

Related Documents: The Plan and all documents necessary to consummate the
-----------------  transactions contemplated by the Plan.

Reorganized Debtors: The Debtors from and after the effectiveness of the
-------------------  Plan on the Effective Date.

Reorganized LCE: LCE from and after the effectiveness of the Plan on the
---------------  Effective Date.

Reorganized LCE By-Laws: The By-Laws of Reorganized LCE substantially in
-----------------------  the form attached as Exhibit D to the Plan.

Reorganized LCE Certificate of Incorporation: The certificate of
--------------------------------------------  incorporation of Reorganized
LCE, as amended and restated pursuant to the Plan, substantially in the
form attached as Exhibit E to the Plan.

Schedules: The schedule of assets and liabilities filed by the Debtors with
---------  the Bankruptcy Court on June 29, 2001 in accordance with section
521(1) of the Bankruptcy Code, and any supplements and amendments thereto.

Senior Executive Employment Agreements: The Senior Executive Employment
--------------------------------------  Agreements between Reorganized LCE
and the individuals listed on Exhibit F to the Plan, which agreements shall
be substantially in the form attached as Exhibit G to the Plan.

Subsidiary Common Stock: Collectively, all common stock of the Debtors
-----------------------  (other than LCE) issued and outstanding as of the
Filing Date.

Subsidiary Common Stock Interest: Any Interest evidenced by Subsidiary
--------------------------------  Common Stock.

Subsidiary Debtors: All of the Debtors other than LCE.
------------------

Subsidiary General Unsecured Claim: Any Claim (other than a Convenience
----------------------------------  Claim, a Pre-Petition Credit Agreement
Claim, a Miscellaneous Secured Claim, a Priority Claim, a Priority Tax
Claim, an Administrative Expense Claim, a PBGC Claim, an Intercompany
Claim, or any Claim subordinated under section 510(b) of the Bankruptcy
Code) against any Debtor other than LCE, including without limitation, any
and all Claims including environmental Claims against any Subsidiary Debtor
arising from or related to properties that were owned, leased or operated
by the Debtors in Cicero, Illinois.

UCC: The Uniform Commercial Code in effect in the State of New York, as of
---  the date hereof.

Unimpaired:  Any Class of Claims or Interests that is not Impaired.
----------

Unsecured Settlement Distribution:  $45,000,000 in Cash.
---------------------------------

Voting Deadline: The date established in the order of the Bankruptcy Court
---------------  approving the Disclosure Statement as the deadline by which
votes to accept or reject the Plan must be received.

                              III. BACKGROUND

A.  BUSINESS AND PROPERTIES OF THE DEBTORS

          1. Introduction
             ------------

          The Debtors are one of the world's largest commercial motion
picture theatre exhibition companies. As of September 30, 2001, the Debtors
or their subsidiaries owned, operated and/or had an interest in 2,420
screens at 264 theatres in 20 states and the District of Columbia, six
Canadian provinces, Spain, Hungary and Korea. The Debtors' principal
markets include New York and the metropolitan area, Boston, Chicago,
Baltimore, Dallas, Houston, Detroit, Los Angeles, Seattle, and Washington,
D.C. In addition, one of LCE's wholly owned, non-Debtor subsidiaries,
Cineplex Odeon, operates theatres throughout Canada.{1} For the fiscal
year ended February 28, 2001, the Debtors (including their joint ventures
and partnerships) had revenue of $903.5 million, 70% of which came from box
office receipts and 30% from concession sales and other revenues.

--------------------------------

(1)  In addition to restructuring the Debtors through the Chapter 11 Cases,
     Cineplex Odeon, a direct subsidiary of LCE, and its direct and
     indirect subsidiaries filed for protection under the CCAA. For a
     further description of these proceedings, see Article II.E.6.

          The Debtors were formed by the combination, completed on May 14,
1998, of the Loews Theatres exhibition business of Sony Pictures
Entertainment Inc. ("SPE"), a wholly owned subsidiary of Sony Corporation
of America ("SCA"), and Cineplex Odeon, another major motion picture
exhibitor with operations predominantly in the U.S. and Canada (the
"Combination"). As a result of the Combination, the Debtors now operate
under the Loews Theatres and Cineplex Odeon Theatres names in North America
and under these and other trade names abroad. As a result of the
Combination and recent efforts, reflected industry-wide, to construct
state-of-the-art multi-screen cinema complexes with digital surround sound
and stadium seating commonly known as "Megaplex" theatres, the Debtors have
significantly grown their business. Accordingly, the Debtors have opened
and refurbished a substantial number of screens over the last several years
and in fiscal year 2001 alone opened 224 screens in 16 theatres (including
theatres owned and/or operated by Affiliates of the Debtors). In addition,
in June 1998, the Debtors formed an international division to develop,
construct and operate theatres outside of the U.S. and continue to consider
expansion opportunities in selected areas throughout the world.

          2. Employees
             ---------

          As of February 28, 2001, the Debtors employed approximately
14,000 employees, including approximately 1,415 full-time and 12,585
part-time employees engaged in the operation of the Debtors' theatres and
in marketing, general corporate and administrative positions. The Debtors
believe their relations with their employees are satisfactory.

          3. Executive Offices
             -----------------

          The Debtors' headquarters are located at 711 Fifth Avenue, New
York, New York 10022 and their telephone number is (212) 833-6200.

          4. Competition
             ------------

          Due to the large number of exhibitors, the film exhibition
industry is competitive yet fragmented. As of February 28, 2001, the
Debtors had 2,563 screens at 294 locations, which represented approximately
6.4% of all exhibition screens in North America. The Debtors' share of the
total industry box office receipts in North America during fiscal 2001
(including 100% of the operations of its joint ventures and partnerships)
was approximately 8.7% of the $7.66 billion total box office revenue in
North America.

          The film exhibition business is highly seasonal and has
heightened attendance levels during the summer months and holidays. During
non-peak periods, earnings can fluctuate dramatically due to the presence
or absence of successful films. Film box office revenue is very sensitive
to changes in attendance levels because a significant amount of the costs
to exhibit films, such as rents, payrolls, etc., are fixed costs necessary
to operate theatres.

B.  FINANCIAL INFORMATION

          Financial information regarding the Debtors is set forth in
Appendices II and III hereto, consisting of the LCE's Form 10-K for fiscal
year ended February 28, 2001 and the Debtor's Form 10-Q for the second
quarter of fiscal year ended February 28, 2002.

C.  CORPORATE STRUCTURE OF DEBTORS

          LCE is incorporated in the State of Delaware and is the direct or
indirect parent company of each of the other 236 Debtors, which are
incorporated or organized under the laws of various states. Many of the
Debtors are single purpose entities that operate one theatre. Several
Debtors, however, operate more than one theatre, including Plitt Theatres,
Inc. and RKO Century Warner Theatres, Inc., each of which operate numerous
theatres. LCE manages and operates all aspects of each of the Debtors'
theatres and businesses. LCE also holds, through certain of the Debtors, a
50 percent partnership or joint venture interest in Yelmo Cineplex de
Espana ("Yelmo"), Magic Johnson Theatres ("MJT"), Loeks-Star Partners
("LSP"), and holds a 24 percent interest in Megabox Cineplex ("Megabox").
Megabox, Yelmo, LSP and MJT together hold interests in and/or operate 393
screens at 34 theatres. Certain of the Debtors also operate theatres owned
by other entities pursuant to management agreements, for which the Debtors
receive a management fee.

D.  CAPITAL STRUCTURE OF THE DEBTORS

          1. Equity
             ------

          The equity portion of LCE's capital structure is comprised of (i)
300,000,000 authorized shares of Old LCE Common Stock, of which 58,538,646
shares were issued and outstanding as of August 31, 2001, and (ii)
10,000,000 authorized shares of Class B non-voting common stock, par value
$.01 per share, of which 84,000 shares were issued and outstanding as of
August 31, 2001.

          The high and low sale prices per share of Old LCE Common Stock
(based upon the NYSE composite tape as reported in published financial
sources) for each fiscal quarter 1999, 2000 and 2001 are set forth below.

HIGH AND LOW SALE PRICES PER SHARE OF THE OLD LCE COMMON STOCK
--------------------------------------------------------------
FISCAL QUARTER                          HIGH                       LOW
--------------                          ----                       ---
2001
Fourth                                 $0.81                      $0.25
Third                                  $1.88                      $0.63
Second                                 $4.38                      $1.75
First                                  $4.38                      $2.25

2000
Fourth                                $6.50                       $4.13
Third                                 $8.38                       $6.19
Second                               $10.94                       $7.94
First                                $12.88                       $9.13

1999
Fourth                               $10.88                       $8.63
Third                                $10.69                       $7.50
Second                               $15.50                       $7.88
First                                $19.00                      $15.44

          On February 15, 2001, the day on which trading of the Old LCE
Common Stock was suspended, the closing market price of the Old LCE Common
Stock was $0.39 per share.

          2. Debt
             ----

             (a) PRE-PETITION CREDIT AGREEMENT

          Prior to the Filing Date, LCE partially funded its and its
subsidiaries' operations through the Pre-Petition Credit Agreement. The
Pre-Petition Credit Agreement consisted of a $1 billion senior revolving
credit facility comprised of two tranches (a $750 million senior secured
revolving credit facility and a $250 million uncommitted facility) and is
secured by substantially all assets (other than real property interests) of
LCE and its wholly owned domestic subsidiaries, including all equipment,
inventory and accounts receivable. LCE also pledged to the Pre-Petition
Lenders its equity interest in its domestic subsidiaries and a portion of
its equity interest in each of its foreign subsidiaries. In addition, as a
result of certain amendments to the Pre-Petition Credit Agreement, the
Pre-Petition Lenders received security interests in certain of the Debtors'
fee-owned and leasehold real property interests. As of the Filing Date the
amount of direct borrowings (including principal, interest and outstanding
letters of credit) under the Pre-Petition Credit Agreement totaled
$742,302,246.

             (b) MORTGAGE DEBT

          The Debtors have two loans outstanding to National Western that
are secured by mortgages on the Debtors' Catalina and El Dorado theatres
located in Tucson, Arizona. As of August 31, 2001, the principal amount of
indebtedness owed by the Debtors to National Western was approximately $3.6
million with respect to the El Dorado theatre and $2.7 million with respect
to the Catalina Theatre. The interest rate for each of the mortgages is
approximately 10% per annum and the final payment with respect to each of
the mortgages is due on September 1, 2007.

             (c) PRE-PETITION NOTES

          Pursuant to the Indenture, LCE issued $300 million aggregate
principal amount of 8 7/8% senior subordinated notes due 2008.(2) HSBC
Bank is the Indenture Trustee with respect to the Pre-Petition Notes. The
Pre-Petition Notes are unsecured and contractually subordinated to all
present and future Senior Indebtedness (as defined in the Indenture) of
LCE. Based on the Debtors' Schedules, approximately $300,000,000 in
principal and $13,312,500 accrued but unpaid interest was outstanding with
respect to the Pre-Petition Notes as of the Filing Date.

----------------------------

(2)  The Pre-Petition Notes were originally issued on August 5, 1998 to
     qualified institutional buyers in reliance on Rule 144A under the
     Securities Act of 1933, as amended (the "Securities Act"), but became
     registered under the Securities Act after LCE completed an offering on
     November 19, 1998 to exchange the principal amount of the privately
     placed Pre-Petition Notes for a like principal amount of registered
     notes.

E.  BACKGROUND AND EVENTS LEADING TO CHAPTER 11 FILING

          1. The Theatre Industry
             --------------------

          Recent trends in the movie theatre industry have presented
theatre exhibitors with considerable new challenges. In an attempt to
attract larger audiences, the industry has been significantly transformed
by an emphasis on the importance of constructing Megaplex theatres.
Megaplexes were designed to be more profitable and to lead to economies of
scale by allowing exhibitors to spread operating facilities and fixed costs
over more screens. The first Megaplexes were very successful in the
locations where they were opened, generating significant cash flow and
healthy returns. In recent years, motion picture exhibitors, including the
Debtors, have sought to remain competitive by building Megaplex theatres or
expanding and/or reconfiguring their older theaters as Megaplexes. However,
the Megaplex build out was focused on growth in revenues and screens and
was not accompanied by the industry's closure of a sufficient number of
older, obsolete theatres. In addition, many exhibitors built Megaplexes
near other Megaplexes, thus reducing their profitability. This caused an
industry-wide glut of theatre screens, with the result that many theatres,
particularly older theatres contribute only marginally to cash flow from
operations, or operate at a loss.

          In addition, the percentage of box office revenue that film
distributors can command as licensing fees has steadily increased because
there are so many screens competing for the right to license the films.
Moreover, a greater percentage of box office revenue is paid for the early
weeks of a run than for later weeks. The large number of screens makes it
possible for a larger number of consumers to see a movie during the early
weeks of a run. As a result, theatre exhibitors have seen their operating
costs rise and experienced declining revenues during the later weeks of a
film run.

          Moreover, during 2000 particularly, there were fewer box office
hits than in the recent past. Theatre exhibitors' business is seasonal in
nature, with the highest attendance and revenues generally occurring during
the summer months and holiday seasons. Summer 2000 was not a strong season,
due in part to the absence of successful films and a decline in box office
revenue during the Olympic games. The decline in attendance has also
reduced income from concessions, from video games in the lobbies and from
on-screen advertising.

          Higher operating and construction costs, increased debt levels
and new competition associated with the Megaplexes have resulted in an
oversupply of theatre screens and have put significant financial pressure
on the entire theatre exhibition industry. The combination of poor
industry-wide box office results and the negative impact of the oversupply
of screens resulted in pronounced cash flow declines throughout the theater
industry. Additionally, industry-wide downgrades of exhibitors' debt by
rating agencies combined with rising interest rates during 2000 caused a
tightening of liquidity. Faced with reduced cash flows and earnings, many
of the Debtors' competitors experienced liquidity crises and filed
petitions for relief under chapter 11 of the Bankruptcy Code.

          2. The Debtors' Pre-Petition Attempt to Restructure
             ------------------------------------------------

          As noted above, the Debtors have significantly grown their
business through the Combination, construction of new Megaplexes and the
expansion and/or reconfiguration of their older theatres. Implementation of
the Debtors' growth strategy, together with the issues effecting the
industry generally, created significant liquidity constraints for the
Debtors. The construction of new theatres required the expenditure of
significant funds both for (i) the initial cost and upkeep of the new
theatres and (ii) the upkeep or reconfiguration of the Debtors' older
theatres that have seen their audiences drawn away by the newer Megaplexes.
The decrease in cash flow caused by weak box office results and an
oversupply of theatres could not offset the increasing capital expenditures
of the Debtors that were incurred as part of the Debtors' build-out.

          During fiscal 1999 and 2000, the Debtors experienced significant
net losses. The losses were primarily caused by flat or declining
attendance levels (including a particularly disappointing performance at
the box office during the 2000 summer season) coupled with the continuing
costs of new theatre construction. Similar losses were felt industry-wide,
where an approximately 3.0% decrease in industry attendance resulted in a
corresponding decrease in industry box office revenue in calendar year
2000. These losses were exacerbated by Megaplexes drawing audiences away
from the Debtors' older theatres. As a result, the Debtors were forced to
halt certain of their construction projects and to suspend other projects
to reduce their significant construction costs.

          In addition to the Debtors' significant capital expenditures that
were depleting the Debtors' cash flow, the Debtors' older, obsolete
theatres that were leased under long-term commitments were not generating
enough cash to offset the rent and operating costs. Moreover, prior to the
chapter 11 filings, the Debtors could not unilaterally dispose of their
older, unprofitable theatres, which are typically subject to long term
leases that are no longer economically viable. As a result, their per
screen attendance, operating margins and profits per patron, like those in
the industry generally, have decreased because of the presence of the new
screens. As a result, the Debtors undertook a comprehensive analysis of
their properties and related operations in order to eliminate or
renegotiate those leases and commitments that were underperforming or no
longer viable. Thus, as part of their periodic review of their theatre
portfolio, at the close of the summer 2000 movie season, the Debtors made a
decision to accelerate the closing of underperforming theatres and reduce
the number of screens they operated in order to combat the negative effects
of the industry wide addition of new Megaplexes. The Debtors also explored
ways to improve older theatres. Unfortunately, these actions were not
enough to offset poor operating revenues from the summer 2000 movie season,
which fell well below projections.

          To combat the liquidity crisis caused in part by higher operating
and construction costs and significant debt levels, the Debtors pursued
various avenues for raising ancillary revenues and reducing costs. For
example, during Fiscal 2001, the Debtors completed a profitable on-screen
advertising arrangement as well as various other sponsorship deals to
increase ancillary revenues and also implemented overhead reduction plans
which resulted in a reduction in general and administrative overhead. These
initiatives resulted in an improvement in cash flow. In addition, the
Debtors considered a number of potential strategic transactions to
alleviate the financial pressure caused by the liquidity crisis. The
Debtors were active in seeking capital through other sources, including
asset securitizations, equity offerings, sale-leaseback transactions,
strategic alliances with other exhibitors or an in-court restructuring of
certain of the Debtors' subsidiaries. Specifically, in 2000, the Debtors
entered into negotiations with other significant theatre operators in order
to explore potential merger opportunities, and had discussions with their
existing equity investors, as well as other potential strategic investors,
to try to obtain additional equity financing. The Debtors also entered into
negotiations with a number of parties in an effort to sell certain of their
underperforming assets and sought to renegotiate several of their
underperforming leases in order to obtain more favorable terms. Although
the Debtors successfully renegotiated certain of their leases and sold
certain assets, the Debtors were unable to implement the other more
wide-ranging alternatives on the scale necessary to relieve the Debtors'
long-term liquidity crisis. In addition, in early 2001, the Pre-Petition
Lenders advised the Debtors that they were no longer willing to fund the
losses resulting from the leases for the Debtors' underperforming locations
while the Debtors attempted to negotiate a consensual out-of-court
restructuring. These conditions are among the factors that led to the
Debtors' filing for bankruptcy protection.

          3. Pre-Petition Defaults
             ---------------------

          As a result of the Debtors' liquidity crisis, the Debtors and the
Pre-Petition Lenders amended the Pre-Petition Credit Agreement, for various
reasons, five times during the year prior to the Filing Date. On February
29, 2000, the Debtors and the Lenders entered into the First Amendment to
Credit Agreement which relaxed certain financial covenants applicable to
LCE and improved its ability to access funds under the Pre-Petition Credit
Agreement.

          As a result of the Debtors' performance and ongoing capital
requirements in the second quarter of 2000, the Debtors failed to satisfy
certain financial covenants under the Pre-Petition Credit Agreement for
such quarter. On or about September 19, 2000, the Debtors and Pre-Petition
Lenders entered into the Second Amendment and Limited Waiver to Credit
Agreement, which granted the Debtors a waiver until November 29, 2000 of
the Debtors' non-compliance with such covenants and allowed the Debtors to
continue to access funds under the Pre-Petition Credit Agreement. In
consideration for such amendment and waiver, the Debtors agreed to grant to
the Pre-Petition Lenders mortgages on certain fee and leasehold properties
of the Debtors. The Debtors did not, however, grant the mortgages that were
to be granted under the Second Amendment pursuant to its terms, and,
instead, negotiated a further amendment to the Pre-Petition Credit
Agreement.

          On or about October 16, 2000, the Debtors and the Pre-Petition
Lenders entered into the Third Amendment and Limited Waiver to the
Pre-Petition Credit Agreement. Under the terms of the Third Amendment, the
Debtors were given access to additional capital through November 24, 2000
in exchange for the Debtors' providing the Pre-Petition Lenders with fee
and leasehold mortgages with respect to certain properties of the Debtors
having an aggregate value equal to the amount of the increased loans. As a
result of the Second and Third Amendments, the Debtors' availability under
the Pre-Petition Credit Agreement increased to $705 million, with the
incremental availability being secured by mortgages on five of the Debtors'
properties.

          On or about November 21, 2000, the Debtors and the Pre-Petition
Lenders entered into the Fourth Amendment and Limited Waiver to Credit
Agreement to extend the waiver from November 24, 2000 until December 8,
2000. The Fourth Amendment provided for an increase in the interest rate
for existing and future borrowings under the Pre-Petition Credit Agreement.

          On or about December 7, 2000, the Debtors and the Pre-Petition
Lenders entered into the Fifth Amendment and Limited Waiver to Credit
Agreement. Under the terms of the Fifth Amendment, the Pre-Petition Lenders
extended the waiver of compliance with various financial covenants from
December 8, 2000 until January 26, 2001. In addition, the Debtors'
availability was increased to $750,000,000 less certain amounts from the
proceeds from the sale of certain assets, with the incremental availability
being secured by additional fee and leasehold mortgages on certain of the
Debtors' properties.

          Because the Debtors were under significant financial pressures
for reasons described above, including the drain on cash flow caused by
obsolete theatre leases, the capital expenditure commitments and the
inability to generate sufficient revenue to offset these costs, the
Debtors' ability to meet their obligations was affected and the Debtors'
liquidity deteriorated even further. As a result, the Debtors' Pre-Petition
Lenders advised the Debtors that they would not extend any additional
credit to the Debtors or fund the Debtors' capital expenditures or
consensual renegotiation or termination of underperforming leases outside
the chapter 11 bankruptcy process. Therefore, the waiver provided by the
Fifth Amendment expired on January 26, 2001 and an event of default
occurred under the Pre-Petition Credit Agreement. In addition, an interest
payment for the Pre-Petition Notes in the amount of approximately
$13,312,500 was due on February 2, 2001. On January 31, 2001, Bankers
Trust, as agent under the Pre-Petition Credit Agreement, advised the
Indenture Trustee and LCE that the Debtors were in default under the
Pre-Petition Credit Agreement and that pursuant to the terms of the
Indenture, the February 2, 2001 interest payment could not be made.
Pursuant to the terms of the Indenture, LCE had thirty days to cure the
default arising as a result of the failure to make the interest payment.
Given the foregoing circumstances and their deteriorating financial
situation, the Debtors filed these Chapter 11 Cases on the Filing Date.

          4. Pre-Petition Financing and Restructuring Negotiations
             -----------------------------------------------------

          As noted above, prior to the filing of these Chapter 11 Cases,
the Debtors entered into negotiations with other significant theatre
operators in order to explore potential merger opportunities, and had
discussions with their existing equity investors, as well as other
potential strategic investors, to try to obtain additional equity
financing. In this regard, during the months leading up to the Filing Date,
the Debtors held significant discussions with Oaktree, the beneficial owner
at the time of at least $75 million in Pre-Petition Credit Agreement Claims
and at least $178 million in principal amount of Pre-Petition Notes. Among
other things, the Debtors discussed with Oaktree the possibility of filing
Plitt Theatres, Inc. and its subsidiaries under chapter 11 of the
Bankruptcy Code and a filing of Cineplex Odeon under the CCAA, together
with an out-of-court restructuring and recapitalization of LCE and its
other subsidiaries. Ultimately, the Debtors determined, after discussions
with Oaktree and the Debtors' Pre-Petition Lenders, that such a
restructuring of the Debtors was not a viable alternative because of the
Debtors' deteriorating economic condition. As a result, the Debtors held
discussions with other potential investors, including Onex and Pacific
Capital. Onex, either directly or through one or more of its affiliates,
was the beneficial owner at the time of at least $171 million in
Pre-Petition Credit Agreement Claims. At the time, discussions were also
held between the Debtors and Pacific Capital, which then did not own any of
the Pre-Petition Credit Agreement Claims or Pre-Petition Notes. Both Onex
and Pacific Capital individually submitted proposals to the Debtors that
contemplated the restructuring of the Debtors' outstanding indebtedness and
the acquisition of the Debtors' business. In addition, in the days leading
up to the Filing Date, Onex and Pacific Capital submitted a joint proposal
to the Debtors. The Debtors held significant discussions with both Onex and
Pacific Capital with respect to these proposals. After significant
discussions, the Debtors determined that the joint proposal of Onex,
Pacific Capital and Oaktree, memorialized in the February 2001 Letter of
Intent, dated February 14, 2001, was in the best interest of the Debtors,
their estates and their creditors.

          5. February 2001 Letter of Intent
             ------------------------------

          Pursuant to the February 2001 Letter of Intent, Onex, Pacific
Capital and Oaktree, the February 2001 LOI Investors, agreed, subject to
numerous and significant conditions, to acquire the Debtors and fund a plan
of reorganization that was designed to resolve the Debtors' liquidity
problems and enable the Debtors to continue as a going concern. Under the
February 2001 Letter of Intent, pursuant to a chapter 11 plan of
reorganization, the February 2001 LOI Investors would convert at least
$247.1 million of Pre-Petition Credit Agreement Claims held by them into
88% of the new equity to be issued by the reorganized Debtors. The other
holders of Pre-Petition Credit Agreement Claims would receive, in the
aggregate, distributions of new term notes to be issued by the reorganized
Debtors in a principal amount equal to 98.26% of the Pre-Petition Credit
Agreement Claims held by such other holders. Holders of unsecured claims,
including holders of the Pre-Petition Notes would receive the remaining 12%
of the equity to be issued and warrants to purchase up to an additional 5%
of the new equity at an exercise price equal to 150% of the per share price
of the equity in the reorganized Debtors. The reorganized Debtors were also
to obtain a new working capital facility that would be senior to the new
term notes.

          6. Filing of the Chapter 11 Cases and the Cineplex Odeon
             -----------------------------------------------------
             Proceedings Under the CCAA
             --------------------------

          As discussed above, due to their liquidity constraints, including
the Pre-Petition Lenders' unwillingness to continue to fund the Debtors'
losses resulting from their unprofitable leases, and defaults under the
Pre-Petition Credit Agreement and Pre-Petition Notes, on February 15, 2001,
the Debtors commenced their Chapter 11 Cases.

          In addition to restructuring the Debtors through the Chapter 11
Cases, Cineplex Odeon and the other Canadian Debtors filed for protection
under the CCAA. As noted above, Cineplex Odeon is a wholly owned subsidiary
of LCE. LCE has retained Lenczner, Slaght, Royce Smith & Griffin as
Canadian counsel to LCE in the CCAA cases and to pursue LCE's claims
against Cineplex Odeon. The circumstances that required the commencement by
the Canadian Debtors of proceedings under the CCAA are generally consistent
with those that required the Debtors to commence the Chapter 11 Cases
--namely, a liquidity crisis caused in large part by an oversupply of movie
theatre screens and capital expenditure commitments that could not
ultimately be funded.

F.  EVENTS LEADING TO THE FORMULATION OF THE PLAN

          1. The Debtors' Underperforming and Burdensome Leases
             --------------------------------------------------

             As described above, one of the significant factors that led to
the Debtors' liquidity crisis and subsequent filing of the Chapter 11 Cases
included the Debtors' inability to exit burdensome leasehold obligations.
The filing of the Chapter 11 Cases has enabled the Debtors to terminate
those burdensome leases on an economically viable basis. Therefore, the
Debtors undertook a comprehensive analysis of their theatre portfolio and
related operations and put a program in place to eliminate or renegotiate
those leases that were no longer economically viable. As a result of this
review, between February 15, 2001 and September 30, 2001, the Debtors
obtained Bankruptcy Court approval to reject 76 underperforming and
burdensome leases comprising 512 screens. As of September 30, 2001, the
Debtors had closed 72 theatres comprising 421 screens. The Debtors have
estimated that the rejection of theatre leases will result in a cash flow
benefit of approximately $20-25 million on an annual basis.

          In addition, as part of the Debtors' evaluation of their lease
portfolio, the Debtors negotiated with various landlords for lease
modifications in order to improve the economic terms of certain of the
Debtors' leases. Since the Filing Date, the Debtors have executed over 20
lease modifications that have allowed the Debtors to turn unprofitable
leases into profitable and viable locations.

          As a result of the Debtors' review and restructuring of their
theatre portfolio, the Debtors have improved their liquidity and financial
situation significantly. Such improvements in the Debtors' portfolio and
operations have allowed the Debtors to maximize the recovery to creditors
under the Plan.

          2. Creditors' Committee Attempt to Terminate Exclusivity
             -----------------------------------------------------

          As more particularly described in Section III.E.5 above, the
February 2001 Letter of Intent provided, among other things, that the
Debtors would not negotiate with any third party for a period of 30 days.
Despite the fact that the February LOI Investors had reached an agreement
in principal with regards to the recapitalization and restructuring of the
Debtors, the February LOI Investors were not able to reach an agreement
with the Pre-Petition Lenders with respect to certain terms of the
restructuring, including the terms of the notes to be issued to the holders
of the Pre-Petition Credit Agreement Claims. As a result of this inability
to formulate a definitive agreement, the February 2001 Letter of Intent
expired by its terms on March 17, 2001. Thereafter, by letter dated April
3, 2001, Pacific Capital informed the Debtors that it would no longer be a
party to the transactions contemplated in the February 2001 Letter of
Intent. After the February 2001 Letter of Intent expired, the Debtors
continued to facilitate the negotiations between the Investors (Onex and
Oaktree), the other Pre-Petition Lenders and the Debtors' other
constituencies in order to facilitate the formulation of an agreement that
would provide the basis for a consensual chapter 11 plan of reorganization.

          On May 17, 2001, the Creditors' Committee filed a motion with the
Bankruptcy Court seeking to terminate the Debtors' exclusive period to file
a plan of reorganization and to permit the Creditors' Committee to file its
own plan of reorganization (a draft of which was attached to its motion).
The Creditors' Committee argued, among other things, that by entering into
the February 2001 Letter of Intent that provided for a thirty-day exclusive
negotiation period, the Debtors did not maximize the value of the Debtors
estate. The Debtors responded by noting that the February 2001 Letter of
Intent had expired pursuant to its terms two months earlier and that the
Debtors were actively working to formulate the basis of a chapter 11 plan
of reorganization that would maximize values for all parties. In addition,
in its motion, the Creditors Committee asserted that the Debtors had
significant claims against a number of parties, including certain of the
Debtors' shareholders and Pre-Petition Lenders that should, but have not,
been pursued. Specifically, the Creditors' Committee raised issues
regarding, among other things, the validity of the security interests
granted to the Pre-Petition Lenders and the allowability of the
Pre-Petition Credit Agreement Claims and potential Causes of Action against
the Pre-Petition Lenders. The Creditors' Committee also argued that (a) the
claims of the Holders of Pre-Petition Notes (which were issued by LCE) are
structurally subordinated to Subsidiary General Unsecured Claims, (b) LCE
should not be consolidated with the Subsidiary Debtors and (c) the Holders
of the Pre-Petition Notes should not share in distributions on a pro rata
basis with Holders of Subsidiary General Unsecured Claims. Finally, in its
motion, the Creditors' Committee argued that, to the detriment of the
Debtors' creditors, it was being excluded from the chapter 11 plan process
by the Debtors and that the Debtors' exclusive periods should therefore be
terminated.

          The Debtors believed that the reasons set forth in the motion by
the Creditors' Committee to terminate exclusivity were without merit and
were inconsistent with the facts and applicable law. After the Creditors'
Committee filed its motion, the Debtors filed a motion to extend
exclusivity for 120 days. The Creditors' Committee objected to the Debtors'
motion for an extension of exclusivity on substantially the same grounds as
its motion to terminate exclusively described above. On June 12, 2001, the
Court, after hearing arguments concerning both motions, denied in full the
Creditors' Committee's motion seeking to terminate exclusivity and entered
an order extending the Debtors' exclusivity for 120 days. Pursuant to the
order, the Debtors' exclusive right to file a plan or plans of
reorganization was extended until October 15, 2001. On September 27, 2001,
the Debtors filed a motion seeking to extend their exclusive period to file
a plan of reorganization for an additional 120 days, and on October 10,
2001, the Court entered an order extending the Debtors' exclusive right to
file a plan or plans of reorganization until February 11, 2002.

          3. Negotiations Leading to the Filing of a Plan
             ---------------------------------------------

          As noted above, since the Filing Date, the Debtors have
encouraged direct negotiations among the Investors, the Pre-Petition
Lenders, the Creditors' Committee and the Debtors' other constituencies to
facilitate the formulation of a plan of reorganization. The Debtors
encouraged such negotiations in hopes that an agreement would be reached
among the Debtors' creditor constituencies that would form the basis for a
consensual plan.

          Although the February 2001 Letter of Intent had terminated by its
own terms, the Investors and the other Pre-Petition Lenders continued to
negotiate in order to resolve a number of intercreditor issues and to
develop the basis for a plan of reorganization that would be acceptable to
them. As a result of these discussions, the Investors and the majority of
Pre-Petition Lenders reached an agreement in principal with respect to the
terms of a potential restructuring. This agreement was memorialized in the
Pre-Petition Lender Agreement that was executed in August, 2001 by the
Investors and the holders of two-thirds of the Pre-Petition Credit
Agreement Claims and that has been extended twice by amendments. The
Debtors are not parties to the Pre-Petition Lender Agreement. The
Pre-Petition Lender Agreement provided that the Investors and the other
Pre-Petition Lenders that were a party thereto would, subject to the
requirements of the Bankruptcy Code, vote their claims in favor of a plan
of reorganization that was developed pursuant to and that was consistent
with such agreement. In addition, the Pre-Petition Lenders agreed that any
purchasers of their claims would agree to abide by the terms of the
Pre-Petition Lender Agreement. The Pre-Petition Lender Agreement
contemplated a plan of reorganization in which the Investors would receive
the majority of the equity to be issued in the reorganized Debtors, the
other Holders of the Pre-Petition Credit Agreement Claims would receive new
term notes to be issued by the reorganized Debtors, and Holders of General
Unsecured Claims were to receive the remaining equity to be issued by the
reorganized LCE. Significantly, the Pre-Petition Lender Agreement also
contemplates the Pre-Petition Lenders providing new financing for the
Reorganized Debtors.

          The Creditors' Committee rejected the distribution proposed by
the Pre-Petition Lender Agreement to the Holders of General Unsecured
Claims and asserted that (i) the Debtors have a higher enterprise value
than that contemplated by the Pre-Petition Lender Agreement, (ii) the
General Unsecured Creditors should receive a greater distribution and (iii)
the Pre-Petition Lender Agreement did not address the Creditors'
Committee's issues with respect to the security interests granted to, and
potential causes of action against, the Holders of the Pre-Petition Claims.
Therefore, consistent with the Debtors' desire and efforts to develop a
consensual plan of reorganization, the Debtors continued to encourage
negotiations among the Debtors' creditor constituencies.

          During the period in August 2001 that the Pre-Petition Lenders
were finalizing the Pre-Petition Lender Agreement, the Debtors continued
their efforts to facilitate a consensual restructuring, and facilitated
renewed negotiations among the Investors, Pre-Petition Lenders, the
Pre-Petition Note Holders and the Creditors' Committee in order to achieve
a consensual restructuring.

          Although the Debtors and the Holders of Pre-Petition Credit
Agreement Claims (including, the Investors) do not believe that there is
merit to the issues or alleged Causes of Action raised by the Creditors'
Committee, in order to facilitate a consensual plan and to settle and
compromise any and all issues raised by the Creditors' Committee, the
Investors, the Pre-Petition Lenders and the Creditors' Committee reached a
compromise whereby the Creditors' Committee could obtain incremental value
in Cash (rather than the stock provided for in the Pre-Petition Lender
Agreement) for the General Unsecured Creditors which would be funded in
whole or part by the Investors in exchange for the Creditors' Committee's
support of the Plan, releases of all Claims against the Pre-Petition
Lenders and provides for the Debtors' retention of third party claims and
Causes of Action, including Causes of Action relating to the Combination.
In reaching this agreement, the Creditors' Committee determined that, among
other things, a $45 million Cash distribution provided significantly
greater value to the Holders of General Unsecured Claims than the value
that would have been realized by obtaining a minority equity position in
the Reorganized Debtors and through the pursuit of claims relating to the
Combination.

          As a result of the agreement reached among the Creditors'
Committee, the Investors and the Pre-Petition Lenders with respect to a
consensual restructuring, in October 2001, the Investors and the
Pre-Petition Lenders executed an amendment to the Pre-Petition Lender
Agreement to incorporate the basic terms of the Creditors' Committee
agreement, as set forth in the Plan. The Pre-Petition Lender Agreement, as
amended, forms the basis of the Plan. A copy of the Pre-Petition Lender
Agreement is attached hereto as Exhibit A.

          On November 11, 2001, the Debtors filed the Plan, which as
discussed herein, represents a compromise between the divergent viewpoints
held by the Debtors, the Creditors' Committee, the Investors and the
Pre-Petition Lenders. The Debtors and their major creditor constituencies
believe that it is in the best interest of the Debtors' estates and
creditors to emerge from chapter 11 in the near-term pursuant to a
consensual plan of reorganization.

          As set forth in Section IX, the Debtors' financial advisors
believe that Reorganized Debtors will have an estimated enterprise value of
between $850 million and $950 million. In formulating the Plan, the Debtors
have used $900 million which is the mid-point of such valuation range.

          As discussed above, the Debtors have had discussions since prior
to the Filing Date with various parties about a potential acquisition
and/or recapitalization of the Debtors. Based on these significant
discussions, the Debtors believe that the $900 million valuation range used
as the basis of the Plan is a fair estimated enterprise value.

          As discussed further below, the Debtors, in formulating the Plan,
address the issues and concerns raised by various constituencies (as
discussed above).

          o         Pre-Petition Credit Agreement Claims. As noted above,
                    ------------------------------------- the Creditors'
                    Committee has raised certain issues with respect to the
                    perfection and validity of the security interests
                    granted the Pre-Petition Lenders and the allowability
                    of the Pre-Petition Credit Agreement Claims. The
                    Debtors and the Pre-Petition Lenders believe that such
                    claims and alleged Causes of Action are without merit
                    or basis. Therefore, the Plan provides (a) the Holders
                    of Pre-Petition Credit Agreement Claims with 100% of
                    the New Term Notes and 100% of the New Common Stock
                    after giving effect to the distribution of New Common
                    Stock to the Holders of General Unsecured Claims and
                    (b) the Holders of General Unsecured Claims would be
                    entitled to a portion of the New Common Stock. However,
                    the Investors, in order to facilitate a consensual
                    plan, have committed to pay to LCE up to $45 million in
                    Cash whereby:

                    (x)  Reorganized LCE will distribute the Unsecured
                         Settlement Distribution to the Holders of General
                         Unsecured Claims in full and complete settlement
                         and release pursuant to Rule 9019 of the
                         Bankruptcy Rules of any and all claims and Causes
                         of Action alleged by the Creditors' Committee with
                         respect to the Pre-Petition Credit Agreement
                         Claims and the Pre-Petition Lenders;

                    (y)  in consideration for paying to LCE up to $45
                         million to enable LCE to fund the Unsecured
                         Settlement Distribution and in satisfaction of
                         $300 million aggregate principal amount of
                         Pre-Petition Credit Agreement Claims held by them,
                         the Investors will receive 100% of the New Common
                         Stock;

                    (z)  the other holders of Pre-Petition Credit Agreement
                         Claims (including the Investors in respect of
                         their Pre-Petition Credit Agreement Claims in
                         excess of $300 million aggregate principal amount)
                         will receive their pro rata share (calculated
                         without $300 million aggregate principal amount of
                         the Investor Pre-Petition Credit Agreement Claims)
                         of 100% of the New Term Notes.

               o    The Debtors believe the Plan provides the Holders of
                    General Unsecured Claims with a distribution of value
                    that is not less than the value of the distribution to
                    which they are legally entitled to and also provides
                    for a Cash distribution.

               o    Pre-Petition Notes. As noted above, the Creditors'
                    ------------------- Committee also raised certain issues
                    with respect to the Pre-Petition Notes. Specifically it
                    has argued that (a) LCE should not be substantively
                    consolidated with the Subsidiary Debtors for any
                    purpose, (b) LCE General Unsecured Claims are
                    structurally subordinated to Subsidiary General
                    Unsecured Claims and (c) that the Holders of LCE
                    General Unsecured Claims should not share in
                    distributions on a pro rata basis with Holders of
                    Subsidiary General Unsecured Claims. The Debtors do not
                    take a position on these issues and believe that these
                    issues are primarily intercreditor disputes between the
                    Holders of LCE General Unsecured Claims and Subsidiary
                    General Unsecured Claims. For this reason, in order to
                    not adversely affect the rights of any such Holders
                    with respect to these disputes, the Plan does not
                    substantively consolidate LCE with any or all of the
                    Subsidiary Debtors (subject to the right of the Holders
                    of Class 5B Claims to assert that LCE should be
                    substantively consolidated with the Subsidiary
                    Debtors), and no distributions shall be made to Holders
                    of LCE General Unsecured Claims until entry of the
                    Class 5B Final Order. Nothing in the Plan is intended
                    to limit, affect or prejudice any argument that the
                    Holders of Class 5A Claims or Class 5B Claims may make
                    with respect to this intercreditor dispute. Subject to
                    entry of the Class 5B Final Order, unless provided to
                    the contrary in the Class 5B Final Order, as soon as
                    practicable following the earlier of (i) the four month
                    anniversary of the Effective Date and (ii) the date on
                    which all Disputed General Unsecured Claims have been
                    resolved by a Final Order of the Bankruptcy Court, each
                    Holder of an Allowed LCE General Unsecured Claim shall
                    receive, on account of such Allowed LCE General
                    Unsecured Claim, such Holder's pro rata share of the
                    Unsecured Settlement Distribution based on the ratio of
                    such Holder's Allowed General Unsecured Claim to the
                    Maximum Allowable Amount of all General Unsecured
                    Claims.

                         IV. THE CHAPTER 11 CASES

          On the Filing Date, the Debtors commenced the Chapter 11 Cases.
Since the Filing Date, the Debtors have continued to operate as
debtors-in-possession subject to the supervision of the Bankruptcy Court.
Transactions out of the ordinary course of business have required
Bankruptcy Court approval. In addition, the Bankruptcy Court has supervised
the Debtors' employment of attorneys, accountants and other professionals.

          An immediate effect of the filing of the bankruptcy petitions was
the imposition of the automatic stay under the Bankruptcy Code which, with
limited exceptions, enjoined the commencement or continuation of all
collection efforts by creditors, the enforcement of liens against the
Debtors and litigation against the Debtors. This injunction remains in
effect, unless modified or lifted by order of the Bankruptcy Court, until a
plan of reorganization is confirmed and becomes effective.

A.  APPOINTMENT OF CREDITORS' COMMITTEE

     On February 27, 2001, the United States Trustee appointed the
Creditors' Committee, which consisted of 7 members. Thereafter, on October
3, 2001, the United States Trustee amended the appointment to include an
additional member. The members of, and the counsel and advisors retained by
the Creditors' Committee are set forth below. HSBC Bank, the Indenture
Trustee for the Pre-Petition Notes, is a member of, and has taken an active
role in the Creditors' Committee. As such, HSBC Bank has endeavored to
ensure that the Holders of Pre-Petition Note Claims realize value for their
Claims.

          1. Members of the Creditors' Committee
             -----------------------------------

HSBC Bank USA
140 Broadway, 12th Floor
New York, New York  10005-1180

The Coca Cola Company
One Coca-Cola Plaza
Atlanta, Georgia  30313

Simon Property Group, LP
National City Center
115 West Washington Street
Indianapolis,  Indiana  46204

J.D. Carlisle, Development Corp.
352 Park Avenue South
New York, New York 10010

Allied Advertising L.P.
545 Boylston Street
Boston, Massachusetts  02116

Fast Food Merchandisers, Inc.
2641 Meadowbrook Road
P.O. Box 800
Rocky Mount, North Carolina  27802-0800

National Cinema Supply Corporation
14499 North Dale Mabry Highway, Suite 201
Tampa, Florida  33618

Merrill Lynch, Pierce, Fenner & Smith Incorporated
Four World Financial Center
New York, New York  10080

          2. Professionals retained by the Creditors' Committee
             --------------------------------------------------

Pachulski, Stang, Ziehl, Young & Jones
10100 Santa Monica Boulevard, 11th Floor
Los Angeles, California 90067
Attn:  Marc Beilinson, Esq.
       Werner Disse, Esq.            Attorneys for the Creditors' Committee

Kronish, Lieb, Weiner & Hellman
1114 Avenue of the Americas
New York, New York 10036
Attn:  Jay Randall Indyke, Esq.      Attorneys for the Creditors' Committee
       Charles Shaw, Esq.

KPMG
200 Crescent Court
Suite 300
Dallas, Texas 75201
Attn:  Larry Lattig                  Financial Advisors for the Creditors'
                                     Committee

B.  OTHER SIGNIFICANT CHAPTER 11 EVENTS

          1. The DIP Agreement
             -----------------

          On the Filing Date, the Debtors filed a Motion seeking authority
of the Bankruptcy Court to, among other things, enter into the DIP Facility
Agreement. On February 15, 2001, the Bankruptcy Court approved the DIP
Facility Agreement on an interim basis. After a hearing held before the
Bankruptcy Court on April 4, 2001, the Bankruptcy Court entered the Final
DIP Order approving the DIP Facility Agreement.

          The DIP Facility Agreement provides for (i) a total of up to
$60,000,000 to be available for the Debtors' working capital needs and
capital expenditures (the "U.S. Revolving Credit Loans"), less the
aggregate principal amount of the up to $20,000,000 available for advances
under the DIP Facility Agreement to be advanced to Cineplex Odeon under the
Canadian DIP (the "Canadian Loans") outstanding from time to time, (ii) up
to $20,000,000 for the Canadian Loans less the aggregate amount of U.S.
Revolving Credit Loans outstanding in excess of $40,000,000 from time to
time and (iii) $85,942,728, plus accrued interest, if any, through the
Filing Date on those advances under the Pre-Petition Credit Agreement from
and after August 31, 2000 (the "DIP Repayment Loans") to be used to repay
such advances. The maturity of the DIP Facility Agreement will be the
earliest of (x) January 31, 2002, (y) confirmation of a plan of
reorganization or (z) such earlier date on which the loans become due and
payable pursuant to the terms thereof. Fees and expenses under the DIP
Facility Agreement include (i) a $900,000 facility fee, (ii) a $600,000
agreement fee, (iii) a letter of credit fee equal to 3.25% per annum of the
face amount of such letter of credit, (iv) a $75,000 monthly administrative
fee, (v) an unused commitment fee and (vi) a $750,000 deferred work fee
payable upon the effectiveness of a plan of reorganization. Under the DIP
Facility Agreement, all post-petition loans provided thereunder bear
interest at an adjusted Eurodollar rate plus 3.25% or, at the Debtors'
election, a base rate plus 1.5% per annum.

          The Final DIP Order provided that the Pre-Petition Lenders would
receive monthly adequate protection payments from the Debtors in an amount
equal to interest at the contract non-default rate on the amount of
obligations outstanding under the Pre-Petition Credit Agreement; provided,
the Bankruptcy Court, however, retained the right to determine the manner
in which the adequate protection payments would be applied.(3) The Final DIP
Order also set forth the DIP Lenders' agreement that under any plan of
reorganization the DIP Repayment Loans would be treated as Pre-Petition
secured claims.(4)

-------------------------------------

(3)  As discussed in the "Summary of the Plan", under the Plan such
     adequate assurance payments are deemed interest payments and not
     reductions of principal.

(4)  Accordingly, as discussed in the "Summary of the Plan", all claims
     with respect to the DIP Repayment Loans are considered Pre-Petition
     Credit Agreement Claims under the Plan.

          Following the execution of the DIP Facility Agreement, the
Debtors executed three amendments to the DIP Facility Agreement. The first
amendment to the DIP Facility Agreement (the "First Amendment") was
executed in April, 2001 and provided the Debtors with greater flexibility
in the use of the proceeds of the postpetition working capital facility by
(i) permitting the Debtors to access the $20 million that had originally
only been available to Cineplex Odeon; (ii) adjusting the monthly
availability limitations; and (iii) adjusting the minimum EBITDA covenant.
The First Amendment was critical to ensure that the Debtors had sufficient
availability and flexibility under the DIP Facility Agreement to meet all
of their postpetition obligations. The First Amendment was approved by the
Court on April 4, 2001 in connection with the approval of the Final DIP
Order. The second amendment to the DIP Facility Agreement (the "Second
Amendment") enabled the Debtors to obtain the necessary financing to
continue the construction of a theatre located in New York, New York.
Execution of the Second Amendment to the DIP Facility Agreement was
approved by the Court on July 3, 2001. Lastly on June 28, 2001, the Debtors
executed the third amendment to the DIP Facility Agreement (the "Third
Amendment") that added a $4.5 million replacement letter of credit sublimit
to the DIP Facility Agreement for the issuance of replacement letters of
credit. This sublimit enabled the Debtors to issue replacement letters of
credit without reducing the Debtors' availability under the DIP Facility
Agreement for working capital and capital expenditure needs. The Court
entered an order approving the Third Amendment on July 13, 2001.

          2. Claims of Critical Film Distributors
             ------------------------------------

          The Debtors' businesses are dependent upon a continuous and
timely supply of films for their survival. Because there are a limited
number of film distributors throughout the film industry and the Debtors
have no alternative source of film supply if those film distributors cease
supplying the Debtors, the Debtors sought authority to provisionally pay
Pre-Petition claims of those critical film distributors. The Bankruptcy
Court approved the Debtors' request pursuant to an order dated February 15,
2001, and in doing so preserved the Debtors' critical sources of new films.
However, after entry of the order, the Debtors were notified by a number of
the critical film distributors that language in the order raised issues and
needed to be modified. Additionally, the film distributors raised issues
with respect to the protections afforded to them in the Final DIP Order.
Because the film distributors are absolutely essential to the Debtors'
business, after lengthy negotiations, the Debtors filed a motion to amend
the film payables order and to amend the Final DIP Order which was approved
by the Court on May 7, 2001. As a result, the Debtors' supply of films has
never been interrupted during these Chapter 11 Cases. In addition, the
Debtors believe that in the ordinary course of business, the Debtors have
paid all or substantially all of the claims of the film distributors.

         3. Assumption of an Unexpired Nonresidential Real Property Lease
            Relating to a Theatre Being Constructed in Boston, Massachusetts
            ----------------------------------------------------------------

          The Debtors are the tenants under a nonresidential real property
lease relating to the construction and operation of a theatre in Boston,
Massachusetts. In light of the Debtors' belief that the immediate
assumption of the lease would be critical to the timely and successful
completion of the theatre, the Debtors sought authority to assume the lease
on the Filing Date. As of the Filing Date, the Debtors had already invested
substantial sums towards the planning and construction of the theatre.
Also, the timely construction and opening of the theatre was significant to
enabling the Debtors to realize value from the theatre because it is
located in the Boston area, which is a key market. Pursuant to an order
dated February 15, 2001, the Bankruptcy Court approved the Debtors' request
to assume the theatre lease.

          4. Assumption of Construction Contracts
             ------------------------------------

          Since the Filing Date, the Debtors have continued their efforts
to complete the build-outs of certain theatres. In connection with these
efforts, the Debtors have filed three motions seeking authority to assume
the construction contracts of certain contractors involved in the
construction of theatres in Elizabeth, New Jersey and Country Club Hills,
Illinois. By three separate orders, the Bankruptcy Court has approved the
Debtors' assumption of such contracts.

         5. Financing and Assumption of an Unexpired Nonresidential Real
            Property Lease Relating to a Theatre Being Constructed in New
            York, New York
            --------------

          Thirty Fourth Street Cinemas, Inc., one of the Debtors, is a
party to a nonresidential real property lease with West 34th Street, LLC
for the West 34th Street Theatre being constructed in New York, New York.
Pursuant to the terms of this lease, the Debtors were required to complete
the themeing of the West 34th Street Theatre and fit the West 34th Street
Theatre with fixtures. Although the Debtors had invested more than $8
million towards the planning and construction of the West 34th Street
Theatre, the Debtors were unable to complete the construction because the
theatre was not one of the projects that had been pre-approved by the DIP
Lenders under the DIP Facility Agreement. As a result, the Debtors entered
into negotiations with the West 34th Street landlord to address the
Debtors' construction obligations at the West 34th Street Theatre.
Ultimately, the parties agreed that three principals of the landlord would
finance the Debtors' construction obligations at the theater. This
transaction, however required the DIP Lenders to subordinate their liens on
the collateral for the loan and required a number of other amendments to
the DIP Facility Agreement. Therefore, the Debtors and the Agent executed
the Second Amendment to the DIP Facility Agreement to allow this
transaction and the completion of the theatre. Once the terms of the
financing and the Second Amendment were finalized, the Debtors sought Court
approval of the financing transaction and the assumption of the theatre
lease. On July 3, 2001, the Court granted such approval and relief.

         6. Rejection of Certain Unexpired Nonresidential Real Property
            Leases and Abandonment of Certain Fixtures and Equipment
            --------------------------------------------------------

          Prior to and since the Filing Date, the Debtors have determined
that certain of their theatre leases were burdensome because the theatres
operated at those sites had been unprofitable, and certain equipment used
at these theatres was of no value. Accordingly, the Debtors have filed
seven motions seeking authority to reject certain nonresidential real
property leases and to abandon certain fixtures and equipment (primarily
seats and film projectors) located at these theatres because the costs
associated with any attempts to market the leases and store the fixtures
and equipment outweighed any potential benefit the Debtors might realize
should they find a potential buyer. Pursuant to seven separate orders, the
Bankruptcy Court has approved the Debtors' rejection of 76 nonresidential
real property leases and the abandonment of certain fixtures and equipment
located at the leased properties.

          7. Lease Modifications
             -------------------

          As part of the Debtors' evaluation of their lease portfolio, the
Debtors determined that unless the economic terms of certain of their
leases were modified, the Debtors would have to reject such leases.
Therefore, the Debtors have been negotiating with various landlords for
lease modifications in order to improve the economic terms of certain of
the Debtors' leases. As a result, since the Filing Date, the Debtors have
executed over 20 lease modifications. Additionally, in order to facilitate
the process of obtaining the approval of the lease modifications, the
Debtors filed a motion with the Court seeking authority to adopt
streamlined procedures for the approval of lease modifications. The Court
entered an order approving the lease modification procedures on May 11,
2001.

          8. Schedules and Statements of Financial Affairs
             ---------------------------------------------

          Section 521 of the Bankruptcy Code and Bankruptcy Rule 1007
direct that a debtor must prepare and file certain schedules of assets and
liabilities, current income and current expenditures, executory contracts
and unexpired leases and related information (the "Schedules") and
statements of financial affairs (the "Statements") when a chapter 11 case
is commenced. The purpose of filing the Schedules and Statements is to
provide a debtor's creditors, equity interest holders and other interested
parties with sufficient information to make informed decisions regarding
the debtor's reorganization. On the Filing Date, the Debtors requested, and
were granted, an extension of time to file their Schedules and Statements.
The Schedules and Statements were filed with the Bankruptcy Court on June
29, 2001.

          9. Bar Date
             --------

          By order dated August 2, 2001, the Bankruptcy Court fixed
September 24, 2001 as the date by which proofs of claims were required to
be filed in the Debtors' Chapter 11 Cases. Thereafter, the Debtors notified
all known claimants subject to the Bar Date of their need to file proofs of
claims with the Bankruptcy Court. The Bar Date was subsequently extended by
the Bankruptcy Court to September 26, 2001. The Debtors are currently
reviewing, analyzing and reconciling the amounts estimated by the Debtors
and claims filed by creditors, however, the Bankruptcy Court will make a
final determination of the allowability of claims. Accordingly, the
ultimate amount of such liabilities is presently not determinable.

          10. Litigation Relating to Certain Former Theatre Location
              ------------------------------------------------------

          One of the Debtors' formerly leased drive-in theatres, the Bel
Aire Drive-In (the "Bel Aire") in Cicero, Illinois, was located on property
that has been the subject of litigation involving certain environmental
risks. The Bel Aire was located on property on which third parties disposed
of substantial quantities of construction debris, auto shredder residue and
other waste and debris. Such material may contain unknown quantities of
hazardous substances. Pursuant to an order of the Bankruptcy Court dated
March 20, 2001, the Debtors rejected the Bel Aire lease.

          The Bel Aire property is the subject of an action, filed in March
1999 in the Circuit Court of Cook County, Illinois by the Illinois attorney
general's office, seeking civil penalties and various forms of equitable
relief, including the removal of all wastes allegedly present at the
property, soil and groundwater testing and remediation, if necessary. The
Debtors' range of potential liability with respect to this action cannot be
reasonably estimated at this time due to several unknown factors, including
the scope of contamination, the likelihood of any particular remedial
action being required, the allocation of liability, if any, to other
responsible parties and the ability of such parties to satisfy their share
of such liability.

          The Debtors believe that all Claims asserted by the State of
Illinois are General Unsecured Claims, and accordingly, the Plan defines
General Unsecured Claims to include "all LCE General Unsecured Claims and
Subsidiary General Unsecured Claims, including, without limitation, any and
all environmental Claims and other Claims arising from or relating to
properties that were owned, leased or operated by the Debtors in Cicero,
Illinois." This definition is intended to clarify that claims asserted by
the State of Illinois related to the Bel Aire are General Unsecured Claims.
In addition, the Debtors believe that this action (and any other actions or
claims arising from or in connection with the Bel Aire) is automatically
stayed under Section 362 of the Bankruptcy Code. In addition, with respect
to the Bel Aire action, the Debtors note that (i) any violations of
Illinois law occurred prepetition, (ii) the Debtors rejected the Bel Aire
lease and, as a result, no longer have any control over, or continuing
obligations relating to, the property, and (iii) the State of Illinois
failed to file a proof of claim against the Debtors.

          Despite the application of the automatic stay and its inability
to receive a recovery from the Debtors estates, the Illinois attorney
general's office has continued to prosecute this action. Due to the complex
nature of this litigation and the difficulties inherent in attempting to
prevent the State of Illinois from violating the automatic stay, the
Debtors have continued to defend against this action while reserving all of
their rights under applicable bankruptcy law. Nevertheless, the Debtors
believe that since the State of Illinois failed to file proof of claim, the
State of Illinois will not have an Allowed Claim, and its Claims will be
discharged upon confirmation of the Plan.

          11. Litigation with Six West Retail Acquisition, Inc.
              -------------------------------------------------

          On July 24, 1997, Six West Retail Acquisition, Inc. ("Six West"),
a real estate development company, initiated a lawsuit against LCE and some
of its affiliates in the U.S. District Court for the Southern District of
New York, seeking injunctive relief and unspecified monetary damages. Six
West alleges that LCE has violated federal antitrust laws by engaging in
block booking agreements and monopolizing the motion picture exhibition
market in New York City. Six West owns or leases the Paris and New York
Twin theatres in Manhattan. The Paris theatre was managed by one of the
LCE's subsidiaries under an oral management agreement that has been
terminated. The New York Twin theatre is managed by one of LCE's
subsidiaries under a written management agreement. Six West also alleges
that LCE violated its contractual and fiduciary responsibilities in
managing the two theatres. On December 3, 1997, Six West filed an amended
complaint asserting similar claims with respect to the Festival Theatre
which was operated by one of LCE's subsidiaries until it was closed in
1994. All of the defendants moved to dismiss the amended complaint by
motion dated January 8, 1998. The court decided both motions in a
memorandum opinion and order dated March 8, 2000. The court granted
defendants' motion to dismiss the contract claims against the individual
non-corporate defendants and a portion of one claim against LCE. The court
denied the motion with respect to the remainder of the amended complaint
and the non-Debtor corporate defendants. Discovery in the action is still
in progress. The Debtors believe that Six West's claims are without merit.

          This action was stayed with respect to those defendants that are
Debtors as a result of the filing of the Chapter 11 Cases. Any liability of
the Debtor defendants will be a prepetition General Unsecured Claim that
will be discharged upon the confirmation of the Plan. As a result, the
Debtors believe that jurisdiction to determine the liability, if any, of
the Debtor defendants lies in the Bankruptcy Court.

          12. Motion for Appointment of an Examiner
              -------------------------------------

          On November 6, 2001, Merrill Lynch, Pierce, Fenner & Smith Inc.
("Merrill Lynch"), in its capacity as a creditor of the Debtors, filed a
motion (the "Motion") with the Bankruptcy Court for an order directing the
appointment of an examiner and seeking to file a memorandum of law under
seal. According to its Motion, Merrill Lynch seeks, among other things, the
appointment of an examiner "with authority: (1) to investigate and file a
report on potential claims (including preference, fraudulent transfers and
other causes of action that may lie under state and federal law) available
to the Debtors' estates against LCE's shareholders, directors officers,
agents, representatives and other insiders and the Debtors' pre-petition
lenders; (2) to review the fairness of recovery values (including the
allocation of proceeds of any such causes of action) among the creditor
classes; and (3) to investigate such other facts and circumstances as the
[Bankruptcy] Court may direct." The Debtors, the Agent, the Creditors'
Committee and the Investors believe there is no reason or basis for Merrill
Lynch having filed the Motion. All such parties in interest intend to ask
the Bankruptcy Court to consider the bona fides of Merrill Lynch's effort
and motives for filing the Motion, and all such parties agree that Merrill
Lynch's pursuit of such Motion is vexatious. A hearing on the Motion is
currently scheduled for November 21, 2001.

          13. CCAA Proceedings
              ----------------

          Following the commencement of the CCAA proceedings, the Canadian
Debtors obtained the authority of the Superior Court of Justice of Ontario
to repudiate certain of their leases. As of the date hereof, the Canadian
Debtors have repudiated 42 underperforming leases for theatres comprising
243 screens and renegotiated the terms of certain other leases. The
Canadian Debtors also entered into the Canadian DIP with LCE under which
the CCAA Debtors may borrow up to $20 million to fund their working capital
requirements. Since Cineplex Odeon filed the CCAA Cases, the Superior Court
of Justice of Ontario has granted three extensions of the stay of
proceedings and as a result, the date by which Cineplex Odeon must file a
plan of arrangement or compromise is November 30, 2001. Cineplex Odeon
intends to file a plan of arrangement or compromise that is consistent with
the Plan and that would be consummated prior to or simultaneously with the
occurrence of the Effective Date.

                   V. EFFECT OF CONSUMMATION OF THE PLAN

          If the Plan is confirmed and becomes effective, it will result in
a restructuring of the Debtors by providing for, among other things, the
issuance to Holders of Allowed Pre-Petition Credit Agreement Claims of (a)
100% of the New Common Stock less the New Common Stock distributable to
Holders of General Unsecured Claims ; provided, however, that as a result
of the Investors' commitment to pay to LCE, on the Effective Date, up to
$45 million for LCE to fund the Unsecured Settlement Distribution, (i) the
Investors shall receive 100% of the New Common Stock and 100% of the New
Term Notes; and (ii) each Holder of a Pre-Petition Credit Agreement Claim
(including the Investor Pre-Petition Credit Agreement Claims in excess of
$300 million aggregate principal amount) shall receive its Pro-Rata share
of the New Term Notes based on the ratio of such Pre-Petition Credit
Agreement Claim to all Pre-Petition Credit Agreement Claims (including the
Investor Pre-Petition Credit Agreement Claims in excess of $300 million
aggregate principal amount). Holders of Allowed General Unsecured Claims
will receive their pro rata share of the Unsecured Settlement Distribution
(i.e., $45 million in cash); provided, that, the Holders of LCE General
Unsecured Claims shall not receive any distribution until entry of the
Class 5B Final Order. Priority Claims, Miscellaneous Secured Claims, PBGC
Claims, Convenience Claims and Intercompany LCE Claims shall be Unimpaired
by the Plan. Priority Tax Claims will be paid in full in deferred Cash
payments. The Plan provides for the extinguishment of the Intercompany
Subsidiary Claims, the Intercompany LCE Claims, the Intercompany Cineplex
Odeon Claims and the Old LCE Common Stock Interests.

          If the Plan is confirmed and becomes effective, all Holders of
Claims against or Interests in the Debtors will be bound by the terms of
the Plan, whether or not they have voted to accept the Plan in accordance
with the Plan and the Voting Instructions. To be counted, Ballots and
Master Ballots to vote to accept or reject the Plan described herein must
be submitted in accordance with the voting instructions accompanying the
Ballots and Master Ballots (the "Voting Instructions"). See Section XIV
herein, entitled "VOTING AND CONFIRMATION OF THE PLAN."

                          VI. SUMMARY OF THE PLAN

A.       BRIEF EXPLANATION OF CHAPTER 11

          Chapter 11 is the principal business reorganization chapter of
the Bankruptcy Code. Under Chapter 11 of the Bankruptcy Code, a debtor is
authorized to reorganize its business for the benefit of itself and its
creditors and stockholders. In addition to permitting rehabilitation of the
debtor, another goal of Chapter 11 is to promote equality of treatment of
creditors and equity security holders, respectively, who hold substantially
similar claims or interests with respect to the distribution of the value
of a Debtors' assets. In furtherance of these two goals, upon the filing of
a petition for relief under Chapter 11, section 362 of the Bankruptcy Code
generally provides for an automatic stay of substantially all acts and
proceedings against a debtor and its property, including all attempts to
collect claims or enforce liens that arose prior to the commencement of the
debtor's Chapter 11 case.

          The consummation of a plan of reorganization is the principal
objective of a Chapter 11 case. A plan of reorganization sets forth the
treatment of claims against and interests in a debtor. Confirmation of a
plan of reorganization by the Bankruptcy Court makes the plan binding upon
the debtor, any issuer of securities under the plan, any person or entity
acquiring property under the plan and any creditor of or equity security
holder in the debtor, whether or not such creditor or equity security
holder (i) is impaired under or has accepted the plan or (ii) receives or
retains any property under the plan. Subject to certain limited exceptions,
and except as provided in the plan itself or the confirmation order,
confirmation discharges the debtor from any debt that arose prior to the
date of confirmation of the plan and substitutes therefore the obligations
specified under the confirmed plan, and terminates all rights and interests
of Pre-Petition equity security holders.

          The following is an overview of certain material provisions of
the Plan. The following summaries of the material provisions of the Plan do
not purport to be complete and are qualified in their entirety by reference
to all the provisions of the Plan, including all exhibits thereto, all
documents described therein and the definitions therein of certain terms
used below.

B.  GENERAL INFORMATION CONCERNING TREATMENT OF CLAIMS
    AND INTERESTS

          1. Administrative Expenses, Priority Tax Claims and Unimpaired
             Classes
             -------

          The Plan provides (i) that each holder of an allowed
Administrative Expense, allowed Priority Tax Claims or allowed Priority
Claim will receive payment in full or other treatment as agreed upon by
such holder and the Debtors; (ii) that the rights of each Holder of an
Allowed Miscellaneous Secured Claim will remain unaltered or that such
Claim will be reinstated or otherwise treated as agreed upon by such Holder
and the Debtors; (iii) that the rights of the Holder of an Allowed PBGC
Claim shall remain unaltered; (iv) that each Holder of an Allowed
Convenience Claim shall receive Cash in an amount sufficient to render such
Allowed Convenience Claim unimpaired; and (v) that the right of each Holder
of an Allowed Intercompany LCE claim shall remain unaltered.

          2. Pre-Petition Credit Agreement Claims
             ------------------------------------

          The Pre-Petition Credit Agreement Claims are Allowed in the
aggregate amount of $742,086,588, including outstanding letters of credit
and accrued but unpaid interest (pursuant to the DIP Final Order, this
amount includes the DIP Repayment Loans). The Plan provides that all
adequate assurance payments received by the Holders of Pre-Petition Credit
Agreement Claims during the Chapter 11 Cases pursuant to paragraph 10(iii)
of the Final DIP Order or otherwise shall be retained by such Holder and
deemed interest payments and not reduction of principal. In addition, but
for the settlement (discussed below), on the Effective Date, each Holder of
an Allowed Pre-Petition Credit Agreement Claim would receive its Pro Rata
Share of (i) 100% of the New Term Notes and (ii) 100% of the New Common
Stock after giving effect to the New Common Stock distributable to the
Holders of the General Unsecured Claims. The Investors hold in the
aggregate at least $300 million aggregate principal amount of Pre-Petition
Credit Agreement Claims. The Investors would therefore receive in respect
of the Pre-Petition Credit Agreement Claims held by them their Pro Rata
Share of the New Term Notes and New Common Stock with the other Holders of
Pre-Petition Credit Agreement Claims.

          The Creditors' Committee has raised certain issues regarding the
validity of the security interests granted in connection with the
Pre-Petition Credit Agreement Claims and the allowance of the Pre-Petition
Credit Agreement Claims and potential Causes of Action against the
Pre-Petition Lenders. The Debtors and the Holders of Pre-Petition Credit
Agreement Claims (including the Investors) do not believe that there is
merit to such issues or alleged Causes of Action. However, the Investors,
in order to facilitate a consensual plan and to settle and compromise any
and all such issues and alleged Causes of Action, have committed to pay to
LCE, on the Effective Date, $45 million for LCE to fund the Unsecured
Settlement Distribution. The Unsecured Settlement Distribution (which would
be funded in whole or in part by the Investors) would be used to provide
the Holders of General Unsecured Claims with a Cash distribution in lieu of
New Common Stock. In consideration for the Investor's commitment to fund
the Unsecured Settlement Distribution, the Plan provides that the
Investors, in consideration for such actions, and in full settlement,
release and discharge of $300 million aggregate principal amount of the
Investors Pre-Petition Credit Agreement Claims, shall receive that portion
of the New Common Stock that was to be distributed to the Holders of
General Unsecured Claims and all the New Common Stock that would have been
distributed to the other Holders of Pre-Petition Credit Agreement Claims
(such distributions to the Investors shall be in lieu of the New Terms
Notes the Investors would have received on account of the $300 million
aggregate principal amount in Pre-Petition Credit Agreement Claims and such
New Term Notes will be distributed to the other Holders of Pre-Petition
Credit Agreement Claims) such that (i) on the Effective Date, the Investors
shall receive 100% of the New Common Stock and (ii) each Holder of a
Pre-Petition Credit Agreement Claim (including the Investor Pre-Petition
Credit Agreement Claims in excess of $300 million aggregate principal
amount) shall, on the Effective Date, receive its pro rata share of 100%
New Term Notes based on the ratio of such Pre-Petition Credit Agreement
Claim to all Pre-Petition Credit Agreement Claims (including the Investor
Pre-Petition Credit Agreement Claims in excess of $300 million aggregate
principal amount).

          Pursuant to Section 9.14 of the Plan, the Plan shall constitute a
good faith compromise and settlement of any Causes of Action or disputes
that could have been brought by a Holder of a General Unsecured Claim, the
Debtors or any other party in interest against a Holder of a Pre-Petition
Credit Agreement Claim. Entry of the Confirmation Order shall constitute
the Bankruptcy Court's approval of this settlement pursuant to Bankruptcy
Rule 9019 and its finding that this is a good faith settlement pursuant to
any applicable state laws, given and made after due notice and opportunity
for hearing, and shall bar the prosecution of any such Cause of Action by
any Holder of a General Unsecured Claim, the Debtor or any other party in
interest against a Holder of a Pre-Petition Credit Agreement Claim.

          The Plan also provides that with respect to Class 5A Subsidiary
General Unsecured Claims, as soon as practicable following the earlier of
(i) the four-month anniversary of the Effective Date (distributions made on
such date shall be subject to the Disputed Class 5 Claim Reserve) and (ii)
the date on which all Disputed General Unsecured Claims have been resolved
by a Final Order of the Bankruptcy Court, each Holder of an Allowed
Subsidiary General Unsecured Claim shall receive, on account of such
Allowed Subsidiary General Unsecured Claims, such Holder's pro rata share
of the Unsecured Settlement Distribution based on the ratio of such
Holder's General Unsecured Claim to all General Unsecured Claims.

          With respect to LCE General Unsecured Claims, the Creditors'
Committee has argued that (a) LCE should not be substantively consolidated
with the Subsidiary Debtors for any purpose, (b) LCE General Unsecured
Claims are structurally subordinated to Subsidiary General Unsecured Claims
and (c) that the Holders of LCE General Unsecured Claims should not share
in distributions on a pro rata basis with Holders of Subsidiary General
Unsecured Claims. The Debtors do not take a position on these issues and
believe that these issues are primarily intercreditor disputes between the
Holders of LCE General Unsecured Claims and Subsidiary General Unsecured
Claims. Therefore, for this reason, in order to not adversely affect the
rights of such Holders with respect to these disputes, (i) the Plan does
not substantively consolidate LCE with any or all of the Subsidiary Debtors
(but preserves the right of the Holders of Class 5B Claims to assert that
LCE should be substantively consolidated with the Subsidiary Debtors), and
(ii) although the Plan provides that all Class 7A Intercompany LCE Claims
will be extinguished, the extinguishment of such Claims is without
prejudice to any arguments that the Holders of LCE General Unsecured Claims
on the one hand and the Holders of Subsidiary General Unsecured Claims on
the other may make in connection with, and in furtherance of, its arguments
and positions in respect of these disputes. As a result, no distributions
shall be made to Holders of LCE General Unsecured Claims until entry of the
Class 5B Final Order. Subject to entry of the Class 5B Final Order, unless
provided to the contrary in the Class 5B Final Order, as soon as
practicable following the earlier of (i) the four month anniversary of the
Effective Date and (ii) the date on which all Disputed General Unsecured
Claims have been resolved by a Final Order of the Bankruptcy Court, each
Holder of an Allowed LCE General Unsecured Claim shall receive, on account
of such Allowed LCE General Unsecured Claim, such Holder's pro rata share
of the Unsecured Settlement Distribution based on the ratio of such
Holder's Allowed General Unsecured Claim to the Maximum Allowable Amount of
all General Unsecured Claims.

          Each Holder of a Subsidiary Common Stock Interest will retain
such Interest and its respective share or shares of common stock of the
Debtors representing such Interest. Holders of Intercompany LCE Claims,
Intercompany Subsidiary Claims, Intercompany Cineplex Odeon Claims and Old
LCE Common Stock Interests will receive no distribution under the Plan.

          To allow the Debtors to complete a financial restructuring in the
manner which will maximize their enterprise values, the Debtors are
soliciting acceptances of the Plan from Holders of Pre-Petition Credit
Agreement Claims and General Unsecured Claims. Holders of Intercompany LCE
Claims, Intercompany Subsidiary Claims, Intercompany Cineplex Odeon Claims
and Old LCE Common Stock Interests do not receive or retain any property
under the Plan. Under section 1126(g) of the Bankruptcy Code, the Holders
of Intercompany LCE Claims, Intercompany Subsidiary Claims, Intercompany
Cineplex Odeon Claims and Old LCE Common Stock Interests are deemed not to
have accepted the Plan, and the acceptance of such Holders will not be
solicited. As co-proponents of the Plan, the Holders of Intercompany LCE
Claims and Intercompany Subsidiary Claims support the Plan. In addition,
Holders of Intercompany Cineplex Odeon have advised the Debtors that they
support the Plan. The Debtors presently intend to seek confirmation of the
Plan and to cause the Effective Date to occur as soon as practicable. There
can be no assurance, however, as to when the Effective Date will actually
occur. Procedures for the distribution of cash and securities pursuant to
the Plan, including matters that are expected to affect the timing of the
receipt of distributions by Holders of Claims in certain Classes and that
could affect the amount of distributions ultimately received by such
Holders, are described in "PROVISIONS COVERING DISTRIBUTIONS" in Section
VI.H.

          The Debtors, the Creditors' Committee, the Agent and the Investors
believe that the Plan provides the best possible treatment for all Classes
of Claims. The Bankruptcy Court must find, however, that a number of
statutory tests are met before it may confirm the Plan. Many of these tests
are designed to protect the interests of Holders of Claims or Interests who
do not vote to accept the Plan, but who will be bound by the provisions of
the Plan if it is confirmed by the Bankruptcy Court. The "cramdown"
provisions of section 1129(b) of the Bankruptcy Code, for example, permit
confirmation of a Chapter 11 plan of reorganization in certain
circumstances even if the plan is not accepted by all impaired classes of
claims and interests. See Section XIII herein, entitled "VOTING AND
CONFIRMATION OF THE PLAN."

          The Debtors will request that the Bankruptcy Court confirm the
Plan under Bankruptcy Code section 1129(b). Section 1129(b) permits
confirmation of the Plan despite rejection by one or more impaired classes
if the Bankruptcy Court finds that the Plan "does not discriminate
unfairly" and is "fair and equitable" as to the rejecting class or classes.
Class 7A, Class 7B, Class 7C and Class 8 are Impaired and will not receive
or retain any property under the Plan. As noted above, Class 7A, Class 7B
and Class 7C support and accept the Plan. Because Class 8 is deemed not to
have accepted the Plan, the Debtors will request that the Bankruptcy Court
find that the Plan is fair and equitable and does not discriminate unfairly
as to Class 8 (and any other Class that fails to accept the Plan).
Additionally, in the event that Class 5B does not support the Plan, the
Debtors will request that the Bankruptcy Court confirm the Plan under
Bankruptcy Code Section 1129(b). As noted above, the Bankruptcy Court may
confirm the Plan under Bankruptcy Code section 1129(b) if the Plan is fair
and equitable as to the rejecting classes. A plan is fair and equitable to
the dissenting class or classes if the holder of any claim or interest
junior to the claims or interests of such class will not receive or retain
under the plan on account of such junior claim or interest any property.

          With respect to Class 5B, no Holders of Claims or Interests
junior to the Class 5B Claims will receive any distributions under the
Plan. Because the obligor on the Class 5B Claims is LCE, Holders of Class
5B LCE General Unsecured Claims would not be entitled to share pro rata
with the Holders of Class5A Subsidiary General Unsecured Claims in
distributions made by the Subsidiary Debtors unless LCE is substantively
consolidated with the Subsidiary Debtors. The Plan preserves the right of
the Holders of Class5B Claims to seek a determination by the Bankruptcy
Court that LCE should be substantively consolidated with the Subsidiary
Debtors, and the Plan and this Disclosure Statement are neutral as to the
issue of the consolidation or non-consolidation of LCE with the Subsidiary
Debtors. By preserving these issues, the Plan ensures that the Holders of
all General Unsecured Claims receive the appropriate distributions, is fair
and equitable and can be confirmed under section 1129(b) of the Bankruptcy
Code. For a more detailed description of the requirements for acceptance of
the Plan and of the criteria for confirmation notwithstanding rejection by
certain classes, see Section XI herein, entitled "REQUIREMENTS FOR
CONFIRMATION OF PLAN."

C.  CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS

          Section 1123 of the Bankruptcy Code requires that, for purposes
of treatment and voting, a Chapter 11 plan divide the different claims
against, and equity interests in, the Debtors into separate classes based
upon their legal nature. In accordance with section 1123 of the Bankruptcy
Code, claims of a substantially similar legal nature are usually classified
together, as are equity interests which give rise to the same legal rights;
the "claims" and "equity interests" themselves, rather than their holders,
are classified.

          Under a Chapter 11 plan, the separate classes of claims and
equity interests must be designated either as "impaired" or "unimpaired" by
the plan. If a class of claims is "impaired," the Bankruptcy Code affords
certain rights to the holders of such claims, such as the right to vote on
the plan (unless the plan provides for no distribution to the holders, in
which case, the holder is deemed to reject the plan), and the right to
receive under the Chapter 11 plan property of a value that is not less than
the value the holder would receive if the debtor were liquidated under
Chapter 7. Under section 1124 of the Bankruptcy Code, a class of claims or
interests is "impaired" unless the plan (i) does not alter the legal,
equitable, or contractual rights of the holders or (ii) irrespective of the
holders' acceleration rights, cures all defaults (other than those arising
from the debtor's insolvency, the commencement of the case, or
nonperformance of a nonmonetary obligation), reinstates the maturity of the
claims or interests in the class, compensates the holders for actual
damages incurred as a result of their reasonable reliance upon any
acceleration rights, and does not otherwise alter their legal, equitable,
or contractual rights. Typically, this means the holder of an unimpaired
claim will receive on the later of the effective date or the date on which
amounts owing are due and payable, payment in full, in cash, with
post-petition interest to the extent appropriate and provided under the
governing agreement (or if there is no agreement, under applicable
nonbankruptcy law), and the remainder of the debtor's obligations, if any,
will be performed as they come due in accordance with their terms. Thus,
other than its right to accelerate the debtor's obligations, the holder of
an unimpaired claim will be placed in the position it would have been in
had the debtor's case not been commenced.

          As discussed above, section 1123 of the Bankruptcy Code provides
that a plan of reorganization shall classify the claims of a debtor's
creditors and equity interest holders. In compliance therewith, the Plan
divides Claims and Interests into twelve Classes and sets forth the
treatment for each Class. In accordance with section 1123(a),
Administrative Expenses and Priority Tax Claims have not been classified.
The Debtors also are required, as discussed above, under section 1122 of
the Bankruptcy Code, to classify Claims and Interests into Classes that
contain Claims and Interests that are substantially similar to the other
Claims and Interests in such Classes. The Debtors believe that the Plan has
classified all Claims and Interests in compliance with the provisions of
section 1122 of the Bankruptcy Code, but it is possible that a Holder of a
Claim or Interest may challenge the classification of Claims and Interests
and that the Bankruptcy Court may find that a different classification is
required for the Plan to be confirmed. In such event, the Debtors intend,
to the extent permitted by the Bankruptcy Court and the Plan, to make such
reasonable modifications of the classifications under the Plan to permit
confirmation and to use the Plan acceptances received in this solicitation
for the purpose of obtaining the approval of the reconstituted Class or
Classes of which the accepting Holder is ultimately deemed to be a member.
Any such reclassification could adversely affect the Class in which such
Holder was initially a member, or any other Class under the Plan, by
changing the composition of such Class and the vote required of that Class
for approval of the Plan. Furthermore, a reclassification of a Claim or
Interest after solicitation of acceptances of the Plan could necessitate a
resolicitation of acceptances of the Plan.

          The classification of Claims and Interests and the nature of
distributions to Holders of Impaired Claims or Impaired Interests in each
Class are summarized below. See "SECURITIES TO BE ISSUED AND TRANSFERRED
UNDER THE PLAN" in Section VI.D. for a description of the manner in which
the number of shares of New Common Stock will be determined and Section VII
herein, entitled "RISK FACTORS," for a discussion of various other factors
that could materially affect the value of the New Common Stock distributed
pursuant to the Plan.

          1. Unclassified Claims
             -------------------

          The Bankruptcy Code does not require classification of certain
priority claims against a debtor. In these Chapter 11 Cases, these
unclassified claims include Administrative Expenses and Priority Tax
Claims. All distributions referred to below that are scheduled for the
Effective Date will be made on the Effective Date or as soon as practicable
thereafter.

               (a) ADMINISTRATIVE EXPENSES

          Administrative Expenses are the actual and necessary costs and
expenses of the Debtors' Chapter 11 Cases that are allowed under sections
503(b) of the Bankruptcy Code. Those expenses will include the Debtors'
obligations under the DIP Facility Agreement (other than the DIP Repayment
Loans (as defined in the Final DIP Order) which Claims, consistent with the
agreement of the Pre-Petition Lenders, are treated as Pre-Petition Credit
Agreement Claims), post-petition salaries and other employee benefits,
post-petition rents, amounts owed to vendors providing goods and services
to the Debtors during the Chapter 11 Cases, tax obligations incurred after
the Filing Date, and certain statutory fees and charges assessed under
section 1930 of title 28 of the United States Code. Other Administrative
Expenses include the actual, reasonable fees and expenses incurred during
the Chapter 11 Cases of the Debtors' professionals and the professionals
retained by the Creditors' Committee and any other official committees
appointed in the Chapter 11 Cases.

          The following is a table setting forth the dollar amount of
compensation for professional services rendered and reimbursement of
expenses incurred by professionals on behalf of the Debtors and the
Creditors' Committee and paid to date on the Chapter 11 cases.

    Attorneys                         Interim Fees and Expenses Distributed
    ---------                         -------------------------------------
                                      through October 31, 2001
                                      -----------------------

1.  Fried, Frank, Harris, Shriver &                          $1,522,833.62
    Jacobson, Counsel for the Debtors

2.  Togut, Segal & Segal LLP,                                  $147,963.52
    Co-counsel for the Debtors

3.  Lenczner, Slaght, Royce, Smith                              $11,067.01
    & Griffin, Canadian Counsel for LCE

4.  Pachulski, Stang, Ziehl, Young &                           $624,060.51
    Jones P.C., Counsel for the Creditors' Committee

5.  Kronish, Lieb, Weiner & Hellman,                            $95,763.29
    Co-counsel for the Creditors' Committee

    Accountants
    -----------

6.  PricewaterhouseCoopers LLP,                                $635,889.62
    Accountants to the Debtors

    Financial Advisors
    ------------------

7.  Lazard Freres & Co. LLC,                                   $793,813.52
    Investment Bankers to the Debtors

8.  KPMG,                                                      $623,575.80
    Financial Advisors to the Creditors' Committee

    Public Relations
    ----------------

9.  Kekst & Company,                                            $21,055.04
    Communications Advisors to the Debtors

    Real Estate
    -----------

10. Huntley Financial Group,                                   $141,772.11
    Real Estate Advisors to the Debtors

          With respect to the Administrative Claims of Lazard Freres & Co.
LLC ("Lazard"), the Debtors and Lazard entered into an engagement letter
(the "Engagement Letter") dated February 8, 2001, pursuant to which the
Debtors retained Lazard to provide financial advisory services to the
Debtors. An order (the "Retention Order") authorizing the Debtors to retain
Lazard under sections 327(a) and 328(a) of the Bankruptcy Code pursuant to
the terms of the Engagement Letter was entered by the Bankruptcy Court on
March 14, 2001. The Engagement Letter provides, among other things, that
Lazard will receive the following fees as compensation for its services:

               (a)  a fee of $150,000 per month payable in cash, for each
                    month of the term of Lazard's engagement, commencing
                    with the month of February 2001; and

               (b)  a $4.05 million Restructuring Transaction Fee payable
                    in cash promptly upon the closing of such Restructuring
                    Transaction.

          In addition, the Engagement Letter obligates the Debtors to
reimburse Lazard for all reasonable out of pocket expenses incurred by
Lazard in connection with its representation of the Debtors. All monthly
fees paid by the Debtors (except for the first six monthly fees) shall be
credited against the Restructuring Transaction Fee. The Engagement Letter
defines a Restructuring Transaction as, among other things, "any financial
restructuring and/or recapitalization of the [Debtors] pursuant to chapter
11 of the . . . Bankruptcy Code . . . ." Therefore, confirmation of the
Plan and the closing of the transaction contemplated hereby would
constitute a "Restructuring Transaction" and, under the Engagement Letter,
Lazard would be entitled to receive the Restructuring Transaction Fee,
subject to Bankruptcy Court approval of a final fee application therefore.
If the restructuring contemplated by the Plan is consummated on February
28, 2002, Lazard will have earned $4,950,000 plus reimbursement for
expenses incurred.

          The Plan is in large measure the result of the efforts of the
Debtors' management, Lazard and Fried Frank. A core team of professionals
from Lazard and Fried Frank spent significant time negotiating the terms of
the Plan, often to the exclusion of other matters. As a result of these
efforts, the Debtors have been able to formulate a Plan that has the
support of the Creditors' Committee, the Agent and the Investors. In light
of the value of the restructuring transaction contemplated by the Plan and
the time spent by Lazard developing the Plan, the Debtors believe the
Restructuring Transaction Fee is reasonable.

          Administrative Expenses representing liabilities incurred in the
ordinary course of business, consistent with past practice, by the Debtors
or liabilities arising under loans or advances to the Debtors after the
Filing Date, whether or not incurred in the ordinary course of business,
will continue to be paid by the Debtors in accordance with the terms and
conditions of the particular transaction and any related agreements and
instruments. All other Allowed Administrative Expenses will be paid, in
full, in Cash, on the Effective Date or as soon thereafter as is
practicable, or on such other terms as to which the Debtors and the Holder
of such Administrative Expense agree.

          The Debtors anticipate that most Administrative Expenses will be
paid as they come due during the Chapter 11 Cases and that the
Administrative Expenses to be paid on the Effective Date of the Plan will,
for the most part, comprise the unpaid allowed fees and expenses incurred
by professionals retained in the Chapter 11 Cases and the costs attendant
to the Debtors' assumption of executory contracts and unexpired leases
under the Plan.

          All payments to professionals for compensation and reimbursement
of expenses and all payments to reimburse expenses of members of the
Creditors' Committee will be made in accordance with the procedures
established by the Bankruptcy Code and the Bankruptcy Rules relating to the
payment of interim and final compensation and expenses. The Bankruptcy
Court will review and determine all such requests. In addition to the
foregoing, section 503(b) of the Bankruptcy Code provides for payment of
compensation to creditors, indenture trustees, and other persons making a
"substantial contribution" to a Chapter 11 case, and to attorneys for, and
other professional advisors to, such persons. Requests for such
compensation must be approved by the Bankruptcy Court after notice and a
hearing at which the Debtors and other parties-in-interest may participate,
and if appropriate, object to the allowance thereof.

          Under the Plan, each holder of an Allowed Administrative Expense
will be paid in full in Cash on the later of (i) the Effective Date, (ii)
the date on which the Bankruptcy Court enters an order allowing such
Administrative Expense and (iii) the date on which the Debtors and the
Holder of such Allowed Administrative Expense otherwise agree; provided,
however, that Allowed Administrative Expenses representing (a) obligations
incurred under the DIP Facility Agreement shall be paid in full in Cash on
the Effective Date, and (b) obligations incurred in the ordinary course of
business consistent with past practice, or assumed by the Debtors shall be
paid in full or performed by the Debtors or Reorganized Debtors in the
ordinary course of business, consistent with past practice; provided
further, however, that Allowed Administrative Expenses incurred by the
Debtors or Reorganized Debtors after the Confirmation Date, including,
without limitation, claims for professionals' fees and expenses, shall not
be subject to application and may be paid by the Debtors or Reorganized
Debtors, as the case may be, in the ordinary course of business and without
further Bankruptcy Court approval.

               (b) PRIORITY TAX CLAIMS

          Priority Tax Claims consist of unsecured claims by federal, state
and local governmental units for taxes specified in section 507(a)(8) of
the Bankruptcy Code, such as certain income taxes, property taxes, and
excise taxes. These unsecured claims are given a statutory priority in
right of payment.

          At the sole option of the Debtors, each Holder of an Allowed
Priority Tax Claim shall receive (i) cash payments made in equal annual
installments beginning on or before the first anniversary following the
Effective Date with the final installment being payable no later than the
sixth anniversary of the date of the assessment of such Allowed Priority
Tax Claim, together with interest on the unpaid balance of such Allowed
Priority Tax Claim from the Effective Date calculated at the Market Rate;
or (ii) such other treatment agreed to by the Holder of such Allowed
Priority Tax Claim and the Debtors or Reorganized Debtors, as the case may
be. The foregoing treatment of Allowed Priority Tax Claims is consistent
with the provisions of section 1129(a)(9)(C) of the Bankruptcy Code, and
the Holders of Allowed Priority Tax Claims are not entitled to vote on the
Plan.

          2. Classified Claims and Interests
             -------------------------------

                (a) CLASS 1-PRIORITY CLAIMS

          Class 1 Claims are Unimpaired. Class 1 consists of all Allowed
Priority Claims. A Priority Claim is a Claim against the Debtors for an
amount entitled to priority under section 507(a) of the Bankruptcy Code,
and does not include any Administrative Expense or Priority Tax Claims.
These Priority Claims include, among others: (a) unsecured Claims for
accrued employee compensation earned within 90 days prior to the Filing
Date, to the extent of $4,300 per employee; and (b) contributions to
employee benefit plans arising from services rendered within 180 days prior
to the Filing Date, but only for such plans to the extent of (i) the number
of employees covered by such plans multiplied by $4,300, less (ii) the
aggregate amount paid to such employees under section 507(a)(3) of the
Bankruptcy Code, plus the aggregate amount paid by the estate on behalf of
such employees to any other employee benefit plan.

          The Plan provides that, on the latest of (i) the Effective Date,
(ii) the date on which such Priority Claim becomes an Allowed Priority
Claim, or (iii) the date on which the Debtors and the Holder of such
Allowed Priority Claim otherwise agree, each Holder of an Allowed Priority
Claim will be entitled to receive Cash in an amount sufficient to render
such Allowed Priority Claim Unimpaired under section 1124 of the Bankruptcy
Code; provided, however, Allowed Priority Claims representing obligations
incurred in the ordinary course shall be paid in full or performed by the
Reorganized Debtors in the ordinary course of business, consistent with
past practice. Allowed Priority Claims in Class 1 are not Impaired under
the Plan and, accordingly, the Holders of Allowed Priority Claims in Class
1 are not entitled to vote for or against the Plan and will be deemed to
have accepted the Plan.

               (b) CLASS 2-PRE-PETITION CREDIT AGREEMENT CLAIMS

          Class 2 Claims are Impaired. Class 2 consists of the Pre-Petition
Credit Agreement Claims. The Pre-Petition Credit Agreement Claims are any
and all Claims in respect of, or in connection with, all or any portion of
the aggregate outstanding and unpaid amount of principal and interest due
and owing under, and subject to the terms and provisions of, the
Pre-Petition Credit Agreement and any and all related documents, including,
without limitation, any and all accrued adequate protection payments in
respect thereof and any and all interest, costs, attorneys' fees and other
expenses owed by the Debtors or for which the Debtors may be liable in
connection therewith.

          The Pre-Petition Credit Agreement Claims are Allowed in the
aggregate amount of $742,086,538 (pursuant to the DIP Final Order, this
amount includes the DIP Repayment Loans). The Plan provides that all
adequate assurance payments received by the Holders of Pre-Petition Credit
Agreement Claims during the Chapter 11 Cases pursuant to paragraph 10(iii)
of the Final DIP Order or otherwise shall be retained by such Holder and
deemed interest payments and not reduction of principal. In addition,
subject to the Settlement (discussed below), on the Effective Date, each
Holder of an Allowed Pre-Petition Credit Agreement Claim shall receive its
Pro Rata Share of (i) 100% of the New Term Notes and (ii) 100% of the New
Common Stock. The Investors hold in the aggregate at least $300 million
aggregate principal amount of Pre-Petition Credit Agreement Claims. The
Investors would therefore receive in respect of the Pre-Petition Credit
Agreement Claims held by them their Pro Rate Share of the New Term Notes
and the New Common Stock with the other Holders of Pre-Petition Credit
Agreement Claims.

          The Creditors' Committee has raised certain issues regarding the
validity of the security interests granted in connection with the
Pre-Petition Credit Agreement Claims and the allowance of the Pre-Petition
Credit Agreement Claims and potential Causes of Action against the
Pre-Petition Lenders. The Debtors and the Holders of Pre-Petition Credit
Agreement Claims (including, the Investors) do not believe that there is
merit to such issues or alleged Causes of Action. However, the Investors,
in order to facilitate a consensual plan and to settle and compromise any
and all such issues and alleged Causes of Action, has committed to fund the
Unsecured Settlement Distribution. The Unsecured Settlement Distribution
would be used to provide the Holders of General Unsecured Claims with a
Cash distribution in lieu of New Common Stock. In consideration for the
Investor's commitment to pay to LCE, on the Effective Date, up to $45
million for LCE to fund the Unsecured Settlement Distribution, the Plan
provides that the Investors, in consideration for such actions, and in full
settlement, release and discharge of $300 million aggregate principal
amount of the Investors Pre-Petition Credit Agreement Claims, shall receive
that portion of the New Common Stock that was to be distributed to the
Holders of General Unsecured Claims and all the New Common Stock that would
have been distributed to the other Holders of Pre-Petition Credit Agreement
Claims (such distributions to the Investors shall be in lieu of the New
Terms Notes the Investors would have received on account of $300 million
aggregate principal amount of their Pre-Petition Credit Agreement Claims
and such New Term Notes will be distributed to the other Holders of
Pre-Petition Credit Agreement Claims and to the Investors on account of
their Pre-Petition Credit Agreement Claims in excess of $300 million
aggregate principal amount) such that (i) on the Effective Date, the
Investors shall receive 100% of the New Common Stock and (ii) each Holder
of a Pre-Petition Credit Agreement Claim (including Investor Pre-Petition
Credit Agreement Claims in excess of $300 million) shall, on the Effective
Date, receive its pro rata share of 100% New Term Notes based on the ratio
of such Pre-Petition Credit Agreement Claim to all Pre-Petition Credit
Agreement Claims (including the Investor Pre-Petition Credit Agreement
Claims in excess of $300 million aggregate principal amount).

          Pursuant to Section 9.14 of the Plan, the Plan shall constitute a
good faith compromise and settlement of any Causes of Action or disputes
that could have been brought by a Holder of a General Unsecured Claim, the
Debtors or any other party in interest against a Holder of a Pre-Petition
Credit Agreement Claim. Entry of the Confirmation Order shall constitute
the Bankruptcy Court's approval of this settlement pursuant to Bankruptcy
Rule 9019 and its finding that this is a good faith settlement pursuant to
any applicable state laws, given and made after due notice and opportunity
for hearing, and shall bar any such Cause of Action by any Holder of a
General Unsecured Claim, the Debtor or any other party in interest against
a Holder of a Pre-Petition Credit Agreement Claim.

          The Class 2 Pre-Petition Credit Agreement Claims are Impaired
and, accordingly, the Holders of such Claims are entitled to vote to accept
or reject the Plan. The Holders of a majority of the Pre-Petition Credit
Agreement Claims have indicated their intent to accept the Plan.

                  (c) CLASS 3-MISCELLANEOUS SECURED CLAIMS

          Class 3 Claims are Unimpaired. Class 3 consists of all
Miscellaneous Secured Claims. Miscellaneous Secured Claims are all Claims
other than a Pre-Petition Credit Agreement Claim or an Administrative
Expense, that are secured claims within the meaning of, and to the extent
allowable as secured claims under, section 506 of the Bankruptcy Code.
Miscellaneous Secured Claims include, but are not limited to, Claims for
payment pursuant to mortgages granted by the Debtors on certain of their
real property interests, including the Claim of National Western pursuant
to certain mortgages on the Debtors' Catalina and El Dorado theatres in
Tucson, Arizona. Based on the Debtors' books and records, the Debtors
believe that there are approximately $6.3 million in Miscellaneous Secured
Claims. To the extent, if any, that the value of the collateral securing a
Class 3 Miscellaneous Secured Claim is less than the amount of such Allowed
Miscellaneous Secured Claim, the difference will be treated as a Class 5
General Unsecured Claim.

          Under the Plan, on the latest of (a) the Effective Date, (b) the
date on which such Miscellaneous Secured Claim becomes an Allowed Claim,
and (c) the date on which the Debtors and the Holders of such Allowed
Miscellaneous Secured Claim otherwise agree, at the election of the Debtors
prior to the Effective Date, each Holder of an Allowed Class 3
Miscellaneous Secured Claim will be entitled to receive one of the
following treatments: (i) the legal, equitable and contractual rights to
which such Allowed Miscellaneous Secured Claim entitles such Holder will
remain unaltered, (ii) such Holder's Allowed Miscellaneous Secured Claim
will be reinstated and rendered Unimpaired in accordance with section
1124(2) of the Bankruptcy Code, or (iii) such other treatment as mutually
agreed to by the Debtors and such Holder. Class 3 Miscellaneous Secured
Claims are Unimpaired and, accordingly, the Holders of such Claims are not
entitled to vote for or against the Plan and will be deemed to have
accepted the Plan.

                  (d) CLASS 4-PBGC CLAIMS

          Class 4 Claims are Unimpaired. Class 4 consists of all PBGC
Claims. The PBGC is a wholly-owned United States corporation established
pursuant to Title IV of the Employee Retirement Income Security Act of 1974
("ERISA"). The PBGC was created to administer and enforce a mandatory
government insurance program covering defined benefit pension plans. In the
event that such a pension plan is terminated with insufficient assets to
pay guaranteed pension obligations, the PBGC assumes control of the plan
and pays most (if not all) of the benefits due thereunder. Any person who
is, on the plan's termination date, a contributing sponsor of the plan or a
member of such a contributing sponsor's controlled group is liable for the
total amount of unfunded benefit liabilities.

          For purposes of this Disclosure Statement, PBGC Claims are any
and all Claims of the PBGC in respect of pension plans of which Cineplex
Odeon or LCE is the plan sponsor, including any action brought under Title
IV of ERISA to collect premiums or to recover liabilities incurred in
connection with a plan termination. All of the PBGC's Claims are
contingent. Under the Plan, the Holder of the Allowed PBGC Claims shall be
entitled to receive on account of such Holder's Allowed PBGC Claims the
following treatment: The legal, equitable and contractual rights to which
such Allowed PBGC Claims entitles such Holder shall remain unaltered. Class
4 PBGC Claims are Unimpaired and, accordingly, the Holders of such Claims
are not entitled to vote for or against the Plan and will be deemed to have
accepted the Plan.

                  (e) CLASS 5A-SUBSIDIARY GENERAL UNSECURED CLAIMS

          Class 5A Claims are Impaired. Class 5A consists of all Subsidiary
General Unsecured Claims. Subsidiary General Unsecured Claims are all
Claims (other than a Convenience Claim, a Pre-Petition Credit Agreement
Claim, a Miscellaneous Secured Claim, a Priority Claim, a Priority Tax
Claim, an Administrative Expense Claim, a PBGC Claim, an Intercompany
Claim, or any Claim subordinated under section 510(b) of the Bankruptcy
Code) against any Subsidiary Debtor, including, without limitation, any and
all Claims, including environmental Claims, arising from or relating to
properties that were owned, leased or operated by the Debtors in Cicero,
Illinois. Subsidiary General Unsecured Claims include, but are not limited
to, Claims of the Subsidiary Debtors' landlords, trade creditors, service
providers, and other vendors.

          The Plan provides that with respect to Class 5A Subsidiary
General Unsecured Claims, as soon as practicable following the earlier of
(i) the four-month anniversary of the Effective Date and (ii) the date on
which all Disputed General Unsecured Claims have been resolved by a Final
Order of the Bankruptcy Court, each Holder of an Allowed Subsidiary General
Unsecured Claim shall receive, on account of such Allowed Subsidiary
General Unsecured Claims, such Holder's pro rata share of the Unsecured
Settlement Distribution based on the ratio of such Holder's Allowed General
Unsecured Claim to the Maximum Allowable Amount of all General Unsecured
Claims. Allowed Subsidiary General Unsecured Claims in Class 5A are
Impaired under the Plan and, accordingly, the Holders of Subsidiary General
Unsecured Claims in Class 5A are entitled to vote to accept or reject the
Plan.

                  (f) CLASS 5B-LCE GENERAL UNSECURED CLAIMS

          Class 5B Claims are Impaired. Class 5B consists of all LCE
General Unsecured Claims. LCE General Unsecured Claims are all Claims
(other than a Convenience Claim, a Pre-Petition Credit Agreement Claim, a
Miscellaneous Secured Claim, a Priority Claim, a Priority Tax Claim, an
Administrative Expense Claim, a PBGC Claim, an Intercompany Claim, or any
Claim subordinated under section 510(b) of the Bankruptcy Code) against
LCE, including, without limitation, any and all Claims, including
environmental Claims, arising from or related to properties that were
owned, leased or operated by the Debtors in Cicero, Illinois. LCE General
Unsecured Claims include, but are not limited to, Claims of LCE's
landlords, trade creditors, service providers, other vendors and the
Pre-Petition Note Holders.

          With respect to LCE General Unsecured Claims, the Creditors'
Committee has argued that (a) LCE should not be substantively consolidated
with the Subsidiary Debtors for any purpose, (b) LCE General Unsecured
Claims are structurally subordinated to Subsidiary General Unsecured Claims
and (c) that the Holders of LCE General Unsecured Claims should not share
in distributions on a pro rata basis with Holders of Subsidiary General
Unsecured Claims. The Debtors do not take a position on these issues and
believe that these issues are primarily intercreditor disputes between the
Holders of LCE General Unsecured Claims and Subsidiary General Unsecured
Claims. For this reason, in order to not adversely affect the rights of
such Holders with respect to these disputes, the Plan does not
substantively consolidate LCE with any or all of the Subsidiary Debtors,
and no distributions shall be made to Holders of LCE General Unsecured
Claims until entry of the Class 5B Final Order. Subject to entry of the
Class 5B Final Order, unless provided to the contrary in the Class 5B Final
Order, as soon as practicable following the earlier of (i) the four month
anniversary of the Effective Date (distributions made on such date shall be
subject to the Disputed Class 5 Claim Reserve) and (ii) the date on which
all Disputed General Unsecured Claims have been resolved by a Final Order
of the Bankruptcy Court, each Holder of an Allowed LCE General Unsecured
Claim shall receive, on account of such Allowed LCE General Unsecured
Claim, such Holder's pro rata share of the Unsecured Settlement
Distribution based on the ratio of such Holder's Allowed General Unsecured
Claim to the Maximum Allowable Amount of all General Unsecured Claims.
Allowed LCE General Unsecured Claims in Class 5B are Impaired under the
Plan and, accordingly, the Holders of LCE General Unsecured Claims in Class
5B are entitled to vote to accept or reject the Plan.

                  (g) CLASS 6-CONVENIENCE CLAIMS

          Class 6 Claims are Unimpaired. Class 6 consists of all
Convenience Claims. A Convenience Claim is any General Unsecured Claims
that is (i) Allowed for an amount of $500 or less or (ii) is Allowed in an
amount greater than $500, but which is reduced to $500 by election of the
Holder thereof pursuant to such Holder's ballot. Based on their books and
records, the Debtors believe that there are approximately $270,000 in
General Unsecured Claims in an amount of $500 or less. Under the Plan, as
soon as practicable following the Effective Date, each Holder of a
Convenience Claim shall receive Cash in an amount sufficient to render such
Allowed Convenience Claim (as reduced by election of the Holder of such
Claim) Unimpaired under Section 1124 of the Bankruptcy Code. Class 6
Convenience Claims are Unimpaired and, accordingly, the Holders of such
Claims are not entitled to vote for or against the Plan and will be deemed
to have accepted the Plan.

                  (h) CLASS 7A-HOLDERS OF INTERCOMPANY LCE CLAIMS

          Class 7A Claims are Impaired. Class 7A consists of all
Intercompany LCE Claims. Intercompany LCE Claims are all Claims (a) held by
LCE against another Debtor or (b) held by a Debtor against LCE, including,
without limitation, Claims arising as a result of advances made (x) by LCE
to another Debtor or (y) by a Debtor to LCE, as the case may be. Under the
Plan, subject to the occurrence of the Effective Date, all Intercompany LCE
Claims will be extinguished and no distributions will be made in respect of
such Intercompany LCE Claims; provided, however, the extinguishment of such
Claims shall be without prejudice to any arguments that the Holders of LCE
General Unsecured Claims on the one hand and the Holders of Subsidiary
General Unsecured Claims on the other may make in connection with, and in
furtherance of, its arguments and positions in respect of the intercreditor
dispute described in Section 6.5.2(a) of the Plan. Allowed Intercompany LCE
Claims are Impaired under the Plan and do not receive or retain any
property under the Plan. Under Section 1126(g) of the Bankruptcy Code, the
Holders of such Intercompany LCE Claims are deemed not to have accepted the
Plan, and the acceptance of such Holders will not be solicited. As
co-proponents of the Plan, however, the Holders of Intercompany LCE Claims
support the Plan.

                  (i) CLASS 7B-HOLDERS OF INTERCOMPANY SUBSIDIARY CLAIMS

          Class 7B Claims are Impaired. Class 7B consists of all
Intercompany Subsidiary Claims. Intercompany Subsidiary Claims are all
Claims held by a Subsidiary Debtor against another Subsidiary Debtor,
including, without limitation, Claims arising as a result of advances made
by a Subsidiary Debtor to another Subsidiary Debtor. Under the Plan,
subject to the occurrence of the Effective Date, all Intercompany
Subsidiary Claims will be extinguished and no distributions will be made in
respect of such Intercompany Subsidiary Claims. Allowed Intercompany
Subsidiary Claims are Impaired under the Plan and do not receive or retain
any property under the Plan. Under Section 1126(g) of the Bankruptcy Code,
the Holders of such Intercompany Subsidiary Claims are deemed not to have
accepted the Plan, and the acceptance of such Holders will not be
solicited. As co-proponents of the Plan, however, the Holders of
Intercompany Subsidiary Claims support the Plan.

                  (j) CLASS 7C-HOLDERS OF INTERCOMPANY CINEPLEX ODEON CLAIMS

          Class 7C Claims are Impaired. Class 7C consists of all
Intercompany Cineplex Odeon Claims. Intercompany Cineplex Odeon Claims are
all Claims held by a Canadian Debtor against any of the Debtors. Cineplex
Odeon has asserted approximately $65 million in Intercompany Cineplex Odeon
Claims against Plitt Theatres, Inc., one of the Debtors. In addition, LCE
holds a $356.6 million CND unsecured claim and a $7 million CND secured
claim against Cineplex Odeon in the CCAA Cases for which LCE anticipates
that it will receive a distribution in the CCAA Cases. Additionally, LCE
has a claim against Cineplex Odeon for amounts advanced under the Canadian
DIP. Under the Plan, subject to the occurrence of the Effective Date, all
Intercompany Cineplex Odeon Claims will be extinguished and no
distributions will be made in respect of such Intercompany Cineplex Odeon
Claims.

          Although the Debtors and Cineplex Odeon have agreed that the
Intercompany Cineplex Odeon Claims will be extinguished, the Plan provides
that with respect to those Canadian Debtors as to which any particular
Debtor has a valid and allowable claim in the CCAA Cases (or any successor
insolvency proceeding under applicable Canadian law) (a "Canadian Claim"),
if and to the extent that such Canadian Debtor has an allowable
Intercompany Cineplex Odeon Claim against that particular Debtor which is
being extinguished under Section 6.7.3 of the Plan and under applicable
non-bankruptcy law such Canadian Debtor has the right to set off against
such Canadian Claim held by that particular Debtor, then such Intercompany
Cineplex Odeon Claim shall be preserved solely for purposes of permitting
such Canadian Debtor to exercise such set off rights, if any, that it may
have against that particular Debtor (and no other Debtor) and thereby
reduce the allowable amount of the Canadian Claim held by such Debtor, but
in no event shall this provision be construed as permitting any Canadian
Debtor to receive any distributions under the Plan in respect of any
Intercompany Cineplex Odeon Claim held by it or otherwise. The Debtors do
not believe that any Canadian Debtor will be able to exercise this right of
set off because there is no mutuality of the claims. Allowed Intercompany
Cineplex Odeon Claims are Impaired under the Plan and do not receive or
retain any property under the Plan. Under Section 1126(g) of the Bankruptcy
Code, the Holders of such Intercompany Cineplex Odeon Claims are deemed not
to have accepted the Plan, and the acceptance of such Holders will not be
solicited. The Holders of Intercompany Cineplex Odeon Claims have advised
the Debtors that they support the Plan.

                  (k) CLASS 8-HOLDERS OF OLD LCE COMMON STOCK INTERESTS

          Class 8 Interests are Impaired. Class 8 consists of all Old LCE
Common Stock Interests. Old Common Stock Interests are any Interests
evidenced by Old LCE Common Stock or any Claim, if any, relating to Old LCE
Common Stock that is subordinated under section 510(b) of the Bankruptcy
Code and any other Interest other than Subsidiary Common Stock Interests,
including without limitation, any other capital stock of LCE, and all
issued, outstanding and unexpired options, warrants, conversion rights,
principal or other legal or contractual right to acquire Old LCE Common
Stock, Subsidiary Common Stock or any other Interest. Under the Plan, on
the Effective Date, all Old LCE Common Stock Interests will be extinguished
and no distributions will be made in respect of such Old LCE Common Stock
Interests. Allowed Old LCE Common Stock Interests are Impaired under the
Plan and do not receive or retain any property under the Plan. Under
section 1126(g) of the Bankruptcy Code, the Holders of such Old LCE Common
Stock Interests are deemed not to have accepted the Plan, and the
acceptance of such Holders will not be solicited.

                  (l) CLASS 9-SUBSIDIARY COMMON STOCK INTERESTS

          Class 9 Interests are Unimpaired. Class 9 consists of all
Subsidiary Common Stock Interests. The Subsidiary Common Stock Interests
are, collectively, any and all authorized issued and outstanding Interests
in each of the Debtors other than LCE. Under the Plan, on the Effective
Date, each Holder of a Subsidiary Common Stock Interest shall retain such
Interest and its respective share or shares of common stock of the Debtors
representing such Interest. Class 9 Interests are not Impaired and
accordingly, the Holders of Subsidiary Common Stock Interests in Class 9
will be deemed to have accepted the Plan.

D.  SECURITIES TO BE ISSUED AND TRANSFERRED UNDER THE PLAN

          1. New Term Notes
             --------------

          The New Term Notes will be issued to holders of Pre-Petition
Credit Agreement Claims. The principal terms of the New Term Notes are set
forth on Exhibit B attached hereto.

          2. New Common Stock
             ----------------

          As of the Effective Date, Reorganized LCE will issue the New
Common Stock. In accordance with the Reorganized LCE Certificate of
Incorporation, Reorganized LCE will have 100,000 authorized shares of New
Common Stock, par value $.01 per share.

                  (a) DISTRIBUTIONS

          Holders of shares of New Common Stock will be entitled to receive
ratably such dividends as may be declared by the Board of Reorganized LCE
in its discretion from funds legally available therefor. The Debtors
believe that their New Working Capital Facility will contain negative
covenants that restrict, among other things, the ability of Reorganized LCE
to pay dividends. In the event of a liquidation, dissolution or winding up
of the Reorganized Debtors, the holders of New Common Stock will be
entitled to share ratably in all assets remaining after payment of
liabilities and any liquidation preference owed to holders of any preferred
stock. Holders of New Common Stock will have no preemptive rights and have
no rights to convert their New Common Stock into any other securities.

                  (b) VOTING

          Holders of shares of New Common Stock will be entitled to one
vote per share on all matters to be voted on by stockholders. Matters
submitted for stockholder approval require a majority vote of the shares,
except where the vote of a greater number is required by the DGCL.

                  (c) ELECTION OF DIRECTORS

          The Boards of the Reorganized Debtors will consist of a board of
directors, the number of members of the Board will be determined prior to
the hearing on the adequacy of this Disclosure Statement, and two members
of the Board of Reorganized LCE will include the Chief Executive Officer of
Reorganized LCE and the President of Reorganized LCE. Any vacancies in the
Board, for any reason, and any directorships resulting from any increase in
the number of directors, may be filled only by the affirmative vote of a
majority of the Board, although less than a quorum.

E.  SOURCES OF CASH TO MAKE PLAN DISTRIBUTIONS

          Except as otherwise provided in the Plan or the Confirmation
Order, all Cash necessary for Reorganized LCE to make payments pursuant to
the Plan will be obtained from the Debtors' New Working Capital Facility
and from the Debtors' operations; provided, however, that no less than $25
million of the Unsecured Settlement Distribution to be distributed as
provided in section 6.2 of the Plan shall be funded by the Investors.

F.  UNEXPIRED LEASES AND EXECUTORY CONTRACTS

          1. Generally
             ---------

          Under section 365 of the Bankruptcy Code, the Debtors have the
right, subject to Bankruptcy Court approval, to assume or reject executory
contracts or unexpired leases. If an executory contract or unexpired lease
entered into before the Filing Date is rejected by the Debtors, it will be
treated as if the Debtors breached such contract or lease on the date
immediately preceding the Filing Date, and the other party to the agreement
may assert a General Unsecured Claim for damages incurred as a result of
the rejection. In the case of rejection of real property leases and
employment agreements, damages are subject to certain limitations imposed
by sections 365 and 502 of the Bankruptcy Code. Under Section 502(b)(6) of
the Bankruptcy Code, the claim of a lessor for damages resulting from the
termination by the Debtors of a lease for real property pursuant to Section
365 of the Bankruptcy Code may be allowed except to the extent that such
claim exceeds (A) the rent reserved by such lease, without acceleration,
for the greater of one year, or 15 percent, not to exceed three years, of
the remaining term of such lease, following the earlier of (i) the Filing
Date; and (ii) the date on which such lessor repossessed, or the lessee
surrendered, the leased property; plus (B) any unpaid rent due under such
lease, without acceleration, on the earlier of such dates. Under Section
502(b)(7) of the Bankruptcy Code, the claim of an employee of the Debtors
for damages resulting from the termination by the Debtors of an employment
contract pursuant to Section 365 of the Bankruptcy Code may be allowed
except to the extent that such claim exceeds (A) the compensation provided
by such contract, without acceleration, for one year following the earlier
of (i) the Filing Date; or (ii) the date on which the Debtors directed the
employee to terminate, or such employee terminated, performance under such
contract; plus (B) any unpaid compensation due under such contract, without
acceleration, on the earlier of such dates. See Article Eight of the Plan.

          2. Assumption and Rejection
             ------------------------

          The Debtors and Reorganized Debtors shall have until the
two-month anniversary of the Effective Date to assume or reject executory
contracts and unexpired leases that have not been previously assumed or
rejected. Each executory contract or unexpired lease that has not been
expressly assumed or rejected with approval by order of the Bankruptcy
Court on or prior to the two-month anniversary of the Effective Date shall,
as of such date, be deemed to have been assumed by the Debtors unless there
is then pending before the Bankruptcy Court a motion to reject such
unexpired lease or executory contract or a further extension of such
deadline has been ordered by the Court.

          3. Deadline for Filing Rejection Damage Claims
             -------------------------------------------

          Pursuant to the Plan, unless otherwise provided by an order of
the Bankruptcy Court entered prior to the Confirmation Date, a proof of
claim with respect to any Claim against the Debtors arising from the
rejection of any executory contract or unexpired lease pursuant to an order
of the Bankruptcy Court must be filed with the Bankruptcy Court within (a)
the time period established by the Bankruptcy Court in an order of the
Bankruptcy Court approving such rejection, or (b) if no such time period is
or was established, thirty (30) days from the date of entry of such order
of the Bankruptcy Court approving such rejection. Any Entity that fails to
file a proof of claim with respect to its Claim arising from such a
rejection within the period set forth above will be forever barred from
asserting a Claim against the Debtors, Reorganized Debtors, or the property
or interests in property of the Debtors or Reorganized Debtors. All Allowed
Claims arising from the rejection of executory contracts or unexpired
leases will be classified as either a Subsidiary General Unsecured Claim
(Class 5A) or LCE General Unsecured Claim (Class 5B) under the Plan, as
appropriate.

G.  IMPLEMENTATION OF THE PLAN

          1. Substantive Consolidation
             -------------------------

          The Plan is predicated upon the Bankruptcy Court entering the
Confirmation Order, which, among other things, grants the substantive
consolidation of all of the Debtors' Chapter 11 Cases, excluding LCE's
Chapter 11 Case but reserves the rights of the Holders of LCE General
Unsecured Claims to assert that LCE should be substantively consolidated
with the Subsidiary Debtors solely for the purposes of the Plan, the
distribution and other transactions contemplated thereby. Substantive
consolidation is an equitable remedy which a bankruptcy court may be asked
to apply in those chapter 11 cases involving affiliated debtors. As
contrasted with joint administration, substantive consolidation may affect
the substantive rights and obligations of creditors and debtors.
Substantive consolidation involves the pooling of the assets and
liabilities of the affected debtors (to be substantively consolidated); all
the debtors in the substantively consolidated group are treated as if they
were a single corporate/economic entity. Consequently, a creditor of any of
the substantively consolidated debtors is treated as a creditor of the
substantively consolidated group of debtors and issues of individual
corporate ownership of property and individual corporate liability on
obligations are ignored. However, substantive consolidation under the Plan
does not affect the debtors' separated corporate existence of independent
ownership of property for any purpose other than for classification of the
claims, voting on the plan and making distributions of property under a
plan of reorganization or otherwise as necessary to implement such plan.

          Factors evaluated by the Bankruptcy Court when deciding whether
substantive consolidation is appropriate include: (i) whether creditors
dealt with the entities as a single economic unit and did not rely on their
separate identity in extending credit and (ii) whether the affairs of the
Debtors are so entangled that consolidation would benefit creditors. The
Bankruptcy Court will review the record to determine whether substantive
consolidation results in fairness to creditors.

          Throughout their history, the Debtors have operated as a single
integrated company. Although the Debtors have expanded through the
acquisition of a number of companies, as each company was acquired, it was
integrated into the single integrated company. Publicly issued financial
statements were presented on a consolidated basis. All checks are issued by
a single corporate entity and all obligations have been satisfied by one
entity. Additionally, the Debtors held themselves out to theatre attendees
as a single business enterprise. Accordingly, the Debtors believe that
creditors often ignored corporate distinctions between and among the
Debtors and did not rely on corporate distinctions in providing services
and goods and extending credit. Other factors that weigh in favor of
substantive consolidation in these Chapter 11 Cases include combined
business functions, a consolidation of financial statements for the
collective Debtors and the prohibitive costs and resources that would be
required to track all intercompany transaction on a company-by-company
basis. As evidence of the need for substantive consolidation, many
creditors, unsure of the identity of their obligors, have filed proofs of
claim against each of the Debtors.

          As a result, the Debtors believe that substantive consolidation
of all of the Debtors' Chapter 11 Cases is justified. However, as discussed
above, the Creditors' Committee has alleged that the LCE General Unsecured
Claims are structurally subordinated to Subsidiary General Unsecured Claims
and that the Holders of LCE General Unsecured Claims should not share in
distributions on a pro rata basis with holders of Subsidiary General
Unsecured Claims. Therefore, the Creditors' Committee has argued that LCE
should not be consolidated with the Subsidiary Debtors for any purpose. The
Debtors do not take a position on these issues and believe that these
issues are primarily intercreditor disputes between the Holders of LCE
General Unsecured Claims and Subsidiary General Unsecured Claims.
Therefore, for this reason, in order to not adversely affect the rights of
such Holders with respect to these disputes, the Plan does not consolidate
LCE with the Subsidiary Debtors.

          Thus, the Plan contemplates and is predicated upon the
substantive consolidation of the Chapter 11 Cases of all the Subsidiary
Debtors solely for the purposes of the Plan, the distributions and all
actions with respect to confirmation and consummation of the Plan. On the
Confirmation Date or such other date as may be set by a Final Order of the
Bankruptcy Court, but subject to the occurrence of the Effective Date: (i)
all Intercompany Subsidiary Claims by and among the Subsidiary Debtors will
be eliminated and extinguished; (ii) solely for the purposes of the Plan
and the Distributions and transactions contemplated hereby, all assets and
liabilities of the Subsidiary Debtors will be treated as if they had been
merged; (iii) all pre-petition cross-corporate guarantees of the Subsidiary
Debtors will be eliminated; (iv) any obligation of any Subsidiary Debtor
and all guarantees thereof executed by one or more of the Subsidiary
Debtors will be deemed to be one obligation of the consolidated Subsidiary
Debtors; (v) any Claims filed or to be filed in connection with any such
obligation and any corresponding guarantees will be deemed one Claim
against the consolidated Subsidiary Debtors; (vi) each and every Claim
filed in the individual Chapter 11 Case of any of the Subsidiary Debtors
will be deemed filed against the consolidated Subsidiary Debtors in the
consolidated Chapter 11 Case and shall be deemed a single obligation of all
of the Subsidiary Debtors under the Plan on and after the Confirmation
Date; (vii) all duplicative claims (identical in both amount and subject
matter) filed against more than one of the Subsidiary Debtors will be
automatically expunged so that only one Claim survives against the
consolidated Subsidiary Debtors but in no way shall such Claim be deemed
Allowed by reason of Section 9.10(a) of the Plan; and (viii) the
consolidated Subsidiary Debtors will be deemed, for purposes of determining
the availability of the right of set-off under section 553 of the
Bankruptcy Code, to be one entity, so that, subject to other provisions of
section 553 of the Bankruptcy Code, the debts due to a particular
Subsidiary Debtor may be offset against claims against such Subsidiary
Debtor or another Subsidiary Debtor. On the Confirmation Date, and in
accordance with the terms of the Plan and the consolidation of the assets
and liabilities of the Subsidiary Debtors, all Claims based upon guarantees
of collection, payment or performance made by the Subsidiary Debtors as to
the obligations of another Subsidiary Debtor or of any other Person shall
be discharged, released and of no further force and effect; provided,
however, that nothing herein shall affect the obligations of each of the
Subsidiary Debtors under the Plan. Notwithstanding the provisions of this
paragraph, each of the Subsidiary Debtors shall, as Reorganized Subsidiary
Debtors, continue to exist after the Effective Date as separate legal
entities.

          Pursuant to Bankruptcy Rule 9019 and any applicable state law and
as consideration for the distributions and other benefits provided under
the Plan, the provisions of Section 9.10(a) of the Plan shall constitute a
good faith compromise and settlement of any Causes of Action or disputes
that could be brought by a Holder of a Claim or Interest asserting that
such Claim or Interest would have received more favorable treatment had
substantive consolidation not been effected. This compromise and settlement
is in the best interests of Holders of Claims and Interests and is fair,
equitable and reasonable. The Plan shall be approved by the Bankruptcy
Court as a settlement of all such Causes of Action and disputes. Entry of
the Confirmation Order shall constitute the Bankruptcy Court's approval of
this settlement pursuant to Bankruptcy Rule 9019 and its finding that this
is a good faith settlement pursuant to any applicable state laws, given and
made after due notice and opportunity for hearing, and shall bar any such
Cause of Action by any Holder of a Claim or Interest with respect to the
matters described in Section 9.10 of the Plan.

          2. Vesting of Property
             -------------------

          Except as otherwise provided in the Plan, on the Effective Date,
title to all property of the Debtors' estates shall pass to the applicable
Reorganized Debtors, free and clear of all Claims, Interests, liens,
security interests, charges and other encumbrances. Confirmation of the
Plan (subject to the occurrence of the Effective Date) will be binding, and
the Debtors' debts will, without in any way limiting the discharge and
release provisions contained in Article Twelve of the Plan, be discharged,
as provided in section 1141 of the Bankruptcy Code.

          3. Transactions on Business Days
             -----------------------------

          Pursuant to the Plan, if the Effective Date or any other date on
which a transaction may occur under the Plan will occur on a day that is
not a Business Day, the transactions contemplated by the Plan to occur on
such day will instead occur on the next succeeding Business Day.

          4. Corporate Action for Reorganized Debtors
             ----------------------------------------

          On the Effective Date or as soon thereafter as is practicable,
Reorganized LCE will file with the Secretary of State of the State of
Delaware, in accordance with sections 103 and 303 of the Delaware General
Corporation Law, the Reorganized LCE Certificate of Incorporation and such
certificate will be the certificate of incorporation for Reorganized LCE.
On the Effective Date, the Reorganized LCE By-Laws will become the By-Laws
of Reorganized LCE. On the Effective Date, the By-Laws will become the
By-Laws of the Reorganized Debtors (other than Reorganized LCE). On the
Effective Date or as soon as practicable thereafter, each of the
Reorganized Debtors (other than Reorganized LCE) will also file with the
Secretary of State of their respective state of incorporation the New
Subsidiary Certificates of Incorporation; provided, however, as soon as
practicable following the Effective Date, Reorganized LCE will be
authorized to take all necessary corporate action to dissolve the
corporations listed on Exhibit H attached to the Plan.

          5. Implementation
             --------------

          Pursuant to the Confirmation Order and upon confirmation of the
Plan, the Debtors and the Reorganized Debtors will be authorized to take
all necessary steps, and perform all necessary acts, to consummate the
terms and conditions of the Plan. On or before the Effective Date, the
Debtors may file with the Bankruptcy Court such agreements and other
documents as may be necessary or appropriate to effectuate or further
evidence the terms and conditions of the Plan and the other agreements
referred to herein. The Debtors or the Reorganized Debtors, as the case may
be, will upon authorization, execute such documents and take such other
actions as are necessary to effectuate the transactions provided for in the
Plan, including, without limitation, the New Working Capital Credit
Agreement, the New Term Loan Agreement and the Senior Executive Employment
Agreements, without the need for any additional approvals, authorizations
and consents.

          6. Issuance of New Securities
             --------------------------

          Pursuant to the Plan, the issuance and distribution of the New
Common Stock by Reorganized LCE is authorized and directed without the need
for any further corporate action, under applicable law, regulation, order,
rule or otherwise.

          7. Cancellation of Existing Securities and Agreements
             --------------------------------------------------

          Pursuant to the Plan, on the Effective Date, the Pre-Petition
Notes, the Old LCE Common Stock, and any Old LCE Common Stock Interests, as
well as any and all shareholder agreements relating to the Old LCE Common
Stock, shall be canceled. On the Effective Date, the Indenture shall,
except as provided in the Plan, be deemed canceled, terminated and of no
further force or effect. Notwithstanding the foregoing, such cancellation
of the Indenture will not impair the rights of Holders of the Pre-Petition
Notes to receive distributions on account of such Pre-Petition Notes
pursuant to the Plan. The Pre-Petition Notes shall not be canceled other
than pursuant to the Plan; provided, however, that until such cancellation,
such Pre-Petition Notes shall solely serve as evidence of entitlement of
the Holder thereof to receive distributions pursuant to the Plan and shall
not otherwise be obligations of the Debtors or the Reorganized Debtors.

          8. Board of Directors and Officers of Reorganized LCE
             --------------------------------------------------

          Pursuant to the Plan, on the Effective Date, the operation of
Reorganized LCE shall become the general responsibility of the board of
directors of Reorganized LCE, subject to, and in accordance with, the
Reorganized LCE Certificate of Incorporation and the Reorganized LCE
By-Laws. The Reorganized LCE Certificate of Incorporation will provide for,
among other things, a board of directors, the number of members of the
Board will be determined prior to the hearing on the adequacy of the
Disclosure Statement, and two members of the Board of Reorganized LCE will
include the Chief Executive Officer of Reorganized LCE and the President of
Reorganized LCE. The initial board of Reorganized LCE shall consist of the
individuals identified on Exhibit I to the Plan. Such directors shall be
deemed elected or appointed, as the case may be, pursuant to the
Confirmation Order, but shall not take office and shall not be deemed to be
elected or appointed until the occurrence of the Effective Date. The
directors of each Debtor other than LCE as of the date of entry the
Confirmation Order shall be individuals identified on Exhibit I to the
Plan. The officers of each Debtor as of the date of the entry of the
Confirmation Order shall be the officers of such Reorganized Debtor. Those
directors of the Debtors not continuing in office shall be deemed removed
therefrom as of the Effective Date pursuant to the Confirmation Order.

          INITIAL BOARD OF REORGANIZED LCE

          [TO BE FILED BY THE DEBTORS PRIOR TO HEARING ON THE ADEQUACY OF
THIS DISCLOSURE STATEMENT]

          The officers of the Debtors as of the date of the entry of the
Confirmation Order (identified below) shall be the officers of the
Reorganized Debtors. Those directors of the Debtors not continuing in
office will be deemed removed therefrom as of the Effective Date pursuant
to the Confirmation Order.

         OFFICERS OF REORGANIZED DEBTORS

          [TO BE FILED BY THE DEBTORS PRIOR TO HEARING ON THE ADEQUACY OF
THIS DISCLOSURE STATEMENT]

          9. Management Employment Agreements
             --------------------------------

          [TO BE FILED BY THE DEBTORS PRIOR TO THE HEARING ON THE ADEQUACY
OF THIS DISCLOSURE STATEMENT]

          10. Employee Benefit Plans
              ----------------------

          Pursuant to the Plan and subject to the occurrence of the
Effective Date, all employee benefit plans, policies, and programs of the
Debtors, and the Debtors' obligations thereunder, will survive confirmation
of the Plan, remain unaffected thereby, and not be discharged; except to
the extent such plans, policies, and programs hold Old Common Stock
Interests (which Interests will be cancelled and entitled to the treatment
set forth in the Plan). Employee benefit plans, policies, and programs will
include, without limitation, all savings plans, retirement pension plans,
health care plans, disability plans, severance benefit plans, life,
accidental death, and dismemberment insurance plans (to the extent not
executory contracts assumed under the Plan), but will exclude all employee
equity, or equity-based incentive plans.

          11. Survival of Indemnification and Contribution Obligations
              --------------------------------------------------------

          Notwithstanding anything to the contrary contained in the Plan,
the obligations of the Debtors to indemnify and/or provide contribution to
its directors, officers, agents, employees and representatives who are
serving in such capacity on the Confirmation Date, pursuant to the Old LCE
Certificate of Incorporation, Old LCE By-Laws, applicable statutes or
contractual obligations, in respect of all past, present and future
actions, suits and proceedings against any of such directors, officers,
agents, employees and representatives, based upon any act or omission
related to service with, for or on behalf of the Debtors, shall not be
discharged or Impaired by confirmation or consummation of the Plan but
shall survive unaffected by the reorganization contemplated by the Plan.

          12. Retention and Enforcement of Causes of Action
              ---------------------------------------------

          Pursuant to section 1123(b)(3) of the Bankruptcy Code, the
Reorganized Debtors shall retain and shall have the exclusive right, in
their discretion, to enforce against any Entity any and all Causes of
Action of the Debtors, including, but not limited to, all Causes of Action
arising out of or relating to the Combination and all Causes of Action of a
trustee and debtor-in-possession under the Bankruptcy Code, other than
those released or compromised as part of, or under, the Plan.

          13. Senior Executive Employment Agreements
              --------------------------------------

          The Senior Executive Employment Agreements shall become effective
as of the Effective Date.

          14. Stock Plan
              ----------

          On the Effective Date, Reorganized LCE shall adopt the New LCE
Stock Plan. Pursuant to the terms of the New LCE Stock Plan, Reorganized
LCE shall, on the Effective Date, issue to certain of its employees,
options to purchase, in the aggregate 10% of the issued and outstanding
shares of New Common Stock on a fully diluted basis.

          15. Rule 9019 Settlement and Compromise of Alleged Causes of
              Action with Respect to Pre-Petition Credit
              Agreement Claims
              ----------------

          The Creditors' Committee has raised certain issues regarding the
perfection and validity of the security interests granted in connection
with the Pre-Petition Credit Agreement Claims, and allowance of the
Pre-Petition Credit Agreement Claims and potential Causes of Action against
the Pre-Petition Lenders. The Investors hold in the aggregate at least $300
million aggregate principal amount of Pre-Petition Credit Agreement Claims.
Pursuant to section 6.2(a) of the Plan, and the provisions of Section
6.2(b) of the Plan, the Investors would receive their Pro Rata Share of the
New Term Notes and the New Common Stock with the other Holders of
Pre-Petition Credit Agreement Claims, less the New Common Stock
distributable to the Holders of General Unsecured Claims. The Debtors and
the Holders of Pre-Petition Credit Agreement Claims (including the
Investors) do not believe that there is merit to such issues or alleged
Causes of Action. However, the Investors, in order to attempt to facilitate
a consensual plan and to settle and compromise any and all such issues and
alleged Causes of Action, have committed to fund up to $45 million for the
Unsecured Settlement Distribution which will be used to provide the Holders
of General Unsecured Claims with a Cash distribution in lieu of New Common
Stock. The provisions of the Plan shall constitute a good faith compromise
and settlement of all Causes of Action or disputes that could have been
brought by any Holder of a General Unsecured Claim, the Debtors or any
other party in interest, against any Holder of a Pre-Petition Credit
Agreement Claim. In addition, the Plan shall be approved by the Bankruptcy
Court as a settlement of all Causes of Action and disputes between the
Holders of General Unsecured Claims, the Debtors and Holders of
Pre-Petition Credit Agreement Claims. Pursuant to Section 6.2 of the Plan,
as consideration for making funding the Unsecured Settlement Distribution,
and in full settlement, release and discharge of $300 million aggregate
principal amount of the Investors Pre-Petition Credit Agreement Claims, the
Investors shall receive 100% of the New Common Stock. Entry of the
Confirmation Order shall constitute the Bankruptcy Court's approval of this
settlement pursuant to Bankruptcy Rule 9019 and its finding that this is a
good faith settlement pursuant to any applicable state laws, given and made
after due notice and opportunity for hearing, and shall bar any such Cause
of Action by any Holder of a General Unsecured Claim, the Debtors or other
party-in interest against a Holder of a Pre-Petition Credit Agreement
Claim.

          16. Funding of the Unsecured Creditors Distribution
              -----------------------------------------------

          Upon confirmation of the Plan and subject to the Effective Date,
the Investors are obligated to pay LCE up to $45 million, but in no event
less than $25 million, in connection with their commitment to fund the
settlement described in Section 9.14 of the Plan. In connection therewith,
if the Debtors reasonably determine that the minimum Cash available for
such distribution on the Effective Date is less than the available Cash
projected to be available under the Debtors' eight week Sources and Uses of
Cash Forecast, the Investors are obligated to pay to LCE the amount of such
shortfall; provided that in no event are the Investors required to pay to
LCE more than $45 million.

H.  PROVISIONS COVERING DISTRIBUTIONS

          1. Timing of Distributions Under the Plan
             --------------------------------------

          Except as otherwise provided in the Plan, without in any way
limiting Sections 11.5 and 11.6 of the Plan, and subject to Section 14.2 of
the Plan payments and distributions in respect of (a) Allowed General
Unsecured Claims shall be made by the Reorganized Debtors or their designee
as set forth in Sections 6.5.1 and 6.5.2 of the Plan, as applicable, (b)
all other Allowed Claims that are required by the Plan to be made on the
Effective Date shall be made by the Reorganized Debtors or their designee
on, or as soon as practicable following, the Effective Date.

          2. Allocation of Consideration
             ---------------------------

          The aggregate consideration to be distributed to the Holders of
Allowed Claims in each Class under the Plan will be treated as first
satisfying an amount equal to the stated principal amount of the Allowed
Claim for such Holders and any remaining consideration as satisfying
accrued, but unpaid, interest, if any.

          3. Cash Payments
             -------------

          Cash payments made pursuant to the Plan will be in U.S. dollars.
Cash payments to foreign Creditors may be made, at the option of
Reorganized LCE, in such funds and by such means as are necessary or
customary in a particular foreign jurisdiction. Cash payments made pursuant
to the Plan in the form of checks issued by Reorganized LCE shall be null
and void if not cashed within 120 days of the date of the issuance thereof.
Requests for reissuance of any check shall be made directly to Reorganized
LCE or its designee as set forth in the Plan.

          4. Payment of Statutory Fees
             -------------------------

          All fees payable pursuant to 28 U.S.C. ss. 1930 as determined by
the Bankruptcy Court at the Confirmation Hearing will be paid by the
Debtors on or before the Effective Date.

          5. No Interest
             -----------

          Except with respect to Holders of Unimpaired Claims entitled to
interest under applicable non-bankruptcy law or as provided in Section 11.5
and 11.6 of the Plan or as otherwise expressly provided in the Plan, no
Holder of an Allowed Claim or Interest shall receive interest on the
distribution to which such Holder is entitled thereunder, regardless of
whether such distribution is made on the Effective Date or thereafter.

          6. Fractional Securities
             ---------------------

          Pursuant to the Plan, and notwithstanding any other provision of
the Plan, only whole numbers of shares of New Common Stock will be issued
or transferred, as the case may be, pursuant to the Plan. Reorganized LCE
will not distribute any fractional shares of New Common Stock exercisable
into fractional shares of New Common Stock under the Plan. For purposes of
distribution, fractional shares of New Common Stock exercisable into
fractional shares of New Common Stock will be rounded down to the nearest
share of New Common Stock.

          7. Withholding of Taxes
             --------------------

          Reorganized LCE will withhold from any property distributed under
the Plan any property which must be withheld for taxes payable by the
Entity entitled to such property to the extent required by applicable law.
As a condition to making any distribution under the Plan, Reorganized LCE
or its designee, as the case may be, may request that the Holder of any
Allowed Claim provide such Holder's taxpayer identification number and such
other certification as may be deemed necessary to comply with applicable
tax reporting and withholding laws.

          8. Persons Deemed Holders of Registered Securities
             -----------------------------------------------

          Pursuant to the Plan, except as otherwise provided therein, the
Debtors, Reorganized LCE or its designee, shall be entitled to treat the
record holder of a registered security on the applicable Distribution
Record Date as the Holder of the Interest in respect thereof for purposes
of all notices, payments or other distributions under the Plan unless the
Debtors, Reorganized LCE or its designee, as the case may be, has received
written notice specifying the name and address of any new Holder thereof
(and the nature and amount of the interest of such new Holder) at least ten
(10) Business Days prior to the date of such notice, payment or other
distribution in which case the Debtors, Reorganized LCE or its designee
shall be permitted, without further inquiry, to make such distribution to
such Holder. In the event of any dispute regarding the identity of any
party entitled to any payment or distribution in respect of any Claim under
the Plan, no payments or distributions will be made in respect of such
Interest until the Bankruptcy Court resolves that dispute pursuant to a
Final Order.

          9. Surrender of Existing Securities
             --------------------------------

          As a condition to receiving any distribution under the Plan, each
Holder of a Pre-Petition Note, or other instrument evidencing a Claim must,
if requested, surrender such Pre-Petition Note, or other Instrument to
Reorganized LCE or the Indenture Trustee, as appropriate. Any Holder of a
Claim that fails to (a) surrender such Instrument or (b) execute and
deliver an affidavit of loss and/or indemnity reasonably satisfactory to
Reorganized LCE before the later to occur of (i) the second anniversary of
the Effective Date and (ii) six months following the date such Holder's
Claim becomes an Allowed Claim, will be deemed to have forfeited all
rights, Claims, and/or Interests and may not participate in any
distribution under the Plan. Upon compliance with the foregoing provision
of the Plan, the Holder of a Claim or Interest evidenced by any such lost,
stolen, mutilated or destroyed Instrument will, for all purposes under the
Plan, be deemed to have surrendered such Instrument.

          10. Undeliverable or Unclaimed Distributions
              ----------------------------------------

          Any Entity that is entitled to receive a Cash distribution under
the Plan but that fails to cash a check within 120 days of its issuance
will be entitled to receive a reissued check from the Reorganized Debtors
for the amount of the original check, without any interest, if such Entity
requests in writing the Reorganized Debtors or their designee to reissue
such check and provides the Reorganized Debtors or their designee, as the
case may be, with such documentation as the Reorganized Debtors or their
designee requests to verify in their reasonable discretion that such Entity
is entitled to such check, prior to the second anniversary of the Effective
Date. If an Entity fails to cash a check within 120 days of its issuance
and fails to request reissuance of such check prior to the later to occur
of (i) the second anniversary of the Effective Date and (ii) six months
following the date such Holder's Claim becomes an Allowed Claim, such
Entity will not be entitled to receive any distribution under the Plan. If
the distribution to any Holder of an Allowed Claim is returned to the
Reorganized Debtors or their designee as undeliverable, no further
distributions will be made to such Holder unless and until the Reorganized
Debtors or their designee is notified in writing of such Holder's
then-current address. Undeliverable distributions will remain in the
possession of the Reorganized Debtors or their designee pursuant to the
Plan until such time as a distribution becomes deliverable. All claims for
undeliverable distributions will have to be made on or before the later to
occur of (i) the second anniversary of the Effective Date and (ii) six
months following the date such Holder's Claim becomes an Allowed Claim.
After such date, all unclaimed property will revert to the Reorganized
Debtors and the claim of any Holder or successor to such Holder with
respect to such property will be discharged and forever barred
notwithstanding any federal or state escheat laws to the contrary.

          11. Distributions on Account of Pre-Petition Notes
              ----------------------------------------------

          All distributions, if any, on account of Pre-Petition Note Claims
shall be made to HSBC Bank, as Indenture Trustee, which shall serve as
Reorganized LCE's designee for purposes of making distributions under the
Plan to Holders of Pre-Petition Note Claims.

I.  PROCEDURES FOR RESOLVING DISPUTED CLAIMS

          1. Objections to Claims
             --------------------

          Pursuant to the Plan, except with respect to the disputes between
the Holder of LCE General Unsecured Claims and Subsidiary Unsecured Claims
which are to be resolved by entry of the Class 5B Final Order and in
accordance with the procedures set forth in Section 11.7 of the Plan, only
the Debtors and the Reorganized Debtors, jointly with the Creditors'
Committee Designee, shall have the authority to file, settle, compromise,
withdraw or litigate to judgment objections to Claims after the Effective
Date. Subject to an order of the Bankruptcy Court providing otherwise, the
Reorganized Debtors, jointly with the Creditors' Committee Designee, may
object to a Claim by filing an objection with the Bankruptcy Court and
serving such objection upon the Holder of such Claim not later than one
hundred and twenty (120) days after the Effective Date or one hundred and
twenty (120) days after the filing of the proof of such Claim, whichever is
later, or such other date determined by the Bankruptcy Court upon motion to
the Bankruptcy Court, which motion may be made without further notice or
hearing.

          2. Procedure
             ---------

          Pursuant to the Plan, unless otherwise ordered by the Bankruptcy
Court or agreed to by written stipulation of the Debtors or the Reorganized
Debtors, jointly with the Creditors' Committee Designee, or until an
objection thereto by the Debtors or by Reorganized Debtors is withdrawn,
the Debtors or Reorganized Debtors, jointly with the Creditors' Committee
Designee, will litigate the merits of each Disputed Claim until determined
by a Final Order; provided, however, that, (a) prior to the Effective Date,
the Debtors, jointly with the Creditors' Committee Designee, subject to the
approval of the Bankruptcy Court, and (b) after the Effective Date, the
Reorganized Debtors, in consultation with the Creditors' Committee
Designee, subject to the approval of the Bankruptcy Court, may compromise
and settle any objection to any Claim.

          3. Payments and Distributions With Respect to Disputed Claims
             ----------------------------------------------------------

          Pursuant to the Plan, no payments or distributions will be made
in respect of any Disputed Claim until such Disputed Claim becomes an
Allowed Claim.

          4. Claims Reserve
             --------------

                  (a) ESTIMATION

          For purposes of effectuating the reserve provisions of the Plan
and the allocations and distributions to Holders of Allowed General
Unsecured Claims, the Bankruptcy Court will, on or prior to the four-month
anniversary of the Effective Date, pursuant to section 502 of the
Bankruptcy Code, fix or liquidate the amount of any contingent or
unliquidated General Unsecured Claim, in which event the amount so fixed
will be deemed the Allowed amount of such Claim for purposes of the Plan
or, in lieu thereof, the Bankruptcy Court will determine the maximum
contingent or unliquidated amount for such Claim, which amount will be the
maximum amount in which such Claim ultimately may be Allowed under the
Plan, if such Claim is Allowed in whole or part.

                (b) CREATION OF CLASS 5 CLAIMS RESERVE

          Upon confirmation of the Plan, and subject to the Effective Date,
the Reorganized Debtors will deposit the Unsecured Settlement Distribution
in the Class 5 Claims Reserve. The Class 5 Claims Reserve and all amounts
therein (including any interest earned thereon) will be maintained by the
Reorganized Debtors in conformity with the guidelines provided in Section
345 of the Bankruptcy Code for distribution in accordance with Sections
6.5.1 and 6.5.2 of the Plan to Holders of Allowed General Unsecured Claims.
Any and all withdrawals from the Class 5 Claims Reserve will require the
duly authorized signature of a representative of the Reorganized Debtors
and the Creditors' Committee Designee.

          5. Distributions After Allowance of Disputed General Unsecured
             Claims
             ------

          Distributions to each Holder of a Disputed General Unsecured
Claim, to the extent that such General Unsecured Claim ultimately becomes
an Allowed General Unsecured Claim, will be made in accordance with the
provisions of the Plan, including the provision governing the applicable
Class of General Unsecured Claims. From and after the four-month
anniversary of the Effective Date (and in the case of LCE General Unsecured
Claims, subject to the entry of the Class 5B Final Order), as soon as
practicable after the date that the order or judgment of the Bankruptcy
Court allowing any Disputed General Unsecured Claim becomes a Final Order,
the Reorganized Debtors jointly with the Creditors' Committee Designee will
distribute to the Holder of such Allowed General Unsecured Claim its pro
rata share of the Unsecured Settlement Distribution that would have been
distributed to such Holder if the General Unsecured Claim had been an
Allowed General Unsecured Claim on the Effective Date. All amounts earned
in respect of the Unsecured Settlement Distribution (including all
interest) will be for the benefit of the Holders of Allowed General
Unsecured Claims. All distributions will include the Holders' pro rata
share of the post-Effective Date interest based on the ratio of such
Holder's Allowed General Unsecured Claim to the Maximum Allowable Amount of
all General Unsecured Claims.

          6. Distributions After Disallowance of Disputed General Unsecured
             Claims
             ------

          To the extent that, after the four-month anniversary of the
Effective Date, a Disputed General Unsecured Claim against any of the
Debtors is disallowed and expunged, in whole or part, then the Holders of
Allowed General Unsecured Claims will receive an additional distribution of
their respective pro rata share of the Unsecured Settlement Distribution,
reserved in the Class 5 Claims Reserve, on account of such disallowed
General Unsecured Claim, based on the ratio of such Holders' Allowed
General Unsecured Claim to the Maximum Allowable Amount of all General
Unsecured Claims and any post Effective Date interest that has accrued on
each such distribution with respect to the Unsecured Settlement
Distribution reserved in the Disputed Class 5 Claims Reserve. Any
additional distribution from the Class 5 Claims Reserve will be made six
(6) months after the Effective Date and, if necessary, every six (6) months
thereafter (provided that there is a minimum amount remaining, with such
amount to be determined prior to the hearing on the adequacy of the
Disclosure Statement, to distribute, except for a final distribution after
all Disputed General Unsecured Claims are either Allowed or expunged) until
all Disputed General Unsecured Claims have been Allowed or expunged, in
whole or part, and no additional distribution will be made prior thereto.

          7. Procedure for Resolution of Intercreditor Disputes
             --------------------------------------------------

          Pursuant to the Plan, prior to the Effective Date, (a) the
Creditors' Committee shall appoint the Class 5A Designee and (b) the
Indenture Trustee shall appoint the Class 5B Designee. The Class 5A
Designee and the Class 5B Designee will have the exclusive right to
litigate and/or settle and compromise the intercreditor disputes described
in Section 6.5.2 of the Plan; provided, however, that any party in interest
will have the right to be heard in connection with any proceedings with
respect to such disputes.

          8. Effect of Distributions in the CCAA Cases
             -----------------------------------------

          Certain Holders may seek to pursue claims in the CCAA Cases on
account of Claims against the Debtors or a debt upon which an Allowed Claim
is based. The Plan Provides that if any Holder receives any payment or
transfer of property in the CCAA Cases on account of an Allowed Claim or a
debt upon which an Allowed Claim is based, such Holder shall not receive
any payments or distribution under the Plan.

          9. Setoffs
             -------

          Except with respect to Causes of Action of any nature released
pursuant to the Plan or Confirmation Order, the Debtors, the Reorganized
Debtors or their designee as instructed by them may, pursuant to section
553 of the Bankruptcy Code or applicable non-bankruptcy law, set off
against any Allowed Claim, and the distributions to be made pursuant to the
Plan on account of such Claim, the Causes of Action of any nature that the
applicable Debtor or Reorganized Debtor or its successor may hold against
the Holder of such Allowed Claim; provided that neither the failure to
effect a setoff nor the allowance of any Claim hereunder will constitute a
waiver or release by the applicable Debtor or Reorganized Debtor or its
successor of any Causes of Action that the Debtor or the Reorganized Debtor
or its successor may possess against such Holder.

J.  DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS

          1. Discharge of All Claims and Interests and Releases
             --------------------------------------------------

          (a) Except as otherwise specifically provided by the Plan, the
confirmation of the Plan (subject to the occurrence of the Effective Date)
shall discharge and release the Debtors, the Reorganized Debtors, their
successors and assigns and their respective assets and properties from any
debt, charge, Cause of Action, liability, encumbrance, security interest,
Claim, Interest, or other cause of action of any kind, nature or
description (including, but not limited to, any claim of successor
liability) that arose before the Confirmation Date, and any debt of the
kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not a Proof of Claim or Interest is or could have been filed or
is deemed filed, whether or not such Claim or Interest is or could have
been Allowed, and whether or not the Holder of such Claim or Interest voted
or could have voted to accept or reject the Plan.

          (b) Except as otherwise specifically provided by the Plan or the
Confirmation Order, the confirmation of the Plan (subject to the occurrence
of the Effective Date) shall act as a discharge and release of all Causes
of Action (including without limitation, Causes of Action of a Trustee and
debtor-in-possession under the Bankruptcy Code) of the Debtors and
Reorganized Debtors, whether known or unknown, against their present
directors and officers. To the best of the Debtors' knowledge, no one has
asserted that the Debtors possess claims against their present directors
and officers

          2. Injunction
             ----------

          The satisfaction, release and discharge pursuant to Sections
12.1, 12.3 and 12.4 of the Plan, shall act as an injunction against any
Entity commencing or continuing any action, employment of process, or act
to collect, offset or recover any Claim or Cause of Action satisfied,
released or discharged under the Plan. The injunction, discharge and
releases described in Sections 12.1, 12.2, 12.3 and 12.4 of the Plan shall
apply regardless of whether or not a proof of Claim or Interest based on
any Claim, debt, liability or Interest is filed or whether or not a Claim
or Interest based on such Claim, debt, liability or Interest is Allowed, or
whether or not such Entity voted to accept or reject the Plan. Without in
any way limiting the foregoing, all injunctions or stays entered in these
Chapter 11 Cases and existing immediately prior to the Confirmation Date
shall remain in full force and effect until the Effective Date.

          3. Exculpation
             -----------

          In consideration of the distributions under the Plan, upon the
Effective Date, each Holder of a Claim or Interest will be deemed to have
released the Debtors, the Creditors' Committee, the members of the
Creditors' Committee in their capacity as such, and each of the foregoing
parties' directors, officers, agents, attorneys, independent accountants,
advisors, financial advisors, investment bankers and employees (as
applicable) employed by the Debtors from and after the Filing Date from any
and all Causes of Action (other than the right to enforce the Debtors'
obligations under the Plan and the right to pursue a Claim based on any
willful misconduct) arising out of actions or omissions during the
administration of the Debtors' estates.

          4. Guaranties and Claims of Subordination
             --------------------------------------

                 (a) GUARANTIES

          The classification and the manner of satisfying all Claims under
the Plan takes into consideration the possible existence of any alleged
guaranties by the Debtors of obligations of any Entity or Entities, and
that the each Debtor may be a joint obligor with another Entity or Entities
with respect to the same obligation. All Claims against the Debtors based
upon any such guaranties shall be satisfied, discharged and released in the
manner provided in the Plan and the Holders of Claims shall be entitled to
only one distribution with respect to any given obligation of the Debtors.

                  (b) CLAIMS OF SUBORDINATION

          Except as expressly provided for in the Plan (including
specifically Section 12.4(b)(iii) of the Plan), all Claims against and
Interests in the Debtors, and all rights and Claims between or among
Holders of Claims and Interests relating in any manner whatsoever to Claims
against or Interests in the Debtors, based on any contractual, legal or
equitable subordination rights, shall be terminated on the Effective Date
and discharged in the manner provided in the Plan, and all such Claims,
Interests and rights so based and all such contractual, legal and equitable
subordination rights to which any Entity may be entitled shall be
irrevocably waived by the acceptance by such Entity (or, unless the Class
of which such Entity is a member) of the Plan or of any distribution
pursuant to the Plan. Except as otherwise provided in the Plan and to the
fullest extent permitted by applicable law, the rights afforded and the
distributions that are made pursuant to the Plan in respect of any Claims
or Interests shall not be subject to levy, garnishment, attachment or like
legal process by any Holder of a Claim or Interest by reason of any
contractual, legal or equitable subordination rights, so that,
notwithstanding any such contractual, legal or equitable subordination,
each Holder of a Claim or Interest shall have and receive the benefit of
the rights and distributions set forth in the Plan.

          Pursuant to the Plan, and pursuant to Bankruptcy Rule 9019 and
any applicable state law and as consideration for the distributions and
other benefits provided under the Plan, the provisions in the Plan
regarding subordination of Claims or Interests will constitute a good faith
compromise and settlement of any Causes of Action relating to the matters
described in such provisions of the Plan which could be brought by any
Holder of a Claim or Interest against or involving another Holder of a
Claim or Interest, which compromise and settlement is in the best interests
of Holders of Claims and Interests and is fair, equitable and reasonable.
This settlement will be approved by the Bankruptcy Court as a settlement of
all such Causes of Action. Entry of the Confirmation Order will constitute
the Bankruptcy Court's approval of this settlement pursuant to Bankruptcy
Rule 9019 and its finding that this is a good faith settlement pursuant to
any applicable state law, including, without limitation, the laws of the
States of New York and Delaware, given and made after due notice and
opportunity for hearing, and will bar any such Cause of Action by any
Holder of a Claim or Interest against or involving another Holder of a
Claim or Interest.

          Notwithstanding anything in the Plan to the contrary, the
provisions in the Plan regarding subordination of Claims or Interests do
not apply to Claims or rights between or among Holders of LCE General
Unsecured Claims, on the one hand, and Subsidiary General Unsecured Claims,
on the other hand, and nothing in the Plan is intended to affect, prejudice
or terminate claims of equitable, legal or contractual subordination, if
any, between the Holders of LCE General Unsecured Claims, on the one hand,
and the Holders of Subsidiary General Unsecured Claims, on the other hand.
Such matters will be resolved after the Confirmation Date by entry of the
Class 5B Final Order.

K.  CONDITIONS PRECEDENT TO CONFIRMATION ORDER
    AND EFFECTIVE DATE

          1. Conditions Precedent to Entry of the Confirmation Order
             -------------------------------------------------------

          Pursuant to the Plan, the following conditions must occur and be
satisfied or waived in accordance with the Plan on or before the
Confirmation Date for the Plan to be confirmed on the Confirmation Date:

     (a)  The Confirmation Order is in form and substance reasonably
          acceptable to the Debtors.

          2. Conditions Precedent to the Effective Date
             ------------------------------------------

          Pursuant to the Plan, the following conditions must occur and be
satisfied or waived by the Debtors on or before the Effective Date for the
Plan to become effective on the Effective Date.

     (a)  The Confirmation Order shall have become a Final Order.

     (b)  The Reorganized Debtors must have received a firm commitment for
          the New Working Capital Credit Agreement.

     (c)  LCE must have (i) received up to $45 million, but in no event
          less than $25 million, from the Investors, and (ii) deposited the
          Unsecured Settlement Distribution in the Class 5 Claims Reserve.

     (d)  All authorizations, consents and regulatory approvals required to
          be obtained by the Debtors, if any, in connection with the Plan's
          effectiveness shall have been obtained.

     (d)  The Canadian Plan, in form and substance satisfactory to the
          Debtors, shall either have become effective or shall become
          effective substantially contemporaneous herewith in the CCAA
          Cases.

     (e)  LCE shall have retained 100% of its equity interest in Cineplex
          Odeon.

     (f)  All amounts owing to LCE under the Canadian DIP shall have been
          repaid in full.

     (g)  The Investor Pre-Petition Credit Agreement Claims are not less
          than $300 million principal amount in the aggregate.

          3. Waiver of Conditions
             --------------------

          The Debtors may waive one or more of the conditions precedent to
the confirmation or effectiveness of the Plan set forth in the Plan;
provided, however, the condition precedent set forth in Section 2(c) above
may not be waived.

          4. Effect of Failure of Conditions
             -------------------------------

          If all the conditions to effectiveness and the occurrence of the
Effective Date have not been satisfied or duly waived on or before the
first Business Day that is more than 179 days after the date the Bankruptcy
Court enters an order confirming the Plan, or by such later date as is
proposed and approved, after notice and a hearing, by the Bankruptcy Court,
then upon motion by the Debtors made before the time that all of the
conditions have been satisfied or duly waived, the order confirming the
Plan will be vacated by the Bankruptcy Court; provided, however, that
notwithstanding the filing of such a motion, the order confirming the Plan
shall not be vacated if each of the conditions to consummation is either
satisfied or duly waived before the Bankruptcy Court enters an order
granting the relief requested in such motion. If the order confirming the
Plan is vacated pursuant to the foregoing provision of the Plan, the Plan
will be null and void in all respects, and nothing contained in the Plan
will (a) constitute a waiver or release of any claims against or equity
interests in the Debtors or (b) prejudice in any manner the rights of the
Holder of any claim or equity interest in the Debtors.

L.  MISCELLANEOUS PROVISIONS

          1. Bankruptcy Court to Retain Jurisdiction
             ---------------------------------------

          Pursuant to the Plan, the business and assets of the Debtors will
remain subject to the jurisdiction of the Bankruptcy Court until the
Effective Date. From and after the Effective Date, the Bankruptcy Court
will retain and have exclusive jurisdiction of all matters arising out of,
and related to the Chapter 11 Cases or the Plan pursuant to, and for
purposes of, subsection 105(a) and section 1142 of the Bankruptcy Code and
for, among other things, the following purposes: (a) to determine any and
all disputes relating to Claims and Interests and the allowance and amount
thereof; (b) to determine any and all disputes among creditors with respect
to their Claims (including, without limitation, the disputes between the
Holders of the LCE General Unsecured Claims and Subsidiary General
Unsecured Claims discussed in the Plan); (c) to determine and enter the
Class 5B Final Order; (d) to consider and allow any and all applications
for compensation for professional services rendered and disbursements
incurred in connection therewith; (e) to determine any and all
applications, motions, adversary proceedings and contested or litigated
matters pending on the Effective Date and arising in or related to the
Chapter 11 Case or the Plan; (f) to remedy any defect or omission or
reconcile any inconsistency in the Confirmation Order; (g) to enforce the
provisions of the Plan relating to the distributions to be made hereunder;
(h) to issue such orders, consistent with section 1142 of the Bankruptcy
Code, as may be necessary to effectuate the consummation and full and
complete implementation of the Plan; (i) to enforce and interpret any
provisions of the Plan; (j) to determine such other matters as may be set
forth in the Confirmation Order or that may arise in connection with the
implementation of the Plan; (k) to determine the amounts allowable as
compensation or reimbursement of expenses pursuant to section 503(b) of the
Bankruptcy Code; (l) to hear and determine disputes arising in connection
with the interpretation, implementation, or enforcement of the Plan and the
Related Documents; (m) to hear and determine any issue for which the Plan
or any Related Document requires a Final Order of the Bankruptcy Court; (n)
to hear and determine matters concerning state, local, and federal taxes in
accordance with sections 346, 505, and 1146 of the Bankruptcy Code; (o) to
hear and determine any issue related to the composition of the initial
board of Reorganized LCE; (p) to hear any other matter not inconsistent
with the Bankruptcy Code; and (q) to enter a Final Decree closing the
Chapter 11 Case.

          2. Required Regulatory Approvals
             -----------------------------

          Notwithstanding anything in the Plan to the contrary, if any
Holder (other than a Debtor) is required to obtain regulatory approvals to
consummate the transactions contemplated by the Plan and such Holder has
not obtained the required regulatory approvals prior to or on the Effective
Date, such Holder's distributions in respect of the Holder's Claim or
Claims shall be withheld by the Reorganized Debtors or their designee until
the required regulatory approvals have been obtained by such Holder.

          3. Binding Effect of the Plan
             --------------------------

          The provisions of the Plan will be binding upon and inure to the
benefit of the Debtors, Reorganized LCE, any Holder of a Claim or Interest,
their respective predecessors, successors, assigns, agents, officers,
managers and directors and any other Entity affected by the Plan.

          4. Nonvoting Stock
             ---------------

          In accordance with section 1123(a)(6) of the Bankruptcy Code, the
Reorganized LCE Certificate of Incorporation will contain a provision
prohibiting the issuance of nonvoting equity securities by Reorganized LCE
for a period of one year following the Effective Date.

          5. Authorization of Corporate Action
             ---------------------------------

          The entry of the Confirmation Order will constitute a direction
and authorization to and of the Debtors and the Reorganized Debtors to take
or cause to be taken any action necessary or appropriate to consummate the
provisions of the Plan and the Related Documents prior to and through the
Effective Date (including, without limitation, the filing of the
Reorganized LCE Certificate of Incorporation and execution of the Term Loan
Agreement and the New Working Capital Credit Agreement), and all such
actions taken or caused to be taken will be deemed to have been authorized
and approved by the Bankruptcy Code without the need for any additional
authorizations, approvals or consents.

          6. Retiree Benefits
             ----------------

          On and after the Effective Date, to the extent required by
section 1129(a)(13) of the Bankruptcy Code, the Reorganized Debtors will
continue to pay all retiree benefits (if any), as the term "retiree
benefits" is defined in section 1114(a) of the Bankruptcy Code, maintained
or established by the Debtors prior to the Confirmation Date.

          7. Withdrawal of the Plan
             ----------------------

          The Debtors reserve the right, at any time prior to the entry of
the Confirmation Order, to revoke or withdraw the Plan. If the Debtors
revoke or withdraw the Plan, if the Confirmation Date does not occur, or if
the Effective Date does not occur then (i) the Plan will be deemed null and
void and (ii) the Plan will be of no effect and will be deemed vacated, and
the Chapter 11 Cases will continue as if the Plan and the Disclosure
Statement had never been filed and, in such event, the rights of any Holder
of a Claim or Interest will not be affected nor will such Holder be bound
by, for purposes of illustration only, and not limitation, (a) the Plan,
(b) any statement, admission, commitment, valuation or representation
contained in the Plan, this Disclosure Statement or the Related Documents
or (c) the classification and proposed treatment (including any allowance)
of any Claim in the Plan.

          8. Dissolution of Committees
             -------------------------

          On the Effective Date, any committees appointed in the Chapter 11
Cases pursuant to section 1102 of the Bankruptcy Code shall cease to exist
and its members and employees or agents (including, without limitation,
attorneys, investment bankers, financial advisors, accountants and other
professionals) shall be released and discharged from further duties,
responsibilities and obligations relating to and arising from and in
connection with these Chapter 11 Cases provided, however, that following
the Effective Date, the responsibilities of any such committees and its
members and employees or agents shall be limited to the preparation of
their respective fee applications, if any.

          9. Amendments and Modifications to the Plan
             ----------------------------------------

          The Plan may be altered, amended or modified by the Debtors,
before or after the Confirmation Date, as provided in section 1127 of the
Bankruptcy Code.

          10. Section 1125(e) of the Bankruptcy Code
              --------------------------------------

          The Plan provides that upon confirmation of the Plan, the Debtors
(and each of their respective Affiliates, agents, directors, officers,
employees, advisors and attorneys) shall be deemed to have, solicited
acceptances of the Plan in good faith and in compliance with the applicable
provisions of the Bankruptcy Code.

          In addition, the Plan provides that upon confirmation of the
Plan, the Debtors and the members of the Creditors' Committee (and each of
their respective affiliates, agents, directors, officers, employees,
advisors, and attorneys), will be deemed to have participated in good faith
and in compliance with the applicable provisions of the Bankruptcy Code
with regards to the distributions of the New Term Notes and the New Common
Stock under the Plan, and therefore are not, and on account of such
distributions will not be, liable at any time for the violation of any
applicable law, rule, or regulation governing the solicitation of
acceptances or rejections of the Plan or such distributions made pursuant
to the Plan.

                             VII. RISK FACTORS

          THE HOLDER OF AN IMPAIRED CLAIM AGAINST THE DEBTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING FACTORS BEFORE DECIDING WHETHER TO VOTE TO
ACCEPT OR TO REJECT THE PLAN.

A.  CERTAIN RISKS OF NON-CONFIRMATION

          Even if the requisite acceptances are received, there can be no
assurance that the Bankruptcy Court will confirm the Plan. A party in
interest or the United States Trustee might challenge the adequacy of the
disclosure or the balloting procedures and results as not being in
compliance with the Bankruptcy Code. Even if the Bankruptcy Court were to
determine that the disclosure and the balloting procedures and results were
appropriate, the Bankruptcy Court could still decline to confirm the Plan
if it were to find that any statutory conditions to confirmation had not
been met. Section 1129 of the Bankruptcy Code sets forth the requirements
for confirmation and requires, among other things, a finding by the
Bankruptcy Court that the confirmation of the Plan is not likely to be
followed by a liquidation or a need for further financial reorganization
and that the value of distributions to non-accepting creditors and interest
holders will not be less than the value of distributions such creditors and
interest holders would receive if the Debtors were liquidated under Chapter
7 of the Bankruptcy Code. See Section XI herein, entitled "REQUIREMENTS FOR
CONFIRMATION OF PLAN." There can be no assurance that the Bankruptcy Court
will conclude that these requirements have been met, but the Debtors
believe that the Bankruptcy Court should be able to find that the Plan will
not be followed by a need for further financial reorganization and that
non-accepting creditors and Interest Holders will receive distributions at
least as great as would be received following a liquidation pursuant to
Chapter 7 of the Bankruptcy Code. See Section XIII herein, entitled "VOTING
AND CONFIRMATION OF THE PLAN."

          Additionally, even if the required acceptances of each of Class
2, Class 5A and Class 5B are received, the Bankruptcy Court might find that
the solicitation of votes or the Plan did not comply with the solicitation
requirements made applicable by section 1125 of the Bankruptcy Code. In
such an event, the Debtors may seek to resolicit acceptances, but
confirmation of the Plan could be substantially delayed and possibly
jeopardized. The Debtors believe that their solicitation of acceptances of
the Plan complies with the requirements of section 1125 of the Bankruptcy
Code, that duly executed Ballots and Master Ballots will be in compliance
with applicable provisions of the Bankruptcy Code and the Bankruptcy Rules,
and that, if sufficient acceptances are received, the Plan should be
confirmed by the Bankruptcy Court.

          The Debtors will request that the Bankruptcy Court confirm the
Plan under Bankruptcy Code section 1129(b). Section 1129(b) permits
confirmation of the Plan despite rejection by one or more impaired classes
if the Bankruptcy Court finds that the Plan "does not discriminate
unfairly" and is "fair and equitable" as to the non-accepting class or
classes. Class 7A, Class 7B, Class 7C and Class 8 are Impaired and will not
receive or retain any property under the Plan. Because Class 7A, Class 7B,
Class 7C and Class 8 are deemed not to have accepted the Plan, the Debtors
will request that the Bankruptcy Court find that the Plan is fair and
equitable and does not discriminate unfairly as to such classes (and any
other class that fails to accept the Plan including Class 5B). However, as
co-proponents of the Plan, the Holders of Claims in Class 7A and Class 7B
support the Plan. In addition, the Debtors have been advised that the
Holders of Claims in Class 7C support the Plan. For a more detailed
description of the requirements for acceptance of the Plan and of the
criteria for confirmation notwithstanding rejection by certain classes, see
Section XI.E. herein, entitled "REQUIREMENTS FOR CONFIRMATION OF PLAN -
NONCONSENSUAL CONFIRMATION."

          Should the Bankruptcy Court fail to confirm the Plan, the Debtors
would then consider all financial alternatives available to them at the
time, which may include an effort to sell in the Chapter 11 Cases all or a
part of their businesses or an equity interest in the Debtors and the
negotiation and filing of an alternative reorganization plan. Pursuit of
any such alternative could result in a protracted and non-orderly
reorganization with all the attendant risk of adverse consequences to the
Debtors' and their subsidiaries' businesses, operations, employees,
customers and supplier relations and their ultimate ability to function
effectively and competitively.

          The confirmation and consummation of the Plan are also subject to
certain conditions. See Section VI.K. above, entitled "SUMMARY OF THE PLAN
-- CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE."

          If the Plan, or a plan determined by the Bankruptcy Court not to
require resolicitation of acceptances by Classes, were not to be confirmed,
it is unclear whether a reorganization could be implemented and what
Holders of Claims and Interests would ultimately receive with respect to
their Claims and Interests. If an alternative reorganization could not be
agreed to, it is possible that the Debtors would have to liquidate assets,
in which case Holders of Claims and Interests could receive less than they
would have received pursuant to the Plan.

B.  RISKS OF NON-CONSUMMATION OF PLAN

          Even if all of the conditions to confirmation are satisfied, the
Plan may not be consummated if any of the conditions to consummation are
not met.

          For purposes of comparison with the anticipated distributions
under the Plan, the Debtors have prepared an analysis of estimated
recoveries in a liquidation under Chapter 7 of the Bankruptcy Code. See
Section XI herein, entitled "REQUIREMENTS FOR CONFIRMATION OF PLAN." A
description of procedures followed and the assumptions and qualifications
in connection with this analysis is set forth in the notes thereto.

C.  BUSINESS RISK FACTORS

          1. Results of Operations Subject to Variable Influences; Intense
             Competition
             -----------

          The Debtors' businesses are sensitive to changes in consumer
spending patterns, consumer preferences and overall economic conditions. In
addition, the theatre exhibition industry in the United States is itself
highly competitive and faces competition from other forms of entertainment.
Moreover, the Debtors' performance is subject to seasonal attendance
fluctuation, which may be greatly enhanced by the presence or absence of
successful films. The quality and quantity of films that the Reorganized
Debtors may offer to theatre-goers may be affected by work stoppages, if
any, within the film industry. The success of the Reorganized Debtors will
also depend on their ability to timely consummate and complete the
construction of several new theatres and realize positive cash flows from
such theatres. The Reorganized Debtors are also constrained by their new
credit agreements to pursue additional growth, internally or by third party
acquisition or other arrangements, which may affect their performance. The
future performance of the Reorganized Debtors will be subject to such
factors, most of which are beyond their control, and there can be no
assurance that such factors would not have a material adverse effect on the
Reorganized Debtors' results of operations and financial condition.

          2. History of Losses; Effect of Transaction
             ----------------------------------------

          The Debtors reported losses for the fiscal years ended 1998, 1999
and 2000. For the fiscal year ended 2001 the Debtors reported a net loss of
$436.2 million. There can be no assurance that Reorganized LCE will regain
its profitability, or have earnings or cash flow sufficient to cover its
fixed charges.

          3. Cash Flow From Operations
             -------------------------

          Based upon their analysis of their consolidated financial
position, their cash flow during the past twelve months and the cash flow
anticipated from their future operations, the Debtors believe that their
future cash flows together with funds that would be made available under
the New Working Capital Facility should be adequate to meet the financing
requirements expected after the confirmation of the Plan. There can be no
assurance, however, (i) that the Debtors will consummate the Plan, (ii) the
Debtors will be able to close their New Working Capital Facility on
favorable terms, or (iii) that future developments and general economic
trends will not adversely affect the Reorganized Debtors' operations and,
hence, their anticipated cash flow.

          The Debtors' capital expenditure levels assumed in preparation of
the projected financial data contained herein may be inadequate to maintain
Reorganized Debtors' long-term competitive position depending on revenues
from ticket and concession sales at Reorganized Debtors' theatres and as a
result of competitive developments (including new market developments and
new opportunities) in Reorganized Debtors' industry.

          4. Declines in Attendance and Gross Profits
             ----------------------------------------

          Due to the theatre exhibition industry's environment and
competitive pressures, the Debtors may lose business to competitors during
this period. Additional pricing pressures could be experienced to maintain
the Debtors' customer base in lieu of the competitive environment. Reduced
ticket sales and margin erosion could be expected and is reflected in the
projections.

          5. Leverage and Debt Service
             -------------------------

          Reorganized LCE is expected to continue to have annual fixed debt
service requirements under their New Working Capital Facility. The ability
of Reorganized LCE to make principal and interest payments under the New
Working Capital Facility will be dependent upon Reorganized LCE's future
performance, which is subject to financial, economic and other factors
affecting Reorganized LCE, some of which are beyond its control. There can
be no assurance that Reorganized LCE will be able to meet its fixed charges
as such charges become due.

         6. Need for Sustained Trade Support
            --------------------------------

          The Debtors' ability to achieve profitability includes
significant reliance on continued support from film distributors and its
other vendors. If the Debtors' major vendors reduce their credit lines or
product availability to the Debtors, it could have a material adverse
effect on Reorganized LCE's ticket and concession sales, cash position and
liquidity.

          VIII. APPLICATION OF SECURITIES ACT TO THE ISSUANCE AND
                  RESALE OF NEW SECURITIES UNDER THE PLAN

          1. New Common Stock
             ----------------

          The Plan provides that (i) all Old LCE Common Stock Interests
will be extinguished as of the Effective Date and no distribution will be
made in respect of such Old LCE Common Stock Interests and (ii) the
Investors shall receive 100% of the New Common Stock.

          2. Section 1145 of the Bankruptcy Code
             -----------------------------------

          Section 1145 of the Bankruptcy Code generally exempts the
issuance of a security (including, without limitation, the offer of a
security through any warrant, option, or right to subscribe, or the sale of
a security upon the exercise of such warrant, option, or right) from
registration under the Securities Act (and any equivalent state securities
or "blue sky" laws) if the following conditions are satisfied: (i) the
security is issued by a debtor (or its successor) under a Chapter 11 plan,
(ii) the recipient of the security holds a claim against, an interest in,
or a claim for an administrative expense against, the debtor and (iii) the
security is issued entirely in exchange for such claim or interest, or is
issued "principally" in exchange for such claim or interest and "partly"
for cash or property.

          Securities exempt from registration under section 1145 of the
Bankruptcy Code may be resold without registration under the Securities Act
of 1933, as amended (the "Securities Act") or other federal securities laws
pursuant to the exemption provided by section 4(l) of the Securities Act,
unless the holder is an "underwriter" with respect to such securities, as
that term is defined in the Bankruptcy Code (see discussion below). In
addition, such securities generally may be resold without registration
under state securities laws pursuant to various exemptions provided by the
respective laws of the several states. HOWEVER, RECIPIENTS OF SECURITIES
ISSUED UNDER THE PLAN ARE ADVISED TO CONSULT WITH THEIR OWN COUNSEL AS TO
THE AVAILABILITY OF ANY SUCH EXEMPTION FROM REGISTRATION UNDER STATE LAW IN
ANY GIVEN INSTANCE AND AS TO ANY APPLICABLE REQUIREMENTS OR CONDITIONS TO
SUCH AVAILABILITY.

          Section 1145(b) of the Bankruptcy Code defines "underwriter"
under Section 2(11) of the Securities Act as an entity who (A) purchases a
claim against, interest in, or claim for an administrative expense in the
case concerning, the debtor, if such purchase is with a view to
distribution of any security received or to be received in exchange for
such a claim or interest; (B) offers to sell securities offered or sold
under a plan for the holders of such securities; (C) offers to buy
securities offered or sold under a plan from the holders of such
securities, if such offer to buy is (i) with a view to distribution of such
securities, and (ii) under an agreement made in connection with the plan,
with the consummation of a plan, or with the offer or sale of securities
under a plan; or (D) is an issuer, as used in section 2(11) of the
Securities Act, with respect to such securities. Although the definition of
the term "issuer" appears in section 2(4) of the Securities Act, the
reference (contained in section 1145(b)(1)(D) of the Bankruptcy Code) to
section 2(11) of the Securities Act purports to include as "underwriters"
all persons who, directly or indirectly, through one or more
intermediaries, control, are controlled by, or are under common control
with, an issuer of securities. "Control" (as such term is defined in Rule
405 of Regulation C under the Securities Act) means the possession, direct
or indirect, of the power to direct or cause the direction of the policies
of a person, whether through the ownership of voting securities, by
contract, or otherwise.

          Notwithstanding the foregoing, statutory underwriters may be able
to sell securities without registration pursuant to the resale limitations
of Rule 144 under the Securities Act which, in effect, permits the resale
of securities received by statutory underwriters pursuant to a Chapter 11
plan, subject to applicable volume limitation, notice and manner of sale
requirements, and certain other conditions. Parties which believe they may
be statutory underwriters as defined in section 1145 of the Bankruptcy Code
are advised to consult with their own counsel as to the availability of the
exemption provided by Rule 144.

          There can be no assurance that an active market for any of the
securities to be distributed under the Plan will develop and no assurance
can be given as to the prices at which they might be traded.

          BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF
WHETHER A PARTICULAR HOLDER MAY BE AN UNDERWRITER, THE DEBTORS MAKE NO
REPRESENTATION CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THE
SECURITIES TO BE DISTRIBUTED UNDER THE PLAN.

          MOREOVER, SUCH SECURITIES, OR THE DOCUMENTS THAT ESTABLISH THE
TERMS AND PROVISIONS THEREOF, MAY CONTAIN TERMS AND LEGENDS THAT RESTRICT
OR INDICATE THE EXISTENCE OF RESTRICTIONS ON THE TRANSFERABILITY OF SUCH
SECURITIES.

          THE DEBTORS RECOMMEND THAT RECIPIENTS OF SECURITIES UNDER THE
PLAN CONSULT WITH LEGAL COUNSEL CONCERNING THE LIMITATIONS ON THEIR ABILITY
TO DISPOSE OF SUCH SECURITIES.

          The Debtors believe that the New Common Stock that is distributed
to the Investors will be exempt from registration requirements of the
Securities Act and equivalent state securities or "blue sky" laws pursuant
to the exemption contained in section 1145(a)(1) of the Bankruptcy Code.

         IX. FINANCIAL PROJECTIONS, VALUATION AND ASSUMPTIONS USED

          The projected financial and valuation information is set forth on
the attached Schedule II (the "Projections") should be read in conjunction
with the assumptions, qualifications, limitations and explanations set
forth herein and the selected historical financial information and the
other information set forth herein.

                X. CERTAIN FEDERAL INCOME TAX CONSEQUENCES

          The following discussion summarizes certain federal income tax
consequences of the Plan to the Holders of Pre-Petition Credit Agreement
Claims and General Unsecured Claims, other than the Investors, and the
Debtors. This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Tax Code"), the Treasury regulations (including temporary and
proposed regulations) promulgated thereunder (the "Regulations"), judicial
authorities and current administrative rulings and practice. In addition,
this summary assumes that distributions will be made to Holders of
Pre-Petition Credit Agreement Claims and General Unsecured Claims in
accordance with the settlement provided for in section 6.2(b) of the Plan.
The federal income tax consequences of certain aspects of the Plan are
uncertain because of the lack of applicable legal authority and may be
subject to administrative or judicial interpretations that differ from the
discussion below. The Debtors have not requested a ruling from the Internal
Revenue Service ("IRS") with respect to these matters, and no opinion of
counsel has been sought or obtained by the Debtors with respect thereto.
The following discussion does not address state, local or foreign tax
considerations that may be applicable to Holders of Pre-Petition Credit
Agreement Claims or General Unsecured Claims or the Debtors and does not
address the federal income tax consequences to certain types of Holders of
Pre-Petition Credit Agreement Claims and General Unsecured Claims
(including, but not limited to, financial institutions, life insurance
companies, tax-exempt organizations and foreign individuals and entities)
to which special rules may apply. THE FEDERAL INCOME AND OTHER TAX
CONSEQUENCES TO HOLDERS OF PRE-PETITION CREDIT AGREEMENT CLAIMS AND GENERAL
UNSECURED CLAIMS MAY VARY BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF EACH
HOLDER. MOREOVER, THE TAX CONSEQUENCES OF CERTAIN ASPECTS OF THE PLAN ARE
UNCERTAIN DUE TO THE LACK OF APPLICABLE LEGAL PRECEDENT. THERE CAN BE NO
ASSURANCE THAT THE IRS WILL NOT CHALLENGE ANY OF THE TAX CONSEQUENCES
DESCRIBED HEREIN, OR THAT SUCH A CHALLENGE, IF ASSERTED, WOULD NOT BE
SUSTAINED. ACCORDINGLY, ALL HOLDERS OF PRE-PETITION CREDIT AGREEMENT CLAIMS
AND GENERAL UNSECURED CLAIMS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE PLAN TO THEM AND TO THE DEBTORS. THE
DEBTORS ARE NOT MAKING ANY REPRESENTATIONS REGARDING THE PARTICULAR TAX
CONSEQUENCES OF CONFIRMATION AND CONSUMMATION OF THE PLAN AS TO ANY HOLDER
OF A PRE-PETITION CREDIT AGREEMENT CLAIM OR A GENERAL UNSECURED CLAIM, NOR
ARE THE DEBTORS OR THEIR COUNSEL RENDERING ANY FORM OF LEGAL OPINION AS TO
SUCH TAX CONSEQUENCES.

A.  TAX CONSEQUENCES TO HOLDERS OF PRE-PETITION CREDIT AGREEMENT CLAIMS AND
     GENERAL UNSECURED CLAIMS

          1. General
             -------

          The federal income tax consequences to a Holder of a Pre-Petition
Credit Agreement Claim or a General Unsecured Claim arising from the Plan
may vary depending upon whether (i) such Holder reports income for federal
income tax purposes using the cash or accrual method, (ii) such Holder has
taken a "bad debt" deduction with respect to its Claim, and (iii) in the
case of Holders of Pre-Petition Credit Agreement Claims, such Claims and
the New Term Notes to be received under the Plan in exchange for such
Claims constitute "securities" for federal income tax purposes. Holders of
Pre-Petition Credit Agreement Claims and General Unsecured Claims should
evaluate the federal income tax consequences of the Plan to them based on
their own particular circumstances and should not rely solely on the
general discussion herein.

          As noted above, the federal income tax consequences of the Plan
to Holders of Pre-Petition Credit Agreement Claims will depend in part on
whether their Claims and the New Term Notes to be issued under the Plan in
exchange for their Claims constitute "securities" for purposes of the
reorganization provisions of the Tax Code. The determination of whether a
Claim or debt obligation constitutes a security depends upon an evaluation
of the nature of the Claim or debt obligation. Important factors to be
considered include, among other things, length of time to maturity, degree
of continuing interest in the issuer, similarity of the debt instrument to
a cash payment, and the purpose of the borrowing. Generally, trade claims
and corporate debt instruments with maturities when issued of less than
five years are not considered securities, and corporate debt instruments
with maturities when issued of ten years or more are considered securities.
Claims for accrued interest generally are not securities. Because the
Pre-Petition Credit Agreement consisted of a revolving credit facility with
a maximum term of five years, Reorganized LCE intends to take the position,
and the discussion herein assumes, that the Pre-Petition Credit Agreement
Claims do not constitute securities. However, this treatment is not
certain, and Holders of Pre-Petition Credit Agreement Claims should consult
their own tax advisors as to whether such Claims and the New Term Notes
received in respect of such Claims constitute securities for federal income
tax purposes. If the Pre-Petition Credit Agreement Claims and the New Term
Notes did constitute securities for this purpose, the consequences of an
exchange of the Pre-Petition Credit Agreement Claims for New Term Notes
would be significantly different from those discussed below.

          2. Consequences of the Exchange
             ----------------------------

          Each Holder of a Pre-Petition Credit Agreement Claim or General
Unsecured Claim will recognize gain or loss on the exchange of its Claim
for the consideration distributed to such Holder in respect of such Claim
pursuant to the Plan. Such gain or loss will be measured by the difference
between (i) such Holder's tax basis in its Claim (adjusted to take into
account the amount of any bad debt deduction previously taken with respect
to such Claim and excluding any basis attributable to accrued interest) and
(ii) the amount of Cash or the issue price of the New Terms Notes
(discussed below), as the case may be, received in exchange for such
Holder's Claim, exclusive of the amount of any consideration received in
respect of accrued interest.

          Reorganized LCE intends to take the position, and the discussion
herein assumes, that the issue price of the New Term Notes will be their
stated principal amount on the Effective Date. However, this treatment is
not certain, and Holders of Pre-Petition Credit Agreement Claims should
consult their own tax advisors concerning the determination of the issue
price of the New Terms Notes and whether the New Term Notes will be issued
with original issue discount within the meaning of Section 1273 of the Tax
Code and the Regulations promulgated thereunder.

          Except as discussed below with respect to accrued interest and
market discount, if a Holder's Pre-Petition Credit Agreement Claim or
General Unsecured Claim is held as a capital asset, such gain or loss will
be capital gain or loss. Such capital gain or loss generally will be
long-term if the Claim has been held for more than one year as of the
Effective Date. Claims arising out of the extension of trade credit or the
performance of personal services generally are not held as capital assets
by their original holders, but each Holder of a Pre-Petition Credit
Agreement Claim or General Unsecured Claim should consult its own tax
advisors as to the nature of its Claim.

          As noted below (see "Tax Consequences to Creditors -- Allocation
of Consideration Received"), under the Plan, Cash or New Term Notes will be
distributed to Holders of Pre-Petition Credit Agreement Claims and General
Unsecured Claims in respect of their Claims for accrued interest. Holders
of Claims for accrued interest that have not previously included such
accrued interest in taxable income will be required to recognize ordinary
income in an amount equal to the amount of Cash or the issue price of the
New Terms Notes (discussed above), as the case may be, received with
respect to such Claims. Holders of Claims for accrued interest that have
included such accrued interest in taxable income generally may take an
ordinary deduction to the extent that such Claim is not fully satisfied
under the Plan, even if the underlying Claim is held as a capital asset.
See below under "Tax Consequences to Creditors -- Allocation of
Consideration Received" for a discussion of the allocation of consideration
to Claims for accrued interest.

          The tax basis for the New Term Notes received in respect of a
Claim (including a Claim for accrued interest) generally will be the issue
price of the New Term Notes on the Effective Date (discussed above). The
holding period for the New Term Notes that are held as capital assets
generally will begin on the day after the Effective Date.

          3. Market Discount
             ---------------

          The market discount provisions of the Tax Code may apply to
Holders of Pre-Petition Credit Agreement Claims and General Unsecured
Claims. In general, a debt obligation with a fixed maturity of more than
one year that is acquired by a holder on the secondary market (or, in
certain circumstances, upon original issuance) is a "market discount bond"
as to that holder if the debt obligation's stated redemption price at
maturity (or revised issue price, in the case of a debt obligation issued
with original issue discount) exceeds the tax basis of the debt obligation
in the holder's hands immediately after its acquisition. However, a debt
obligation will not be a "market discount bond" if such excess is less than
a statutory de minimis amount.

          Under the market discount rules, gain recognized by a holder with
respect to a "market discount bond" will generally be treated as ordinary
interest income to the extent of the market discount accrued on such bond
during the holder's period of ownership, unless the holder elected to
include accrued market discount in taxable income currently. A holder of a
market discount bond that was required under the market discount rules of
the Tax Code to defer deduction of all or a portion of interest on
indebtedness incurred or continued to purchase or carry the bond may be
allowed to deduct such interest, in whole or in part, on disposition of
such bond. Holders of Pre-Petition Credit Agreement Claims and General
Unsecured Claims should consult their own tax advisors concerning the
application of the market discount rules to them.

          4. Allocation of Consideration Received
             ------------------------------------

          Under the Plan, the aggregate consideration to be distributed to
Holders of Allowed Claims in each Class will be treated as first satisfying
an amount equal to the stated principal amount of the Allowed Claim for
such Holders and any remaining consideration as satisfying accrued, but
unpaid, interest, if any. Certain legislative history indicates that an
allocation of consideration as between principal and interest provided in a
bankruptcy plan is binding for federal income tax purposes. However, the
IRS could take the position that the consideration received by a Creditor
should be allocated in some way other than as provided in the Plan. Holders
of Pre-Petition Credit Agreement Claims and General Unsecured Claims should
consult their own tax advisors regarding the proper allocation of the
consideration received by them under the Plan.

B.  TAX CONSEQUENCES TO THE DEBTORS

          1. Cancellation of Indebtedness
             ----------------------------

          (a) General. Generally, a Debtor will realize cancellation of
indebtedness ("COD") income to the extent that a Creditor receives from the
Debtor pursuant to the Plan an amount of consideration in respect of a
Claim against the Debtor that is less than the amount of such Claim.
However, because the Debtors will be in a title 11 case at the time the COD
income is realized, they will not be required to include COD income in
taxable income. Rather, the Debtors will be required to reduce their tax
attributes (including net operating losses, certain credits and the tax
basis of their assets) by the amount of the COD income.

     The amount of COD income that the Debtors will realize under the
Plan with respect to a Claim generally will be equal to the excess, if any,
of (i) the amount of the Claim (i.e., its adjusted issue price) over (ii)
the amount of consideration distributed to the Holder of such Claim. The
amount of consideration distributed to a Holder of a Claim will equal the
amount of any Cash, the fair market value of any New Common Stock or the
issue price of any New Term Notes, as the case may be, received by such
Holder with respect to such Claim. However, no COD income will be realized
with respect to certain Claims, including Claims the payment of which would
have given rise to a deduction.

          (b) Claims for Accrued Interest. Under the Plan, consideration
will be distributed with respect to Claims for accrued interest. To the
extent the Debtors have taken deductions with respect to Claims for accrued
interest and such Claims are not fully satisfied under the Plan, the
Debtors will realized COD income and will be required to reduce their tax
attributes by the amount of such Claims that are unsatisfied. If the
Debtors have not accrued deductions for these interest Claims, the Debtors
will not recognize income with respect to such Claims and they will be
allowed a deduction equal to the value of any consideration treated as
satisfying such Claims.

          2. Limitation on Net Operating Losses
             ----------------------------------

          In general terms, under section 382 of the Tax Code, if a
consolidated group of corporations for federal income tax purposes
undergoes an "ownership change," the group may be limited in its ability to
offset its taxable income in periods after the "ownership change" by its
net operating losses ("NOLs") attributable to periods prior to the
"ownership change" and any "net unrealized built-in-loss" recognized during
the five-year period following the "ownership change"(a "recognized
built-in loss"). The implementation of the Plan will cause an "ownership
change" as of the Effective Date for federal income tax purposes.
Consequently, to the extent NOLs have not been reduced or eliminated as a
result of the realization of COD income, as discussed above, and subject to
limitations on the Debtors' ability to offset NOLs against their taxable
income resulting from any prior "ownership changes" that may have occurred,
the use of any remaining NOLs will be governed by section 382 of the Tax
Code. In this regard, the Debtors believe that they do not currently have,
and will not have as of the Effective Date, a significant amount of "net
unrealized built-in-loss."

          However, because the Debtors' "ownership change" will occur
pursuant to the implementation of a bankruptcy plan of reorganization,
special regimes, described in section 382 of the Tax Code, will govern
their use of NOLs. Based on the Debtors' understanding of the current
status and ownership of Pre-Petition Credit Agreement Claims, the Debtors
believe that they will not qualify under section 382(l)(5) of the Tax Code
and, therefore, that use of their NOLs will be governed by section
382(l)(6) of the Tax Code.

          THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PLAN ARE COMPLEX AND, IN MANY RESPECTS, UNCERTAIN. THE FOREGOING IS
INTENDED TO BE A SUMMARY ONLY AND, AS SUCH, DOES NOT DISCUSS ALL ASPECTS OF
FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF A
PRE-PETITION CREDIT AGREEMENT CLAIM OR A GENERAL UNSECURED CLAIM. ALL
HOLDERS OF PRE-PETITION CREDIT AGREEMENT CLAIMS AND GENERAL UNSECURED
CLAIMS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING
THE TAX CONSEQUENCES OF THE PLAN THAT ARE RELEVANT TO THEIR PARTICULAR
CIRCUMSTANCES.

                 XI. REQUIREMENTS FOR CONFIRMATION OF PLAN

A.  CONFIRMATION HEARING

          On November 11, 2001, the Debtors filed this Disclosure Statement
and the Plan and sought an order that the Disclosure Statement hearing be
held as soon as possible. The Bankruptcy Court scheduled the Disclosure
Statement hearing for ____ __, 2001 at [_]:00 [_].m. (Eastern Time). The
deadline to object to approval of the Disclosure Statement was set for ____
__, 2001 at [_]:00 [_].m. (Eastern Time). At the Disclosure Statement
hearing, the Bankruptcy Court approved the adequacy of the information
contained therein. The Bankruptcy Court has scheduled a hearing on
confirmation of the Plan for ______ __, 2002 at [_]:00 [_].m. (Eastern
Time). Objections to the Plan must be filed by [_]:00 [_].m. (Eastern Time)
on ______ __, 2002.

          The Plan provides that the Effective Date of the Plan will be a
date which is 11 days after the Confirmation Date, or, if such date is not
a Business Day, the next succeeding Business Day; provided, however, that
if, on or prior to such date, all conditions to the Effective Date set
forth in Article Thirteen of the Plan have not been satisfied, or waived,
then the Effective Date will be the first Business Day following the day on
which all such conditions to the Effective Date have been satisfied or
waived.

          Section 1128(b) of the Bankruptcy Code provides that any party in
interest may object to confirmation of the Plan. Pursuant to the order
approving the Disclosure Statement, any objection to confirmation of the
Plan must be in writing, must conform to the Bankruptcy Rules, must set
forth the name of the objector and, the nature and amount of claims or
interests held or asserted by the objector and against the Debtors' estates
or property, and the basis for the objection and the specific grounds
therefor, and must be filed with the Bankruptcy Court, with a copy to
Chambers, together with proof of service thereof, and served upon (i)
Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New
York 10004 (Attn: Brad Eric Scheler, Esq.), (ii) the Office of the United
States Trustee, 33 Whitehall Street, 21st Floor, New York, New York 10004
(Attn: Wendy Rosenthal, Esq.), (iii) Paul, Weiss Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York 10019 (Attn:
Robert Drain, Esq.), (iv) O'Melveny & Myers, LLP, 1999 Avenue of the Stars,
Suite 900, Los Angeles, California 90067 (Attn: Robert White, Esq.), (v)
Pachulski, Stang, Ziehl, Young & Jones, 10100 Santa Monica Boulevard, 11th
Floor, Los Angeles, California 90067 (Attn: Marc Beilinson, Esq.), and (vi)
Kronish, Lieb, Weiner & Hellman, 1114 Avenue of the Americas, New York, New
York 10036 (Attn: Charles Shaw, Esq.) so as to be received no later than
the date and time designated in the notice of the Confirmation Hearing.

          Objections to confirmation of the Plan are governed by Bankruptcy
Rule 9014. UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED,
IT MAY NOT BE CONSIDERED BY THE BANKRUPTCY COURT.

          At the Confirmation Hearing, the Bankruptcy Court will confirm
the Plan only if all of the following requirements of section 1129(a) of
the Bankruptcy Code are met:

             1. The Plan complies with the applicable provisions of the
Bankruptcy Code.

             2. The Debtors have complied with the applicable provisions of
the Bankruptcy Code.

             3. The Plan has been proposed in good faith and not by any
means forbidden by law.

             4. Any payment made or to be made by the Debtors, or by an
entity issuing securities, or acquiring property under the Plan, for
services or for costs and expenses in, or in connection with, the Chapter
11 Cases or in connection with the Plan and incident to the Chapter 11
Cases has been approved by, or is subject to the approval of, the
Bankruptcy Court as reasonable.

             5. The Debtors have disclosed the identity and affiliations of
any individual proposed to serve, after confirmation of the Plan, as a
director or officer of Reorganized LCE, or a successor to the Debtors under
the Plan, and the appointment to or continuance in such office by such
individual must be consistent with the interests of creditors and interest
holders and with public policy. The Debtors have disclosed the identity of
any "insider" who will be employed or retained by the Reorganized LCE and
the nature of any compensation for such "insider."

             6. With respect to each Impaired Class of Claims or Interests,
each Holder of a Claim or Interest in such Class has either accepted the
Plan or will receive or retain under the Plan on account of such Claim or
Interest property of a value, as of the Effective Date, that is not less
than the amount that such holder would receive or retain if the Debtors
were liquidated on the Effective Date under Chapter 7 of the Bankruptcy
Code.

             7. With respect to each Class of Claims or Interests, such
Class has either accepted the Plan or is not Impaired by the Plan. If this
requirement is not met, the Plan may still be confirmed pursuant to section
1129(b) of the Bankruptcy Code. See Section XI.E. herein, entitled
"REQUIREMENTS FOR CONFIRMATION OF PLAN -- NONCONSENSUAL CONFIRMATION."

             8. Except to the extent that the Holder of a particular Claim
has agreed to a different treatment of its Claim, the Plan provides that
(i) allowed Administrative Expenses will be paid in full in Cash on the
Effective Date, (ii) Allowed Priority Claims will be paid in full in Cash
on the Effective Date, or if the Class of such Claims accepts the Plan, the
Plan may provide for deferred Cash payments, of a value as of the Effective
Date, equal to the Allowed amount of such Claims, and (iii) the holder of
an Allowed Priority Tax Claim will receive on account of such Claim
deferred Cash payments over a period not exceeding six years after the date
of assessment of such Claim, of a value, as of the Effective Date, equal to
the Allowed amount of such Claim.

             9. If a Class of Claims is Impaired under the Plan, at least
one Class of Claims that is Impaired by the Plan has accepted the Plan,
determined without including any acceptance of the Plan by any "insider."

             10. Confirmation of the Plan is not likely to be followed by
the liquidation, or the need for further financial reorganization, of the
Debtors or any successor of the Debtors under the Plan.

             11. All fees payable under section 1930 of title 28 as
determined by the Bankruptcy Court at the Confirmation Hearing have been
paid or the Plan provides for the payment of all such fees on the Effective
Date.

             12. The Plan provides for the continuation after the Effective
Date of payment of all Retiree Benefits (as defined in section 1114 of the
Bankruptcy Code), at the level established pursuant to subsection
1114(e)(1)(B) or 1114(g) of the Bankruptcy Code at any time prior to
confirmation of the Plan, for the duration of the period the Debtors have
obligated themselves to provide such benefits.

          The Debtors believe that the Plan satisfies all of the statutory
requirements of Chapter 11 of the Bankruptcy Code. Certain of these
requirements are discussed in more detail below.

B.  FEASIBILITY OF THE PLAN

          In connection with confirmation of the Plan, section 1129(a)(11)
requires that the Bankruptcy Court find that confirmation of the Plan is
not likely to be followed by the liquidation or the need for further
financial reorganization of the Debtors. This is the so-called
"feasibility" test.

          To support their belief in the feasibility of the Plan, the
Debtors have prepared projections (the "Projections") for the fiscal years
2002 through 2006.

          The professionals have not performed an independent investigation
of the accuracy or completeness of the Projections. See Section IX above,
entitled "FINANCIAL PROJECTIONS, VALUATION AND ASSUMPTIONS USED."

          The Projections indicate that Reorganized LCE should have
sufficient cash flow to make the payments required under the Plan on the
Effective Date and, thereafter, to repay and service its debt obligations
and to maintain its operations. Accordingly, the Debtors believe that the
Plan complies with the standard of section 1129(a)(11) of the Bankruptcy
Code. As noted in the Projections, however, the Debtors caution that no
representations can be made as to the accuracy of the Projections or as to
Reorganized LCE's ability to achieve the projected results. Many of the
assumptions upon which the Projections are based are subject to
uncertainties outside the control of the Debtors. Some assumptions may not
materialize, and events and circumstances occurring after the date on which
the Projections were prepared may be different from those assumed or may be
unanticipated, and may adversely affect the Debtors' financial results. As
discussed elsewhere in this Disclosure Statement, there are numerous
circumstances that may cause actual results to vary from the projected
results, and the variations may be material and adverse. See Section VII
above, entitled "RISK FACTORS" for a discussion of certain risk factors
that may affect financial feasibility of the Plan.

          THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLIANCE
WITH THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED
PUBLIC ACCOUNTANTS OR THE RULES AND REGULATIONS OF THE SECURITIES AND
EXCHANGE COMMISSION REGARDING PROJECTIONS. FURTHERMORE, THE PROJECTIONS
HAVE NOT BEEN AUDITED BY THE DEBTORS' INDEPENDENT CERTIFIED ACCOUNTANTS.
ALTHOUGH PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED
UPON A VARIETY OF ASSUMPTIONS, SOME OF WHICH HAVE NOT BEEN ACHIEVED TO DATE
AND MAY NOT BE REALIZED IN THE FUTURE, AND ARE SUBJECT TO SIGNIFICANT
BUSINESS, LITIGATION, ECONOMIC, AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE DEBTORS.
CONSEQUENTLY, THE PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION OR
WARRANTY BY THE DEBTORS, OR ANY OTHER PERSON, THAT THE PROJECTIONS WILL BE
REALIZED. ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE
PROJECTIONS.

C.  BEST INTERESTS TEST

          As described above, the Bankruptcy Code requires that each holder
of an impaired claim or equity interest either (a) accepts the plan or (b)
receives or retains under the plan property of a value, as of the effective
date of the plan, that is not less than the value such holder would receive
or retain if the Debtors were liquidated under Chapter 7 of the Bankruptcy
Code on the Effective Date.

          The first step in meeting this test is to determine the dollar
amount that would be generated from the liquidation of the Debtors' assets
and properties in the context of a Chapter 7 liquidation case. The total
cash available would be the sum of the proceeds from the disposition of the
Debtors' assets and the cash held by the Debtors at the time of the
commencement of the Chapter 7 case. The next step is to reduce that total
by the amount of any claims secured by such assets, the costs and expenses
of the liquidation, and such additional administrative expenses and
priority claims that may result from the termination of the Debtors'
businesses and the use of Chapter 7 for the purposes of liquidation. Next,
any remaining cash would be allocated to creditors and shareholders in
strict priority in accordance with section 726 of the Bankruptcy Code (see
discussion below). Finally, the present value of such allocations (taking
into account the time necessary to accomplish the liquidation) is compared
to the value of the property that is proposed to be distributed under the
Plan on the Effective Date.

          The Debtors' costs of liquidation under Chapter 7 would include
the fees payable to a trustee in bankruptcy, as well as those which might
be payable to attorneys and other professionals that such a trustee may
engage, plus any unpaid expenses incurred by a debtor during a Chapter 11
case and allowed in a Chapter 7 case, such as compensation for attorneys,
financial advisors, appraisers, accountants and other professionals, and
costs and expenses of members of any committee of unsecured creditors
appointed by the United States Trustee pursuant to section 1102 of the
Bankruptcy Code and any other committee so appointed. In addition, claims
would arise by reason of the breach or rejection of obligations incurred
and executory contracts entered into by the Debtors both prior to, and
during the pendency of, a Chapter 11 Case.

          The foregoing types of claims, costs, expenses, and fees and such
other claims which may arise in a liquidation case or result from a pending
Chapter 11 case would be paid in full from the liquidation proceeds before
the balance of those proceeds would be made available to pay pre-Chapter 11
priority and unsecured claims.

          In applying the "best interests test," it is possible that claims
and equity interests in a Chapter 7 case may not be classified according to
the seniority of such claims and equity interests as provided in the Plan.
In the absence of a contrary determination by the Bankruptcy Court, all
pre-Chapter 11 unsecured claims which have the same rights upon liquidation
and would be treated as one class for purposes of determining the potential
distribution of the liquidation proceeds resulting from the debtors'
Chapter 7 case. The distributions from the liquidation proceeds would be
calculated ratably according to the amount of the claim held by each
creditor. Creditors who claim to be third-party beneficiaries of any
contractual subordination provisions might be required to seek to enforce
such contractual subordination provisions in the Bankruptcy Court or
otherwise. Section 510 of the Bankruptcy Code specifies that such
contractual subordination provisions are enforceable in a Chapter 7
liquidation case.

          The Debtors believe that the most likely outcome of liquidation
proceedings under Chapter 7 would be the application of the rule of
absolute priority of distributions. Under that rule, no junior creditor
receives any distribution until all senior creditors are paid in full and
no equity holder receives any distribution until all creditors are paid in
full.

          After consideration of the effects that a Chapter 7 liquidation
would have on the ultimate proceeds available for distribution, the Debtors
have determined that confirmation of the Plan will provide each creditor
and equity holder with a recovery that is not less than it would receive
pursuant to a liquidation of the Debtors under Chapter 7 of the Bankruptcy
Code.

D.  LIQUIDATION ANALYSIS

          The liquidation analysis is set forth on the attached Schedule
III. The liquidation analysis is an estimate of the proceeds that may be
generated as a result of a hypothetical Chapter 7 liquidation of the assets
of the Debtors. The liquidation analysis makes numerous assumptions with
respect to asset valuation, industry performance, business and economic
conditions, and other matters, many of which are beyond the Debtors'
control. Moreover, the methods and assumptions used in preparing the
liquidation analysis involve significant elements of subjective judgment on
the part of the Debtors and may or may not prove to be correct. The
liquidation analysis does not purport to be a valuation of the Debtors'
assets and is not necessarily indicative of the values that may be realized
in an actual liquidation which may be significantly more or less favorable
than the estimates contained in the liquidation analysis.

E.  NONCONSENSUAL CONFIRMATION

          In the event that any Impaired Class of Claims or Interests does
not accept the Plan, the Bankruptcy Court may nevertheless confirm the Plan
if all other requirements under section 1129(a) of the Bankruptcy Code are
satisfied, and if, with respect to each Impaired Class which has not
accepted the Plan, the Bankruptcy Court determines that the Plan does not
"discriminate unfairly" and is "fair and equitable" with respect to such
Class. Confirmation under section 1129(b) of the Bankruptcy Code requires
that at least one Impaired Class of Claims accepts the Plan, excluding any
acceptance of the Plan by an "insider" (as that term is defined in section
101 of the Bankruptcy Code). The Debtors intend to seek confirmation of the
Plan notwithstanding the nonacceptance of one or more Impaired Classes.

          1. No Unfair Discrimination
             ------------------------

          A plan of reorganization does not "discriminate unfairly" with
respect to a nonaccepting Class if the value of the cash and/or securities
to be distributed to the nonaccepting Class is equal or otherwise fair when
compared to the value of distributions to other Classes whose legal rights
are the same as those of the nonaccepting Class. The Debtors believe that
the Plan would not discriminate unfairly against any nonaccepting Class of
Claims or Interests.

          2. Fair and Equitable Test
             -----------------------

          The "fair and equitable" test of section 1129(b) of the
Bankruptcy Code requires absolute priority in the payment of claims and
interests with respect to any nonaccepting Class or Classes. The "fair and
equitable" test established by the Bankruptcy Code is different for secured
claims, unsecured claims and equity interests, and includes the following
treatment:

          Secured Claims. A plan is fair and equitable with respect to a
nonaccepting class of secured claims if (1) the holder of each claim in
such class will retain its lien or liens and receive deferred cash payments
totaling the allowed amount of its claim, of a value, as of the effective
date of the plan, equal to the value of such holder's interest in the
collateral, (2) the holder of each claim in such class will receive the
proceeds from the sale of such collateral or (3) the holder of each claim
in such class will realize the indubitable equivalent of its allowed
secured claim.

          Unsecured Claims. A plan is fair and equitable with respect to a
nonaccepting class of unsecured claims if (1) the holder of each claim in
such class will receive or retain under the plan property of a value, as of
the effective date of the plan, equal to the allowed amount of its claim,
or (2) holders of claims or interests that are junior to the claims of such
creditors will not receive or retain any property under the plan on account
of such junior claim or interest.

          Equity Interests. A plan is fair and equitable with respect to a
nonaccepting class of interests if the plan provides that (1) each member
of such class receives or retains on account of its interest property of a
value, as of the effective date of the plan, equal to the greatest of the
allowed amount of any fixed liquidation preference to which such holder is
entitled, any fixed redemption price to which such holder is entitled, or
the value of such interest, or (2) holders of interests that are junior to
the interests of such class will not receive or retain any property under
the plan on account of such junior interests.

       XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN

          If the Plan is not confirmed, the alternatives include (a)
continuation of the Chapter 11 Cases and formulation of an alternative plan
or plans of reorganization or (b) liquidation of the Debtors under Chapter
7 or Chapter 11 of the Bankruptcy Code.

A.  CONTINUATION OF THE CHAPTER 11 CASES

          If the Debtors remain in Chapter 11, the Debtors could continue
to operate their businesses and manage their properties as
Debtors-in-Possession, but they would remain subject to the restrictions
imposed by the Bankruptcy Code. It is not clear whether the Debtors could
continue as viable going concerns in protracted Chapter 11 cases. The
Debtors could have difficulty sustaining the high costs, operating
financing, and the confidence of the Debtors' and their subsidiaries'
and/or customers and trade vendors, of the Debtors remaining in Chapter 11.
It is highly unlikely that the Debtors would be able to find alternative
financing if the DIP Agreement was terminated. If the Debtors were able to
obtain financing and continue as viable going concern, the Debtors (or
other parties in interest) could ultimately propose another plan or attempt
to liquidate the Debtors under Chapter 7 or Chapter 11. Such plans might
involve either a reorganization and continuation of the Debtors'
businesses, or an orderly liquidation of their assets, or a combination of
both.

B.  LIQUIDATION UNDER CHAPTER 7 OR CHAPTER 11

          If the Plan is not confirmed, the Debtors' Chapter 11 Cases could
be converted to liquidation cases under Chapter 7 of the Bankruptcy Code.
In Chapter 7, a trustee would be appointed to promptly liquidate the assets
of the Debtors.

          The Debtors believe that in liquidation under Chapter 7, before
creditors received any distributions, additional administrative expenses
involved in the appointment of a trustee and attorneys, accountants, and
other professionals to assist such trustee, along with an increase in
expenses associated with an increase in the number of unsecured claims that
would be expected, would cause a substantial diminution in the value of the
estates. The assets available for distribution to creditors would be
reduced by such additional expenses and by Claims, some of which would be
entitled to priority, which would arise by reason of the liquidation and
from the rejection of leases and other executory contracts in connection
with the cessation of the Debtors' operations and the failure to realize
the greater going concern value of the Debtors' assets.

          The Debtors could also be liquidated pursuant to the provisions
of a Chapter 11 plan of reorganization. In a liquidation under Chapter 11,
the Debtors' assets could be sold in a more orderly fashion over a longer
period of time than in a liquidation under Chapter 7. Thus, Chapter 11
liquidation might result in larger recoveries than in a Chapter 7
liquidation, but the delay in distributions could result in lower present
values received and higher administrative costs. Because a trustee is not
required in a Chapter 11 case, expenses for professional fees could be
lower than in a Chapter 7 case, in which a trustee must be appointed. Any
distribution to the holders of Claims under a Chapter 11 liquidation plan
probably would be delayed substantially.

          The Debtors' liquidation analysis included on the Schedule III
attached to this Disclosure Statement is premised upon a hypothetical
liquidation in Chapter 7 cases. In that analysis, the Debtors have taken
into account the nature, status, and underlying value of its assets, the
ultimate realizable value of its assets, and the extent to which such
assets are subject to liens and security interests.

                 XIII. VOTING AND CONFIRMATION OF THE PLAN

A.  VOTING DEADLINE

          IT IS IMPORTANT THAT THE HOLDERS OF CLAIMS IN CLASS 2, CLASS 5A
AND CLASS 5B EXERCISE THEIR RIGHTS TO VOTE TO ACCEPT OR REJECT THE PLAN.
All known holders of claims and equity interests entitled to vote on the
Plan have been sent a Ballot together with this Disclosure Statement. Such
holders should read the Ballot carefully and follow the instructions
contained therein. Please use only the Ballot that accompanies this
Disclosure Statement.

          The Debtors have engaged Donlin, Recano & Company, Inc. as its
Voting Agent to assist in the transmission of voting materials and in the
tabulation of votes with respect to the Plan. FOR YOUR VOTE TO COUNT, YOUR
VOTE MUST BE RECEIVED AT THE FOLLOWING ADDRESS BEFORE THE VOTING DEADLINE
OF 4:00 P.M., EASTERN TIME, ON ________ __, 2002:

                       DONLIN, RECANO & COMPANY, INC.
            RE: LOEWS CINEPLEX ENTERTAINMENT CORPORATION, ET AL.
                               P.O. BOX 2052
                            MURRAY HILL STATION
                          NEW YORK, NEW YORK 10156

            OR IF SENT BY HAND DELIVERY OR OVERNIGHT COURIER TO:

                       DONLIN, RECANO & COMPANY, INC.
            RE: LOEWS CINEPLEX ENTERTAINMENT CORPORATION, ET AL.
                           419 PARK AVENUE SOUTH
                                 SUITE 1206
                          NEW YORK, NEW YORK 10016

          IF YOU HAVE BEEN INSTRUCTED TO RETURN YOUR BALLOT TO YOUR BANK,
BROKER, OR OTHER NOMINEE, OR TO THEIR AGENT, YOU MUST RETURN YOUR BALLOT TO
THEM IN SUFFICIENT TIME FOR THEM TO PROCESS IT AND RETURN IT TO THE VOTING
AGENT AT THIS ADDRESS BEFORE THE VOTING DEADLINE.

          IF A BALLOT IS DAMAGED OR LOST, OR FOR ADDITIONAL COPIES OF THIS
DISCLOSURE STATEMENT, YOU MAY CONTACT THE DEBTORS' VOTING AGENT, DONLIN,
RECANO & COMPANY, INC. ANY BALLOT WHICH IS EXECUTED AND RETURNED BUT WHICH
DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN WILL BE DEEMED TO
BE A VOTE TO ACCEPT THE PLAN. IF YOU HAVE ANY QUESTIONS CONCERNING VOTING
PROCEDURES, YOU MAY CONTACT THE VOTING AGENT AT THE ADDRESS SPECIFIED
ABOVE.

B.  HOLDERS OF CLAIMS AND EQUITY INTERESTS ENTITLED TO VOTE

          The Claims in the following Classes are Impaired and entitled to
receive a distribution under the Plan; consequently, each Holder of such
Claim or equity Interest, as of the Record Date established by the Debtors
for purposes of this solicitation, may vote to accept or reject the Plan:

     Class 2--       Pre-Petition Credit Agreement Claims
                     (Holders of the Pre-Petition Credit Agreement Claims)

     Class 5A--      Subsidiary General Unsecured Claims
                     (Holders of the Subsidiary General Unsecured Claims)

     Class 5B--      LCE General Unsecured Claims
                     (Holders of the LCE General Unsecured Claims)

C.  VOTE REQUIRED FOR ACCEPTANCE BY A CLASS

          The Bankruptcy Code defines acceptance of a plan by a class of
claims as acceptance by holders of at least two-thirds in dollar amount and
more than one-half in number of the claims of that class which cast ballots
for acceptance or rejection of the plan. Thus, acceptance by a class of
claims occurs only if holders of at least two-thirds in dollar amount and a
majority in number of the claims in such class that actually vote cast
their Ballots in favor of acceptance.

          A vote may be disregarded if the Bankruptcy Court determines,
after notice and a hearing, that such acceptance or rejection was not
solicited or procured in good faith or in accordance with the provisions of
the Bankruptcy Code.

D.  VOTING PROCEDURES

          The Debtors are providing copies of this Disclosure Statement,
the Plan, and where appropriate, Ballots and Master Ballots, to certain
registered holders (as of the Record Date) of Pre-Petition Credit Agreement
Claims in Class 2, Subsidiary General Unsecured Claims in Class 5A, LCE
General Unsecured Claims in Class 5B, Intercompany Cineplex Odeon Claims in
Class 7C and Old LCE Common Stock Interests in Class 8. Registered holders
may include brokers, banks, and other nominees. If such registered holders
do not hold for their own accounts, they or their agents (collectively with
such registered holders, "Nominees") should provide copies of this
Disclosure Statement and appropriate Ballots to their customers and to
beneficial owners. Any beneficial owner who has not received a Ballot
should contact his, her, or its Nominee, or the Voting Agent.

     1.                Holders of Class 5B LCE General Unsecured Claims
                       ------------------------------------------------

          Beneficial Owners. Any beneficial owner, as of the Record Date,
of the Pre-Petition Notes in his, her, or its own name can vote by
completing and signing the enclosed Ballot and returning it directly to the
Voting Agent (using the enclosed pre-addressed postage-paid envelope) so as
to be received by the Voting Agent before the Voting Deadline. If no
envelope was enclosed, contact the Voting Agent for instructions.

          Any beneficial owner holding, as of the Record Date, the
Pre-Petition Notes in "street name" through a Nominee can vote by
completing and signing the Ballot (unless the Ballot has already been
signed, or "prevalidated," by the Nominee), and returning it to the Nominee
in sufficient time for the Nominee to then forward the vote so as to be
received by the Voting Agent before the Voting Deadline of 4:00 p.m.
(Eastern Time) on ________ ___, 2002. Any Ballot submitted to a Nominee
will not be counted until such Nominee properly completes and timely
delivers a corresponding Master Ballot to the Voting Agent. IF YOUR BALLOT
HAS ALREADY BEEN SIGNED (OR "PREVALIDATED") BY YOUR NOMINEE, YOU MUST
COMPLETE THE BALLOT AND RETURN IT DIRECTLY TO THE VOTING AGENT SO THAT IT
IS RECEIVED BY THE VOTING AGENT BEFORE THE VOTING DEADLINE.

          Nominees. A Nominee which is the registered holder for a
beneficial owner, as of the Record Date, of the Pre-Petition Notes, can
obtain the votes of the beneficial owners of such securities, consistent
with customary practices for obtaining the votes of securities held in
"street name," in one of the following two ways:

                    The Nominee may "prevalidate" a Ballot by (i) signing
          the Ballot, (ii) indicating on the Ballot the name of the
          registered holder, the amount of securities held by the Nominee
          for the beneficial owner, and the account numbers for the
          accounts in which such securities are held by the Nominee, and
          (iii) forwarding such Ballot, together with the Disclosure
          Statement, return envelope, and other materials requested to be
          forwarded, to the beneficial owner for voting. The beneficial
          owner must then indicate his, her or its vote on the Plan, review
          the certifications contained in the Ballot, and return the Ballot
          directly to the Voting Agent in the pre-addressed, postage-paid
          envelope so that it is received by the Voting Agent before the
          Voting Deadline. A list of the beneficial owners to whom
          "prevalidated" Ballots were delivered should be maintained by
          Nominees for inspection for at least one year from the Voting
          Deadline.

                                     OR

                    If the Nominee elects not to "prevalidate" Ballots, the
          Nominee may obtain the votes of beneficial owners by forwarding
          to the beneficial owners the unsigned Ballots, together with the
          Disclosure Statement, a return envelope provided by, and
          addressed to, the Nominee, and other materials requested to be
          forwarded. Each such beneficial owner must then indicate his, her
          or its vote on the Plan, review the certifications contained in
          the Ballot, execute the Ballot, and return the Ballot to the
          Nominee. After collecting the Ballots, the Nominee should, in
          turn, complete a Master Ballot compiling the votes and other
          information from the Ballots, execute the Master Ballot, and
          deliver the Master Ballot to the Voting Agent so that it is
          received by the Voting Agent before the Voting Deadline. All
          Ballots returned by beneficial owners should be retained by
          Nominees for inspection for at least one year from the Voting
          Deadline. Please note: The Nominee should advise the beneficial
          owners to return their Ballots to the Nominee by a date
          calculated by the Nominee to allow it to prepare and return the
          Master Ballot to the Voting Agent so that the Master Ballot is
          received by the Voting Agent before the Voting Deadline.

          Securities Clearing Agency. The Debtors expect that The
Depository Trust Company, as the nominee holder of the Pre-Petition Notes
will arrange for its participants to vote by executing an omnibus proxy in
favor of such participants. As a result of the omnibus proxy, each
participant will be authorized to vote its position as of the Record Date
held in the name of such securities clearing agency.

          Other. If a Ballot is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations, or
others acting in a fiduciary or representative capacity, such persons
should indicate such capacity when signing, and unless otherwise determined
by the Debtors, must submit proper evidence satisfactory to the Debtors of
their authority to so act.

          For purposes of voting to accept or reject the Plan, the
beneficial owners of such securities will be deemed to be the "holders" of
such claims, as the case may be, represented by such securities.

          All claims in a Class that are voted by a beneficial owner must
be voted either to accept or to reject the Plan and may not be split by the
beneficial owner within such Class. Unless otherwise ordered by the
Bankruptcy Court, Ballots or Master Ballots which are signed, dated, and
timely received, but on which a vote to accept or reject the Plan has not
been indicated, will not be counted. The Debtors, in their discretion, may
request that the Voting Agent attempt to contact such voters to cure any
such defects in the Ballots or Master Ballots.

          Except as provided below, unless the Ballot or Master Ballot is
timely submitted to the Voting Agent before the Voting Deadline together
with any other documents required by such Ballot or Master Ballot, the
Debtors may, in their sole discretion, reject such Ballot or Master Ballot
as invalid, and therefore, decline to utilize it in connection with seeking
confirmation of the Plan by the Bankruptcy Court.

          In the event of a dispute with respect to a claim, any vote to
accept or reject the Plan cast with respect to such claim will not be
counted for purposes of determining whether the Plan has been accepted or
rejected, unless the Bankruptcy Court orders otherwise.

                    XIV. CONCLUSION AND RECOMMENDATION

          BASED ON ALL OF THE FACTS AND CIRCUMSTANCES, THE DEBTORS, THE
CREDITORS' COMMITTEE, THE AGENT AND THE INVESTORS CURRENTLY BELIEVE THAT
CONFIRMATION OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS, THEIR
CREDITORS AND THEIR ESTATES. The Plan provides for an equitable and early
distribution to creditors, and preserves the going concern value of the
Debtors. The Debtors and the Creditors' Committee believe that alternatives
to confirmation of the Plan could result in significant delays, litigation,
and costs, as well as a reduction in, or elimination of, the going concern
value of the Debtors and a loss of jobs by many of the Debtors' employees.
FOR THESE REASONS, THE DEBTORS, THE CREDITORS' COMMITTEE, THE AGENT AND THE
INVESTORS URGE YOU TO RETURN YOUR BALLOT AND VOTE TO ACCEPT THE PLAN.

DATED:      New York, New York
            November 11, 2001

                                   LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                                   AND THE OTHER DEBTORS LISTED ON
                                   SCHEDULE I,

                                   Debtors and Debtors-In-Possession

                                   By:     /s/ Lawrence J. Ruisi
                                           -------------------------------
                                           Name:     Lawrence J. Ruisi
                                           Title:    President and Chief
                                                     Executive Officer

FRIED, FRANK, HARRIS, SHRIVER &
      JACOBSON
(A Partnership Including
      Professional Corporations)
Attorneys for the Debtors and
      Debtors-in-Possession
One New York Plaza
New York, New York  10004
(212) 859-8000

By: /s/ Brad Eric Scheler
    ---------------------
     Brad Eric Scheler

<PAGE>

                                SCHEDULE I
   DEBTOR                                       CASE NO.     TAX ID #
   ------                                       --------     --------
   Loews Cineplex Entertainment Corporation     01-40346     13-3386485
   71st & 3rd Ave. Corp.                        01-40503     13-1968815
   Andy Candy Co., Inc.                         01-40525     31-0906205
   Beaver Valley Cinemas, Inc.                  01-40523     Applied For
   Berkeley Cinema Corp.                        01-40521     22-1993876
   Boston Cinemas, Inc.                         01-40519     13-4121842
   Brick Plaza Cinemas, Inc.                    01-40517     22-1909532
   Bricktown Picture Corp.                      01-40529     22-1863339
   C.O.H. Entertainment Corp.                   01-40576     95-4166974
   Campus Cinemas, Inc.                         01-40578     31-0842072
   Castle Theatre Corp.                         01-40574     22-2038656
   Cinamminson Theatre Corp.                    01-40537     22-2038654
   Cine West, Inc.                              01-40535     31-0740534
   Cinema 275 East, Inc.                        01-40533     13-3519844
   Cinema Development Corporation               01-40531     31-0855086
   Cinema Investments, Inc.                     01-40347     31-0789287
   Cineplex Odeon Films International, Inc.     01-40348     95-4136625
   Cineplex Odeon Films, Inc.                   01-40349     95-4071075
   Circle Twin Cinema Corp.                     01-40351     22-2144745
   Cityplace Cinemas, Inc.                      01-40353     13-3465138
   College Theatre Corp.                        01-40350     22-2038630
   Colorado Cinemas, Inc.                       01-40355     84-1367517
   Continent Cinemas, Inc.                      01-40357     31-085677
   Crescent Advertising Corporation             01-40352     16-1172849
   Crestwood Cinemas, Inc.                      01-40354     22-3014768
   Crofton Quad Corporation                     01-40356     22-2378993
   D. H. Garfield Advertising Agency, Inc.      01-40358     34-1155563
   Del Amo Theatres, Inc.                       01-40360     13-3281337
   District Amusement Corporation               01-40406     13-0637135
   Downstate Theatre Corporation                01-40408     06-1041659
   Downtown Boston Cinemas, LLC                 01-40451     13-4085511
   East Windsor Picture Corp.                   01-40410     22-1993874
   Eatontown Theatre Corp.                      01-40412     22-2123994
   Eton Amusement Corporation                   01-40414     13-0686045
   Fall River Cinema, Inc.                      01-40416     04-2803831
   Farmers Cinemas, Inc.                        01-40418     13-3684442
   Flat Woods Theater Corporation               01-40420     31-0780041
   Forty-Second Street Cinemas, Inc.            01-40501     13-3179361
   Fountain Cinemas, Inc.                       01-40427     13-3399128
   Freehold Cinema Center, Inc.                 01-40415     22-2523853
   Freehold Picture Corp.                       01-40417     22-1863343
   Gateway Cinemas, LLC                         01-40449     Applied For
   Gerard Theatre Corporation                   01-40419     13-6082821
   H&M Cinema Corporation                       01-40421     52-0950465
   Hawthorne Amusement Corporation              01-40423     13-0829712
   Hinsdale Amusement Corporation               01-40499     13-1841984
   I-75 Theatres, Inc.                          01-40425     31-0797887
   Illinois Cinemas, Inc.                       01-40429     13-4043068

<PAGE>

   DEBTOR                                       CASE NO.     TAX ID #
   ------                                       --------     --------
   Jersey Garden Cinemas, Inc.                  01-40431     22-2118660
   J-Town Cinemas, Inc.                         01-40433     31-0901109
   Kips Bay Cinemas, Inc.                       01-40497     13-3281502
   Lance Theatre Corporation                    01-40435     13-0943435
   Lewisville Cinemas, LLC                      01-40447     13-4088749
   Lexington Mall Cinemas Corporation           01-40437     31-0884687
   Lexington North Park Cinemas, Inc.           01-40428     31-0852602
   Lexington South Park Cinemas, Inc.           01-40426     31-0854479
   Liberty Tree Cinema Corp.                    01-40424     04-3269280
   Loews 34th St. Showplace Cinemas, Inc.       01-40422     13-0594690
   Loews Akron Cinemas, Inc.                    01-40359     13-3281322
   Loews Arlington Cinemas, Inc.                01-40361     13-3281336
   Loews Arlington West Cinemas, Inc.           01-40363     13-3166737
   Loews Astor Plaza, Inc.                      01-40495     13-2780041
   Loews Baltimore Cinemas, Inc.                01-40365     13-3484502
   Loews Bay Terrace Cinemas, Inc.              01-40367     13-3281288
   Loews Berea Cinemas, Inc.                    01-40369     13-3281329
   Loews Boulevard Cinemas, Inc.                01-40371     13-0980716
   Loews Bristol Cinemas, Inc.                  01-40373     13-3471807
   Loews Broadway Cinemas, Inc.                 01-40493     06-1160202
   Loews Brookfield Cinemas, Inc.               01-40388     13-3615492
   Loews Burlington Cinemas, Inc.               01-40394     13-3590842
   Loews California Theatres, Inc.              01-40392     13-0873262
   Loews Cedar Cinemas, Inc.                    01-40384     13-3281292
   Loews Centerpark Cinemas, Inc.               01-40390     13-3548688
   Loews Century Mall Cinemas, Inc.             01-40386     13-3029435
   Loews Cheri Cinemas, Inc.                    01-40398     22-2995955
   Loews Cherry Tree Mall Cinemas, Inc.         01-40396     13-3029433
   Loews Chicago Cinemas, Inc.                  01-40400     13-3488800
   Loews Chisholm Place Cinemas, Inc.           01-40402     13-3040367
   Loews Cinemas Advertising, Inc.              01-40404     51-0382751
   Loews Cineplex International Holdings, Inc.  01-40403     95-4760311
   Loews Citywalk Theatre Corporation           01-40405     13-3471804
   Loews Clarksville Cinemas, Inc.              01-40407     13-3590839
   Loews Connecticut Cinemas, Inc.              01-40409     13-3022878
   Loews Coral Spring Cinemas, Inc.             01-40411     Applied For
   Loews Crystal Run Cinemas, Inc.              01-40413     22-3014776
   Loews Deauville Golf Cinemas, Inc.           01-40561     13-3204725
   Loews Deauville Kingwood Cinemas, Inc.       01-40559     13-3242705
   Loews Deauville North Cinemas, Inc.          01-40557     13-3202133
   Loews Deauville Southwest Cinemas, Inc.      01-40555     13-3204724
   Loews Dewitt Cinemas, Inc.                   01-40552     13-3465155
   Loews East Hanover Cinemas, Inc.             01-40571     13-3467668
   Loews East Village Cinemas, Inc.             01-40515     13-3472867
   Loews Elmwood Cinemas, Inc.                  01-40569     13-2991181
   Loews Exhibition Ride Inc.                   01-40567     13-3684440
   Loews Fine Arts Cinemas, Inc.                01-40577     13-3465159
   Loews Fort Worth Cinemas, Inc.               01-40575     13-3360654
   Loews Freehold Mall Cinemas, Inc.            01-40573     22-3000622
   Loews Fresh Pond Cinemas, Inc.               01-40581     13-3594484
   Loews Front Street Cinemas, Inc.             01-40582     13-3488795
   Loews Fuqua Park Cinemas, Inc.               01-40579     13-3467663

<PAGE>

   DEBTOR                                       CASE NO.     TAX ID #
   ------                                       --------     --------
   Loews Garden State Cinemas, LLC              01-40445     Applied For
   Loews Greece Cinemas, Inc.                   01-40580     13-3281340
   Loews Greenwich Cinemas, Inc.                01-40565     13-3590844
   Loews Greenwood Cinemas, Inc.                01-40563     13-2773641
   Loews Harmon Cove Cinemas, Inc.              01-40553     13-2846741
   Loews Holiday Cinemas, Inc.                  01-40551     13-3471810
   Loews Houston Cinemas, Inc.                  01-40549     13-0980750
   Loews I-45 Cinemas, Inc.                     01-40547     13-3029432
   Loews Indiana Cinemas, Inc.                  01-40543     13-3668437
   Loews Kentucky Cinemas, Inc.                 01-40545     13-3668438
   Loews Lafayette Cinemas, Inc.                01-40541     13-2939482
   Loews Levittown Cinemas, Inc.                01-40539     13-3143446
   Loews Lincoln Plaza Cinemas, Inc.            01-40550     13-3048437
   Loews Lincoln Theatre Holding Corp.          01-40513     13-1684091
   Loews Louisville Cinemas, Inc.               01-40548     13-3465153
   Loews Meadowland Cinemas 8, Inc.             01-40544     13-3361946
   Loews Meadowland Cinemas, Inc.               01-40546     13-3091215
   Loews Memorial City Cinemas, Inc.            01-40542     13-3519845
   Loews Merrillville Cinemas, Inc.             01-40572     22-3017546
   Loews Mohawk Mall Cinemas, Inc.              01-40568     22-2929012
   Loews Monroe Cinema, Inc.                    01-40570     13-3281339
   Loews Montgomery Cinemas, Inc.               01-40566     22-2929019
   Loews Mountainside Cinemas, Inc.             01-40564     13-3642143
   Loews New Jersey Cinemas, Inc.               01-40560     13-1820779
   Loews Newark Cinemas, Inc.                   01-40562     13-3567035
   Loews Norgate Cinemas, Inc.                  01-40558     13-2891593
   Loews North Versailles Cinemas, LLC          01-40443     13-4085637
   Loews Norwalk Cinemas, Inc.                  01-40516     13-3590840
   Loews Orland Park Cinemas, Inc.              01-40528     22-3017545
   Loews Orpheum Cinemas, Inc.                  01-40511     13-3556932
   Loews Palisades Center Cinemas, Inc.         01-40526     13-3467560
   Loews Paradise Cinemas, Inc.                 01-40524     06-1160206
   Loews Park Central Cinemas, Inc.             01-40520     13-2863689
   Loews Pembroke Pines Cinemas, Inc.           01-40522     13-3022879
   Loews Pentagon City Cinemas, Inc.            01-40534     22-2929006
   Loews Piper's Theaters, Inc.                 01-40536     22-2974621
   Loews Pittsford Cinemas, Inc.                01-40538     13-3281338
   Loews Plainville Cinemas, LLC                01-40441     13-4085634
   Loews Post Cinemas, Inc.                     01-40540     13-3590838
   Loews Preston Park Cinemas, Inc.             01-40530     13-3073709
   Loews Richmond Mall Cinemas, Inc.            01-40532     13-3188106
   Loews Ridgefield Park Cinemas, Inc.          01-40491     13-3352926
   Loews Rolling Meadows Cinemas, Inc.          01-40477     13-3585995
   Loews Roosevelt Field Cinemas, Inc.          01-40479     13-3411450
   Loews Saks Cinemas, Inc.                     01-40481     13-3281332
   Loews Showboat Cinemas, Inc.                 01-40483     13-3070606
   Loews South Shore Cinemas, Inc.              01-40487     13-3281286
   Loews Southland Cinemas, Inc.                01-40485     13-3281334
   Loews Stonybrook Cinemas, Inc.               01-40518     13-3281343
   Loews Theatre Management Corp.               01-40512     13-3274097
   Loews Theatres Clearing Corp.                01-40514     13-3370286
   Loews Toms River Cinemas, Inc.               01-40510     13-3411449

<PAGE>

   DEBTOR                                       CASE NO.     TAX ID #
   ------                                       --------     --------
   Loews Towne Cinemas, Inc.                    01-40504     13-3036479
   Loews Trylon Theatre, Inc.                   01-40502     13-2991180
   Loews USA Cinemas, Inc.                      01-40500     13-3556697
   Loews Vestal Cinemas, Inc.                   01-40506     13-3281331
   Loews Washington Cinemas, Inc.               01-40508     13-3467662
   Loews West Long Branch Cinemas, Inc.         01-40498     13-3590512
   Loews Westerville Cinemas, Inc.              01-40556     13-3281335
   Loews Westport Cinemas, Inc.                 01-40554     13-3590843
   Loews Williston Cinemas, Inc.                01-40488     13-3590837
   Loews Worldgate Cinemas, Inc.                01-40486     13-3519809
   Loews Yorktown Cinemas, Inc.                 01-40496     13-3281327
   Loews-Hartz Music Makers Theatres, Inc.      01-40494     13-3370285
   Long Island Cinemas, Inc.                    01-40492     13-4099374
   LTM New York, Inc.                           01-40490     13-3406600
   LTM Turkish Holdings, Inc.                   01-40444     13-4104481
   Mall Picture Corp.                           01-40464     22-1863347
   Massachusetts Cinema Corp.                   01-40462     04-3260300
   Methuen Cinemas, Inc.                        01-40460     13-4094676
   Methuen Cinemas, LLC                         01-40463     13-4089322
   Mickey Amusements, Inc.                      01-40458     31-0713242
   Midcin, Inc.                                 01-40456     31-1050013
   Middlebrook Theatre Corporation              01-40470     22-2229126
   Midstate Theatre Corp.                       01-40472     06-1048334
   Mid-States Theatres, Inc.                    01-40468     31-0851111
   Midtown Cinema, Inc.                         01-40466     31-0788457
   Minnesota Cinemas, Inc.                      01-40439     41-0907845
   Montclair Cinemas, Inc.                      01-40461     31-0855953
   Moviehouse Cinemas, Inc.                     01-40489     06-1090493
   Music Makers Theatres, Inc.                  01-40475     22-1863281
   New Brunswick Cinemas, Inc.                  01-40465     22-2117486
   Nickelodeon Boston, Inc.                     01-40473     04-2647784
   North Star Cinemas, Inc.                     01-40471     13-4094675
   North Versailles Cinemas, Inc.               01-40469     22-2929015
   Northern New England Theatres, Inc.          01-40467     04-2951097
   Nutmeg Theatre Circuit, Inc.                 01-40484     22-1706691
   Ohio Cinemas, LLC                            01-40459     13-4089320
   Oxmoor Cinemas, Inc.                         01-40482     31-0818671
   Paramay Picture Corp.                        01-40480     22-1863351
   Parkchester Amusement Corporation            01-40509     13-1150623
   Parsippany Theatre Corp.                     01-40478     13-6169369
   Plainville Cinemas, Inc.                     01-40476     13-3519808
   Plaza Cinemas, Inc.                          01-40474     31-0808754
   Plitt Southern Theatres, Inc.                01-40362     95-3273303
   Plitt Theatres, Inc.                         01-40364     36-2794628
   Poli-New England Theatres, Inc.              01-40368     13-1175325
   Putnam Theatrical Corporation                01-40370     13-1189932
   Quad Cinema Corp.                            01-40372     22-2065970
   Raceland Cinemas, Inc.                       01-40366     31-0901108
   Red Bank Theatre Corporation                 01-40374     22-2229129
   Richmond Mall Cinemas, LLC                   01-40457     13-4085599
   RKO Century Warner Theatres, Inc.            01-40376     11-2562412
   Rochester Hills Star Theatres, Inc.          01-40378     13-3481309

<PAGE>

   DEBTOR                                       CASE NO.     TAX ID #
   ------                                       --------     --------
   Rosemont Cinemas, Inc.                       01-40380     13-4043071
   S & J Theatres, Inc.                         01-40382     95-4464380
   Sack Theatres, Inc.                          01-40375     04-2897798
   Salem Mall Theatre, Inc.                     01-40377     31-0721162
   Seattle Cinemas, Inc.                        01-40379     13-4100667
   Sedgwick Music Company                       01-40381     Applied For
   Skokie Cinemas, Inc.                         01-40383     Applied For
   South Holland Cinemas, Inc.                  01-40385     13-4121863
   Springfield Cinemas, Inc.                    01-40387     Applied For
   Springfield Cinemas, LLC                     01-40455     13-4089319
   Star Theatres of Michigan, Inc.              01-40389     13-3481311
   Star Theatres, Inc.                          01-40391     13-3627222
   Stroud Mall Cinemas, Inc.                    01-40393     22-2217247
   Sycamore Theatre, Inc.                       01-40395     31-0728515
   Talent Booking Agency, Inc.                  01-40507     13-6155797
   Taylor Star Theatres, Inc.                   01-40397     13-3481308
   The Walter Reade Organization, Inc.          01-40505     21-0734851
   Theatre Holdings, Inc.                       01-40399     04-2930979
   Thirty-Fourth Street Cinemas, Inc.           01-40527     13-3036478
   Times Theatres Corporation                   01-40401     31-0742026
   Towne Center Cinemas, Inc.                   01-40430     31-0866501
   Triangle Theatre Corp.                       01-40432     22-2038655
   Tri-County Cinemas, Inc.                     01-40434     31-0850814
   Tri-Son Supply Corp.                         01-40436     13-3465186
   U.S.A. Cinemas, Inc.                         01-40438     04-2901102
   Village Cinemas, Inc.                        01-40440     13-3087160
   Waterfront Cinemas, LLC                      01-40453     13-4157670
   Webster Chicago Cinemas, Inc.                01-40442     36-4081404
   Westchester Cinemas, Inc.                    01-40446     13-3352921
   Westland Cinemas, Inc.                       01-40448     31-0901110
   White Marsh Cinemas, Inc.                    01-40450     13-3604226
   Woodfield Cinemas, Inc.                      01-40452     13-4043072
   Woodridge Cinemas, Inc.                      01-40454     22-3014787

<PAGE>

                                SCHEDULE II

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                      HEARING ON THE ADEQUACY OF THE
                           DISCLOSURE STATEMENT

<PAGE>

                                  SCHEDULE III

                     TO BE FILED BY THE DEBTORS PRIOR TO THE
                         HEARING ON THE ADEQUACY OF THE
                              DISCLOSURE STATEMENT

<PAGE>
                                 AGREEMENT
                                 ---------

     This Agreement (this "Agreement") is made and entered into as of
August 10, 2001 between Oaktree Capital Management, LLC, on behalf of
itself and the funds and accounts it manages ("Oaktree"), and Onex
Corporation ("Onex"; Oaktree and Onex are collectively referred to herein
as the "Sponsors"), on the one hand, and Bankers Trust Company (the
"Administrative Agent") and the other lenders under that certain Credit
Agreement, dated as of May 14, 1998, as amended (the "Credit Agreement"),
who are signatories to this Agreement (individually, a "Consenting
Prepetition Lender," and collectively, the "Consenting Prepetition
Lenders"), on the other. The lenders under the Credit Agreement (including
Oaktree and Onex in their capacities as such) are referred to herein
collectively as the "Prepetition Lenders;" the Consenting Prepetition
Lenders and the Sponsors are collectively referred to herein as the
"Parties" and individually as a "Party."

                                  RECITALS

     WHEREAS, on February 15, 2001 (the "Petition Date"), Loews Cineplex
Entertainment Corporation (the "Company") and its domestic subsidiaries
commenced cases (the "Chapter 11 Cases") under chapter 11 of title 11 of
the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court"), Case Nos. 01-40346 - 01-40582 (ALG); and

     WHEREAS, the Consenting Prepetition Lenders and the Sponsors have
engaged in good faith negotiations and have reached an agreement with

<PAGE>

regard to a reorganization of the capital structure of the Company and its
subsidiaries (the "Reorganization") and desire to implement the
Reorganization; and

     WHEREAS, in order to implement the Reorganization, the Parties
contemplate that the Company will prepare and file a disclosure statement
and plan or plans of reorganization (the "Plan") consistent with the terms
set forth in this Agreement and the term sheet attached hereto as Exhibit 1
(the "Term Sheet"), which is incorporated herein and made a part of this
Agreement, implementing the terms of the Reorganization in the Chapter 11
Cases; and

     WHEREAS, Oaktree owns or controls subordinated notes in the face
amount of approximately $177,700,000 issued by the Company under that
certain Indenture, dated as of August 5, 1998, as supplemented, by and
between the Company and Bankers Trust Company, as Trustee, pursuant to
which the Company issued $300,000,000 principal amount of its 8 7/8% Senior
Subordinated Notes due 2008 (the "Subordinated Notes"); and

     WHEREAS, directly or indirectly, the Sponsors hold the beneficial
interest in at least $300,000,000 of the pre-petition loans outstanding
under the Credit Agreement; and

     WHEREAS, the Consenting Prepetition Lenders own or control obligations
owed under the Credit Agreement in the amounts set forth on the schedule
attached to each of their signature pages; and

     WHEREAS, in order to expedite implementation of the Reorganization,
the Consenting Prepetition Lenders and the Sponsors are prepared, subject
to the terms and conditions of this Agreement, (i) to support confirmation
of the Plan described in the Term Sheet, (ii) not to support or vote for
any competing plan or plans or an alternative transaction to transfer all

<PAGE>

or substantially all of the Company's assets or the Reorganized Company's
common stock to a third party, and (iii) to the extent permissible under
law, take all actions necessary to have the Plan confirmed by the
Bankruptcy Court

     NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Consenting Prepetition Lenders and the Sponsors hereby
agree as follows:

     1. Voting. Each Sponsor and each Consenting Prepetition Lender
represents and warrants that, as of the date hereof (a) it is the
beneficial owner and/or the investment adviser or manager for the
beneficial owner (with the power to vote and dispose of such claims on
behalf of such beneficial owner) of the principal amount of claims set
forth on the schedule attached to its signature page (for each such Party,
the "Relevant Claims"), (b) it is entitled to all of the rights and
economic benefits of the Relevant Claims, and (c) such Relevant Claims
constitute all of the principal amount of Senior Subordinated Notes and
principal amount of obligations under the Credit Agreement held or
controlled by such Party. Each Sponsor and each Consenting Prepetition
Lender agrees that, subject to (a) the Bankruptcy Court's approval of a
disclosure statement, the material facts of which are consistent with the
facts disclosed to the Sponsors and the Consenting Prepetition Lenders, as
the case may be, prior to executing this Agreement, and (b) promulgation of
a Plan, the terms of which are totally consistent with the Term Sheet as it
pertains to the Consenting Prepetition Lenders, and subject to the
conditions set forth in this Agreement (including the Term Sheet), then in
the absence of an alternative plan under which Prepetition Lenders would
receive cash on the effective date (with no financing contingency) equal to

<PAGE>

the amount of their prepetition claims and following the Bankruptcy Court's
approval of a disclosure statement related to the Plan, it will vote (or,
with respect to managed accounts, cause to be voted) its claims in respect
of the Relevant Claims in favor of the Plan by delivering its duly executed
and completed ballot in favor of the Plan and will not change or withdraw
(or cause to be changed or withdrawn) such vote(s). It is recognized and
agreed by the Parties that the Term Sheet does not purport to include all
of the material terms with respect to the Plan. It is further recognized
that this Agreement shall not constitute an agreement by such Sponsor or
Consenting Prepetition Lender to take any step or action that would violate
any provision of any applicable law (including, without limitations, any
applicable bankruptcy or federal or state securities laws), and to the
extent any provision hereof shall be construed as constituting such a
violation, such provision shall be deemed stricken herefrom and of no force
and effect without liability to any of the Parties.

     2. Restriction on Transfer. Each Consenting Prepetition Lender hereby
agrees that, so long as this Agreement shall remain in effect, it shall not
sell, transfer or assign any of its Relevant Claims or grant any option
thereon or any right or interest (voting or otherwise) therein, unless,
prior to such transfer the transferee thereof agrees in writing to be bound
by all the terms of this Agreement, as if such transferee had originally
executed this Agreement, by executing a counterpart signature page of this
Agreement, a copy of which the transferor promptly provides to the Sponsors
and the Administrative Agent under the Credit Agreement, in which event
each Party shall be deemed to have acknowledged that its obligations to
each other Party shall be deemed to constitute obligations in favor of such
transferee. Any sale, transfer or assignment by a Consenting Prepetition
Lender, as the case may be, of its Relevant Claims or any voting interest

<PAGE>

therein during the term of this Agreement that is not in compliance with
the provisions of this paragraph shall be void ab initio.

     3. Support of the Plan. As long as this Agreement remains in effect,
each Sponsor and Consenting Prepetition Lender will, subject to the terms
of this Agreement and subject to its receipt of solicitation materials
(including the Plan) in respect of the Reorganization that are consistent
with the terms of this Agreement, including the Term Sheet, (a) use its
reasonable best efforts to obtain confirmation of the Plan in accordance
with the Bankruptcy Code as expeditiously as possible and (b) take all
necessary and appropriate actions to achieve confirmation of the Plan. As
long as this Agreement remains in effect, no Sponsor or Consenting
Prepetition Lender will (i) object to, delay, impede or take any other
action to prevent the acceptance, confirmation and implementation of the
Plan or otherwise commence any proceeding to oppose or alter the Plan or
any other related documents or agreements (the "Plan Documents") to the
extent such documents conform to the terms hereof (including the Term
Sheet), (ii) vote for, consent to, support, encourage or participate,
directly or indirectly, in the formulation of any other plan of
reorganization or liquidation proposed or filed or to be proposed or filed
in the Chapter 11 cases, (iii) directly or indirectly seek, solicit,
support, vote for, consent to or encourage any other plan, sale, proposal
or offer of dissolution, winding up, liquidation, reorganization, merger or
restructuring of the Company or any of its subsidiaries that could
reasonably be expected to prevent, delay or impede the successful
restructuring of the Company as contemplated by the Plan and the Plan
Documents, (iv) object to, delay, impede or take any other action to
prevent approval of, the disclosure statement or the solicitation of
consents to the Plan, or (v) take any other action that is inconsistent

<PAGE>

with, or that would delay confirmation of, the Plan.

     4. Acknowledgment. This Agreement is not and shall not be deemed to be
a solicitation of votes to accept the Plan. In accordance with Section 1125
of the Bankruptcy Code, the acceptances of the Sponsors and the Consenting
Prepetition Lenders will not be solicited until such Parties have received
the disclosure statement and related ballot(s), after approval by the
Bankruptcy Court.

     5. Termination of Agreement.

          (a) This agreement shall terminate if the Company receives a
materially more favorable third party offer to acquire all or substantially
all of its assets or the Reorganized Company's common stock (after giving
due consideration to the costs and risks of delay and implementation) that
provides for payment of the claims of the Prepetition Lenders in full in
cash on the effective date of the plan, with no financing contingency,
files such motion or plan and seeks approval of such motion or solicits
acceptances of such plan.

          (b) Sponsors may terminate their obligations hereunder (other
than their obligations under paragraph 6) and rescind their vote on the
Plan (which vote shall be null and void and have no further force and
effect) by giving prior written notice to the Administrative Agent and its
counsel if: (i) the Consenting Prepetition Lenders support a modification
or amendment to the Plan that provides for (x) a treatment to the Sponsors
that is different than the treatment described in the Term Sheet, provided
that the Sponsors did not consent to the amendment or modification and that
the Sponsors give prior written notice thereof to the Administrative Agent

<PAGE>

and its counsel; or (y) a treatment to the holders of claims under the
Credit Agreement or the holders of equity interests in the Company that is
materially more favorable than the treatment described in the Term Sheet;
(ii) the Plan and disclosure statement (potentially subject to the sales
process described in the letter from Brad Scheler, dated August 7, 2001, a
copy of which is attached hereto as Exhibit 2) are not filed by September
24, 2001 (with a contemplated effective date no later than February 28,
2002); or (iii) a sufficient member of Consenting Prepetition Lenders
terminate their obligations under the Agreement pursuant to subparagraph
5(c), such that the provisions of paragraph 20 are no longer met.

          (c) Each Consenting Prepetition Lender may terminate its
obligations hereunder (other than their obligations under paragraph 6) and
rescind any vote on the Plan (which vote shall be null and void and have no
further force and effect) by giving prior written notice thereof to the
Sponsors and their counsel, if: (i) the Sponsors support a modification or
amendment to the Plan that provides for a treatment to such Party that is
different than the treatment described in the Term Sheet, provided that
such Party did not consent to the modification; (ii) the Company (or the
debtor estates) has litigation pending against the Prepetition Lenders or
the Administrative Agent that either has not been dismissed with prejudice
or will not be dismissed with prejudice under the Plan; (iii) the Plan
retains any claim or action against the Prepetition Lenders or the
Administrative Agent, either for the benefit of the Reorganized Company or
the creditors or equity holders of the Company; (iv) the Plan and
disclosure statement (potentially subject to the sales process described in
the letter from Brad Scheler, dated August 7, 2001, a copy of which is
attached hereto as Exhibit 2) are not filed by September 24, 2001 (with a

<PAGE>

contemplated effective date no later than February 28, 2002) or (v)
Sponsors terminate their obligations pursuant to subparagraph 5(b).

     6. Exclusivity. In the event of a termination under subparagraph
5(b)(ii) or (c)(iv), the Parties agree to oppose any extension of the
exclusive period under 11 U.S.C.ss.1121(d) and permit the Plan to be filed.

     7. Good Faith Negotiation of Documents. Each Party hereby further
covenants and agrees to negotiate the definitive documents relating to the
Plan Documents in good faith, in all respects consistent with this
Agreement (including the Term Sheet).

     8. Representations and Warranties. Each Consenting Prepetition Lender
and each Sponsor represents and warrants to each other that the following
statements are true, correct and complete as of the date hereof:

          (a) Duly Organized etc. It is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization
with all requisite power and authority to carry out the business in which
it is engaged.

          (b) Power and Authority. It has all requisite corporate,
partnership or limited liability company power and authority to enter into
and deliver this Agreement and to carry out the transactions contemplated
by, and perform its respective obligations under, this Agreement.

          (c) Authorization. The execution and delivery of this Agreement
and the performance of its obligations hereunder have been duly and validly
authorized by all necessary corporate, partnership or limited liability
company action on its part.

<PAGE>

          (d) No Conflicts. The execution, delivery and performance by it
of this Agreement do not and shall not (i) violate any provision of law,
rule or regulation applicable to it or any of its subsidiaries or its
certificate of incorporation or bylaws or other organizational documents or
those of any of its subsidiaries or (ii) conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under
any material contractual obligation to which it or any of its subsidiaries
is a party.

          (e) No Litigation. No proceeding, litigation or adversary
proceeding before any court, arbitrator or administrative or governmental
body is pending against it that would adversely affect its ability to enter
into this Agreement or perform its obligations hereunder.

          (f) Governmental Consents. The execution, delivery and
performance by it of this Agreement do not and shall not require any
registration or filing with, consent or approval of, or notice to, or other
action to, with or by, any federal, state or other governmental authority
or regulatory body.

          (g) Binding Obligation. Subject to the provisions of sections
1125 and 1126 of the Bankruptcy Code, this Agreement is the legally valid
and binding obligation of it, enforceable against it in accordance with its
terms.

     9. Further Acquisition of Claims and Other Claims. This Agreement
shall in no way be construed to preclude the Sponsors or the Consenting
Prepetition Lenders from acquiring or holding additional claims under the
Credit Agreement, the Indenture or Subordinated Notes or any other claims
against the Company or its affiliates (any such other claims, "Other
Claims"), or equity interests in the Company or its affiliates. However,
such Other Claims, wherever acquired, shall automatically be deemed to be

<PAGE>

Relevant Claims and shall be subject to the terms of this Agreement.

     10. Additional Parties. Without in any way limiting Section 2 hereof,
additional lenders under the Credit Agreement and additional holders of
Subordinated Notes may elect to become Parties to this Agreement by
executing and delivering to the Administrative Agent under the Credit
Agreement a signature page to this Agreement in which the new Party shall
make the representations set forth in this Agreement, including without
limitation the representations concerning the principal amounts of
Subordinated Notes and/or principal amount of obligations it holds or
controls under the Credit Agreement as of the date it executes the
signature page. Upon delivery of such signature page, such additional
lender or additional holder of Subordinated Notes shall become a Party to
this Agreement.

     11. Amendments. Any waiver, modification, amendment or supplement to
this Agreement will not be binding on any party without its written
consent.

     12. Disclosure of Individual Consenting Holders and Consenting
Prepetition Lenders. Unless required by applicable law or regulation, no
Party hereto shall disclose any Consenting Prepetition Lender's or
Sponsor's holdings of Relevant Claims without the prior written consent of
such Consenting Prepetition Lender or Sponsor; and if such announcement or
disclosure is so required by law or regulation, the disclosing Party shall
afford the Consenting Prepetition Lenders or Sponsors, as the case may be,
a reasonable opportunity to review and comment upon any such announcement
or disclosure prior to the making of such announcement or disclosure. The
foregoing shall not prohibit the disclosure of the approximate aggregate

<PAGE>

holdings of Relevant Claims by the Consenting Prepetition Lenders as a
group or the Sponsors as a group.

     13. Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with federal bankruptcy law and the internal
laws of the State of New York, without regard to any conflicts of law
provision that would require the application of the law of any other
jurisdiction. By its execution and delivery of this Agreement, each Party
hereto irrevocably and unconditionally agrees for itself that any legal
action, suit or proceeding against it with respect to any matter under or
arising out of or in connection with this Agreement or for recognition or
enforcement of any judgment rendered in any such action, suit or
proceeding, may be brought in the Bankruptcy Court, which shall have
exclusive jurisdiction of all matters arising out of or in connection with
this Agreement.

     14. Specific Performance. It is understood and agreed by each Party
hereto that money damages would not be a sufficient remedy for any breach
of this Agreement by any Party, and each non-breaching Party shall be
entitled to specific performance and injunctive or other equitable relief
as a remedy of any such breach.

     15. Headings. The headings of the sections, paragraphs and subsections
of this Agreement are inserted for convenience only and shall not affect
the interpretation hereof.

     16. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of the Parties and their respective successors,
assigns, heirs, executors, administrators and representatives.

<PAGE>

     17. Prior Negotiations. This Agreement (including the Term Sheet)
supersedes all prior negotiations with respect to the subject matter
hereof.

     18. Counterparts. This Agreement (and any modification, amendments,
supplements or waivers in respect hereof) may be executed in one or more
counterparts by manual or facsimile signature of each undersigned Party,
each of which shall be deemed an original and all of which shall constitute
one and the same Agreement.

     19. No Third-Party Beneficiaries; Several and Not Joint. This
Agreement is only for the benefit of the undersigned Parties. Nothing
herein, expressed or implied, is intended or shall be construed to confer
upon any person or entity, other than the Parties, any rights or remedies
under or by reason of, and no person or entity, other than the Parties, is
entitled to rely in any way upon, this Agreement. Neither Sponsor shall
have or acquire any liability or responsibility for the other Sponsor's
performance or non-performance under this Agreement, and no Consenting
Prepetition Lender shall have or acquire any liability or responsibility
for any other Consenting Prepetition Lender's performance or
non-performance under this Agreement. Notwithstanding anything herein to
the contrary, or any document or instrument executed and delivered in
connection herewith, the Parties hereto agree that the representations,
warranties, obligations and liabilities of each Sponsor and each Consenting
Prepetition Lender hereunder shall be several and not joint, and no Sponsor
or Consenting Prepetition Lender shall have any liability hereunder for any
breach by any other Sponsor or Consenting Prepetition Lender, as the case
may be, of any obligation of such set forth herein.

<PAGE>

     20. Consideration. It is hereby acknowledged by the Parties hereto
that no consideration shall be due or paid to the Sponsors or the
Consenting Prepetition Lenders for their agreement to act in accordance
with the terms and conditions of this Agreement.

     21. Effectiveness. This Agreement shall become effective upon (i) the
Sponsors and (ii) at least 51% of all Prepetition Lenders (but including
the Sponsors), who also hold in aggregate at least 66.67% of the principal
amount of obligations under the Credit Agreement executing and delivering
this Agreement.

     22. Further Assurances. From and after the date hereof, each of the
Parties covenants and agrees to execute and deliver all such agreements,
instruments and documents and to take all such further actions as the
Parties may reasonably deem necessary from time to time to carry out the
intent and purposes of this Agreement and to consummate the transactions
contemplated hereby.

     23. Notices.

          (a) All notices and other communications under this Agreement
shall be in writing and shall be deemed to have been given on the date
personally delivered or sent by telecopy (answer back received), or three
days after deposit in the mail, designated as certified mail, return
receipt requested, postage-prepaid, or one day after being entrusted to a
reputable commercial overnight delivery service, addressed to the party to
which such notice is directed at its address determined as provided in this
Section. All notices and other communications under this Agreement shall be
given to the Parties hereto at the addresses listed in the signature pages
hereto, with copies to:

<PAGE>

                  (1)      Paul, Weiss, Rifkind, Wharton & Garrison
                           1285 Avenue of the Americas
                           New York, New York 10019
                           Attn: Robert Drain
                           Facsimile:  (212) 373-2053

                  (2)      O'Melveny & Myers LLP
                           1999 Avenue of the Stars
                           Los Angeles, CA  90067
                           Attn:  Robert J. White
                           Facsimile:  (310) 246-6779

          (b) Any Party may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other
parties.

                     [REMAINDER OF THIS PAGE IS BLANK]

<PAGE>

          IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officers as
of the date first above written.

<PAGE>

     IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officers as
of the date first above written.

                     OAKTREE CAPITAL MANAGEMENT, LLC as general partner
                     and/or investment manager of certain funds and accounts
                     it manages

                             By:   /s/ Mariusz J. Mazurek
                                   -------------------------------------
                             Name: Mariusz J. Mazurek - Senior Vice President

                             By:   /s/ Kenneth Liang
                                   -------------------------------------
                             Name: Kenneth Liang - Managing Director

                             Notice Address:  333 South Grand Avenue
                                              28th Floor
                                              Los Angeles, CA  90071
                             Attention: Mariusz Mazurek       Kenneth Liang
                             Telephone: (213) 830-6405        (213) 830-6422
                             Telecopier: (213) 830-6494       (213) 830-8522

                             ONEX CORPORATION

                             By:
                                   -------------------------------------
                             Name:
                             Title:

                              Notice Address:___________________________
                                             ___________________________
                                             ___________________________
                                             Attention:_________________
                                             Telephone:_________________
                                             Telecopier:________________

                             BANKERS TRUST COMPANY

                             By:   /s/
                                   -------------------------------------
                             Name:
                             Title:

<PAGE>
        IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officers as
of the date first above written.

                             OAKTREE CAPITAL MANAGEMENT, LLC

                             By:
                                   -------------------------------------
                             Name:
                             Title:

                              Notice Address:___________________________
                                             ___________________________
                                             ___________________________
                                             Attention:_________________
                                             Telephone:_________________
                                             Telecopier:________________

                            ONEX CORPORATION

                            By:    /s/ Eric J. Rosen
                                   -------------------------------------
                            Name:
                            Title:

                             Notice Address: Onex Investment Group
                                             712 Fifth Avenue 40th Fl.
                                             New York, NY  10019
                                             Attention: Eric J. Rosen
                                             Telephone:(212) 582-2211
                                             Telecopier:(212) 582-0909

                             BANKERS TRUST COMPANY

                             By:   /s/ Mark B. Cohen
                                   -------------------------------------
                             Name:  Mark B. Cohen
                             Title: Head of Workout
                             Notice Address: Bankers Trust Company
                                             130 Liberty Street
                                             New York, NY  10006
                                             Attention:
                                             Telephone: (212)
                                             Telecopier: (212)

<PAGE>

         IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement of Joinder to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first written above.

                        JOINING LENDERS:

                             BANKERS TRUST COMPANY

                             By:   /s/ Mark B. Cohen
                                   -------------------------------------
                             Name: Mark B. Cohen, Managing Director
                             Title: Head of Workout
                             Notice Address: Bankers Trust Company
                                             130 Liberty Street
                                             New York, NY  10006
                                             Attention:
                                             Telephone: (212)
                                             Telecopier: (212)

<PAGE>

                             BANK OF AMERICA, N.A.

                             By:   /s/ Edward Harmon
                                   -------------------------------------
                             Name:  Edward Harmon
                             Title: Vice President

                             Notice Address: Bank of America
                                             101 N. Tryon Street, 15th Floor
                                             NC1-001-15-01
                                             Charlotte, North Carolina  28255
                                             Attention: Jenny Neill
                                             Telephone: (704) 386-3933
                                             Telecopier: (704) 409-0072

                                             With copy to:

                                             Bank of America, N.A.
                                             100 N. Tryon Street, 6th Floor
                                             NC1-007-06-07
                                             Charlotte, North Carolina 28255
                                             Attention: Tony Gilbert (IDC)
                                             Telephone: (704) 387-4366
                                             Telephone: (704) 409-0768

<PAGE>

                                             BARCLAYS BANK PLC

                                             By:   /s/ Edward G. Hamway, Jr.
                                                   -------------------------
                                             Name: Edward G. Hamway, Jr.
                                             Title: Director

                             Notice Address: Barclays Bank PLC
                                             222 Broadway, 12th Floor
                                             New York, New York  10038
                                             Attention: Edward G. Hamway, Jr.
                                             Telephone: (212) 412-2994
                                             Telecopier: (212) 412-5661

<PAGE>

                             CREDIT INDUSTRIEL ET COMMERCIAL

                             By:   /s/ Anthony Rock
                                   -------------------------------------
                             Name:  Anthony Rock
                             Title: Vice President

                             By:   /s/ Marcus Edward
                                   -------------------------------------
                             Name:  Marcus Edward
                             Title: Vice President

                             Notice Address: Credit Industriel et Commercial
                                             520 Madison Avenue, 37th Floor
                                             New York, New York 10022
                                             Attention: Anthony Rock
                                             Telephone: (212) 715-4666
                                             Telecopier: (212) 412-4535

<PAGE>

                             ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG

                             By:   /s/ Robert J. Wagner
                                   -------------------------------------
                             Name:  Robert J. Wagner
                             Title: Vice President

                             By:   /s/ John S. Runnion
                                   -------------------------------------
                             Name: John S. Runnion
                             Title: Managing Director

                             Notice Address: Erste Bank
                                             280 Park Avenue
                                             West Bldg., 32nd Floor
                                             New York, New York 10017
                                             Attention: Bob Wagman
                                             Telephone: (212) 984-5633
                                             Telecopier: (212) 984-5627

<PAGE>

                             PNC BANK, NATIONAL ASSOCIATION

                             By:   /s/ Michael A. Valerio, Jr.
                                   -------------------------------------
                             Name: Michael A. Valerio, Jr.
                             Title: Vice President

                             Notice Address: 1600 Market Street, 11th Floor
                                             Philadelphia, PA 19103
                                             Attention: Michael A. Valerio, Jr.
                                             Telephone: (215) 585-4499
                                             Telecopier: (215) 585-8391

<PAGE>

                             STB DELAWARE FUNDING TRUST I

                             By:   /s/ Donald C. Hargadon
                                   -------------------------------------
                             Name: Donald C. Hargadon
                             Title: Vice President

                             Notice Address: Sumitomo Trust and Banking Co,
                                                Ltd.
                                             527 Madison Avenue
                                             New York, New York 10022
                                             Attention:Elizabeth Quirk
                                             Telephone: (212) 326-0553
                                             Telecopier: (212) 418-4848

<PAGE>

                             NATEXIS BANQUES POPULAIRES

                             By:   /s/ Elizabeth A. Harker
                                   -------------------------------------
                             Name: Elizabeth A. Harker
                             Title: Assistant Vice President

                             By:   /s/ Evan Kraus
                                   -------------------------------------
                             Name: Evan Kraus
                             Title: Vice President

                             Notice Address: Natexis Banques Populaires
                                             1251 Avenue of the Americas
                                             Floor 34
                                             New York, New York 10020
                                             Attention: Beth Harker
                                             Telephone: (212) 872-5124
                                             Telecopier: (212) 872-5163

<PAGE>

                             THE INDUSTRIAL BANK OF JAPAN, LIMITED

                             By:   /s/ Koichi Hasegawa
                                   -------------------------------------
                             Name: Koichi Hasegawa
                             Title: Senior Vice President

                             Notice Address: The Industrial Bank of Japan,
                                               Limited
                                             1251 Avenue of the Americas
                                             New York, New York 10020-1104
                                             Attention: John Davies and Noel
                                                           Purcell
                                             Telephone: (212) 282-3327 and
                                                        (212) 282-3486
                                             Telecopier: (212) 282-4490

<PAGE>

                             GOLDMAN SACHS CREDIT PARTNERS L.P.

                             By:   /s/
                                   -------------------------------------
                             Name:
                             Title:

                             Notice Address: 85 Broad Street, 6th Floor
                                             New York, New York 10004
                                             Attention: Sandra Stulberger
                                             Telephone: (212) 902-4425
                                             Telecopier: (212) 357-4597

<PAGE>

                             THE BANK OF NOVA SCOTIA

                             By:   /s/ Pieter J. Van Schaick
                                   -------------------------------------
                             Name: Pieter J. Van Schaick
                             Title: Managing Director

                             Notice Address: One Liberty Plaza, 26th Floor
                                             New York, New York 10006
                                             __________________________
                                             Attention: Pieter Van Schaick
                                             Telephone: (212) 225-5005
                                             Telecopier: (212) 225-5205

<PAGE>

                             FRANKLIN FLOATING RATE TRUST

                             By:   /s/ Chauncey Lufkin
                                   -------------------------------------
                             Name:Chauncey Lufkin
                             Title: Vice President

                             Notice Address: One Franklin Parkway
                                             San Mateo, CA 94403
                                             Attention: Richard Hsu
                                             Telephone: (650) 312-3732
                                             Telecopier: (650) 312-3346

<PAGE>

     IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officers as
of the date first above written.

                     OAKTREE CAPITAL MANAGEMENT, LLC, as general partner
                     and/or investment manager of certain funds and accounts
                     it manages, solely in its capacity as the holder of
                     Subordinated Notes in the face amount of approximately
                     $177,700,000

                             By:   /s/ Bruce A. Karsh
                                   -------------------------------------
                             Name: Bruce A. Karsh
                             Title:President

                             By:   /s/ Mariusz J. Mazurek
                                   -------------------------------------
                             Name: Mariusz J. Mazurek
                             Title: Senior Vice President

                             Notice Address: 333 South Grand Avenue
                                             28th Floor
                                             Los Angeles, CA 90071
                                             Attention: Mariusz Mazurek,
                                                         Ken Liang
                                             Telephone: (213) 830-6405,
                                                          (213) 830-6422
                                             Telecopier: (213) 830-6494
                                                          (213) 830-8522

<PAGE>

     IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officers as
of the date first above written.

                     OAKTREE CAPITAL MANAGEMENT, LLC, as general partner
                     and/or investment manager of certain funds and accounts
                     it manages, solely in its capacity as a lender under
                     the Credit Agreement

                             By:   /s/ Bruce A. Karsh
                                   -------------------------------------
                             Name: Bruce A. Karsh
                             Title: President

                             By:   /s/ Mariusz J. Mazurek
                                   -------------------------------------
                             Name: Mariusz J. Mazurek
                             Title: Senior Vice President

                             Notice Address: 333 South Grand Avenue
                                             28th Floor
                                             Los Angeles, CA 90071
                                             Attention: Mariusz Mazurek,
                                                         Ken Liang
                                             Telephone: (213) 830-6405,
                                                          (213) 830-6422
                                             Telecopier: (213) 830-6494
                                                          (213) 830-8522

<PAGE>

                     LOEWS CINEPLEX ENTERTAINMENT CORP.
                         CHAPTER 11 PLAN TERM SHEET

                              AUGUST 10, 2001

     This term sheet (together with the exhibit attached hereto, the "TERM
SHEET") describes certain of the principal terms of a proposed chapter 11
plan (the "PLAN") with respect to the outstanding indebtedness and
liabilities of, and equity interests in, Loews Cineplex Entertainment Corp.
("LOEWS") and its direct and indirect subsidiaries (the "DEBTORS").(1) Upon
the effective date of the Plan, the Debtors' obligations will be satisfied
and discharged as follows:

--------------------------------------

1    This Term Sheet is not an offer with respect to any securities or a
     solicitation of acceptances of a chapter 11 plan. Such offer or
     solicitation would be made in compliance with the applicable
     provisions of the Bankruptcy Code and securities laws.

CLASSIFICATION AND           ADMINISTRATIVE CLAIMS: On the Effective Date,
TREATMENT OF CLAIMS          or as soon thereafter as practicable, each
AND INTERESTS:               holder of an allowed administrative claim will
                             receive payment in full in cash of the unpaid
                             portion of such allowed administrative claim.

                             PRIORITY AND TAX CLAIMS: On the Effective
                             Date, or as soon thereafter as practicable,
                             each holder of an allowed priority claim will
                             receive payment in full in cash of the unpaid
                             portion of such allowed priority claim or such
                             other treatment as is permitted under the
                             Bankruptcy Code.

                             BANK CLAIMS: The treatment of allowed Bank
                             claims and the treatment of the allowed Bank
                             claims of the Sponsors (as defined below)
                             shall be as contemplated by the term sheet
                             ("BANK TERM SHEET") attached hereto as Exhibit A.

                             OTHER SECURED CLAIMS: On the Effective Date,
                             or as soon thereafter as practicable, at the
                             option of Loews, holders of other allowed
                             secured claims (i) will receive payment in
                             full in cash of the unpaid portion of such
                             other allowed secured claims, (ii) will be
                             reinstated, (iii) will receive new notes with
                             a present value equal to the allowed amount of
                             their secured claims, (iv) will be satisfied
                             by delivering to the claimant the collateral
                             securing such claim.

                             UNSECURED CLAIMS: On the Effective Date, or as
                             soon thereafter as practicable, holders of
                             allowed unsecured claims will receive
                             approximately 7.5% of the outstanding common
                             stock of Reorganized Loews or, at the
                             Sponsors' option and funding, the value
                             thereof, if that class accepts the Plan.
                             Absent the requisite vote of such class,
                             holders of such claims will receive no
                             distributions, or such distributions, not to
                             exceed 7.5% of the outstanding common stock of
                             Reorganized Loews, that the Court determines
                             is required for confirmation of the Plan.

                             EXISTING EQUITY HOLDERS OF LOEWS: Existing
                             equity holders of Loews and holders of options
                             to purchase and other rights in respect of any
                             such equity will receive no recovery.

DOCUMENTATION:               The consummation of the transactions
                             contemplated hereby will be effected pursuant
                             to (a) a definitive investment agreement (the
                             "DEFINITIVE AGREEMENT") mutually acceptable to
                             Loews, Onex Corporation ("ONEX") and Oaktree
                             Capital Management, LLC, on behalf of certain
                             funds and accounts managed by it ("OAKTREE",
                             and together with Onex, the "SPONSORS") and
                             not inconsistent with the Bank Term Sheet and
                             (b) definitive documentation implementing the
                             Bank Term Sheet. The Definitive Agreement
                             shall contain, among other things, appropriate
                             representations and warranties, covenants and
                             closing conditions customary for transactions
                             of this type (which shall include, among other
                             things, no material adverse change since
                             February 28, 2001).

CONDITIONS TO PLAN           o  The Plan shall become effective no later
CONFIRMATION AND PLAN           than February 28, 2002.
EFFECTIVENESS:

                             o  The Debtors shall have operated their
                                business in the ordinary course and paid
                                ongoing ordinary course liabilities,
                                substantially consistent with past
                                practices and the DIP agreement.

                             o  Satisfaction of the closing conditions to
                                the Definitive Agreement and the definitive
                                documentation in respect of the Bank Term
                                Sheet.

                             o  Receipt of all required third party
                                approvals by Loews and Sponsors (including
                                but not limited to government approvals).

NON-BINDING COMMITMENT:      This Term Sheet does not constitute a legally
                             binding commitment by Loews, the Sponsors, the
                             other holders of Bank claims or any other
                             person. Any obligation on the part of any such
                             parties is subject to the negotiation and
                             execution of definitive documentation
                             governing the transactions contemplated
                             hereby, in form and substance reasonably
                             satisfactory to, among others, Loews, the
                             Banks and the Sponsors.

<PAGE>

                                                                EXHIBIT A

                        BANK DEBT CLAIMS TERM SHEET

<PAGE>

                                                                  EXECUTION COPY

                    LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                                SUMMARY OF TERMS
                        POST-BANKRUPTCY CREDIT FACILITIES

          The following summarizes selected terms of certain senior secured
credit  facilities to be  restructured  in connection  with a joint Plan or
separate  Plans  of   Reorganization   for  Loews  Cineplex   Entertainment
Corporation and subsidiary  debtors (the "Plan").  This Summary of Terms is
intended  merely as an outline of  certain  of the  material  terms of such
senior secured credit facilities.  It does not include  descriptions of all
of the terms,  conditions and other  provisions that are to be contained in
the  definitive  documentation  relating  to  such  senior  secured  credit
facilities,  and it is not  intended to limit the scope of  discussion  and
negotiation of any matters not  inconsistent  with the specific matters set
forth herein.  This Summary of Terms and the ancillary documents hereto are
provided in the context of a possible compromise and settlement.  As of the
date  hereof,  none of the Agent (as defined  below) or Lenders (as defined
below) has sought or received the  requisite  internal  credit  approval of
such Lender's credit  committee with respect to the terms contained in this
Summary  of  Terms  or  any  other  terms  with  respect  to  any  plan  of
reorganization for Loews Cineplex Entertainment  Corporation and subsidiary
debtors.  Under no circumstances  shall this Summary of Terms constitute or
be deemed to  constitute a legally  binding  commitment  on the part of the
Agent (as defined below), any Lender, any Sponsor (as defined below) or any
of  their  respective  affiliates  or any  other  person,  nor  shall it be
construed as an undertaking by the Agent, any Lender, any Sponsor or any of
their respective affiliates to issue or arrange a commitment.  This Summary
of Terms is for discussion  purposes only.  Until this Summary of Terms and
all ancillary  documents hereto are executed by the required parties,  this
Summary of Terms is not admissible as evidence  pursuant to Federal Rule of
Evidence 408.

I.   Proposed Restructure Pursuant to Chapter 11 Plan of Reorganization.
     ------------------------------------------------------------------

          On May 14, 1998, Loews Cineplex Entertainment Corporation entered
into that certain  Credit  Agreement  dated as of May 14, 1998,  as amended
(the "PRE-PETITION CREDIT AGREEMENT"), with the Lenders listed therein (the
"LENDERS"),  Bankers  Trust  Company,  as  Administrative  Agent  and  as a
Co-Syndication Agent, Bank of America NT&SA, as a Co-Syndication Agent, The
Bank of New York,  as a  Co-Syndication  Agent,  and  Credit  Suisse  First
Boston,  as a  Co-Syndication  Agent.  On February 15, 2001 (the  "PETITION
Date"), Loews Cineplex Entertainment Corporation ("DEBTOR") and each of its
wholly owned domestic subsidiaries filed for protection under Chapter 11 of
the Bankruptcy Code in the Bankruptcy Court, Southern District of New York.
That same day, Cineplex Odeon Corporation and its wholly owned subsidiaries
filed for protection under the Canadian  Companies'  Creditors  Arrangement
Act (the "CCAA") in Ontario,  Canada.  As of the Petition  Date, the Debtor
had (x)  $733,713,552.16  in  outstanding  Revolving  Loans  ("PRE-PETITION
REVOLVING LOANS"),  (y) $6,581,205.46 in outstanding and undrawn letters of
credit ("PRE-PETITION  LETTERS OF CREDIT") and (z) $1,972,623.51 in accrued
but  unpaid  interest  on  the   Pre-Petition   Revolving  Loans  ("ACCRUED
INTEREST").

          In  addition,  Debtor,  certain of the Lenders and Bankers  Trust
Company,   as   Administrative    Agent,    entered   into   that   certain
Debtor-in-Possession  Credit  Agreement  dated as of February  15, 2001 (as
amended,   the  "DIP  CREDIT  AGREEMENT")  pursuant  to  which  (i)  up  to
$60,000,000 of revolving  loans (the "DIP LOANS") may be extended while the
Bankruptcy Cases are pending,  of which up to $20,000,000 may be on-lent to
Cineplex Odeon and its Subsidiaries, (ii) $80,686,175.67 of term loans (the
"ROLL-UP  LOANS")  were  extended,  which  were used to repay  the  Accrued
Interest and a portion of the Pre-Petition Revolving Loans, and (iii) up to
$4,508,088.00  of letters  of credit may be issued to replace  Pre-Petition
Letters of Credit  (such  letters of credit,  the  "REPLACEMENT  LETTERS OF
CREDIT").

          As of  the  date  of  this  Summary  of  Terms,  Oaktree  Capital
Management,  LLC, as general partner or investment manager of certain funds
or accounts ("OAKTREE"), and Onex Corporation ("ONEX"; Oaktree and Onex are
collectively  referred to herein as the  "SPONSORS")  collectively  had (w)
outstanding  Pre-Petition  Revolving Loans, (x) outstanding  Roll-Up Loans,
(y)  participations  with respect to  outstanding  Pre-Petition  Letters of
Credit and (z) participations with respect to Replacement Letters of Credit
(the amounts  described  in the  foregoing  clauses (w),  (x), (y) and (z),
collectively, the "SPONSOR LOAN AMOUNT").

          Under the contemplated Plan:

          (i) The Sponsors will convert $300,000,000.00 of Pre-Petition
Revolving Loans and Roll-Up Loans (the "AGGREGATE CONVERSION AMOUNT") to a
percentage to be determined of the common equity in the newly reorganized
Loews Cineplex Entertainment Corporation ("COMPANY").

          (ii) The claims of the other Lenders under the Pre-Petition
Credit Agreement and the DIP Credit Agreement will be treated as follows:

          A.   DIP Credit Agreement: The DIP Loans will be repaid with loans
     under the $100,000,000.00 Revolving Credit Facility described below.

          B.   Pre-Petition Credit Agreement: The Pre-Petition Revolving
     Loans and the Roll-Up Loans (excluding the Aggregate Conversion
     Amount) will be refinanced under the Term Loan Facility.

          C.   Treatment  of Pre-Petition  Letters of Credit and Letters of
     Credit issued under the DIP Credit Agreement:  Pre-Petition Letters of
     Credit  that are drawn  upon prior to the  effective  date of the Plan
     (the  "CLOSING  DATE")  will be  deemed to be  indebtedness  under the
     Pre-Petition  Credit  Agreement,  and  the  amount  of the  Term  Loan
     Facility  shall be  increased  by the  amount  of all  such  drawings.
     Consequently,   subject  to  the  aggregate  $300,000,000  limit,  the
     exposure of Sponsors  under such  letters of credit will be  converted
     into equity. Pre-Petition Letters of Credit and Replacement Letters of
     Credit  that remain  outstanding  as of the  Closing  Date,  and other
     letters  of credit  issued  under the DIP  Credit  Agreement,  will be
     rolled over into letters of credit under the Revolving Credit Facility
     and will not count toward the Sponsor Conversion Amount.

II.  The Post-Bankruptcy Credit Facilities
     -------------------------------------

     The  Post-Bankruptcy  Credit Facilities shall consist of the Term Loan
Facility and the Revolving Credit Facility.

Borrower:              Reorganized Loews Cineplex Entertainment Corporation
--------               ("COMPANY").

Lenders:               The Lenders under the Pre-Petition  Credit Agreement
-------                and the DIP Credit Agreement (excluding the Sponsors
                       to the extent of the Aggregate  Conversion  Amount).
                       The Agent  reserves its right to  syndicate  some or
                       all  of  the  Revolving  Credit  Facility  to  other
                       Lenders    or    other    financial    institutions.
                       Notwithstanding  anything to the contrary  contained
                       herein,  any  commitment  to provide  the  Revolving
                       Credit  Facility  shall be subject to the successful
                       syndication  of the  Revolving  Credit  Facility  as
                       determined by the Agent in its sole discretion.(1)

-----------------------
(1) The Agent (or the Agent and other  institutions)  will endeavor
to deliver a commitment (subject to flex) 3 weeks after this term sheet has
been approved by the Lenders.

Agent for the Lenders: Bankers Trust Company (in such capacity, the "AGENT").
---------------------

Term Loan Facility:
------------------

     Amount:           The loans  under the Term Loan  Facility  (the "TERM
     ------            LOANS")  shall be in an  aggregate  amount  equal to
                       98.25% the difference between (x) the sum of (i) all
                       amounts  outstanding  under the Pre-Petition  Credit
                       Agreement  as of the  Closing  Date  plus  (ii)  the
                       amount  of  outstanding  Roll-Up  Loans  as  of  the
                       Closing  Date  and  (y)  the  Aggregate   Conversion
                       Amount.

     Maturity:         February 29, 2008
     --------

     Use of Proceeds:  The  Term   Loans  may  be  used   solely  to  repay
     ---------------   Pre-Petition  Revolving  Loans  (including,  without
                       limitation,  drawings  on  Pre-Petition  Letters  of
                       Credit  made prior to the Closing  Date),  any other
                       amounts  outstanding  under the Pre-Petition  Credit
                       Agreement and the Roll-Up Loans.

     Scheduled         Quarterly  amortization  of the Term  Loans  will be
     ---------         required  (subject to seasonality  adjustments to be
     Amortization:     mutually  agreed upon).  Amortization is to commence
     ------------      on May  31,  2002,  resulting  in  aggregate  annual
                       amortization as follows:

                           Fiscal Year                        Aggregate Annual
                           -----------                          Amortization
                                                              ----------------

                       March 1, 2002 - February 28, 2003         $5,000,000
                       March 1, 2003 - February 29, 2004        $10,000,000
                       March 1, 2004 - February 28, 2005        $15,000,000
                       March 1, 2005 - February 28, 2006        $20,000,000
                       March 1, 2006 - February 28, 2007        $25,000,000
                       March 1, 2007 - November 30, 2007        $22,500,000
                       December 1, 2007 - February 29, 2008    $330,561,669
                                                               ------------
                       Total Scheduled Amortization            $428,061,669

Revolving Credit
----------------
Facility:
-------

     Amount:           Loans   under   the   Revolving    Credit   Facility
     ------            ("REVOLVING  LOANS") shall be in an aggregate amount
                       not to exceed $100 million.

     Maturity:         February 28, 2007
     --------

     Use of Proceeds:  Revolving  Loans  may be used (i) to  repay  the DIP
     ---------------   Loans and (ii) to provide  for the  working  capital
                       requirements  and  general  corporate   purposes  of
                       Company and its subsidiaries,  and letters of credit
                       may be issued up to a  sublimit  equal to the sum of
                       (x) the  amount of undrawn  Pre-Petition  Letters of
                       Credit  outstanding  on the Closing Date and letters
                       of  credit  issued  under the DIP  Credit  Agreement
                       outstanding on the Closing Date (including,  without
                       limitation,  Replacement Letters of Credit) plus (y)
                       $10  million,  in each  case,  to  support  workers'
                       compensation  contingencies  and for other corporate
                       purposes to be agreed upon.

     The Uncommitted   Company,  with the  consent  of Agent and  Requisite
     ---------------   Lenders,  may, on no more than two  occasions and at
     Facility:         any time during the first eighteen (18) months after
     --------          the Closing Date, solely in connection with a merger
                       or  acquisition   approved  by  Requisite   Lenders,
                       request  that  one or more  lenders  commit  to make
                       additional term loans under an uncommitted  facility
                       (the "UNCOMMITTED FACILITY");  provided that (w) (i)
                       if the consolidated leverage ratio (to be defined as
                       consolidated   total  debt  to  last-twelve   months
                       EBITDA) on a pro forma basis after giving  effect to
                       the merger or acquisition, as of the end of the most
                       recently ended fiscal quarter is equal to or greater
                       than 3.5x,(2) the aggregate  principal amount of loans
                       made under the Uncommitted Facility shall not exceed
                       $125 million and (ii) if the  consolidated  leverage
                       ratio  as of  the  end of the  most  recently  ended
                       fiscal  quarter  is less than  3.5x,  the  aggregate
                       principal amount of loans made under the Uncommitted
                       Facility shall not exceed $250 million, (x) no event
                       of default or potential  event of default shall have
                       occurred and be  continuing or would result from the
                       making of the loans under the Uncommitted  Facility,
                       (y) on a pro forma basis  (determined  in accordance
                       with  Regulation  S-X (or (if agreed by Agent at the
                       time  of the  transaction)  as may be  agreed  to by
                       Company and the Agent),  such merger or  acquisition
                       will  result  in  a  decrease  in  the  consolidated
                       leverage ratio and (z) the Uncommitted Facility will
                       be   available   solely   to   refinance    existing
                       indebtedness  of the target  company  in  connection
                       with such  merger or  acquisition.  Fees  payable to
                       lenders  for   commitments   under  the  Uncommitted
                       Facility  will be as  determined  by  Agent  and the
                       Company   at  the  time  such   commitment   becomes
                       effective,  but all other  terms of the  Uncommitted
                       Facility  (other than  interest  rates and  weighted
                       average life, each of which is specified below) will
                       be  substantially  similar  to the terms of the Term
                       Loan   Facility;   provided  that  the   Uncommitted
                       Facility  will  be  structured  as a new  term  loan
                       tranche  (the "NEW TERM  LOANS") that either (i) has
                       at all times a weighted average life longer than the
                       Term Loan Facility and an interest rate no more than
                       200 bps higher than the interest rate  applicable to
                       the  Term  Loan  Facility,  or (ii)  has a  weighted
                       average life and interest  rate that are the same as
                       the Term Loan Facility.  Such additional commitments
                       must first be requested from the Lenders;  provided,
                       however,   that  the  Lenders  shall  not  have  any
                       obligation  to provide or commit to provide any such
                       additional  commitments.  The New Term Loans will be
                       secured on a pari passu basis with the Term Loans.

-----------------------
(2) In  each  instance  where a term  of the  Post-Bankruptcy  Credit
Facility is modified  because  Company has achieved a certain  consolidated
leverage  ratio,   such  term  shall  revert  back  to  its  previous  form
prospectively  if Company at any time  thereafter  fails to  maintain  such
consolidated leverage ratio.

Guarantors:            All  wholly-owned  North  American  subsidiaries  of
----------             Company.

Security:              All  restructured  debt and  extensions of credit to
--------               Company  and  all  guaranties  of   subsidiaries  of
                       Company  (and all other  obligations  of Company and
                       the subsidiary  guarantors under the Post-Bankruptcy
                       Credit  Facilities)  will  be  secured  by  (i)  all
                       existing and after-acquired  tangible and intangible
                       personal  property  of  Company  and the  subsidiary
                       guarantors, including a pledge of the stock or other
                       equity interests of all subsidiaries of Company, and
                       (ii) liens on all existing and  after-acquired  real
                       property fee and leasehold  interests of Company and
                       the subsidiary guarantors, subject to exceptions and
                       thresholds to be agreed upon,  and provided  further
                       that at the request of the Company made prior to the
                       Closing Date, the Agent may exclude from  collateral
                       specific fee interests if it concludes that the cost
                       of  perfecting  such  security  interests,  liens or
                       mortgages  is  excessive   when  compared  with  the
                       benefit  to be  received  by the  Lenders  under the
                       Senior  Secured   Facilities.   Notwithstanding  the
                       foregoing, if the granting of a security interest in
                       any  real  property   leasehold  interest  would  be
                       prohibited by the terms of the applicable lease, the
                       Company and its  subsidiaries  shall not be required
                       to grant a security  interest in such real  property
                       leasehold  interest  so long as they have used their
                       reasonable  efforts  to  obtain  a  waiver  of  such
                       prohibition  from the  landlord  under  such  lease;
                       provided  that  promptly  upon the  ineffectiveness,
                       lapse  or  termination  of  such  prohibition,   the
                       Company and its subsidiaries  shall grant a security
                       interest in such real property  leasehold  interest.
                       Real estate  financed off balance sheet as permitted
                       under  Capital   Expenditures  below,  will  not  be
                       subject to the provisions of this paragraph.

                       The  Revolving  Credit  Facility and  extensions  of
                       credit  thereunder  shall have a first priority lien
                       on all such  collateral,  and the Term Loan Facility
                       and the Uncommitted  Facility,  if any, shall have a
                       second   priority  lien  on  all  such   collateral;
                       provided  that, so long as the Canadian DIP Facility
                       is repaid on or before the Closing  Date and the new
                       stand-alone  credit  facility  for  Canada  does not
                       exceed  $40   million,   the  property  of  Canadian
                       subsidiary    guarantors   will   not   secure   the
                       Post-Bankruptcy  Credit Facilities if it secures the
                       indebtedness of the Company's Canadian  subsidiaries
                       under a  stand-alone  credit  facility  of up to $40
                       million,  including up to approximately  $30 million
                       to  fund  the   payment  of  claims  in  the  Canada
                       proceeding  and $10 million for working  capital and
                       other   post-confirmation  needs  of  the  Company's
                       Canadian subsidiaries.

                       To effect such liens  securing  the  Post-Bankruptcy
                       Credit Facilities,  (y) the confirmation order shall
                       provide  for such  security  and (z) Company and the
                       subsidiary  guarantors  shall execute and deliver to
                       the  Agent  all   security   agreements,   financing
                       statements,  deeds of  trust,  mortgages  and  other
                       documents  and  instruments  as  are  necessary  (as
                       determined by the Agent in its sole  discretion)  to
                       grant a first and second priority perfected security
                       interest  in and  lien  upon all  such  property  of
                       Company and the  subsidiary  guarantors,  subject to
                       customary permitted liens to be agreed upon.

                       Negative  pledge on all  assets of  Company  and its
                       subsidiaries,  subject  to  exceptions  to be agreed
                       upon.

Interest Rates:        All amounts  outstanding  under the  Post-Bankruptcy
--------------         Credit Facilities shall bear interest,  at Company's
                       option, as follows:

                       A. With respect to the Term Loans:

                                           LEVERAGE(3)       APPLICABLE MARGIN

                          Less than              3.5             350.0
                                          3.5 to 3.99            362.5
                                          4.0 to 4.49            387.5
                                          4.5 to 4.99            400.0
                                          5.0 to 5.49            412.5
                                          5.5 to 5.99            425.0
                                          6.0 to 6.49            437.5
                                          6.5 and higher         450

-----------------------
(3)  Leverage  based on all debt  (including  capitalized  leases  and
mortgage debt) appearing on the consolidated  balance sheet, and if Company
decides to use attributable  EBITDA as the  measurement,  then leverage may
also  include  the  attributable  portion  of  debt  from  non-consolidated
affiliates.

                      B.  With respect to Revolving Loans:

                          (i)  at the Base Rate plus 2.75% per annum; or

                          (ii) at the  reserve  adjusted  Euro-Dollar  Rate
                               plus 3.75% per annum.

                          Loans bearing  interest at the rate determined by
                          reference to the Base Rate are referred to herein
                          as "BASE RATE LOANS." Loans  bearing  interest at
                          the  rate   determined   by   reference   to  the
                          Euro-Dollar  Rate Loans are referred to herein as
                          "EURO-DOLLAR LOANS."

                          After the occurrence and during the  continuation
                          of an event of default,  interest shall accrue at
                          a rate  equal to the rate on Base Rate Loans plus
                          an additional two  percentage  points (2.00%) per
                          annum and shall be payable on demand.

Fees:                     Exit  Fee:   The  Lenders  (but   excluding   the
----                      Sponsors)  will  receive  a fee equal to 1.50% of
                          the  amount  of the  Term  Loan  Facility  at the
                          Closing Date.

                          Roll-Up Fee: The Lenders  under the Roll-Up Loans
                          (but  excluding the Sponsors)  will receive a fee
                          equal to approximately 2.50% of the Roll-Up Loans
                          that are not converted to equity.

Interest Payments:        Quarterly for Base Rate Loans; on the last day of
-----------------         selected  interest  periods (which shall be 1, 2,
                          3, 6 and, to the extent available to all Lenders,
                          12 months) for Euro-Dollar  Loans (and at the end
                          of every  three  months,  in the case of interest
                          periods of longer  than three  months);  and upon
                          prepayment,  in each case  payable in arrears and
                          computed  on the basis of a  365-day  year in the
                          case of Base  Rate  Loans  and on the  basis of a
                          360-day year in the case of Euro-Dollar Loans.

Revolving Credit          A 50 bps per annum commitment  commission will be
----------------          paid  quarterly  in arrears on the daily  average
Facility Fees:            unused portion of the Revolving  Credit Facility.
-------------             Other  fees  to be  paid as  agreed  between  the
                          Company  and the Agent as set forth in a separate
                          fee letter.

Voluntary Prepayments     The  Post-Bankruptcy  Credit  Facilities  may  be
---------------------     prepaid  in whole or in part  without  premium or
and Commitment            penalty (Euro-Dollar Loans prepayable only on the
--------------            last days of related  interest periods or subject
Reductions:               to breakage  fees) and the  Lenders'  commitments
----------                relative  thereto reduced or terminated upon such
                          notice and in such amounts as may be agreed upon.

Mandatory Prepayments     Company   shall   prepay  the  loans  and/or  the
---------------------     commitments  under  the  Post-Bankruptcy   Credit
and Commitment            Facilities shall be reduced in amounts equal to:
--------------
Reductions:
----------
                          Minor  Asset Sale  Proceeds:  75% of the net cash
                          proceeds of any Minor  Asset  Sale,  in each case
                          payable  no later  than the  third  business  day
                          following date of receipt;  provided that Company
                          shall be entitled, at its election, to retain net
                          cash  proceeds  of Minor Asset Sales of up to $10
                          million per year (in  addition to the 25% allowed
                          to be retained),  with any unused  balance of the
                          additional  $10 million to be carried  over until
                          the next  succeeding  year.  A Minor  Asset  Sale
                          shall be defined as any sale or other disposition
                          of any  property  or  assets of  Company  and its
                          Subsidiaries  that does not  individually  exceed
                          $10  million;  provided,  however,  if  aggregate
                          Minor Asset Sale  Proceeds  exceed $20 million in
                          any fiscal  year,  the excess  will be treated as
                          Major Asset Sale Proceeds.

                          Major Asset Sale  Proceeds:  100% of the net cash
                          proceeds of any Major Asset  Sales,  in each case
                          payable  no later  than the  third  business  day
                          following  date of  receipt.  A Major  Asset Sale
                          shall be defined as any sale or other disposition
                          of any property or asset of Company or any of its
                          Subsidiaries  that is not a Minor Asset Sale, and
                          Major Asset Sale Proceeds shall include  proceeds
                          from Minor  Asset Sales to the extent they exceed
                          the maximum annual limit of $20 million.

                          Insurance/Condemnation  Proceeds: 100% of the net
                          cash  proceeds  received  under any  casualty  or
                          business  interruption  insurance  maintained  by
                          Company or any of its subsidiaries or as a result
                          of the  taking of any assets of Company or any of
                          its subsidiaries pursuant to the power of eminent
                          domain or  condemnation,  in each case payable no
                          later than the third  business day following date
                          of  receipt,  unless,  in each case,  no Event of
                          Default  or   Potential   Event  of  Default  has
                          occurred and is continuing  and such proceeds are
                          used to repair,  restore or replace the assets in
                          respect  of which  such  proceeds  were  received
                          within 360 days of receipt  thereof.  Pending any
                          such repair,  restoration  or  replacement,  such
                          proceeds  shall  be  used  to  repay  outstanding
                          Revolving Loans (but not reduce commitments), and
                          availability  under the Revolving Credit Facility
                          in an  amount  equal  to such  proceeds  shall be
                          reserved   for  such   repair,   restoration   or
                          replacement.  If,  in  any  case,  such  proceeds
                          exceed  the  amount  of   Revolving   Loans  then
                          outstanding,   such  Revolving   Loans  shall  be
                          repaid,  and the excess  shall be deposited in an
                          escrow  account  in  which  the  Lenders  have  a
                          security interest.

                          Proceeds of Public Equity  Offerings:  75% of the
                          net cash proceeds received from a public offering
                          of equity  securities  of  Company  or any of its
                          subsidiaries,  in each case payable no later than
                          the  third  business  day  following  the date of
                          receipt;   provided  that  if  the   consolidated
                          leverage  ratio  as of the end of the  last  full
                          fiscal quarter  preceding such public offering is
                          equal to or greater than 3.0x but less than 3.5x,
                          only 50% of such net cash proceeds  shall be used
                          to  prepay  loans  and/or   reduce   commitments;
                          provided   further   that  if  the   consolidated
                          leverage  ratio  as of the end of the  last  full
                          fiscal quarter  preceding such public offering is
                          less than 3.0x,  Company and its subsidiaries may
                          retain 100% of such net cash proceeds.

                          Proceeds of Private Non-Sponsor Equity Offerings:
                          For so  long as the  Sponsors  own 51% or more of
                          the common  equity of  Company,  the  Company may
                          retain  100% of the first $25 million of net cash
                          proceeds   received  from  private  offerings  of
                          equity  securities  of  Company  or  any  of  its
                          subsidiaries  to any person other than  Sponsors,
                          with  any  net  cash  proceeds  of  such  private
                          offerings  in excess of $25 million to be treated
                          the same as proceeds of public equity  offerings.
                          If  Sponsors  own  less  than  51% of the  common
                          equity of Company,  all of the net cash  proceeds
                          of such  private  offering  shall be treated  the
                          same as proceeds of a public equity offering.

                          Proceeds of Private Sponsor Equity Offering:  All
                          net  cash   proceeds   received  from  a  private
                          offering of equity  securities  of Company or any
                          of  its   subsidiaries  to  any  Sponsor  may  be
                          retained   by  Company   and  its   subsidiaries;
                          provided   that  to  the  extent  such  net  cash
                          proceeds are used to acquire assets, Lenders will
                          be granted a first and second priority (or second
                          and  third  priority,  if there is a  preexisting
                          first  priority   lien),  as  the  case  may  be,
                          security interest in such assets.

                          Proceeds of Debt Issuances:  100% of the net cash
                          proceeds   received   from   issuances   of  debt
                          securities by Company or any of its subsidiaries,
                          in each  case  payable  no later  than the  third
                          business day following the date of receipt.

                          Free Cash Flow:  100% of the first $25 million of
                          Free Cash  Flow (to be  defined)  in each  fiscal
                          year and 75% of Free  Cash  Flow in excess of the
                          first $25 million in such fiscal year, commencing
                          with the fiscal year ending  February  28,  2002,
                          payable  within  90  days  after  the  end of the
                          applicable   fiscal  year;   provided  that  such
                          mandatory  prepayment  for the fiscal year ending
                          February 28, 2002, if any,  shall be  apportioned
                          to relate  solely to the period  from the Closing
                          Date until  February 28, 2002;  provided  further
                          that  Company  may retain all Free Cash Flow with
                          respect   to  any   fiscal   year   if  (x)   the
                          consolidated leverage ratio as of the end of such
                          fiscal  year(4)  is  3.5x  or  less  and  (y) the
                          consolidated  leverage ratio as of the end of the
                          immediately  preceding  fiscal  year  was 3.5x or
                          less.

-----------------------
(4) All leverage ratios on a trailing 12 month basis.

Application of            All mandatory  prepayments shall be applied first
--------------            ratably  to the  prepayment  of the Term Loan and
Mandatory Prepayments:    any New Term Loan and second to the  repayment of
---------------------     Revolving Loans and reduction of the commitments.
                          All  mandatory  prepayments  shall be applied pro
                          rata  across  scheduled  prepayments  (including,
                          without limitation, final payments at maturity).

Cash                      The Company  shall  establish  a cash  management
----                      system  satisfactory  to the  Agent  in its  sole
Management System:        discretion   over   which  the  Agent  will  have
-----------------         dominion and control.

Capital Expenditures:     During  each  fiscal  year during the term of the
--------------------      Post-Bankruptcy  Credit  Facilities,  Company and
                          its  subsidiaries  shall  not  make  (x)  capital
                          expenditures  for maintenance  projects in excess
                          of $10 million and (y) capital  expenditures  for
                          "new build" projects,  including the financing of
                          off-balance  sheet  projects,  in  excess  of $25
                          million   (the  "NEW  BUILD  CAPEX   ALLOWANCE");
                          provided  that the New Build CapEx  Allowance for
                          any particular  fiscal year shall be increased to
                          (i)  $40  million  if the  consolidated  leverage
                          ratio as of the end of the immediately  preceding
                          fiscal year was less than 3.5x,  (ii) $60 million
                          if the consolidated  leverage ratio as of the end
                          of the immediately preceding fiscal year was less
                          than   3.0x,   and  (iii)  $75   million  if  the
                          consolidated  leverage ratio as of the end of the
                          immediately  preceding  fiscal year was less than
                          2.5x;  provided  further that the New Build CapEx
                          Allowance for any particular fiscal year may, (i)
                          if the consolidated  leverage ratio as of the end
                          of the  immediately  preceding  fiscal  year  was
                          equal to or greater than 3.5x, be increased by up
                          to the first $25  million  of the  aggregate  net
                          cash  proceeds  from Minor  Asset  Sales,  Public
                          Equity  Offerings,   Private  Non-Sponsor  Equity
                          Offerings and Private  Sponsor  Equity  Offerings
                          and any Free Cash Flow,  in each case retained by
                          the  Company  during  such  fiscal  year  or  the
                          immediately  preceding  fiscal year in accordance
                          with  the  terms  of the  Post-Bankruptcy  Credit
                          Facilities    (collectively,     the    "RETAINED
                          PROCEEDS") and (ii) if the consolidated  leverage
                          ratio as of the end of the immediately  preceding
                          fiscal year was less than 3.5x,  be  increased by
                          all Retained  Proceeds;  provided  still  further
                          that, notwithstanding the $25 million limitation,
                          Company  and its  subsidiaries  may make,  during
                          fiscal  year  2003,   the  capital   expenditures
                          contained  on the  schedule  attached  hereto  as
                          Exhibit A.

                          In  addition,  Company and its  subsidiaries  may
                          make  capital  expenditures  financed  solely  by
                          non-recourse,  off-balance sheet  financing(5) in
                          an  aggregate  amount not to exceed in any fiscal
                          year 150% of the New Build  CapEx  Allowance  for
                          such fiscal  year.  Landlord  concessions  do not
                          constitute capital expenditures.

-----------------------
(5) "Off-balance sheet financing" means real estate  acquisitions that
are  financed  by debt that does not appear on the  Company's  consolidated
balance sheet.

                          Notwithstanding the foregoing,  in no event shall
                          Company  and  its   subsidiaries   make   capital
                          expenditures  in any fiscal  year for "new build"
                          projects,   regardless   of  the  nature  of  the
                          financing  for  such  capital  expenditures,   in
                          excess  of  an  amount  (the   "AGGREGATE   CAPEX
                          LIMIT"),  (i) if the consolidated  leverage ratio
                          as of the end of the immediately preceding fiscal
                          year was equal to or greater than 3.5x,  equal to
                          $75 million or (ii) if the consolidated  leverage
                          ratio as of the end of the immediately  preceding
                          fiscal  year was less  than  3.5x,  equal to $100
                          million; provided that if the aggregate amount of
                          capital  expenditures  made  by  Company  and its
                          subsidiaries  in any  particular  fiscal  year is
                          less  than the  Aggregate  CapEx  Limit  for such
                          fiscal year,  the  Aggregate  CapEx Limit for the
                          immediately   succeeding   fiscal   year  may  be
                          increased  by, (i) if the  consolidated  leverage
                          ratio as of the immediately preceding fiscal year
                          was  equal to or  greater  than  3.5x,  up to $25
                          million  of  such  difference  and  (ii)  if  the
                          consolidated leverage ratio as of the immediately
                          preceding  fiscal year was less than 3.5x,  up to
                          $40 million of such difference.

Limitations on            To be determined.
--------------
Additional Indebtedness:
-----------------------

Financial Covenants:      A  schedule   will  be  prepared  to  the  Credit
-------------------       Agreement containing financial covenants based on
                          the Company's budget for the upcoming years as of
                          the Plan consummation,  such budget to be in form
                          and substance satisfactory to Agent. A cushion of
                          25%/25%/25%/20%  shall be assumed for purposes of
                          calculating the covenants.

                          The   Post-Bankruptcy   Credit  Facilities  shall
                          contain a  maximum  consolidated  leverage  ratio
                          covenant,  a minimum debt service  coverage ratio
                          covenant  and a  minimum  fixed  charge  coverage
                          ratio covenant.

Right to Cure Financial   Sponsors  shall have the right to cure  financial
-----------------------   covenant  defaults  by  contributing  capital  to
Covenant Default:         Company   (each   such   contribution,   a  "CURE
----------------          CONTRIBUTION")  and either (i) deeming  such Cure
                          Contribution to be EBITDA or (ii) using such Cure
                          Contribution to repay outstanding loans; provided
                          that  Cure  Contributions  may not be made in (x)
                          more than two consecutive  fiscal quarters within
                          any 18 month  period or (y) more than four fiscal
                          quarters  during the term of the  Post-Bankruptcy
                          Credit Facilities. Cure Contributions may be made
                          in the  form  of  equity  or  subordinated  debt;
                          provided that all of the terms and  conditions of
                          such   equity  or   subordinated   debt  must  be
                          satisfactory  to the Agent.  If Sponsors deem any
                          Cure  Contribution  to be  EBITDA,  (i) such Cure
                          Contribution  may not exceed 10% of total  EBITDA
                          during the fiscal  period being  considered  when
                          determining whether Company has complied with the
                          applicable  financial  covenant  and (ii) Company
                          shall not be permitted to borrow  Revolving Loans
                          in  excess of an  amount  equal to the  amount of
                          such Cure  Contribution  multiplied  by two until
                          all applicable  financial covenant defaults cease
                          to  exist  without  giving  effect  to  any  Cure
                          Contributions.

Representations and       Customary  and  appropriate  representations  and
-------------------       warranties,   including  without  limitation  due
Warranties:               organization and  authorization,  enforceability,
----------                financial condition, no material adverse changes,
                          title to properties,  liens, litigation,  payment
                          of  taxes,   no  material   adverse   agreements,
                          compliance    with   laws,    employee    benefit
                          liabilities,      environmental      liabilities,
                          perfection  and  priority of liens  securing  the
                          Post-Bankruptcy  Credit Facilities and Bankruptcy
                          Court has approved disclosure statement,  so long
                          as  there  has  been no  determination  that  the
                          Company or Sponsors did not solicit in good faith
                          pursuant to 11 U.S.C.ss.1125(e).

Covenants:                Customary   and   appropriate   affirmative   and
---------                 negative "maintenance type" covenants, including,
                          without   limitation,    limitations   on   other
                          indebtedness,  liens,  investments,   guarantees,
                          restricted     junior    payments     (dividends,
                          redemptions and payments on  subordinated  debt),
                          mergers(6)  and  acquisitions,  sales of  assets,
                          capital    expenditures,     transactions    with
                          affiliates,   conduct  of   business   and  other
                          provisions    customary   and   appropriate   for
                          financings of this type, including exceptions and
                          baskets to be mutually agreed upon. Company shall
                          continue  to be a  reporting  company  under  the
                          federal securities laws.

-----------------------
(6) The Senior  Secured  Credit  Facility  shall  contain an  absolute
prohibition  on  mergers  and  consolidations,  subject  to a 51%  vote  on
transaction.

Events of Default:        Customary and  appropriate  (subject to customary
-----------------         and  appropriate   grace   periods),   including,
                          without limitation, failure to make payments when
                          due,   defaults   under   other   agreements   or
                          instruments of indebtedness,  noncompliance  with
                          covenants,  material breaches of  representations
                          and warranties,  bankruptcy,  judgments in excess
                          of specified  amounts,  invalidity of guaranties,
                          impairment of security  interests in  collateral,
                          and  "change of  control."  A "change of control"
                          shall  occur if (x)  prior to an  Initial  Public
                          Offering,  Sponsors  shall  cease to own at least
                          51% of the Company's total voting  securities and
                          (y) after an Initial Public Offering,  either (i)
                          Sponsors  shall  cease to own at least 35% of the
                          Company's  total  voting  securities  or (ii) any
                          other  person  or group of  persons  acting  as a
                          group  shall  own a  greater  percentage  of  the
                          Company's   total  voting   securities  than  the
                          Sponsors own.  "Initial Public Offering" shall be
                          defined  as a  widely  dispersed  initial  public
                          offering of the Company's  common stock resulting
                          in gross  proceeds to the Company of at least $75
                          million.

Management Fees:          For so long as the  leverage  ratio is less  than
---------------           3.50x and no Event of Default or Potential  Event
                          of Default has occurred and is continuing  during
                          such  fiscal  year  or  would  result  therefrom,
                          Company may pay aggregate  management  fees of up
                          to $5 million  per fiscal  year to the  Sponsors.
                          Prior to achieving a leverage  ratio of less than
                          3.5x, the aggregate  management  fees will accrue
                          on a subordinated basis without interest. For any
                          year in which  the  leverage  ratio is  achieved,
                          such accrued amounts may be paid in cash, so long
                          as (i) pro forma compliance with all covenants is
                          maintained,  (ii)  leverage  does  not  equal  or
                          exceed 3.5x after  giving  effect to such payment
                          and (iii) the Company's Chief  Financial  Officer
                          delivers  to the Agent an  officer's  certificate
                          certifying  (x) that  leverage  does not equal or
                          exceed 3.5x after  giving  effect to such payment
                          and (y) that the  Company has the ability to meet
                          its amortization and other  obligations under the
                          Post-Bankruptcy Credit Facilities.

Professional Fees of      Subject to mutually acceptable limitations.
--------------------
Sponsors:
--------

Assignments/              The  Lenders  may  assign all or, in an amount of
------------              not less than $ 1 million (or such lesser  amount
Participations:           as may constitute the assigning  Lender's  entire
--------------            commitment), any part of their shares of the Term
                          Loan  Facility  to  their  affiliates,  to  other
                          Lenders,  or  to  one  or  more  banks  or  other
                          entities  that  are  eligible  assignees  (to  be
                          defined in the  definitive  financing  documents)
                          which are acceptable to the Agent, subject to the
                          consent of the Company  (presumed  if no response
                          is  received  within 3  business  days) not to be
                          unreasonably  withheld.  Upon such assignment any
                          such  affiliate,  bank or entity  shall  become a
                          Lender  for  all   purposes  of  the   definitive
                          financing  documents;  provided that  assignments
                          made to affiliates and other Lenders shall not be
                          subject  to the  $1  million  minimum  assignment
                          requirement.  The Lenders  will have the right to
                          sell   participations,   subject   to   customary
                          limitations on voting rights,  in their shares of
                          the Post-Bankruptcy Credit Facilities.

Requisite                 With respect to the  Revolving  Credit  Facility,
---------                 the Term Loan  Facility and the New Term Loan, if
Lenders:                  any, Requisite Lenders shall mean Lenders holding
-------                   in   the   aggregate   more   than   50%  of  the
                          commitments.  100% approval shall be required for
                          changes in: (i) interest  rates;  (ii) release of
                          all or  substantially  all of the  collateral  or
                          guarantees; (iii) scheduled maturities; (iv) this
                          provision; and (v) other customary provisions.

Taxes, Reserve            All payments are to be made free and clear of any
--------------            present or future  taxes  (other  than  franchise
Requirements &            taxes and taxes on overall net income),  imposts,
--------------            assessments,  withholdings,  or other  deductions
Indemnities:              whatsoever.  Foreign Lenders shall furnish to the
-----------               Agent  (for  delivery  to  Company)   appropriate
                          certificates  or other evidence of exemption from
                          U.S. federal income tax withholding.

                          Company shall  indemnify the Lenders  against all
                          increased costs of capital resulting from reserve
                          requirements or otherwise  imposed,  in each case
                          subject to  customary  increased  costs,  capital
                          adequacy and similar provisions.

Governing Law and         Company  will  submit  to,  and  will  cause  its
-----------------         subsidiaries  to  submit  to,  the  non-exclusive
Jurisdiction:             jurisdiction  and venue of the  federal and state
------------              courts  of the  State of New York and will  waive
                          any  right to trial by jury.  New York law  shall
                          govern the definitive loan documents.

Agent's Counsel:          O'Melveny & Myers LLP
---------------

III.     CONDITIONS TO POST-BANKRUPTCY CREDIT FACILITIES

Certain Conditions        Conditions precedent to the conversion of amounts
-------------------       under the  Pre-Petition  Credit Agreement and the
Precedent to Initial      DIP  Credit  Agreement  into the  Post-Bankruptcy
--------------------      Credit   Facilities(7)  will  include,    without
Funding:                  limitation, the following:
-------

-----------------------
(7)  Conditions to Revolving  Credit  Agreement will be covered in the
commitment letter.

                          1.   Satisfactory  Documentation.  The definitive
                               documentation,  including credit, guarantee,
                               security,  intercreditor  and other  related
                               documentation,         evidencing        the
                               Post-Bankruptcy   Credit   Facilities   (the
                               "DEFINITIVE FINANCING DOCUMENTS") shall have
                               been  prepared by counsel to Agent and shall
                               be    documentation    typically   used   in
                               financings  similar  to the  Post-Bankruptcy
                               Credit   Facilities   under  similar  market
                               conditions in form and substance  reasonably
                               satisfactory to the Agent and the Lenders.

                          2.   Matters  Relating to the Confirmation of the
                               Plan.

                               (a) The  confirmation  order (1) shall be in
                               form and substance  reasonably  satisfactory
                               to Agent  and  Lenders  and (2)  shall be in
                               full  force  and  effect  and not  reversed,
                               stayed,  modified or amended.  Not less than
                               11 days shall have  elapsed  since  entry of
                               such  order  and no  stay  shall  have  been
                               entered.

                               (b) The Plan shall be  satisfactory  in form
                               and substance to Agent and Lenders and shall
                               have become effective in accordance with its
                               terms (and  simultaneously  with the plan(s)
                               in   the   Canadian   Companies'   Creditors
                               Arrangement  Act  ("CCAA")  cases)  no later
                               than February 28, 2002,  and shall have been
                               substantially consummated.

                          3.   Security.  The Agent, for the benefit of the
                               Lenders,  shall  have  been  granted  on the
                               Closing  Date  a  first-priority   perfected
                               security interest in all assets securing the
                               Revolving Credit Facility, a second-priority
                               perfected  security  interest  in all assets
                               securing   the  Term  Loan   Facility,   and
                               guarantees  from the subsidiary  guarantors,
                               in each  case  to the  extent  required  and
                               described   in  the   Definitive   Financing
                               Documentation.

                          4.   Customary Closing  Documents.  All documents
                               required   to   be   delivered   under   the
                               Definitive  Financing  Documents,  including
                               customary legal opinions, corporate records,
                               documents   from   public    officials   and
                               officers'  certificates,   shall  have  been
                               delivered.

                          5.   No Material  Adverse Change.  Since February
                               28,  2001,  there  shall  have  occurred  no
                               material  adverse  change  in the  business,
                               operations, properties, assets, liabilities,
                               condition   (financial   or   otherwise)  or
                               prospects of the Company.

                          6.   Ratings.  If  requested  by the  Agent,  the
                               Company  shall have had the  Post-Bankruptcy
                               Credit  Facilities  rated by a rating agency
                               and   according  to  a  process   reasonably
                               acceptable to the Agent.

                          7.   Approval  of   Projections.   The  projected
                               financial   statements   submitted   by  the
                               Company in connection with the  confirmation
                               of the Plan  shall be in form and  substance
                               satisfactory to the Agent.

                          8.   Syndication  of Revolving  Credit  Facility.
                               The  Revolving  Credit  Facility  shall have
                               been provided as described above.

                          9.   Canadian  Claims.  The  aggregate  amount of
                               cash  used  to pay  non-affiliates'  allowed
                               claims   against  the   Company's   Canadian
                               subsidiaries  in their  cases under the CCAA
                               shall not exceed approximately $30 million.

                          10.  Existing  Letters  of  Credit.   As  of  the
                               Closing Date, each (i) undrawn  Pre-Petition
                               Letter of Credit  outstanding on the Closing
                               Date  and  (ii)  undrawn  letter  of  credit
                               issued   under  the  DIP  Credit   Agreement
                               (including, without limitation,  Replacement
                               Letters of Credit) shall either be deemed to
                               be a  letter  of  credit  issued  under  the
                               Revolving   Credit   Facility  or  shall  be
                               replaced  with a  letter  of  credit  issued
                               under the Revolving Credit Facility.

                          11.  Corporate  Structure,  Ownership,  Etc.  The
                               corporate and tax  structures of Company and
                               its subsidiaries  after  consummation of the
                               Plan shall be substantially  the same, or if
                               the corporate or tax structure is different,
                               then the change  shall not be adverse to the
                               Lenders.  Senior management of Company shall
                               also  be   substantially   the  same   after
                               consummation of the Plan (other than members
                               of senior management who voluntarily  decide
                               not to continue  their  employment  with the
                               Company), or if new management is installed,
                               it is reasonably  acceptable to Lenders.  In
                               addition,  the  Sponsors  will own more than
                               70%  of the  common  equity  of the  Company
                               after the Plan is consummated.

                          12.  Fees. All fees and expenses due to the Agent
                               and  the  Lenders  as set  forth  in the fee
                               letter  or  otherwise,   including,  without
                               limitation,  the  Exit  Fee and the  Roll-Up
                               Fee, shall have been paid in full.

                          13.  Certain   Approvals.   Company   shall  have
                               received    all    material    governmental,
                               shareholder   and   third   party   consents
                               (including  Hart-Scott-Rodino clearance) and
                               approvals   necessary  in  connection   with
                               consummation   of  the  Plan,   the  related
                               financings,  the continuing operation of the
                               Company's  businesses and other transactions
                               contemplated  hereby,  and all such consents
                               and  approvals  shall be in full  force  and
                               effect on the Closing Date.  All  applicable
                               waiting  periods shall have expired  without
                               any  action  being  taken  by any  competent
                               authority  that could  restrain,  prevent or
                               impose any materially  adverse conditions on
                               the  Plan or no law or  regulation  shall be
                               applicable  which  in  the  judgment  of the
                               Agent  could  have  any  such  effect.

                          14.  Litigation. On the Closing Date, there shall
                               not  be  any  action,  suit,  investigation,
                               litigation   or   proceeding    pending   or
                               threatened   in  any  court  or  before  any
                               arbitrator or  governmental  instrumentality
                               that  purports  to  affect  the  Plan or the
                               Post-Bankruptcy Credit Facilities that could
                               reasonably  be  expected  to have a material
                               adverse    effect   on   the    Plan,    the
                               Post-Bankruptcy Credit Facilities, or any of
                               the other transactions  contemplated  hereby
                               or on  the  business,  assets,  liabilities,
                               results of operations,  condition (financial
                               or  otherwise),  properties  or prospects of
                               the Company and its subsidiaries, taken as a
                               whole.

                          15.  No Event of Default.  On the  Closing  Date,
                               there  shall  not be any  Event  of  Default
                               under the Definitive Financing Documentation
                               or event that, with or without notice and/or
                               the passage of time,  could  become an Event
                               of  Default,  and  all  representations  and
                               warranties  under the  Definitive  Financing
                               Documentation  shall be true,  accurate  and
                               complete.

Conditions to All         The  conditions  to all  borrowings  will include
-----------------         requirements  relating to prior written notice of
Borrowings:               borrowing,  the accuracy of  representations  and
----------                warranties  in all  material  respects,  and  the
                          absence  of any  default  or  potential  event of
                          default,  and will  otherwise  be  customary  and
                          appropriate for financings of this type.

<PAGE>

                       AMENDMENT TO LOCKUP AGREEMENT

     This Amendment to Lockup Agreement (this "Amendment") is made and
entered into as of September 23, 2001 among the undersigned parties, and is
made with reference to that certain Lockup Agreement dated as of August 10,
2000 (the "Lockup Agreement") among the undersigned parties. Capitalized
terms used herein without definition shall have the meanings assigned to
them in the Lockup Agreement.

     WHEREAS, because of certain events occurring in New York City on and
after September 11, 2001, the Sponsors, the Administrative Agent and the
Consenting Prepetition Lenders desire to extend the term of the Lockup
Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Sponsors, the Administrative Agent, and the Consenting
Prepetition Lenders hereby agree as follows:

     1. Amendments to Section 5: Termination of Agreement.
        -------------------------------------------------

          A. Subsection 5(b) of the Lockup Agreement is hereby amended by
deleting the reference to "September 24, 2001" in clause (ii) thereof and
substituting "October 15, 2001" therefor.

          B. Subsection 5(c) of the Lockup Agreement is hereby amended by
deleting the reference to "September 24, 2001" in clause (iv) thereof and
substituting "October 15, 2001" therefor.

     2. Governing Law. This Amendment and the rights and obligations of the
parties hereunder shall be governed by, and shall be construed and enforced
in accordance with, the internal laws of the State of New York (including,
without limitation, section 5-1401 of the general obligations law of the
State of New York), without regard to conflict of laws principles.

     3. Counterparts; Effectiveness. This Amendment may be executed in one
or more counterparts by manual or facsimile signature of each party, each
of which shall be deemed an original and all of which shall constitute one
and the same Amendment. Signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document. This
Amendment shall become effective upon the execution of a counterpart hereof
by each Sponsor, the Administrative Agent, and each Consenting Prepetition
Lender.

          [Remainder of page intentionally left blank]

<PAGE>

          IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officers as
of the date first above written.

                      SPONSORS:
                      --------

                             OAKTREE CAPITAL MANAGEMENT, LLC,
                             as agent and on behalf of certain funds and
                             accounts
                             By:   /s/ Mariuz J. Mazurek
                                   -------------------------------------
                             Name: Mariuz J. Mazurek
                             Title: Senior Vice President

                             By:   /s/ Matthew S. Barrett
                                   -------------------------------------
                             Name: Matthew S. Barrett
                             Title: Managing Director

                             ONEX CORPORATION

                             By:   /s/ Eric J. Rosen
                                   -------------------------------------
                             Name: Eric J. Rosen
                             Title: Managing Director

                     ADMINISTRATIVE AGENT:
                     --------------------

                             BANKERS TRUST COMPANY

                             By:   /s/ Mark B. Cohen
                                   ---------------------------------------
                             Name: Mark B. Cohen
                             Title: Managing Director

                     CONSENTING PREPETITION LENDERS:
                     ------------------------------

                             BANKERS TRUST COMPANY

                             By:   /s/ Mark B. Cohen
                                   ---------------------------------------
                             Name: Mark B. Cohen
                             Title: Managing Director

                             BANK OF AMERICA, N.A.

                             By: /s/ Laura Sweet
                                 -----------------------------------------
                             Name: Laura Sweet
                             Title: Assistant Vice President

                             BARCLAYS BANK PLC

                             By: /s/ Edward G. Hamway, Jr.
                                 ------------------------------------------
                             Name:  Edward G. Hamway, Jr.
                             Title: Director

                             CREDIT INDUSTRIEL ET COMMERCIAL

                             By: /s/Anthony Rock
                                 ------------------------------------------
                             Name: Anthony Rock
                             Title: Vice President

                             By: /s/ Marcus Edward
                                 ------------------------------------------
                             Name:  Marcus Edward
                             Title: Vice President

                             ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG

                             By: /s/ John S. Runnion
                                 ------------------------------------------
                             Name: John S. Runnion
                             Title: Managing Director

                             By: /s/ Robert J. Wagman
                                 ------------------------------------------
                             Name: Robert J. Wagman
                             Title: Vice President

                             PNC BANK, NATIONAL ASSOCIATION

                             By: /s/ Michael A. Valerio
                                 ------------------------------------------
                             Name: Michael A. Valerio
                             Title: Vice President

<PAGE>

                             STB DELAWARE FUNDING TRUST I

                             By: /s/ Donald C. Hargadon
                                -----------------------------------------
                             Name: Donald C. Hargadon
                             Title: Vice President

                             NATEXIS BANQUES POPULAIRES

                             By: /s/ Cynthia E. Sachs
                                 ----------------------------------------
                             Name: Cynthia E. Sachs
                             Title: VP, Group Manager

                             By: /s/ Elizabeth A. Harker
                                 ----------------------------------------
                             Name: Elizabeth A. Harker
                             Title: Assistant Vice President

                             THE INDUSTRIAL BANK OF JAPAN, LIMITED

                             By: /s/ Noel P. Purcell
                             --------------------------------------------
                             Name: Noel P. Purcell
                             Title: Senior Vice President

                             GOLDMAN SACHS CREDIT PARTNERS L.P.

                             By: /s/ David Sabath
                             --------------------------------------------
                             Name: David Sabath
                             Title: Authorized Signatory

                             THE BANK OF NOVA SCOTIA

                             By: /s/ Joseph Farricielli
                             Name: Joseph Farricielli
                             Title: Director

                             FRANKLIN FLOATING RATE TRUST

                             By: /s/ Chauncey Lufkin
                                 ----------------------------------------
                             Name: Chauncey Lufkin
                             Title: Vice President

                             OAKTREE CAPITAL MANAGEMENT, LLC, as general
                             partner and/or investment manager of certain
                             funds and accounts it manages, solely in its
                             capacity as a lender under the Credit
                             Agreement

                             By: /s/ Mariusz J. Mazurek
                                 ----------------------------------------
                             Name: Mariusz J. Mazurek
                             Title: Senior Vice President

                             By: /s/ Matthew S. Barrett
                                 ----------------------------------------
                             Name:  Matthew S. Barrett
                             Title: Managing Director

                             OAKTREE CAPITAL MANAGEMENT, LLC, as general
                             partner and/or investment manager of certain
                             funds and accounts it manages, solely in its
                             capacity as the holder of Subordinated Notes
                             in the face amount of approximately
                             $177,700,000

                             By: /s/ Mariusz J. Mazurek
                                 ----------------------------------------
                             Name: Mariusz J. Mazurek
                             Title: Senior Vice President

                             By: /s/ Matthew S. Barrett
                                 ----------------------------------------
                             Name:  Matthew S. Barrett
                             Title: Managing Director

<PAGE>

                    SECOND AMENDMENT TO LOCKUP AGREEMENT

     This Second Amendment to Lockup Agreement (this "Amendment") is made
and entered into as of October 15, 2001 among the undersigned parties, and
is made with reference to that certain Lockup Agreement dated as of August
10, 2000 (as amended by that certain Amendment to Lockup Agreement dated as
of September 23, 2001, the "Lockup Agreement") among the undersigned
parties. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Lockup Agreement.

     WHEREAS, by entering into that certain Amendment to Lockup Agreement
dated as of September 23, 2001, the Sponsors, the Administrative Agent and
the Consenting Prepetition Lenders extended the Term of the Lockup
Agreement to October 15, 2001; and

     WHEREAS, the Sponsors, the Administrative Agent and the Consenting
Prepetition Lenders desire to extend further the term of the Lockup
Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Sponsors, the Administrative Agent, and the Consenting
Prepetition Lenders hereby agree as follows:

     1. Amendments to Section 5: Termination of Agreement.
        -------------------------------------------------

          A. Subsection 5(b) of the Lockup Agreement is hereby amended by
deleting the reference to "October 15, 2001" in clause (ii) thereof and
substituting "November 9, 2001" therefor.

          B. Subsection 5(c) of the Lockup Agreement is hereby amended by
deleting the reference to "October 15, 2001" in clause (iv) thereof and
substituting "November 9, 2001" therefor.

     2. Governing Law. This Amendment and the rights and obligations of the
parties hereunder shall be governed by, and shall be construed and enforced
in accordance with, the internal laws of the State of New York (including,
without limitation, section 5-1401 of the general obligations law of the
State of New York), without regard to conflict of laws principles.

     3. Counterparts; Effectiveness. This Amendment may be executed in one
or more counterparts by manual or facsimile signature of each party, each
of which shall be deemed an original and all of which shall constitute one
and the same Amendment. Signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document. This
Amendment shall become effective upon the execution of a counterpart hereof
by each Sponsor, the Administrative Agent, and each Consenting Prepetition
Lender.

          [Remainder of page intentionally left blank]

<PAGE>

     IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officers as
of the date first above written.

                      SPONSORS:
                      --------

                               OAKTREE CAPITAL MANAGEMENT, LLC

                               By:   /s/ Mariusz J. Mazurek
                                     ------------------------------------
                               Name: Mariusz J. Mazurek
                               Title: Senior Vice President

                               By:   /s/ Bruce A. Karsh
                                     ------------------------------------
                               Name: Bruce A. Karsh
                               Title: President

                               ONEX CORPORATION

                               By:   /s/ Eric J. Rosen
                                    -------------------------------------
                               Name: Eric J. Rosen
                               Title: Managing Director

                      ADMINISTRATIVE AGENT:
                      --------------------

                               BANKERS TRUST COMPANY

                               By:   /s/ Mark B. Cohen
                                     -------------------------------------
                               Name: Mark B. Cohen
                               Title: Managing Director

                      CONSENTING PREPETITION LENDERS:
                      ------------------------------

                               BANKERS TRUST COMPANY

                               By:   /s/ Mark B. Cohen
                                     -------------------------------------
                               Name: Mark B. Cohen
                               Title: Managing Director

                               BANK OF AMERICA, N.A.

                               By: /s/ Laura Sweet
                                   ---------------------------------------
                               Name: Laura Sweet
                               Title: Assistant Vice President

                               BARCLAYS BANK PLC

                               By: /s/ Edward G. Hamway, Jr.
                                   ---------------------------------------
                               Name: Edward G. Hamway, Jr.
                               Title: Director

                               CREDIT INDUSTRIEL ET COMMERCIAL

                               By: /s/ Anthony Rock
                                   ---------------------------------------
                               Name: Anthony Rock
                               Title: Vice President

                               By:  /s/ Sean Mounier
                                    --------------------------------------
                               Name: Sean Mounier
                               Title: First Vice President

                               ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG

                               By: /s/ John S. Runnion
                                   ---------------------------------------
                               Name: John S. Runnion
                               Title: Managing Director

                               By: /s/ Robert J. Wagman
                                   ---------------------------------------
                               Name: Robert J. Wagman
                               Title: Vice President

<PAGE>

                               PNC BANK, NATIONAL ASSOCIATION

                               By: /s/ Michael A. Valerio, Jr.
                                   ---------------------------------------
                               Name: Michael A. Valerio, Jr.
                               Title: Vice President

                               STB DELAWARE FUNDING TRUST I

                               By: /s/ Donald C. Hargadon
                                   ---------------------------------------
                               Name: Donald C. Hargadon
                               Title: Vice President

                               NATEXIS BANQUES POPULAIRES

                               By: /s/ Elizabeth A. Harker
                                   ---------------------------------------
                               Name: Elizabeth A. Harker
                               Title: Assistant Vice President

                               By: /s/ Cynthia E. Sachs
                                   ---------------------------------------
                               Name: Cynthia E. Sachs
                               Title: VP, Group Manager

                               THE INDUSTRIAL BANK OF JAPAN, LIMITED

                               By: /s/ Noel Purcell
                                   ---------------------------------------
                               Name: Noel Purcell
                               Title: Senior Vice President

                               GOLDMAN SACHS CREDIT PARTNERS L.P.

                               By: /s/ David Sabath
                               -------------------------------------------
                               Name: David Sabath
                               Title: Authorized Signatory

<PAGE>

                               THE BANK OF NOVA SCOTIA

                               By: /s/ Joseph Farricielli
                                   ---------------------------------------
                               Name: Joseph Farricielli
                               Title: Director

                               FRANKLIN FLOATING RATE TRUST

                               By: /s/ Chauncey Lufkin
                                   ---------------------------------------
                               Name: Chauncey Lufkin
                               Title: Vice President

                               OAKTREE CAPITAL MANAGEMENT, LLC, as general
                               partner and/or investment manager of certain
                               funds and accounts it manages, solely in its
                               capacity as a lender under the Credit
                               Agreement

<PAGE>
                               By:   /s/ Mariusz J. Mazurek
                                     --------------------------------------
                               Name: Mariusz J. Mazurek
                               Title: Senior Vice President

                               By: /s/ Bruce A. Karsh
                                  ----------------------------------------
                               Name:  Bruce A. Karsh
                               Title: President

                               OAKTREE CAPITAL MANAGEMENT, LLC, as general
                               partner and/or investment manager of certain
                               funds and accounts it manages, solely in its
                               capacity as the holder of Subordinated Notes
                               in the face amount of approximately
                               $177,700,000

                               By:   /s/ Mariusz J. Mazurek
                                     --------------------------------------
                               Name: Mariusz J. Mazurek
                               Title: Senior Vice President

                               By: /s/ Bruce A. Karsh
                                  ----------------------------------------
                               Name:  Bruce A. Karsh
                               Title: President

<PAGE>

                                 EXHIBIT B

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                                                             DRAFT 3/13/01

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - x
                                              :
                                              :    Chapter 11
In re:                                        :    Case Nos. 01-40346
   LOEWS CINEPLEX ENTERTAINMENT               :    through   01-40582
   CORPORATION, et al.,                       :
                                              :    (Jointly Administered)
                     Debtors.                 :
                                              :
- - - - - - - - - - - - - - - - - - - - - - - x

               ---------------------------------------------
                                  DEBTORS'
                              CHAPTER 11 PLAN
               ---------------------------------------------

Dated:     New York, New York
           November 11, 2001

                                         FRIED, FRANK, HARRIS, SHRIVER
                                           & JACOBSON
                                         (A Partnership Including
                                           Professional Corporations)
                                         Attorneys for Debtors and
                                         Debtors-In-Possession
                                         One New York Plaza
                                         New York, New York  10004
                                         (212) 859-8000
                                         Attn:   Brad Eric Scheler, Esq.
                                                 Lawrence A. First, Esq.
                                                 Bonnie Steingart, Esq.

<PAGE>

                                TABLE OF CONTENTS
<TABLE>

<S>                                                                                                              <C>
ARTICLE ONE  DEFINITIONS..........................................................................................1

ARTICLE TWO  TREATMENT OF ADMINISTRATIVE EXPENSES................................................................10

                           2.1.     Administrative Expenses......................................................10
                           2.2.     Full Settlement..............................................................10

ARTICLE THREE  TREATMENT OF PRIORITY TAX CLAIMS..................................................................10

                           3.1.     Priority Tax Claims..........................................................10
                           3.2.     Full Settlement..............................................................11

ARTICLE FOUR  CLASSIFICATION OF CLAIMS AND INTERESTS.............................................................11

                           4.1.     Designation of classes pursuant to sections 1122 and 1123(a)(1) of
                                    the Bankruptcy Code..........................................................11
                           4.2.     Claims.......................................................................11
                           4.3.     Interests....................................................................11

ARTICLE FIVE  IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND NOT IMPAIRED BY THIS PLAN...........12

                           5.1.     Classes of Claims and Interests Impaired by this Plan and Entitled to
                                    Vote.........................................................................12
                           5.2.     Classes of Claims Not Impaired by this Plan and Conclusively
                                    Presumed to Accept this Plan.................................................12
                           5.3.     Classes of Claims and Interests Impaired by this Plan and Deemed
                                    Not to Have Accepted this Plan...............................................12

ARTICLE SIX  TREATMENT OF CLAIMS AND INTERESTS...................................................................12

                           6.1.     Priority Claims (Class 1)....................................................12
                           6.2.     Pre-Petition Credit Agreement Claims (Class 2)...............................13
                           6.3.     Miscellaneous Secured Claims (Class 3).......................................14
                           6.4.     PBGC Claims (Class 4)........................................................14
                           6.5.     Unsecured Claims.............................................................15
                           6.6.     Convenience Claim (Class 6)..................................................16
                           6.7.     Intercompany Claims..........................................................16
                           6.8.     Old LCE Common Stock Interests (Class 8).....................................17
                           6.9.     Subsidiary Common Stock Interests (Class 9)..................................17

ARTICLE SEVEN  ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF REJECTION BY ONE OR MORE IMPAIRED
                           CLASSES OF CLAIMS OR INTERESTS........................................................17

                           7.1.     Impaired Classes of Claims Entitled to Vote..................................17
                           7.2.     Acceptance by an Impaired Class of Creditors.................................17
                           7.3.     Classes of Claims and Interests Not Impaired by this Plan and
                                    Conclusively Presumed to Accept this Plan....................................18
                           7.4.     Class of Claims and Interests Deemed Not to Have Accepted this Plan..........18
                           7.5.     Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code..............18

ARTICLE EIGHT  UNEXPIRED LEASES AND EXECUTORY CONTRACTS..........................................................18

                           8.1.     Assumption and Rejection of Executory Contracts and Unexpired Leases.........18
                           8.2.     Bar Date for Rejection Damages...............................................18

ARTICLE NINE  IMPLEMENTATION OF THIS PLAN........................................................................19

                           9.1.     Vesting of Property..........................................................19
                           9.2.     Transactions on Business Days................................................19
                           9.3.     Corporate Action for Reorganized Debtors.....................................19
                           9.4.     Implementation...............................................................19
                           9.5.     Issuance of New Securities...................................................20
                           9.6.     Cancellation of Existing Securities and Agreements...........................20
                           9.7.     Board of Directors of Reorganized LCE........................................20
                           9.8.     Employee Benefit Plans.......................................................20
                           9.9.     Survival of Indemnification and Contribution Obligations.....................21
                           9.10.    Substantive Consolidation....................................................21
                           9.11.    Retention and Enforcement of Causes of Action................................22
                           9.12.    Senior Executive Employment Agreements.......................................22
                           9.13.    Stock Plan...................................................................22
                           9.14.    Rule 9019 Settlement and Compromise of Alleged Causes of Action
                                    with Respect to Pre-Petition Credit Agreement Claims.........................22
                           9.15.    Funding of the Unsecured Settlement Distribution.............................23

ARTICLE TEN  PROVISIONS COVERING DISTRIBUTIONS...................................................................23

                           10.1.    Timing of Distributions Under this Plan......................................23
                           10.2.    Allocation of Consideration..................................................23
                           10.3.    Cash Payments................................................................23
                           10.4.    Payment of Statutory Fees....................................................24
                           10.5.    No Interest..................................................................24
                           10.6.    Fractional Securities........................................................24
                           10.7.    Withholding of Taxes.........................................................24
                           10.8.    Persons Deemed Holders of Registered Securities..............................24
                           10.9.    Surrender of Existing Securities.............................................24
                           10.10.   Undeliverable or Unclaimed Distributions.....................................25
                           10.11.   Distributions on Account of Pre-Petition Notes...............................25

ARTICLE ELEVEN  PROCEDURES FOR RESOLVING DISPUTED CLAIMS.........................................................25

                           11.1.    Objections to Claims.........................................................25
                           11.2.    Procedure....................................................................26
                           11.3.    Payments and Distributions With Respect to Disputed Claims...................26
                           11.4.    Claims Reserve...............................................................26
                           11.5.    Distributions After Allowance of Disputed General Unsecured Claims...........27
                           11.6.    Distributions After Disallowance of Disputed General Unsecured Claims........27
                           11.7.    Procedure for Resolution of Intercreditor Disputes...........................27
                           11.8.    Effect of Distributions in the CCAA Cases....................................28
                           11.9.    Setoffs......................................................................28

ARTICLE TWELVE  DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS........................................28

                           12.1.    Discharge of All Claims and Interests and Releases...........................28
                           12.2.    Injunction...................................................................28
                           12.3.    Exculpation..................................................................29
                           12.4.    Guaranties and Claims of Subordination.......................................29

ARTICLE THIRTEEN  CONDITIONS PRECEDENT TO CONFIRMATION ORDER AND EFFECTIVE DATE.................................30

                           13.1.    Conditions Precedent to Entry of the Confirmation Order......................30
                           13.2.    Conditions Precedent to the Effective Date...................................30
                           13.3.    Waiver of Conditions.........................................................31
                           13.4.    Effect of Failure of Conditions..............................................31

ARTICLE FOURTEEN  MISCELLANEOUS PROVISIONS.......................................................................31

                           14.1.    Bankruptcy Court to Retain Jurisdiction......................................31
                           14.2.    Required Regulatory Approvals................................................32
                           14.3.    Binding Effect of this Plan..................................................32
                           14.4.    Nonvoting Stock..............................................................32
                           14.5.    Authorization of Corporate Action............................................32
                           14.6.    Retiree Benefits.............................................................33
                           14.7.    Withdrawal of this Plan......................................................33
                           14.8.    Captions.....................................................................33
                           14.9.    Method of Notice.............................................................33
                           14.10.   Dissolution of Committees....................................................33
                           14.11.   Amendments and Modifications to Plan.........................................34
                           14.12.   Section 1125(e) of the Bankruptcy Code.......................................34
</TABLE>

<PAGE>

Schedule I - Debtors and Debtors-in-Possession
Schedule II - Canadian Debtors in the CCAA Cases

Exhibit A*........New LCE Restricted Stock Option Plan
Exhibit B.........New Term Note Loan Agreement
Exhibit C.........New Working Capital Credit Agreement
Exhibit D.........Reorganized LCE By-Laws
Exhibit E.........Reorganized LCE Certificate of Incorporation
Exhibit F.........Senior Executive Employees
Exhibit G.........Senior Executive Employment Agreements
Exhibit H.........Corporations to be Dissolved
Exhibit I.........New Board of Directors

* The Debtors intend to file all exhibits prior to the hearing on the
adequacy of the Disclosure Statement related to this Plan.

<PAGE>

         LCE and its subsidiaries listed on Schedule I, as debtors and
debtors-in-possession (collectively, the "Debtors"), hereby propose the
following chapter 11 plan of reorganization pursuant to section 1121(a) of
the Bankruptcy Code.

                                ARTICLE ONE

                                DEFINITIONS

         Whenever from the context it appears appropriate, each term stated
in either the singular or the plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender
shall include the masculine, the feminine and the neuter. Unless the
context requires otherwise, the following words and phrases shall have the
meanings set forth below:

         Administrative Expense: (a) Any right to payment constituting a
cost or expense of administration of the Chapter 11 Cases (including,
without limitation, professional fees and expenses) under section 503(b) of
the Bankruptcy Code, (b) a Claim given the status of an Administrative
Expense by Final Order of the Bankruptcy Court, and (c) all fees or charges
assessed against the Debtors' estates under section 1930 of title 28 of the
United States Code.

         Affiliate: As defined in section 101(2) of the Bankruptcy Code.

         Agent: Bankers Trust, as agent under the Pre-Petition Credit
Agreement.

         Allowed: With respect to Claims and Interests, (a) any Claim
against or Interest in a Debtor, proof of which is timely filed, or by
order of the Bankruptcy Court is not or will not be required to be filed,
(b) any Claim or Interest that has been or is hereafter listed in the
Schedules as neither disputed, contingent or unliquidated, and for which no
timely proof of claim has been filed, or (c) any Claim allowed pursuant to
this Plan; provided, however, that with respect to any Claim or Interest
described in clauses (a) or (b) above, such Claim or Interest shall be
allowed only if (i) no objection to the allowance thereof has been
interposed within the applicable period of time fixed by this Plan, the
Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy Court or (ii) such
an objection is so interposed and the Claim or Interest shall have been
allowed by a Final Order (but only if such allowance was not solely for the
purpose of voting to accept or reject this Plan). Except as otherwise
specified in this Plan or a Final Order of the Bankruptcy Court, the amount
of an allowed Claim shall not include interest on such Claim from and after
the Filing Date.

         Ballot: The form distributed, together with the Disclosure
Statement, to Holders of Claims in classes that are Impaired and entitled
to vote on this Plan for the purpose of indicating acceptance or rejection
of this Plan.

         Bankers Trust: Bankers Trust Company in its capacity as Agent and
as Pre-Petition Lender.

         Bankruptcy Code: Title 11 of the United States Code, as amended
from time to time, as applicable to the Chapter 11 Cases.

         Bankruptcy Court: The United States Bankruptcy Court for the
Southern District of New York, or any other court having jurisdiction over
these Chapter 11 Cases.

         Bankruptcy Rules: The Federal Rules of Bankruptcy Procedure
promulgated under section 2075 of title 28 of the United States Code and
the Local Rules of the Bankruptcy Court, each as amended from time to time,
as applicable to the Chapter 11 Cases.

         Board: The board of directors of the Debtors or Reorganized
Debtors, as applicable.

         Business Day: Any day other than a Saturday, Sunday or "legal
holiday" as such term is defined in Bankruptcy Rule 9006(a).

         By-Laws: The By-Laws of the Debtors (other than LCE) in effect as
of the Filing Date.

         Canadian Debtors: Cineplex Odeon, and the other Entities listed on
Schedule II, as Applicants in the CCAA Cases.

         Canadian DIP: The loans made by LCE to Cineplex Odeon pursuant to
the Credit Agreement, dated February 28, 2001, as amended, between LCE as
lender, Cineplex Odeon as borrower and Deutsche Bank, as agent.

         Canadian Plan: The Plan of Arrangement to be proposed by the
Canadian Debtors in the CCAA Cases.

         Cash: United States currency, a certified check, a cashier's check
or a wire transfer of good funds from any source, or a check drawn on a
domestic bank by the Debtors, the Reorganized Debtors or other Entity
making any distribution under this Plan.

         Cause of Action: Any and all actions, causes of action, suits,
accounts, controversies, agreements, promises, rights to legal remedies,
rights to equitable remedies, rights to payment, and claims, whether known
or unknown, reduced to judgment, not reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, unsecured and whether asserted or assertable directly or
derivatively, in law, equity or otherwise.

         CCAA: Canadian Companies' Creditors Arrangement Act.

         CCAA Cases: The cases of the Canadian Debtors under the CCAA.

         Chapter 11 Cases: The cases under Chapter 11 of the Bankruptcy
Code filed by the Debtors that were commenced on the Filing Date, with case
numbers 01-40346 through 01-40582.

         Cineplex Odeon: Cineplex Odeon Corporation, a corporation
organized under the laws of Canada, and a wholly owned subsidiary of LCE.

         Claim: Any right to (a) payment from a Debtor, whether or not such
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured or (b) an equitable remedy for breach of performance if such
breach gives rise to a right to payment from a Debtor, whether or not such
right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured.

         Class: A class of Claims or Interests designated pursuant to this
Plan.

         Class 5 Claims Reserve: The Unsecured Settlement Distribution that
shall be held in a segregated interest bearing account to be established by
the Reorganized Debtors on the Effective Date for the purpose of making
distributions to holders of Allowed General Unsecured Claims pursuant to
Section 11.4 of this Plan.

         Class 5A Designee: A representative to be appointed by the
Creditors' Committee prior to the Effective Date to enforce the rights and
claims of Holders of Class 5A Claims with respect to the intercreditor
disputes described in Section 6.5.2 of this Plan.

         Class 5B Designee: A representative to be appointed by the
Indenture Trustee based upon the written direction of the requisite Holder
or Holders of the Pre-Petition Notes in accordance with, and pursuant to,
the applicable provisions of the Indenture prior to the Effective Date to
enforce the rights and claims of Holders of Class 5B Claims with respect to
the intercreditor disputes described in Section 6.5.2 of this Plan.

         Class 5B Final Order: A Final Order, entered subsequent to the
Confirmation Date, which determines, among other things, what, if any,
portion of the Unsecured Settlement Distribution should be distributed to
Holders of Allowed LCE General Unsecured Claims.

         Combination: The combination completed on May 14, 1998 of the
Loews Theatres exhibition business of Sony Pictures Entertainment, Inc., a
wholly owned subsidiary of Sony Corporation of America, and Cineplex Odeon.

         Confirmation Date: The date on which the Confirmation Order shall
be entered on the docket maintained by the Clerk of the Bankruptcy Court
with respect to the Chapter 11 Cases.

         Confirmation Hearing: The hearing held by the Bankruptcy Court
pursuant to section 1128(a) of the Bankruptcy Code regarding the
confirmation of this Plan pursuant to section 1129 of the Bankruptcy Code.

         Confirmation Order: The order of the Bankruptcy Court confirming
this Plan pursuant to section 1129 of the Bankruptcy Code.

         Convenience Claim: Any Unsecured Claim that is (i) Allowed for an
amount of $500 or less or (ii) is Allowed in an amount greater than $500,
but which is reduced to $500 by election of the Holder thereof pursuant to
such Holder's Ballot. In no event shall any Convenience Claim exceed $500
for the purposes of allowance, treatment or distribution under this Plan.

         Creditor: Any Entity that is the Holder of a Claim against a
Debtor that arose on or before the order for relief in these Chapter 11
Cases or a Claim against a Debtor's estate of the kind specified in section
502(g), 502(h) or 502(i) of the Bankruptcy Code.

         Creditors' Committee: The official committee of unsecured
Creditors appointed in these Chapter 11 Cases pursuant to section 1102(a)
of the Bankruptcy Code on March 2, 2001, as the same may be constituted
from time to time.

         Creditors' Committee Designee: A representative to be appointed by
the Creditors' Committee on or before the Effective Date to advise and
assist the Debtors or the Reorganized Debtors in analyzing, objecting to,
compromising and settling Disputed Claims.

         Debtors: LCE and its subsidiaries listed on Schedule I, as debtors
and debtors-in-possession in the Chapter 11 Cases.

         DIP Agent: Bankers Trust, as agent for the DIP Lenders.

         DIP Facility Agreement: The Debtor-In-Possession Credit Agreement,
as amended from time to time, and ancillary documents, dated as of February
15, 2001, among the Debtors, the DIP Agent and the DIP Lenders.

         DIP Lenders: The lenders under the DIP Facility Agreement.

         Disclosure Statement: The disclosure statement that relates to
this Plan and that has been approved by the Bankruptcy Court as containing
adequate information as required by section 1125 of the Bankruptcy Code.

         Disputed: With respect to Claims, any Claim that is not Allowed.

         Effective Date: The date that is 11 days after the Confirmation
Date, or, if such date is not a Business Day, the next succeeding Business
Day, or such later date after the Confirmation Date as determined by the
Debtors so long as no stay of the Confirmation Order is in effect on such
date; provided, however, that if, on or prior to such date, all conditions
to the Effective Date set forth in Article Thirteen of this Plan have not
been satisfied or waived, then the Effective Date shall be the first
Business Day following the day on which all such conditions to the
Effective Date have been satisfied or waived or such later date as the
Debtors may determine.

         Entity: Any individual, corporation, limited or general
partnership, limited liability company, joint venture, association, joint
stock company, estate, entity, trust, trustee, United States trustee,
unincorporated organization, government, governmental unit (as defined in
the Bankruptcy Code), agency or political subdivision thereof.

         Exchange Act: The Securities Exchange Act of 1934, as amended.

         Filing Date: February 15, 2001, which was the date on which each
of the Debtors filed a voluntary petition for relief commencing the Chapter
11 Cases.

         Final Decree: A final decree closing the Chapter 11 Cases as
described in Bankruptcy Rule 3022.

         Final DIP Order: The final order of the Bankruptcy Court dated
April 4, 2001, approving the DIP Facility Agreement.

         Final Order: An order, ruling or judgment of the Bankruptcy Court
or any other court of competent jurisdiction as to which the time to
appeal, petition for certiorari, or move for reargument or rehearing has
expired and as to which no appeal, petition for certiorari, or other
proceedings for reargument or rehearing shall then be pending, or as to
which any right to appeal, petition for certiorari, reargue, or rehear
shall have been waived in writing in form and substance satisfactory to the
Debtors or, on and after the Effective Date, the Reorganized Debtors or, in
the event that an appeal, writ of certiorari, or reargument or rehearing
thereof has been sought, such order of the Bankruptcy Court or other court
of competent jurisdiction shall have been determined by the highest court
to which such order was appealed, or certiorari, reargument or rehearing
shall have been denied and the time to take any further appeal, petition
for certiorari or move for reargument or rehearing shall have expired;
provided, however, that the possibility that a motion under Rule 59 or Rule
60 of the Federal Rules of Civil Procedure, or any analogous rule under the
Bankruptcy Rules or applicable state court rules of civil procedure, may be
filed with respect to such order shall not cause such order not to be a
Final Order.

         General Unsecured Claims: All LCE General Unsecured Claims and
Subsidiary Unsecured Claims, including, without limitation, any and all
Claims, including all environmental Claims, arising from or related to
properties that were owned, leased or operated by the Debtors in Cicero,
Illinois.

         Holder: Any Entity that holds a Claim or Interest.

         HSBC Bank: HSBC Bank USA, a New York banking corporation, as
Indenture Trustee.

         Impaired: Any Class of Claims or Interests that is impaired within
the meaning of section 1124 of the Bankruptcy Code.

         Indenture: The Indenture, dated as of August 5, 1998, as amended,
between LCE, as issuer and the Indenture Trustee pursuant to which the
Pre-Petition Notes were issued.

         Indenture Trustee: HSBC Bank, as successor-in-interest to Bankers
Trust and trustee under the Indenture, or its duly appointed successor (if
any).

         Instrument: Any share of stock, security, promissory note or other
"Instrument" within the meaning of that term as defined in section
9-102(47) of the UCC.

         Intercompany Cineplex Odeon Claims: All Claims held by a Canadian
Debtor against any of the Debtors.

         Intercompany Claims: All Intercompany LCE Claims, Intercompany
Subsidiary Claims and Intercompany Cineplex Odeon Claims.

         Intercompany LCE Claims: All Claims (a) held by LCE against any
Subsidiary Debtor or (b) held by any Subsidiary Debtor against LCE,
including, without limitation, all Claims arising as a result of advances
made (i) by LCE to any Subsidiary Debtor or (ii) by any Subsidiary Debtor
to LCE, as the case may be.

         Intercompany Subsidiary Claims: All Claims held by a Subsidiary
Debtor against another Subsidiary Debtor, including, without limitation,
Claims arising as a result of advances made by a Subsidiary Debtor to
another Subsidiary Debtor.

         Interests: All equity interests in a Debtor, including, but not
limited to, shares of common stock and any rights, options, warrants,
calls, subscriptions or other similar rights or agreements, commitments or
outstanding securities obligating a Debtor to issue, transfer or sell any
shares of capital stock of a Debtor.

         Investors: Oaktree Capital and Onex, which, in the aggregate,
beneficially own at least $300 million aggregate principal amount of
Pre-Petition Credit Agreement Claims and $177,700,000 in Pre-Petition Note
Claims, in each case, either directly or through one or more Affiliates.

         Investors Pre-Petition Credit Agreement Claims: All Pre-Petition
Credit Agreement Claims held by the Investors.

         LCE: Loews Cineplex Entertainment Corporation, a Delaware
corporation.

         LCE General Unsecured Claim: Any Claim (other than a Convenience
Claim, a Pre-Petition Credit Agreement Claim, a Miscellaneous Secured
Claim, a Priority Claim, a Priority Tax Claim, an Administrative Expense
Claim, a PBGC Claim, an Intercompany Claim, or any Claim subordinated under
section 510(b) of the Bankruptcy Code) against LCE, including, without
limitation, any and all Claims, including environmental Claims, arising
from or related to properties that were owned, leased or operated by the
Debtors in Cicero, Illinois.

         Market Rate: The rate of interest per annum (rounded upward, if
necessary, to the nearest whole 1/100 of 1%) equal to the yield equivalent
(as determined by the Secretary of the Treasury) of the average accepted
auction price for the last auction of one-year United States Treasury bills
settled at least fifteen (15) days prior to the Effective Date.

         Maximum Allowable Amount: With respect to any Disputed General
Unsecured Claim, the least of the amounts (a) set forth in the proof(s) of
claim filed by the Holder thereof, (b) determined by a Final Order of the
Bankruptcy Court or any other court of competent jurisdiction as the
maximum fixed amount of such General Unsecured Claim or as the estimated
amount of such General Unsecured Claim for allowance, distribution and
reserve purposes, (c) in the case of a proof of claim filed in an
unliquidated, undetermined or contingent amount, as determined by a Final
Order of the Bankruptcy Court or any other court of competent jurisdiction,
or (d) as agreed upon, in writing, by the Debtors and the Holder of such
Disputed Claim.

         Miscellaneous Secured Claim: Any Claim, other than a Pre-Petition
Credit Agreement Claim or an Administrative Expense, that is a secured
claim within the meaning of, and to the extent allowable as a secured claim
under, section 506 of the Bankruptcy Code.

         New Common Stock: The 100,000 shares of common stock of
Reorganized LCE, par value $.01 per share, to be issued by Reorganized LCE
on and after the Effective Date pursuant to this Plan.

         New LCE Stock Plan: The stock plan of Reorganized LCE,
substantially in the form attached as Exhibit A.

         New Subsidiary Certificates of Incorporation: The new certificates
of incorporation or an amendment to the current certificate of
incorporation for each of the Reorganized Debtors other than Reorganized
LCE.

         New Term Loan Agreement: The term loan agreement and ancillary
documents between the Reorganized Debtors, the lenders thereto and Bankers
Trust, as Agent, to be effective as of the Effective Date. A term sheet
setting forth the material terms of the New Term Note Loan Agreement is
attached as Exhibit B.

         New Term Notes: The new term notes in the aggregate principal
amount of $429,409,000 to be issued pursuant to the New Term Loan Agreement
to the Holders of Allowed Pre-Petition Credit Agreement Claims pursuant to
section 6.2 of this Plan.

         New Working Capital Credit Agreement: The working capital credit
agreement and ancillary documents, dated as of the Effective Date, between
the Reorganized Debtors, the lenders thereto and Bankers Trust, as Agent,
containing the terms of the New Working Capital Facility. A term sheet
setting forth the material terms of the New Working Capital Credit
Agreement is attached as Exhibit C.

         New Working Capital Facility: The $100 million working capital
credit facility provided to the Reorganized Debtors under the New Working
Capital Credit Agreement.

         Oaktree Capital: Oaktree Capital Management, LLC and/or one or
more of its Affiliates.

         Old LCE By-Laws: The By-Laws of LCE in effect as of the Filing
Date.

         Old LCE Certificate of Incorporation: The certificate of
incorporation of LCE in effect as of the Filing Date.

         Old LCE Common Stock: The common stock of LCE, par value $.01 per
share, issued and outstanding as of the Filing Date.

         Old LCE Common Stock Interest: Any Interest evidenced by Old LCE
Common Stock or any Claim, if any, relating to Old LCE Common Stock that is
subordinated under section 510(b) of the Bankruptcy Code and any other
Interest other than Subsidiary Common Stock Interests.

         Onex: Onex Corporation, a corporation organized under the laws of
Canada and/or one or more of its Affiliates.

         PBGC: The Pension Benefit Guaranty Corporation.

         PBGC Claims: Any and all Claims of the PBGC.

         Plan: This chapter 11 plan of reorganization of the Debtors,
together with all exhibits hereto, as the same may be amended and modified
from time to time in accordance with section 1127 of the Bankruptcy Code.

         Pre-Petition Credit Agreement: The Senior Revolving Credit
Agreement, dated as of May 14, 1998, as amended, modified or supplemented
from time to time, between LCE, the Pre-Petition Lenders and Bankers Trust,
as a lender and Agent for the Pre-Petition Lenders.

         Pre-Petition Credit Agreement Claims: Any and all Claims in
respect of, or in connection with, all or any portion of the aggregate
outstanding and unpaid amount of principal and interest due and owing
under, and subject to the terms and provisions of, the Pre-Petition Credit
Agreement and all other Loan Documents (as defined in the Pre-Petition
Credit Agreement), including, without limitation, any and all interest,
costs, attorneys' fees and other expenses owed by the Debtors or for which
the Debtors may be liable in connection therewith. In addition, pursuant to
paragraph 6 of the DIP Final Order the DIP Lenders and the DIP Agent have
agreed that for purposes of this Plan, the DIP Repayment Loan (as defined
in the DIP Final Order) will be treated as secured pre-petition Claims. As
a result, any and all Claims in respect of the DIP Repayment Loan shall be
considered for all purposes of this Plan to be Pre-Petition Credit
Agreement Claims and shall not be considered Administrative Expenses.

         Pre-Petition Lenders: The lenders under the Pre-Petition Credit
Agreement.

         Pre-Petition Note Claims: Any and all Claims in respect of all or
any portion of the aggregate outstanding and unpaid amount of principal and
interest due and owing under the Pre-Petition Notes (including, without
limitation, any and all interest, costs, attorneys' fees and other expenses
owed by the Debtors or for which the Debtors may be liable in connection
therewith) and all other Claims against the Debtors, if any, directly or
indirectly related to or arising out of the transactions, agreements or
Instruments upon which the Pre-Petition Notes are based.

         Pre-Petition Notes: The 8-7/8% Senior Subordinated Notes due 2008
issued by LCE pursuant to the Indenture.

         Priority Claim: Any Claim, other than a Priority Tax Claim or an
Administrative Expense, which is entitled to priority of payment under
section 507(a) of the Bankruptcy Code.

         Priority Tax Claim: Any Claim which is entitled to priority of
payment under section 507(a)(8) of the Bankruptcy Code.

         Pro Rata Share: A proportionate share, so that the ratio of the
amount of property distributed on account of an Allowed Claim or Allowed
Interest, as the case may be, in a class is the same as the ratio such
Claim or Interest bears to the total amount of all Claims or Interests
(including Disputed Claims or Disputed Interests until disallowed) in such
class.

         Related Documents: This Plan and all documents necessary to
consummate the transactions contemplated by this Plan.

         Reorganized Debtors: The Debtors from and after the effectiveness
of this Plan on the Effective Date.

         Reorganized LCE: LCE from and after the effectiveness of this Plan
on the Effective Date.

         Reorganized LCE By-Laws: The By-Laws of Reorganized LCE
substantially in the form attached as Exhibit D.

         Reorganized LCE Certificate of Incorporation: The certificate of
incorporation of Reorganized LCE, as amended and restated pursuant to this
Plan, substantially in the form attached as Exhibit E.

         Schedules: The schedule of assets and liabilities filed by the
Debtors with the Bankruptcy Court on June 29, 2001 in accordance with
section 521(1) of the Bankruptcy Code, and any supplements and amendments
thereto.

         Senior Executive Employment Agreements: The Senior Executive
Employment Agreements between Reorganized LCE and the individuals listed on
Exhibit F, which agreements shall be substantially in the form attached as
Exhibit G.

         Subsidiary Common Stock: Collectively, all common stock of the
Debtors (other than LCE) issued and outstanding as of the Filing Date.

         Subsidiary Common Stock Interest: Any Interest evidenced by
Subsidiary Common Stock.

         Subsidiary Debtors: All of the Debtors other than LCE.

         Subsidiary General Unsecured Claim: Any Claim (other than a
Convenience Claim, a Pre-Petition Credit Agreement Claim, a Miscellaneous
Secured Claim, a Priority Claim, a Priority Tax Claim, an Administrative
Expense Claim, a PBGC Claim, an Intercompany Claim, or any Claim
subordinated under section 510(b) of the Bankruptcy Code) against any
Debtor other than LCE, including, without limitation, any and all Claims,
including environmental Claims, arising from or related to properties that
were owned, leased or operated by the Debtors in Cicero, Illinois.

         UCC: The Uniform Commercial Code in effect in the State of New
York as of the date hereof, as applicable.

         Unimpaired: Any Class of Claims or Interests that is not Impaired.

         Unsecured Settlement Distribution: $45,000,000 in Cash.

         Voting Deadline: The date established in the order of the
Bankruptcy Court approving the Disclosure Statement as the deadline by
which votes to accept or reject this Plan must be received.

                                ARTICLE TWO

                    TREATMENT OF ADMINISTRATIVE EXPENSES

         2.1. Administrative Expenses. Each Allowed Administrative Expense
shall be paid in full in Cash on the later of (i) the Effective Date, (ii)
the date on which the Bankruptcy Court enters an order allowing such
Administrative Expense and (iii) the date on which the Debtors and the
Holder of such Allowed Administrative Expense otherwise agree; provided,
however, that Allowed Administrative Expenses representing (a) obligations
incurred under the DIP Facility Agreement shall be paid in full in Cash on
the Effective Date, and (b) obligations incurred in the ordinary course of
business consistent with past practice, or assumed by the Debtors shall be
paid in full or performed by the Debtors or Reorganized Debtors in the
ordinary course of business, consistent with past practice; provided
further, however, that Allowed Administrative Expenses incurred by the
Debtors or Reorganized Debtors after the Confirmation Date, including,
without limitation, claims for professionals' fees and expenses, shall not
be subject to application and may be paid by the Debtors or Reorganized
Debtors, as the case may be, in the ordinary course of business and without
further Bankruptcy Court approval.

         2.2. Full Settlement. The distributions provided for in Section
2.1 are in full settlement, release and discharge of all Administrative
Expenses.

                               ARTICLE THREE

                      TREATMENT OF PRIORITY TAX CLAIMS

         3.1. Priority Tax Claims. With respect to each Allowed Priority
Tax Claim, at the sole option of the Debtors, the Holder of an Allowed
Priority Tax Claim shall be entitled to receive from the Reorganized
Debtors on account of such Claim:

         (a) Cash payments made in equal annual installments beginning on
or before the first anniversary following the Effective Date with the final
installment being payable no later than the sixth anniversary of the date
of the assessment of such Allowed Priority Tax Claim, together with
interest on the unpaid balance of such Allowed Priority Tax Claim from the
Effective Date calculated at the Market Rate; or

         (b) Such other treatment agreed to by the Holder of such Allowed
Priority Tax Claim and the Debtors or Reorganized Debtors, as the case may
be.

         3.2. Full Settlement. The distributions provided for in Section
3.1 are in full settlement, release and discharge of all Priority Tax
Claims.

                               ARTICLE FOUR

                   CLASSIFICATION OF CLAIMS AND INTERESTS

         4.1. Designation of classes pursuant to sections 1122 and
1123(a)(1) of the Bankruptcy Code. Set forth below is a designation of
classes of Claims and Interests. Administrative Expenses and Priority Tax
Claims of the kinds specified in sections 507(a)(1) and 507(a)(8) of the
Bankruptcy Code (set forth in Articles Two and Three above) have not been
classified and are excluded from the following classes in accordance with
section 1123(a)(l) of the Bankruptcy Code.

         4.2. Claims.

              Class 1. Class 1 consists of all Priority Claims.

              Class 2. Class 2 consists of the Pre-Petition Credit
              Agreement Claims.

              Class 3. Class 3 consists of all Miscellaneous Secured
              Claims.

              Class 4. Class 4 consists of all PBGC Claims.

              Class 5A. Class 5A consists of all Subsidiary General
              Unsecured Claims.

              Class 5B. Class 5B consists of all LCE General Unsecured
              Claims.

              Class 6. Class 6 consists of all Convenience Claims.

              Class 7A. Class 7A consists of all Intercompany LCE Claims.

              Class 7B. Class 7B consists of all Intercompany Subsidiary
              Claims.

              Class 7C. Class 7C consists of all Intercompany Cineplex
              Odeon Claims.

         4.3. Interests.

              Class 8. Class 8 consists of all Old LCE Common Stock
              Interests.

              Class 9. Class 9 consists of all Subsidiary Common Stock
              Interests.

                               ARTICLE FIVE

                  IDENTIFICATION OF CLASSES OF CLAIMS AND
              INTERESTS IMPAIRED AND NOT IMPAIRED BY THIS PLAN

         5.1. Classes of Claims and Interests Impaired by this Plan and
Entitled to Vote. Pre-Petition Credit Agreement Claims (Class 2),
Subsidiary General Unsecured Claims (Class 5A) and LCE General Unsecured
Claims (Class 5B) are Impaired by this Plan and the Holders of Allowed
Claims and Interests in such Classes are entitled to vote to accept or
reject this Plan.

         5.2. Classes of Claims Not Impaired by this Plan and Conclusively
Presumed to Accept this Plan. Priority Claims (Class 1), Miscellaneous
Secured Claims (Class 3), PBGC Claims (Class 4), Convenience Claims (Class
6), and Subsidiary Common Stock Interests (Class 9) are not Impaired by
this Plan. Under section 1126(f) of the Bankruptcy Code, the Holders of
such Claims and Interests are conclusively presumed to accept this Plan,
and the acceptances of such Holders will not be solicited.

         5.3. Classes of Claims and Interests Impaired by this Plan and
Deemed Not to Have Accepted this Plan. Intercompany LCE Claims (Class 7A),
Intercompany Subsidiary Claims (Class 7B), Intercompany Cineplex Odeon
Claims (Class 7C) and Old LCE Common Stock Interests (Class 8) are Impaired
by this Plan and do not receive or retain any property under this Plan. As
co-proponents of this Plan, the Holders of Intercompany LCE Claims and
Intercompany Subsidiary Claims support this Plan. In addition, the Debtors
have been advised that the Holders of Intercompany Cineplex Odeon Claims
support this Plan. Under section 1126(g) of the Bankruptcy Code, the
Holders of Old LCE Common Stock Interests are deemed not to have accepted
this Plan, and the acceptance of such Holders will not be solicited.

                                ARTICLE SIX

                     TREATMENT OF CLAIMS AND INTERESTS

         6.1. Priority Claims (Class 1).

         (a) Treatment. On the latest of (a) the Effective Date, (b) the
date on which such Priority Claim becomes an Allowed Priority Claim, or (c)
the date on which the Debtors and the Holder of such Allowed Priority Claim
otherwise agree, each Holder of an Allowed Priority Claim shall be entitled
to receive Cash in an amount sufficient to render such Allowed Priority
Claim Unimpaired under section 1124 of the Bankruptcy Code; provided,
however, Allowed Priority Claims representing obligations incurred in the
ordinary course shall be paid in full or performed by the Reorganized
Debtors in the ordinary course of business, consistent with past practice.

         (b) Full Settlement. The distributions provided in this Section
6.1 are in full settlement, release and discharge of each Holder's Priority
Claim.

Class 1 is not Impaired.

         6.2. Pre-Petition Credit Agreement Claims (Class 2).

         (a) Treatment. The Pre-Petition Credit Agreement Claims are
Allowed in the aggregate amount of $742,086,538. All adequate assurance
payments received by the Holders of Pre-Petition Credit Agreement Claims
during the Chapter 11 Cases pursuant to paragraph 10(iii) of the Final DIP
Order or otherwise shall be retained by such Holder and deemed interest
payments and not reduction of principal. In addition, subject to Section
6.2(b) of this Plan, on the Effective Date, each Holder of an Allowed
Pre-Petition Credit Agreement Claim shall receive its Pro Rata Share of (i)
100% of the New Term Notes and (ii) 100% of the New Common Stock.

         (b) Settlement. The Investors hold in the aggregate at least $300
million principal amount of Pre-Petition Credit Agreement Claims. Pursuant
to Section 6.2(a) of this Plan, the Investors would receive in respect of
the Pre-Petition Credit Agreement Claims held by them in the aggregate,
their Pro Rata Share of the New Term Notes and the New Common Stock with
the other Holders of Pre-Petition Credit Agreement Claims. The Holders of
General Unsecured Claims would have received a portion of the New Common
Stock. The Creditors' Committee, however, has raised certain issues
regarding the validity of the security interests granted in connection with
the Pre-Petition Credit Agreement Claims and the allowance of the
Pre-Petition Credit Agreement Claims and the prosecution of potential
Causes of Action against the Pre-Petition Lenders. The Debtors and the
Holders of Pre-Petition Credit Agreement Claims (including, the Investors)
do not believe that there is merit to such issues or alleged Causes of
Action. However, pursuant to Section 9.14 of this Plan, in order to attempt
to facilitate a consensual plan and to settle and compromise any and all
such issues and alleged Causes of Action, the Investors have committed to
pay to LCE, on the Effective Date, up to $45 million for LCE to fund the
Unsecured Settlement Distribution, which shall be used to provide the
Holders of General Unsecured Claims with a Cash distribution in lieu of the
New Common Stock that would have been otherwise distributable to the
Holders of General Unsecured Claims. The Investors, in consideration for
such actions, and in full settlement, release and discharge $300 million
aggregate principal amount of the Investors Pre-Petition Credit Agreement
Claims, shall receive that portion of the New Common Stock that would have
been otherwise distributed to the Holders of General Unsecured Claims and
all the New Common Stock that would have been distributed to the other
Holders of Pre-Petition Credit Agreement Claims (such distributions to the
Investors are in lieu of the New Term Notes the Investors would have
received and such New Term Notes will be distributed to the other Holders
of Pre-Petition Credit Agreement Claims) such that (i) on the Effective
Date, the Investors shall receive 100% of the New Common Stock and (ii)
each Holder of a Pre-Petition Credit Agreement Claim (including the
Investors in respect of the Investor Pre-Petition Credit Agreement Claims
in excess of $300 million aggregate principal amount ) shall, on the
Effective Date, receive its pro rata share of 100% of the New Term Notes
based on the ratio of such Pre-Petition Credit Agreement Claim to all
Pre-Petition Credit Agreement Claims (other than $300 million aggregate
principal amount of the Investor Pre-Petition Credit Agreement Claims).
Pursuant to Section 9.14 of this Plan, this section and the other related
provisions of this Plan shall constitute a good faith compromise and
settlement of any Causes of Action or disputes that could have been brought
by a Holder of a General Unsecured Claim, the Debtors or any other party in
interest against a Holder of a Pre-Petition Credit Agreement Claim. Entry
of the Confirmation Order shall constitute the Bankruptcy Court's approval
of this settlement pursuant to Bankruptcy Rule 9019 and its finding that
this is a good faith settlement pursuant to any applicable state laws,
given and made after due notice and opportunity for hearing, and shall bar
any such Cause of Action by any Holder of a General Unsecured Claim, the
Debtor or any other party in interest against a Holder of a Pre-Petition
Credit Agreement Claims.

         (c) Full Settlement. The distributions provided for in this
Section 6.2 are in full settlement, release and discharge of each Holder's
Pre-Petition Credit Agreement Claim and all other Claims, if any, of such
Holder directly or indirectly related to or arising out of the
transactions, agreements or Instruments upon which such Pre-Petition Credit
Agreement Claim is based.

Class 2 is Impaired.

         6.3. Miscellaneous Secured Claims (Class 3).

         (a) Treatment. On the latest of (i) the Effective Date, (ii) the
date on which such Miscellaneous Secured Claim becomes an Allowed Claim,
and (iii) the date on which the Debtors and the Holder of such Allowed
Miscellaneous Secured Claim otherwise agree, at the election of the Debtors
prior to the Effective Date, each Holder of an Allowed Miscellaneous
Secured Claim shall be entitled to receive on account of such Holder's
Allowed Miscellaneous Secured Claim one of the following treatments: (A)
the legal, equitable and contractual rights to which such Allowed
Miscellaneous Secured Claim entitles such Holder shall remain unaltered,
(B) such Holder's Allowed Miscellaneous Secured Claim shall be reinstated
and rendered Unimpaired in accordance with section 1124(2) of the
Bankruptcy Code, or (C) such other treatment as mutually agreed to by the
Debtors and such Holder.

         (b) Full Settlement. The distributions provided in this Section
6.3 are in full settlement, release and discharge of each Holder's
Miscellaneous Secured Claim.

Class 3 is not Impaired.

         6.4. PBGC Claims (Class 4).

         (a) Treatment. On the Effective Date, the Holder of the Allowed
PBGC Claims shall be entitled to receive on account of such Holder's
Allowed PBGC Claim one of the following treatments: (A) the legal,
equitable and contractual rights to which such Allowed PBGC Claim entitles
such Holder shall remain unaltered, (B) such Holder's Allowed PBGC Claim
shall be reinstated and rendered Unimpaired in accordance with section
1124(2) of the Bankruptcy Code, or (C) such other treatment as mutually
agreed to by the Debtors and such Holder.

         (b) Full Settlement. The distributions provided in this Section
6.4 are in full settlement, release and discharge of the PBGC Claims and
all other Claims, if any, of such Holder directly or indirectly related to
or arising out of the transactions, agreements or Instruments upon which
the PBGC Claim is based.

Class 4 is not Impaired.

         6.5. Unsecured Claims.

              6.5.1 Subsidiary General Unsecured Claims (Class 5A)

         (a) Treatment. As soon as practicable following the earlier of (i)
the four-month anniversary of the Effective Date and (ii) the date on which
all Disputed General Unsecured Claims have been resolved by a Final Order
of the Bankruptcy Court, each Holder of an Allowed Subsidiary General
Unsecured Claim shall receive, on account of such Allowed Subsidiary
General Unsecured Claims, such Holder's pro rata share of the Unsecured
Settlement Distribution based on the ratio of such Holder's Allowed General
Unsecured Claim to the Maximum Allowable Amount of all General Unsecured
Claims.

         (b) Full Settlement. The distributions provided in this Section
6.5.1 are in full settlement, release and discharge of each Holder's
Subsidiary General Unsecured Claim and all other Claims, if any, of such
Holder directly or indirectly related to or arising out of the
transactions, agreements or Instruments upon which such Subsidiary General
Unsecured Claim is based.

Class 5A is Impaired.

              6.5.2 LCE General Unsecured Claims (Class 5B)

         (a) Treatment. Based on the Debtors' Schedules, the aggregate
outstanding amount of the Pre-Petition Note Claims is $313,312,500. The
Creditors' Committee has argued that (a) LCE should not be substantively
consolidated with the Subsidiary Debtors for any purpose, (b) LCE General
Unsecured Claims are structurally subordinated to Subsidiary General
Unsecured Claims and (c) that the Holders of LCE General Unsecured Claims
should not share in distributions on a pro rata basis with Holders of
Subsidiary General Unsecured Claims. The Debtors do not take a position on
these issues and believe that these issues are primarily intercreditor
disputes between the Holders of LCE General Unsecured Claims and Subsidiary
General Unsecured Claims. For this reason, in order to not adversely affect
the rights of such Holders with respect to these disputes, this Plan does
not substantively consolidate LCE with any or all of the Subsidiary
Debtors, and no distributions shall be made to Holders of LCE General
Unsecured Claims until entry of the Class 5B Final Order. Subject to entry
of the Class 5B Final Order, unless provided to the contrary in the Class
5B Final Order, as soon as practicable following the earlier of (i) the
four month anniversary of the Effective Date and (ii) the date on which all
Disputed General Unsecured Claims have been resolved by a Final Order of
the Bankruptcy Court, each Holder of an Allowed LCE General Unsecured Claim
shall receive, on account of such Allowed LCE General Unsecured Claim, such
Holder's pro rata share of the Unsecured Settlement Distribution based on
the ratio of such Holder's Allowed General Unsecured Claim to the Maximum
Allowable Amount of all General Unsecured Claims. Nothing contained herein
or in the Disclosure Statement shall in any way limit, affect or prejudice
any arguments or defenses that the Holders of LCE General Unsecured Claims
or the Holders of Subsidiary General Unsecured Claims may make with respect
to the intercreditor disputes described herein.

         (b) Full Settlement. The distributions, if any, provided in
accordance with this Section 6.5.2 are and shall be in full settlement,
release and discharge of each Holder's LCE General Unsecured Claim and all
other Claims, if any, of such Holder directly or indirectly related to or
arising out of the transactions, agreements or Instruments upon which such
LCE General Unsecured Claim is based.

Class 5B is Impaired.

         6.6. Convenience Claim (Class 6).

         (a) Treatment. As soon as practicable following the Effective
Date, each Holder of an Allowed Convenience Claim shall receive Cash in an
amount sufficient to render such Allowed Convenience Claim (as reduced by
election of the Holder of such Claim) Unimpaired under section 1124 of the
Bankruptcy Code.

         (b) Full Settlement. The distributions provided in this Section
6.6 are in full settlement, release and discharge of each Holder's
Convenience Claim and all other Claims, if any, of such Holder directly or
indirectly related to or arising out of the transactions, agreements or
Instruments upon which such Convenience Claim is based.

Class 6 is not Impaired.

         6.7. Intercompany Claims.

              6.7.1 Intercompany LCE Claims (Class 7A). On the Effective
Date, all Intercompany LCE Claims will be extinguished and no distributions
will be made in respect of such Intercompany LCE Claims; provided, however,
the extinguishment of such Claims shall be without prejudice to any
arguments that the Holders of LCE General Unsecured Claims on the one hand
and the Holders of Subsidiary General Unsecured Claims on the other may
make in connection with, and in furtherance of, its arguments and positions
in respect of the intercreditor disputes described in Section 6.5.2(a) of
this Plan.

Class 7A is Impaired.

              6.7.2 Intercompany Subsidiary Claims (Class 7B). On the
Effective Date, all Intercompany Subsidiary Claims will be extinguished and
no distributions will be made in respect of such Intercompany Subsidiary
Claims.

Class 7B is Impaired.

              6.7.3 Intercompany Cineplex Odeon Claims (Class 7C). On the
Effective Date, all Intercompany Cineplex Odeon Claims will be extinguished
and no distributions will be made in respect of such Intercompany Cineplex
Odeon Claims; provided, however, that solely with respect to those Canadian
Debtors as to which any particular Debtor has a valid and allowable claim
in the CCAA cases (or any successor insolvency proceeding under applicable
Canadian law) (a "Canadian Claim"), if and to the extent that such Canadian
Debtor has an allowable Intercompany Cineplex Odeon Claim against that
particular Debtor which is being extinguished under this Section 6.7.3, and
under applicable non-bankruptcy, law such Canadian Debtor has the right to
set off against such Canadian Claim held by that particular Debtor, then
such Intercompany Cineplex Odeon Claim shall be preserved solely for
purposes of permitting such Canadian Debtor to exercise such set off
rights, if any, that it may have against that particular Debtor (and no
other Debtor) and thereby reduce the allowable amount of the Canadian Claim
held by such Debtor, but in no event shall this proviso be construed as
permitting any Canadian Debtor to receive any distributions under this Plan
in respect of any Intercompany Cineplex Odeon Claim held by it or
otherwise.

Class 7C is Impaired.

         6.8. Old LCE Common Stock Interests (Class 8). On the Effective
Date, all Old LCE Common Stock Interests will be extinguished and no
distributions will be made in respect of such Old LCE Common Stock
Interests.

Class 8 is Impaired.

         6.9. Subsidiary Common Stock Interests (Class 9).

         (a) Treatment On the Effective Date, each Holder of a Subsidiary
Common Stock Interest shall retain such Interest and its respective share
or shares of common stock of the Debtors representing such Interest.

         (b) Full Settlement. The distributions provided in this Section
6.9 are in full settlement, release and discharge of each Holder's
Subsidiary Common Stock Interest and any Claims, if any, of such Holder
directly or indirectly related to or arising out of the transactions,
agreements or Instruments upon which such Subsidiary Common Stock Interest
is based.

Class 9 is not Impaired.

                               ARTICLE SEVEN

              ACCEPTANCE OR REJECTION OF THIS PLAN; EFFECT OF
                     REJECTION BY ONE OR MORE IMPAIRED
                       CLASSES OF CLAIMS OR INTERESTS

         7.1. Impaired Classes of Claims Entitled to Vote. Pre-Petition
Credit Agreement Claims (Class 2), Subsidiary General Unsecured Claims
(Class 5A) and LCE General Unsecured Claims (Class 5B) are Impaired and the
Holders of Allowed Claims in such Classes are entitled to vote to accept or
reject this Plan.

         7.2. Acceptance by an Impaired Class of Creditors. Consistent with
section 1126(c) of the Bankruptcy Code and except as provided in section
1126(e) of the Bankruptcy Code, an Impaired Class of Claims shall have
accepted this Plan if this Plan is accepted by Holders of at least
two-thirds in dollar amount and more than one-half in number of the Allowed
Claims in such Class that have timely and properly voted to accept or
reject this Plan.

         7.3. Classes of Claims and Interests Not Impaired by this Plan and
Conclusively Presumed to Accept this Plan. Priority Claims (Class 1),
Miscellaneous Secured Claims (Class 3), PBGC claims (Class 4), Convenience
Claims (Class 6), and Subsidiary Common Stock Interests (Class 9) are not
Impaired by this Plan. Under section 1126(f) of the Bankruptcy Code, the
Holders of such Claims and Interests are conclusively presumed to accept
this Plan, and the acceptances of such Holders will not be solicited.

         7.4. Class of Claims and Interests Deemed Not to Have Accepted
this Plan. Intercompany LCE Claims (Class 7A), Intercompany Subsidiary
Claims (Class 7B), Intercompany Cineplex Odeon Claims (Class 7C) and Old
LCE Common Stock Interests (Class 8) are Impaired by this Plan and do not
receive or retain any property under this Plan. Under section 1126(g) of
the Bankruptcy Code, the Holders of such Intercompany Claims and Old LCE
Common Stock Interests are deemed not to have accepted this Plan, and the
acceptance of such Holders will not be solicited. The Holders of
Intercompany LCE Claims and Intercompany Subsidiary Claims, as
co-proponents of the Plan, support this Plan. In addition, the Debtors have
been advised that the Holders of Intercompany Cineplex Odeon Claims support
this Plan.

         7.5. Confirmation Pursuant to Section 1129(b) of the Bankruptcy
Code. With respect to Class 8 and any Impaired Class, including, without
limitation, Class 5B, that does not accept this Plan, the Debtors intend to
request that the Bankruptcy Court confirm this Plan in accordance with
section 1129(b) of the Bankruptcy Code.

                               ARTICLE EIGHT

                  UNEXPIRED LEASES AND EXECUTORY CONTRACTS

         8.1. Assumption and Rejection of Executory Contracts and Unexpired
Leases. The Debtors and Reorganized Debtors shall have until the two-month
anniversary of the Effective Date to assume or reject executory contracts
and unexpired leases that have not been previously assumed or rejected.
Each executory contract or unexpired lease that has not been expressly
assumed or rejected with approval by order of the Bankruptcy Court on or
prior to the two-month anniversary of the Effective Date shall, as of such
date, be deemed to have been assumed by the Debtors unless (i) there is
then pending before the Bankruptcy Court a motion to reject such unexpired
lease or executory contract or (ii) the Bankruptcy Court has entered an
order extending such period.

         8.2. Bar Date for Rejection Damages. Unless otherwise provided by
an order of the Bankruptcy Court entered prior to the Confirmation Date, a
proof of claim with respect to any Claim against the Debtors arising from
the rejection of any executory contract or unexpired lease pursuant to an
order of the Bankruptcy Court must be filed with the Bankruptcy Court
within (a) the time period established by the Bankruptcy Court in an order
of the Bankruptcy Court approving such rejection, or (b) if no such time
period is or was established, thirty (30) days from the date of entry of
such order of the Bankruptcy Court approving such rejection. Any Entity
that fails to file a proof of claim with respect to its Claim arising from
such a rejection within the period set forth above shall be forever barred
from asserting a Claim against the Debtors, Reorganized Debtors or the
property or interests in property of the Debtors or Reorganized Debtors.
All Allowed Claims arising from the rejection of executory contracts or
unexpired leases shall be classified as either a Subsidiary General
Unsecured Claim (Class 5A) or LCE General Unsecured Claim (Class 5B) under
this Plan, as appropriate.

                               ARTICLE NINE

                        IMPLEMENTATION OF THIS PLAN

         9.1. Vesting of Property. Except as otherwise provided in this
Plan, on the Effective Date, title to all property of the Debtors' estates
shall pass to the applicable Reorganized Debtors, free and clear of all
Claims, Interests, liens, security interests, charges and other
encumbrances. Confirmation of this Plan (subject to the occurrence of the
Effective Date) shall be binding, and the Debtors' debts shall, without in
any way limiting Section 12.1 of this Plan, be discharged, as provided in
section 1141 of the Bankruptcy Code.

         9.2. Transactions on Business Days. If the Effective Date or any
other date on which a transaction may occur under this Plan shall occur on
a day that is not a Business Day, the transactions contemplated by this
Plan to occur on such day shall instead occur on the next succeeding
Business Day.

         9.3. Corporate Action for Reorganized Debtors. On the Effective
Date or as soon as practicable thereafter, LCE shall be incorporated in the
State of Delaware as Reorganized LCE. On the Effective Date or as soon
thereafter as is practicable, Reorganized LCE shall file with the Secretary
of State of the State of Delaware, in accordance with sections 103 and 303
of the Delaware General Corporation Law, the Reorganized LCE Certificate of
Incorporation and such certificate shall be the certificate of
incorporation for Reorganized LCE. On the Effective Date, the Reorganized
LCE By-Laws shall become the By-Laws of Reorganized LCE. On the Effective
Date, the By-Laws shall become the By-Laws of the Reorganized Debtors
(other than Reorganized LCE). On the Effective Date or as soon as
practicable thereafter, each of the Reorganized Debtors (other than
Reorganized LCE) shall file with the Secretary of State of their respective
state of incorporation New Subsidiary Certificates of Incorporation;
provided, however, as soon as practicable following the Effective Date,
Reorganized LCE shall be authorized to take all necessary corporate action
to dissolve the corporations listed on Exhibit H attached hereto.

         9.4. Implementation. Pursuant to the Confirmation Order and upon
confirmation of this Plan, the Debtors and the Reorganized Debtors shall be
authorized to take all necessary steps, and perform all necessary acts, to
consummate the terms and conditions of this Plan. On or before the
Effective Date, the Debtors may file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to
effectuate or further evidence the terms and conditions of this Plan and
the other agreements referred to herein. The Debtors or the Reorganized
Debtors, as the case may be, are hereby authorized and shall, execute such
documents and take such other actions as are necessary to effectuate the
transactions provided for in this Plan, including, without limitation, the
New Working Capital Credit Agreement, the New Term Loan Agreement and the
Senior Executive Employment Agreements without the need for any additional
approvals, authorizations and consents.

         9.5. Issuance of New Securities. The issuance and distribution of
the New Common Stock by Reorganized LCE is hereby authorized and directed
without the need for any further corporate action, under applicable law,
regulation, order, rule or otherwise.

         9.6. Cancellation of Existing Securities and Agreements. On the
Effective Date, the Pre-Petition Notes, the Old LCE Common Stock, and any
Old LCE Common Stock Interests, as well as any and all shareholder
agreements relating to the Old LCE Common Stock, shall be canceled. On the
Effective Date, the Indenture shall, except as provided in this Plan, be
deemed canceled, terminated and of no further force or effect.
Notwithstanding the foregoing, such cancellation of the Indenture shall not
impair the rights of Holders of the Pre-Petition Notes to receive
distributions on account of such Pre-Petition Notes pursuant to this Plan.
The Pre-Petition Notes shall not be canceled other than pursuant to this
Plan; provided, however, that until such cancellation, such Pre-Petition
Notes shall solely serve as evidence of entitlement of the Holder thereof
to receive distributions pursuant to this Plan and shall not otherwise be
obligations of the Debtors or the Reorganized Debtors.

         9.7. Board of Directors of Reorganized LCE. On the Effective Date,
the operation of Reorganized LCE shall become the general responsibility of
the board of directors of Reorganized LCE, subject to, and in accordance
with, the Reorganized LCE Certificate of Incorporation and the Reorganized
LCE By-Laws. The Reorganized LCE Certificate of Incorporation will provide
for, among other things, a Board, the number of members of the Board shall
be determined prior to the hearing on the adequacy of the Disclosure
Statement, and two members of the Board of Reorganized LCE shall include
the Chief Executive Officer of Reorganized LCE and the President of
Reorganized LCE. The initial board of Reorganized LCE shall consist of the
individuals identified on Exhibit I to this Plan. Such directors shall be
deemed elected or appointed, as the case may be, pursuant to the
Confirmation Order, but shall not take office and shall not be deemed to be
elected or appointed until the occurrence of the Effective Date. The
directors of each Debtor other than LCE as of the date of entry the
Confirmation Order shall be the individuals identified on Exhibit I to this
Plan. The officers of each Debtor as of the date of the entry of the
Confirmation Order shall be the officers of such Reorganized Debtor. Those
directors of the Debtors not continuing in office shall be deemed removed
therefrom as of the Effective Date pursuant to the Confirmation Order.

         9.8. Employee Benefit Plans. Subject to the occurrence of the
Effective Date, all employee benefit plans, policies, and programs of the
Debtors, and the Debtors' obligations thereunder, shall survive
confirmation of this Plan, remain unaffected thereby, and not be
discharged; except to the extent such plans, policies and programs held Old
LCE Common Stock Interests (which Interests would be canceled as set forth
in Section 6.8 of this Plan). Employee benefit plans, policies, and
programs shall include, without limitation, all savings plans, retirement
pension plans, health care plans, disability plans, severance benefit
plans, life, accidental death, and dismemberment insurance plans (to the
extent not executory contracts assumed under this Plan), but shall exclude
all employee equity, or equity-based incentive plans.

         9.9. Survival of Indemnification and Contribution Obligations.
Notwithstanding anything to the contrary contained in this Plan, the
obligations of the Debtors to indemnify and/or provide contribution to its
directors, officers, agents, employees and representatives who are serving
in such capacity on the Confirmation Date, pursuant to the Old LCE
Certificate of Incorporation, Old LCE By-Laws, applicable statutes or
contractual obligations, in respect of all past, present and future
actions, suits and proceedings against any of such directors, officers,
agents, employees and representatives, based upon any act or omission
related to service with, for or on behalf of the Debtors, shall not be
discharged or Impaired by confirmation or consummation of this Plan but
shall survive unaffected by the reorganization contemplated by this Plan.

         9.10. Substantive Consolidation. (a) This Plan contemplates and is
predicated upon entry of the Confirmation Order effecting the substantive
consolidation of the Chapter 11 Cases of the Subsidiary Debtors, and
expressly excluding the Chapter 11 Case of LCE, into a single Chapter 11
Case solely for the purposes of all actions associated with confirmation
and consummation of this Plan. On the Confirmation Date or such other date
as may be set by a Final Order of the Bankruptcy Court, but subject to the
occurrence of the Effective Date: (i) all Intercompany Claims by and among
the Subsidiary Debtors shall be eliminated and extinguished; (ii) solely
for the purposes of this Plan and the distributions and transactions
contemplated hereby, all assets and liabilities of the Subsidiary Debtors
shall be treated as though they were merged; (iii) all pre-petition
cross-corporate guarantees of the Subsidiary Debtors shall be eliminated;
(iv) any obligation of any Subsidiary Debtor and all guarantees thereof
executed by one or more of the Subsidiary Debtors shall be deemed to be one
obligation of the consolidated Subsidiary Debtors; (v) any Claims filed or
to be filed in connection with any such obligation and such guarantees
shall be deemed one Claim against the consolidated Subsidiary Debtors; (vi)
each and every Claim filed in the individual Chapter 11 Case of any of the
Subsidiary Debtors shall be deemed filed against the consolidated
Subsidiary Debtors in the consolidated Chapter 11 Case and shall be deemed
a single obligation of all of the Subsidiary Debtors under this Plan on and
after the Confirmation Date; (vii) all duplicative claims (identical in
both amount and subject matter) filed against more than one of the
Subsidiary Debtors will be automatically expunged so that only one Claim
survives against the consolidated Subsidiary Debtors but in no way shall
such claim be deemed Allowed by reason of this Section 9.10; and (viii) the
consolidated Subsidiary Debtors will be deemed, for purposes of determining
the availability of the right of set-off under section 553 of the
Bankruptcy Code, to be one entity, so that, subject to other provisions of
section 553 of the Bankruptcy Code, the debts due to a particular
Subsidiary Debtor may be offset against claims against such Subsidiary
Debtor or another Subsidiary Debtor. On the Confirmation Date, and in
accordance with the terms of this Plan and the consolidation of the assets
and liabilities of the Subsidiary Debtors, all Claims based upon guarantees
of collection, payment or performance made by the Subsidiary Debtors as to
the obligations of another Subsidiary Debtor or of any other Person shall
be discharged, released and of no further force and effect; provided,
however, that nothing herein shall affect the obligations of each of the
Subsidiary Debtors under this Plan. Notwithstanding the provisions of this
paragraph, each of the Subsidiary Debtors shall, as Reorganized Subsidiary
Debtors, continue to exist after the Effective Date as separate legal
entities.

         (b) Pursuant to Bankruptcy Rule 9019 and any applicable state law
and as consideration for the distributions and other benefits provided
under this Plan, the provisions of Section 9.10(a) shall constitute a good
faith compromise and settlement of any Causes of Action or disputes that
could be brought by a Holder of a Claim or Interest asserting that such
Claim or Interest would have received more favorable treatment had
substantive consolidation not been effected. This compromise and settlement
is in the best interests of Holders of Claims and Interests and is fair,
equitable and reasonable. This Plan shall be approved by the Bankruptcy
Court as a settlement of all such Causes of Action and disputes. Entry of
the Confirmation Order shall constitute the Bankruptcy Court's approval of
this settlement pursuant to Bankruptcy Rule 9019 and its finding that this
is a good faith settlement pursuant to any applicable state laws, given and
made after due notice and opportunity for hearing, and shall bar any such
Cause of Action by any Holder of a Claim or Interest with respect to the
matters described in this Section 9.10.

         9.11. Retention and Enforcement of Causes of Action. Pursuant to
section 1123(b)(3) of the Bankruptcy Code, the Reorganized Debtors shall
retain and shall have the exclusive right, in their discretion, to enforce
against any Entity any and all Causes of Action of the Debtors, including,
without limitation, all Causes of Action arising out of or relating to the
Combination and all Causes of Action of a trustee and debtor-in-possession
under the Bankruptcy Code, other than those released or compromised as part
of, or under, this Plan.

         9.12. Senior Executive Employment Agreements. The Senior Executive
Employment Agreements shall become effective as of the Effective Date.

         9.13. Stock Plan. On the Effective Date, Reorganized LCE shall
adopt the New LCE Stock Plan. Pursuant to the terms of the New LCE Stock
Plan, Reorganized LCE shall, on the Effective Date, issue to certain of its
employees, options to purchase, in the aggregate 10% of the issued and
outstanding shares of New Common Stock on a fully diluted basis.

         9.14. Rule 9019 Settlement and Compromise of Alleged Causes of
Action with Respect to Pre-Petition Credit Agreement Claims. The Creditors'
Committee has raised certain issues regarding the validity of the security
interests granted in connection with the Pre-Petition Credit Agreement
Claims, and allowance of the Pre-Petition Credit Agreement Claims and
potential Causes of Action against the Pre-Petition Lenders. The Investors
hold in the aggregate at least $300 million aggregate principal amount of
Pre-Petition Credit Agreement Claims. Pursuant to section 6.2(a) of this
Plan, absent the provisions of Section 6.2(b), the Investors would receive
their Pro Rata Share of the New Term Notes and the New Common Stock with
the other Holders of Pre-Petition Credit Agreement Claims less the New
Common Stock distributable to the Holders of General Unsecured Claims. The
Debtors and the Holders of Pre-Petition Credit Agreement Claims (including
the Investors) do not believe that there is merit to such issues or alleged
Causes of Action. However, the Investors, in order to attempt to facilitate
a consensual plan and to settle and compromise any and all such issues and
alleged Causes of Action, shall fund up to $45 million for the Unsecured
Settlement Distribution which will be used to provide the Holders of
General Unsecured Claims with a Cash distribution in lieu of New Common
Stock. The provisions of this Plan shall constitute a good faith compromise
and settlement of all Causes of Action or disputes that could have been
brought by any Holder of a General Unsecured Claim, the Debtors or any
other party in interest, against any Holder of a Pre-Petition Credit
Agreement Claim. In addition, this Plan shall be approved by the Bankruptcy
Court as a settlement of all causes of Action and disputes between the
Holders of General Unsecured Claims, the Debtors and Holders of
Pre-Petition Credit Agreement Claims. Pursuant to Section 6.2, as
consideration for making funding the Unsecured Settlement Distribution, and
in full settlement, release and discharge of $300 million aggregate
principal amount of the Investors Pre-Petition Credit Agreement Claims, the
Investors shall receive 100% of the New Common Stock. Entry of the
Confirmation Order shall constitute the Bankruptcy Court's approval of this
settlement pursuant to Bankruptcy Rule 9019 and its finding that this is a
good faith settlement pursuant to any applicable state laws, given and made
after due notice and opportunity for hearing, and shall bar any such Cause
of Action by any Holder of a General Unsecured Claim, the Debtors or other
party in interest against a Holder of a Pre-Petition Credit Agreement
Claim.

         9.15. Funding of the Unsecured Settlement Distribution. Upon
Confirmation of the Plan, and subject to the Effective Date, the Investors
shall pay to LCE up to $45 million, but in no event less than $25 million,
in connection with their commitment to fund the settlement described in
Section 9.14 of this Plan. In connection therewith, if the Debtors
reasonably determine that the minimum Cash available for such distribution
on the Effective Date is less than the available Cash projected to be
available under the Debtors' eight week Sources and Uses of Cash Forecast,
the Investors shall pay to LCE the amount of such shortfall; provided that
in no event shall the Investors be required to pay to LCE more than $45
million.

                                ARTICLE TEN

                     PROVISIONS COVERING DISTRIBUTIONS

         10.1. Timing of Distributions Under this Plan. Except as otherwise
provided in this Plan, without in any way limiting Sections 11.5 and 11.6
of this Plan, and subject to Section 14.2 below, payments and distributions
in respect of (a) Allowed General Unsecured Claims shall be made by the
Reorganized Debtors or their designee as set forth in Sections 6.5.1 and
6.5.2, as applicable, (b) all other Allowed Claims that are required by
this Plan to be made on the Effective Date shall be made by the Reorganized
Debtors or their designee on, or as soon as practicable following, the
Effective Date.

         10.2. Allocation of Consideration. The aggregate consideration to
be distributed to the Holders of Allowed Claims in each Class under this
Plan shall be treated as first satisfying an amount equal to the stated
principal amount of the Allowed Claim for such Holders and any remaining
consideration as satisfying accrued, but unpaid, interest, if any.

         10.3. Cash Payments. Cash payments made pursuant to this Plan will
be in U.S. dollars. Cash payments to foreign Creditors may be made, at the
option of Reorganized LCE, in such funds and by such means as are necessary
or customary in a particular foreign jurisdiction. Cash payments made
pursuant to this Plan in the form of checks issued by Reorganized LCE shall
be null and void if not cashed within 120 days of the date of the issuance
thereof. Requests for reissuance of any check shall be made directly to
Reorganized LCE or its designee as set forth in Section 10.10 below.

         10.4. Payment of Statutory Fees. All fees payable pursuant to 28
U.S.C.ss.1930 as determined by the Bankruptcy Court at the Confirmation
Hearing shall be paid by the Debtors on or before the Effective Date.

         10.5. No Interest. Except with respect to Holders of Unimpaired
Claims entitled to interest under applicable non-bankruptcy law or as
provided in Sections 11.5 and 11.6 of this Plan or as otherwise expressly
provided herein, no Holder of an Allowed Claim or Interest shall receive
interest on the distribution to which such Holder is entitled hereunder,
regardless of whether such distribution is made on the Effective Date or
thereafter.

         10.6. Fractional Securities. Notwithstanding any other provision
of this Plan, only whole numbers of shares of New Common Stock will be
issued or transferred, as the case may be, pursuant to this Plan.
Reorganized LCE will not distribute any fractional shares of New Common
Stock exercisable into fractional shares of New Common Stock under this
Plan. For purposes of distribution, fractional shares of New Common Stock
exercisable into fractional shares of New Common Stock shall be rounded
down to the nearest share of New Common Stock.

         10.7. Withholding of Taxes. Reorganized LCE shall withhold from
any property distributed under this Plan any property which must be
withheld for taxes payable by the Entity entitled to such property to the
extent required by applicable law. As a condition to making any
distribution under this Plan, Reorganized LCE or its designee, as the case
may be, may request that the Holder of any Allowed Claim provide such
Holder's taxpayer identification number and such other certification as may
be deemed necessary to comply with applicable tax reporting and withholding
laws.

         10.8. Persons Deemed Holders of Registered Securities. Except as
otherwise provided herein, and subject to Sections 9.6 and 10.9, the
Debtors, Reorganized LCE or its designee, shall be entitled to treat the
record holder of a registered security on the applicable Distribution
Record Date as the Holder of the Claim in respect thereof for purposes of
all notices, payments or other distributions under this Plan unless the
Debtors, Reorganized LCE or its designee, as the case may be, shall have
received written notice specifying the name and address of any new Holder
thereof (and the nature and amount of the interest of such new Holder) at
least ten (10) Business Days prior to the date of such notice, payment or
other distribution in which case the Debtors, Reorganized LCE or its
designee shall be permitted, without further inquiry, to make such
distribution to such Holder. In the event of any dispute regarding the
identity of any party entitled to any payment or distribution in respect of
any Claim under this Plan, no payments or distributions will be made in
respect of such Claim until the Bankruptcy Court resolves that dispute
pursuant to a Final Order.

         10.9. Surrender of Existing Securities. As a condition to
receiving any distribution under this Plan, each Holder of a Pre-Petition
Note, or other instrument evidencing a Claim must surrender such
Pre-Petition Note, or other Instrument to Reorganized LCE or the Indenture
Trustee, as appropriate. Any Holder of a Claim that fails to (a) surrender
such Instrument or (b) execute and deliver an affidavit of loss and/or
indemnity reasonably satisfactory to Reorganized LCE before the later to
occur of (i) the second anniversary of the Effective Date and (ii) six
months following the date such Holder's Claim becomes an Allowed Claim,
shall be deemed to have forfeited all rights, Claims, and/or Interests and
may not participate in any distribution under this Plan. Upon compliance
with this Section 10.9, the Holder of a Claim or Interest evidenced by any
such lost, stolen, mutilated or destroyed Instrument will, for all purposes
under this Plan, be deemed to have surrendered such Instrument.

         10.10. Undeliverable or Unclaimed Distributions.

         (a) Any Entity that is entitled to receive a Cash distribution
under this Plan but that fails to cash a check within 120 days of its
issuance shall be entitled to receive a reissued check from the Reorganized
Debtors for the amount of the original check, without any interest, if such
Entity requests in writing the Reorganized Debtors or their designee to
reissue such check and provides the Reorganized Debtors or their designee,
as the case may be, with such documentation as the Reorganized Debtors or
its designee requests to verify in their reasonable discretion that such
Entity is entitled to such check, prior to the second anniversary of the
Effective Date. If an Entity fails to cash a check within 120 days of its
issuance and fails to request reissuance of such check prior to the later
to occur of (i) the second anniversary of the Effective Date and (ii) six
months following the date such Holder's Claim becomes an Allowed Claim,
such Entity shall not be entitled to receive any distribution under this
Plan. If the distribution to any Holder of an Allowed Claim is returned to
the Reorganized Debtors or their designee as undeliverable, no further
distributions will be made to such Holder unless and until the Reorganized
Debtors or their designee is notified in writing of such Holder's
then-current address. Undeliverable distributions will remain in the
possession of the Reorganized Debtors or their designee pursuant to Section
9.1 of this Plan until such time as a distribution becomes deliverable.

         (b) All claims for undeliverable distributions must be made on or
before the later to occur of (i) the second anniversary of the Effective
Date and (ii) six months following the date such Holder's Claim becomes an
Allowed Claim. After such date, all unclaimed property shall revert to the
Reorganized Debtors and the claim of any Holder or successor to such Holder
with respect to such property shall be discharged and forever barred
notwithstanding any federal or state escheat laws to the contrary.

         10.11. Distributions on Account of Pre-Petition Notes. All
distributions, if any, on account of Pre-Petition Note Claims shall be made
to HSBC Bank, as Indenture Trustee, which shall serve as Reorganized LCE's
designee for purposes of making distributions under the Plan to Holders of
Pre-Petition Note Claims.

                              ARTICLE ELEVEN

                  PROCEDURES FOR RESOLVING DISPUTED CLAIMS

         11.1. Objections to Claims. Except with respect to the disputes
between the Holder of LCE General Unsecured Claims and Subsidiary Unsecured
Claims which are to be resolved by entry of the Class 5B Final Order and in
accordance with the procedures set forth in Section 11.7 below, only the
Debtors and the Reorganized Debtors, jointly with the Creditors' Committee
Designee, shall have the authority to file, settle, compromise, withdraw or
litigate to judgment objections to Claims after the Effective Date. Subject
to an order of the Bankruptcy Court providing otherwise, the Reorganized
Debtors, jointly with the Creditors' Committee Designee, may object to a
Claim by filing an objection with the Bankruptcy Court and serving such
objection upon the Holder of such Claim not later than one hundred and
twenty (120) days after the Effective Date or one hundred and twenty (120)
days after the filing of the proof of such Claim, whichever is later, or
such other date determined by the Bankruptcy Court upon motion to the
Bankruptcy Court, which motion may be made without further notice or
hearing.

         11.2. Procedure. Unless otherwise ordered by the Bankruptcy Court
or agreed to by written stipulation of the Debtors or the Reorganized
Debtors, jointly with the Creditors' Committee Designee, or until an
objection thereto by the Debtors or by Reorganized Debtors, jointly with
the Creditors' Committee Designee, is withdrawn, the Debtors or the
Reorganized Debtors, jointly with the Creditors' Committee Designee, shall
litigate the merits of each Disputed Claim until determined by a Final
Order; provided, however, that, (a) prior to the Effective Date, the
Debtors, jointly with the Creditors' Committee Designee, and subject to the
approval of the Bankruptcy Court, and (b) after the Effective Date, the
Reorganized Debtors, jointly with the Creditors' Committee Designee,
subject to the approval of the Bankruptcy Court, may compromise and settle
any objection to any Claim. The Reorganized Debtors shall retain outside
legal counsel that is mutually satisfactory to the Reorganized Debtors and
the Creditors' Committee Designee to advise the Reorganized Debtors and the
Creditors' Committee Designee in connection with the resolution,
administration and prosecution of all matters with respect to Disputed
Claims.

         11.3. Payments and Distributions With Respect to Disputed Claims.
No payments or distributions shall be made in respect of any Disputed Claim
until such Disputed Claim becomes an Allowed Claim.

         11.4. Claims Reserve.

         (a) Estimation. For purposes of effectuating the reserve
provisions of this Plan and the allocations and distributions to Holders of
Allowed General Unsecured Claims, the Bankruptcy Court will, on or prior to
the four-month anniversary of the Effective Date, pursuant to section 502
of the Bankruptcy Code, fix or liquidate the amount of any contingent or
unliquidated General Unsecured Claim, in which event the amount so fixed
will be deemed the Allowed amount of such Claim for purposes of this Plan
or, in lieu thereof, the Bankruptcy Court will determine the maximum
contingent or unliquidated amount for such Claim, which amount will be the
maximum amount in which such Claim ultimately may be Allowed under this
Plan, if such Claim is Allowed in whole or part.

         (b) Creation of Class 5 Reserve. Upon confirmation of the Plan,
and subject to the Effective Date, LCE shall deposit the Unsecured
Settlement Distribution in the Class 5 Claims Reserve. The Class 5 Claims
Reserve and all amounts therein (including any interest earned thereon)
shall be maintained by the Reorganized Debtors and the Creditors' Committee
Designee in conformity with the guidelines provided in Section 345 of the
Bankruptcy Code for distribution in accordance with Sections 6.5.1 and
6.5.2 hereof to Holders of Allowed General Unsecured Claims. Any and all
withdrawals from the Class 5 Claims Reserve shall require the duly
authorized signature of each representative of the Reorganized Debtors and
the Creditors' Committee Designee.

         11.5. Distributions After Allowance of Disputed General Unsecured
Claims. Distributions to each Holder of a Disputed General Unsecured Claim,
to the extent that such General Unsecured Claim ultimately becomes an
Allowed General Unsecured Claim, will be made in accordance with the
provisions of this Plan, including the provision governing the applicable
Class of General Unsecured Claims. From and after the four-month
anniversary of the Effective Date (and in the case of LCE General Unsecured
Claims, subject to the entry of the Class 5B Final Order), as soon as
practicable after the date that the order or judgment of the Bankruptcy
Court allowing any Disputed General Unsecured Claim becomes a Final Order,
the Reorganized Debtors jointly with the Creditors' Committee Designee will
distribute to the Holder of such Allowed General Unsecured Claim its pro
rata share of the Unsecured Settlement Distribution that would have been
distributed to such Holder if the General Unsecured Claim had been an
Allowed General Unsecured Claim on the Effective Date. All amounts earned
in respect of the Unsecured Settlement Distribution (including all
interest) shall be for the benefit of the Holders of Allowed General
Unsecured Claims. All distributions shall include the Holders' pro rata
share of the post- Effective Date interest based on the ratio of such
Holder's Allowed General Unsecured Claim to the Maximum Allowable Amount of
all General Unsecured Claims.

         11.6. Distributions After Disallowance of Disputed General
Unsecured Claims. To the extent that, after the four-month anniversary of
the Effective Date, a Disputed General Unsecured Claim against any of the
Debtors is disallowed and expunged, in whole or part, then the Holders of
Allowed General Unsecured Claims will receive an additional distribution of
their respective pro rata share of the Unsecured Settlement Distribution,
reserved in the Class 5 Claims Reserve, on account of such disallowed
General Unsecured Claim based on the ratio of such Holders' Allowed General
Unsecured Claim to the Maximum Allowable Amount of all General Unsecured
Claims, and any post Effective Date interest that has accrued on each such
distribution with respect to the Unsecured Settlement Distribution reserved
in the Class 5 Claims Reserve. Any additional distribution from the Class 5
Claims Reserve will be made six (6) months after the Effective Date and, if
necessary, every six (6) months thereafter (provided that there is a
minimum amount remaining, with such amount to be determined prior to the
hearing on the adequacy of the Disclosure Statement, to distribute, except
for a final distribution after all Disputed General Unsecured Claims are
either Allowed or expunged) until all Disputed General Unsecured Claims
have been Allowed or expunged, in whole or part, and no additional
distribution will be made prior thereto.

         11.7. Procedure for Resolution of Intercreditor Disputes. Prior to
the Effective Date, (a) the Creditors' Committee shall appoint the Class 5A
Designee and (b) the Indenture Trustee shall appoint the Class 5B Designee.
The Class 5A Designee and the Class 5B Designee shall have the exclusive
right to litigate and/or settle and compromise the intercreditor disputes
described in Section 6.5.2; provided, however, that any party in interest
shall have the right to be heard in connection with any proceedings with
respect to such disputes.

         11.8. Effect of Distributions in the CCAA Cases. Notwithstanding
any other provision of this Plan, if any Holder receives any payment or
transfer of property in the CCAA Cases on account of an Allowed Claim or a
debt upon which an Allowed Claim is based, such Holder shall not receive
any payments or distribution under this Plan.

         11.9. Setoffs. Except with respect to Causes of Action of any
nature released pursuant to the Plan or Confirmation Order, the Debtors,
the Reorganized Debtors or their designee as instructed by them may,
pursuant to section 553 of the Bankruptcy Code or applicable non-bankruptcy
law, set off against any Allowed Claim, and the distributions to be made
pursuant to the Plan on account of such Claim, the Causes of Action of any
nature that the applicable Debtor or Reorganized Debtor or its successor
may hold against the Holder of such Allowed Claim; provided that neither
the failure to effect a setoff nor the allowance of any Claim hereunder
will constitute a waiver or release by the applicable Debtor or Reorganized
Debtor or its successor of any Causes of Action that the Debtor or the
Reorganized Debtor or its successor may possess against such Holder.

                              ARTICLE TWELVE

         DISCHARGE, INJUNCTION, RELEASES AND SETTLEMENTS OF CLAIMS

         12.1. Discharge of All Claims and Interests and Releases.

         (a) Except as otherwise specifically provided by this Plan, the
confirmation of this Plan (subject to the occurrence of the Effective Date)
shall discharge and release the Debtors, the Reorganized Debtors, their
successors and assigns and their respective assets and properties from any
debt, charge, Cause of Action, liability, encumbrance, security interest,
Claim, Interest, or other cause of action of any kind, nature or
description (including, but not limited to, any claim of successor
liability) that arose before the Confirmation Date, and any debt of the
kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code,
whether or not a Proof of Claim or Interest is or could have been filed or
is deemed filed, whether or not such Claim or Interest is or could have
been Allowed, and whether or not the Holder of such Claim or Interest voted
or could have voted to accept or reject this Plan.

         (b) Except as otherwise specifically provided by this Plan or the
Confirmation Order, the confirmation of this Plan (subject to the
occurrence of the Effective Date) shall act as a discharge and release of
all Causes of Action (including without limitation, Causes of Action of a
Trustee and debtor-in-possession under the Bankruptcy Code) of the Debtors
and Reorganized Debtors, whether known or unknown, against their directors
and officers.

         12.2. Injunction. The satisfaction, release and discharge pursuant
to Sections 12.1, 12.3 and 12.4 of this Plan, shall act as an injunction
against any Entity commencing or continuing any action, employment of
process, or act to collect, offset or recover any Claim or Cause of Action
satisfied, released or discharged under this Plan. The injunction,
discharge and releases described in Sections 12.1, 12.2, 12.3 and 12.4 of
this Plan shall apply regardless of whether or not a proof of Claim or
Interest based on any Claim, debt, liability or Interest is filed or
whether or not a Claim or Interest based on such Claim, debt, liability or
Interest is Allowed, or whether or not such Entity voted to accept or
reject this Plan. Without in any way limiting the foregoing, all
injunctions or stays entered in these Chapter 11 Cases and existing
immediately prior to the Confirmation Date shall remain in full force and
effect until the Effective Date.

         12.3. Exculpation. In consideration of the distributions under
this Plan, upon the Effective Date, each Holder of a Claim or Interest will
be deemed to have released the Debtors, the Creditors Committee, the
members of the Creditors Committee in their capacity as such, and each of
the foregoing parties' directors, officers, agents, attorneys, independent
accountants, advisors, financial advisors, investment bankers and employees
(as applicable) employed by the Debtors from and after the Filing Date from
any and all Causes of Action (other than the right to enforce the Debtors'
obligations under this Plan and the right to pursue a claim based on any
willful misconduct) arising out of actions or omissions during the
administration of the Debtors' estates.

         12.4. Guaranties and Claims of Subordination.

         (a) Guaranties. The classification and the manner of satisfying
all Claims under this Plan takes into consideration the possible existence
of any alleged guaranties by the Debtors of obligations of any Entity or
Entities, and that the each Debtor may be a joint obligor with another
Entity or Entities with respect to the same obligation. All Claims against
the Debtors based upon any such guaranties shall be satisfied, discharged
and released in the manner provided in this Plan and the Holders of Claims
shall be entitled to only one distribution with respect to any given
obligation of the Debtors.

         (b) Claims of Subordination. (i) Except as expressly provided for
in this Plan (including specifically Section 12.4(b)(iii) below), all
Claims against and Interests in the Debtors, and all rights and Claims
between or among Holders of Claims and Interests relating in any manner
whatsoever to Claims against or Interests in the Debtors, based on any
contractual, legal or equitable subordination rights, shall be terminated
on the Effective Date and discharged in the manner provided in this Plan,
and all such Claims, Interests and rights so based and all such
contractual, legal and equitable subordination rights to which any Entity
may be entitled shall be irrevocably waived by the acceptance by such
Entity (or, unless the Class of which such Entity is a member) of this Plan
or of any distribution pursuant to this Plan. Except as otherwise provided
in this Plan and to the fullest extent permitted by applicable law, the
rights afforded and the distributions that are made pursuant to this Plan
in respect of any Claims or Interests shall not be subject to levy,
garnishment, attachment or like legal process by any Holder of a Claim or
Interest by reason of any contractual, legal or equitable subordination
rights, so that, notwithstanding any such contractual, legal or equitable
subordination, each Holder of a Claim or Interest shall have and receive
the benefit of the rights and distributions set forth in this Plan.

                   (ii) Pursuant to Bankruptcy Rule 9019 and any applicable
state law and as consideration for the distributions and other benefits
provided under this Plan, the provisions of this Section 12.4(b) shall
constitute a good faith compromise and settlement of any Causes of Action
relating to the matters described in this Section 12.4(b) which could be
brought by any Holder of a Claim or Interest against or involving another
Holder of a Claim or Interest, which compromise and settlement is in the
best interests of Holders of Claims and Interests and is fair, equitable
and reasonable. This settlement shall be approved by the Bankruptcy Court
as a settlement of all such Causes of Action. Entry of the Confirmation
Order shall constitute the Bankruptcy Court's approval of this settlement
pursuant to Bankruptcy Rule 9019 and its finding that this is a good faith
settlement pursuant to any applicable state laws, given and made after due
notice and opportunity for hearing, and shall bar any such Cause of Action
by any Holder of a Claim or Interest against or involving another Holder of
a Claim or Interest.

                   (iii) Notwithstanding anything herein to the contrary,
(a) Sections 12.4(b)(i) and (ii) do not apply to Claims or rights between
or among Holders of LCE General Unsecured Claims, on the one hand, and
Subsidiary General Unsecured Claims, on the other hand, and (b) nothing in
this Plan shall affect, prejudice or terminate claims of equitable, legal
or contractual subordination, if any, between the Holders of LCE General
Unsecured Claims, on the one hand, and the Holders of Subsidiary General
Unsecured Claims, on the other hand. Such matters will be resolved after
the Confirmation Date by entry of the Class 5B Final Order.

                             ARTICLE THIRTEEN

                          CONDITIONS PRECEDENT TO
                   CONFIRMATION ORDER AND EFFECTIVE DATE

         13.1. Conditions Precedent to Entry of the Confirmation Order. The
following conditions must occur and be satisfied or waived in accordance
with Section 13.3 of this Plan on or before the Confirmation Date for this
Plan to be confirmed on the Confirmation Date.

         (a) The Confirmation Order is in form and substance reasonably
acceptable to the Debtors.

         13.2. Conditions Precedent to the Effective Date. The following
conditions must occur and be satisfied or waived by the Debtors on or
before the Effective Date for this Plan to become effective on the
Effective Date.

         (a) Final Order. The Confirmation Order shall have become a Final
Order.

         (b) Working Capital Facility. The Debtors must have received a
firm commitment for the New Working Capital Credit Agreement.

         (c) Funding by Investors in accordance with Section 9.15 and
creation of Class 5 Claims Reserve. LCE must have (i) received up to $45
million, but in no event less than $25 million, from the Investors in
accordance with Section 9.15 of this Plan, and (ii) deposited the Unsecured
Settlement Distribution in the Class 5 Claims Reserve.

         (d) Authorizations, Consents and Approvals. All authorizations,
consents and regulatory approvals required to be obtained by the Debtors,
if any, in connection with this Plan's effectiveness shall have been
obtained.

         (e) Canadian Plan. The Canadian Plan, in form and substance
satisfactory to the Debtors, shall either have become effective or shall
become effective substantially contemporaneous herewith in the CCAA Cases.

         (f) Retention of Equity. LCE shall have retained 100% of the
equity of Cineplex Odeon.

         (g) Repayment of Canadian DIP. All amounts owing to LCE under the
Canadian DIP shall have been repaid in full.

         (h) Investor Pre-Petition Credit Agreement Claims. The Investor
Pre-Petition Credit Agreement Claims are not less than $300 million in
aggregate principal amount.

         13.3. Waiver of Conditions. The Debtors may waive one or more of
the conditions precedent to the confirmation or effectiveness of this Plan
set forth in Sections 13.1 and 13.2 of this Plan; provided, however, the
condition precedent set forth in Section 13.2(c) may not be waived.

         13.4. Effect of Failure of Conditions. If all the conditions to
effectiveness and the occurrence of the Effective Date have not been
satisfied or duly waived on or before the first Business Day that is more
than 179 days after the date the Court enters an order confirming this
Plan, or by such later date as is proposed and approved, after notice and a
hearing, by the Bankruptcy Court, then upon motion by the Debtors made
before the time that all of the conditions have been satisfied or duly
waived, the Confirmation Order shall be vacated by the Bankruptcy Court;
provided, however, that notwithstanding the filing of such a motion, the
order confirming this Plan shall not be vacated if all of the conditions to
consummation set forth in Section 13.2 are either satisfied or duly waived
before the Bankruptcy Court enters an order granting the relief requested
in such motion. If the Confirmation Order is vacated pursuant to this
Section 13.4, this Plan shall be null and void in all respects, and nothing
contained in this Plan shall (a) constitute a waiver or release of any
claims against or equity interests in the Debtors or (b) prejudice in any
manner the rights of the Holder of any claim or equity interest in the
Debtors.

                              ARTICLE FOURTEEN

                          MISCELLANEOUS PROVISIONS

         14.1. Bankruptcy Court to Retain Jurisdiction. The business and
assets of the Debtors shall remain subject to the jurisdiction of the
Bankruptcy Court until the Effective Date. From and after the Effective
Date, the Bankruptcy Court shall retain and have exclusive jurisdiction of
all matters arising out of, and related to the Chapter 11 Case or this Plan
pursuant to, and for purposes of, subsection 105(a) and section 1142 of the
Bankruptcy Code and for, among other things, the following purposes: (a) to
determine any and all disputes relating to Claims and Interests and the
allowance and amount thereof; (b) to determine any and all disputes among
creditors with respect to their Claims (including, without limitation, the
disputes between the Holders of the LCE General Unsecured Claims and
Subsidiary General Unsecured Claims discussed in Section 6.5.2 of this
Plan); (c) to determine and enter the Class 5B Final Order; (d) to consider
and allow any and all applications for compensation for professional
services rendered and disbursements incurred in connection therewith; (e)
to determine any and all applications, motions, adversary proceedings and
contested or litigated matters pending on the Effective Date and arising in
or related to the Chapter 11 Cases or this Plan; (f) to remedy any defect
or omission or reconcile any inconsistency in the Confirmation Order; (g)
to enforce the provisions of this Plan relating to the distributions to be
made hereunder; (h) to issue such orders, consistent with section 1142 of
the Bankruptcy Code, as may be necessary to effectuate the consummation and
full and complete implementation of this Plan; (i) to enforce and interpret
any provisions of this Plan; (j) to determine such other matters as may be
set forth in the Confirmation Order or that may arise in connection with
the implementation of this Plan; (k) to determine the amounts allowable as
compensation or reimbursement of expenses pursuant to section 503(b) of the
Bankruptcy Code; (l) to hear and determine disputes arising in connection
with the interpretation, implementation, or enforcement of this Plan and
the Related Documents; (m) to hear and determine any issue for which this
Plan or any Related Document requires a Final Order of the Bankruptcy
Court; (n) to hear and determine matters concerning state, local, and
federal taxes in accordance with sections 346, 505, and 1146 of the
Bankruptcy Code; (o) to hear and determine any issue related to the
composition of the initial board of Reorganized LCE; (p) to hear any other
matter not inconsistent with the Bankruptcy Code; and (q) to enter a Final
Decree closing the Chapter 11 Case.

         14.2. Required Regulatory Approvals. Notwithstanding anything
herein to the contrary, if any Holder (other than a Debtor) is required to
obtain regulatory approvals to consummate the transactions contemplated
hereby and such Holder has not obtained the required regulatory approvals
prior to or on the Effective Date, such Holder's distributions in respect
of the Holder's Claim or Claims shall be withheld by the Reorganized
Debtors or their designee until the required regulatory approvals have been
obtained by such Holder.

         14.3. Binding Effect of this Plan. The provisions of this Plan
shall be binding upon and inure to the benefit of the Debtors, Reorganized
LCE, any Holder of a Claim or Interest, their respective predecessors,
successors, assigns, agents, officers, managers and directors and any other
Entity affected by this Plan.

         14.4. Nonvoting Stock. In accordance with section 1123(a)(6) of
the Bankruptcy Code, the Reorganized LCE Certificate of Incorporation shall
contain a provision prohibiting the issuance of nonvoting equity securities
by the Reorganized Debtors for a period of one year following the Effective
Date.

         14.5. Authorization of Corporate Action. The entry of the
Confirmation Order shall constitute a direction and authorization to and of
the Debtors and the Reorganized Debtors to take or cause to be taken any
action necessary or appropriate to consummate the provisions of this Plan
and the Related Documents prior to and through the Effective Date
(including, without limitation, the filing of the Reorganized LCE
Certificate of Incorporation and the execution of the New Term Loan
Agreement and the New Working Capital Credit Agreement) and all such
actions taken or caused to be taken shall be deemed to have been authorized
and approved by the Bankruptcy Code without the need for any additional
authorizations, approvals or consents.

         14.6. Retiree Benefits. On and after the Effective Date, to the
extent required by section 1129(a)(13) of the Bankruptcy Code, the
Reorganized Debtors shall continue to pay all retiree benefits, if any, as
the term "retiree benefits" is defined in section 1114(a) of the Bankruptcy
Code, maintained or established by the Debtors prior to the Confirmation
Date.

         14.7. Withdrawal of this Plan. The Debtors reserve the right, at
any time prior to the entry of the Confirmation Order, to revoke or
withdraw this Plan. If the Debtors revoke or withdraw this Plan, if the
Confirmation Date does not occur, or if the Effective Date does not occur
then (i) this Plan will be deemed null and void and (ii) this Plan shall be
of no effect and shall be deemed vacated, and the Chapter 11 Cases shall
continue as if this Plan had never been filed and, in such event, the
rights of any Holder of a Claim or Interest shall not be affected nor shall
such Holder be bound by, for purposes of illustration only, and not
limitation, (a) this Plan, (b) any statement, admission, commitment,
valuation or representation contained in this Plan, the Disclosure
Statement, or the Related Documents or (c) the classification and proposed
treatment (including any allowance) of any Claim in this Plan.

         14.8. Captions. Article and Section captions used in this Plan are
for convenience only and will not affect the construction of this Plan.

         14.9. Method of Notice. All notices required to be given under
this Plan, if any, shall be in writing and shall be sent by facsimile
transmission (with hard copy to follow), by first class mail, postage
prepaid, by hand delivery or by overnight courier to:

         If to the Debtors to:

         Loews Cineplex Entertainment Corporation
         711 Fifth Avenue
         New York, New York 10022
         Attn: Lawrence Ruisi
         Fax No.:   (212) 833-6277

         with copies to:

         Fried, Frank, Harris, Shriver & Jacobson
         (A Professional Partnership Including Professional Corporations)
         One New York Plaza
         New York, New York  10004
         Attn: Brad Eric Scheler, Esq.
         Fax No.:   (212) 859-4000

Any of the above may, from time to time, change its address for future
notices and other communications hereunder by filing a notice of the change
of address with the Bankruptcy Court. Any and all notices given under this
Plan shall be effective when received.

         14.10. Dissolution of Committees. On the Effective Date, any
committees appointed in the Chapter 11 Cases pursuant to section 1102 of
the Bankruptcy Code shall cease to exist and its members and employees or
agents (including, without limitation, attorneys, investment bankers,
financial advisors, accountants and other professionals) shall be released
and discharged from further duties, responsibilities and obligations
relating to and arising from and in connection with these Chapter 11 Cases;
provided, however, that following the Effective Date, the responsibilities
of any such committees and its members and employees or agents shall be
limited to the preparation of their respective fee applications, if any.

         14.11. Amendments and Modifications to Plan. This Plan may be
altered, amended or modified by the Debtors, before or after the
Confirmation Date, as provided in section 1127 of the Bankruptcy Code.

         14.12. Section 1125(e) of the Bankruptcy Code. (a) The Debtors
(and each of their respective Affiliates, agents, directors, officers,
employees, advisors and attorneys) have, and upon confirmation of this Plan
shall be deemed to have, solicited acceptances of this Plan in good faith
and in compliance with the applicable provisions of the Bankruptcy Code.

         (b) The Debtors and each of the members of the Creditors'
Committee (and each of their respective Affiliates, agents, directors,
officers, employees, advisors, and attorneys) have, and upon confirmation
of this Plan shall be deemed to have, participated in good faith and in
compliance with the applicable provisions of the Bankruptcy Code with
regards to the distributions of the New Term Notes and the New Common Stock
under this Plan, and therefore are not, and on account of such
distributions will not be, liable at any time for the violation of any
applicable law, rule, or regulation governing the solicitation of
acceptances or rejections of this Plan or such distributions made pursuant
to this Plan.

Dated:          New York, New York
                November 11, 2001

                                           Respectfully submitted,

                                           LOEWS CINEPLEX ENTERTAINMENT
                                           CORPORATION AND THE OTHER
                                           DEBTORS LISTED ON SCHEDULE I,

                                           Debtors and Debtors-In-Possession

                                           By: /s/ Lawrence J. Ruisi
                                           Name:  Lawrence J. Ruisi
                                           Title: President and Chief
                                                  Executive Officer

FRIED, FRANK, HARRIS, SHRIVER &
  JACOBSON
(A Partnership Including
  Professional Corporations)
Attorneys for the Debtors and
  Debtors-in-Possession
One New York Plaza
New York, New York  10004
(212) 859-8000

By: /s/ Brad Eric Scheler
       Brad Eric Scheler, Esq.

                                 SCHEDULE I

<PAGE>

                                 Schedule I
<TABLE>
<CAPTION>

   Debtor                                                                    Case No.                      Tax ID #
   ------                                                                    --------                      --------
<S>                                                                          <C>                           <C>
   Loews Cineplex Entertainment Corporation                                  01-40346                      13-3386485
   71st & 3rd Ave. Corp.                                                     01-40503                      13-1968815
   Andy Candy Co., Inc.                                                      01-40525                      31-0906205
   Beaver Valley Cinemas, Inc.                                               01-40523                      Applied For
   Berkeley Cinema Corp.                                                     01-40521                      22-1993876
   Boston Cinemas, Inc.                                                      01-40519                      13-4121842
   Brick Plaza Cinemas, Inc.                                                 01-40517                      22-1909532
   Bricktown Picture Corp.                                                   01-40529                      22-1863339
   C.O.H. Entertainment Corp.                                                01-40576                      95-4166974
   Campus Cinemas, Inc.                                                      01-40578                      31-0842072
   Castle Theatre Corp.                                                      01-40574                      22-2038656
   Cinamminson Theatre Corp.                                                 01-40537                      22-2038654
   Cine West, Inc.                                                           01-40535                      31-0740534
   Cinema 275 East, Inc.                                                     01-40533                      13-3519844
   Cinema Development Corporation                                            01-40531                      31-0855086
   Cinema Investments, Inc.                                                  01-40347                      31-0789287
   Cineplex Odeon Films International, Inc.                                  01-40348                      95-4136625
   Cineplex Odeon Films, Inc.                                                01-40349                      95-4071075
   Circle Twin Cinema Corp.                                                  01-40351                      22-2144745
   Cityplace Cinemas, Inc.                                                   01-40353                      13-3465138
   College Theatre Corp.                                                     01-40350                      22-2038630
   Colorado Cinemas, Inc.                                                    01-40355                      84-1367517
   Continent Cinemas, Inc.                                                   01-40357                      31-085677
   Crescent Advertising Corporation                                          01-40352                      16-1172849
   Crestwood Cinemas, Inc.                                                   01-40354                      22-3014768
   Crofton Quad Corporation                                                  01-40356                      22-2378993
   D. H. Garfield Advertising Agency, Inc.                                   01-40358                      34-1155563
   Del Amo Theatres, Inc.                                                    01-40360                      13-3281337
   District Amusement Corporation                                            01-40406                      13-0637135
   Downstate Theatre Corporation                                             01-40408                      06-1041659
   Downtown Boston Cinemas, LLC                                              01-40451                      13-4085511
   East Windsor Picture Corp.                                                01-40410                      22-1993874
   Eatontown Theatre Corp.                                                   01-40412                      22-2123994
   Eton Amusement Corporation                                                01-40414                      13-0686045
   Fall River Cinema, Inc.                                                   01-40416                      04-2803831
   Farmers Cinemas, Inc.                                                     01-40418                      13-3684442
   Flat Woods Theater Corporation                                            01-40420                      31-0780041
   Forty-Second Street Cinemas, Inc.                                         01-40501                      13-3179361
   Fountain Cinemas, Inc.                                                    01-40427                      13-3399128
   Freehold Cinema Center, Inc.                                              01-40415                      22-2523853
   Freehold Picture Corp.                                                    01-40417                      22-1863343
   Gateway Cinemas, LLC                                                      01-40449                      Applied For
   Gerard Theatre Corporation                                                01-40419                      13-6082821
   H&M Cinema Corporation                                                    01-40421                      52-0950465
   Hawthorne Amusement Corporation                                           01-40423                      13-0829712
   Hinsdale Amusement Corporation                                            01-40499                      13-1841984
   I-75 Theatres, Inc.                                                       01-40425                      31-0797887
   Illinois Cinemas, Inc.                                                    01-40429                      13-4043068
   Jersey Garden Cinemas, Inc.                                               01-40431                      22-2118660
   J-Town Cinemas, Inc.                                                      01-40433                      31-0901109
   Kips Bay Cinemas, Inc.                                                    01-40497                      13-3281502
   Lance Theatre Corporation                                                 01-40435                      13-0943435
   Lewisville Cinemas, LLC                                                   01-40447                      13-4088749
   Lexington Mall Cinemas Corporation                                        01-40437                      31-0884687
   Lexington North Park Cinemas, Inc.                                        01-40428                      31-0852602
   Lexington South Park Cinemas, Inc.                                        01-40426                      31-0854479
   Liberty Tree Cinema Corp.                                                 01-40424                      04-3269280
   Loews 34th St. Showplace Cinemas, Inc.                                    01-40422                      13-0594690
   Loews Akron Cinemas, Inc.                                                 01-40359                      13-3281322
   Loews Arlington Cinemas, Inc.                                             01-40361                      13-3281336
   Loews Arlington West Cinemas, Inc.                                        01-40363                      13-3166737
   Loews Astor Plaza, Inc.                                                   01-40495                      13-2780041
   Loews Baltimore Cinemas, Inc.                                             01-40365                      13-3484502
   Loews Bay Terrace Cinemas, Inc.                                           01-40367                      13-3281288
   Loews Berea Cinemas, Inc.                                                 01-40369                      13-3281329
   Loews Boulevard Cinemas, Inc.                                             01-40371                      13-0980716
   Loews Bristol Cinemas, Inc.                                               01-40373                      13-3471807
   Loews Broadway Cinemas, Inc.                                              01-40493                      06-1160202
   Loews Brookfield Cinemas, Inc.                                            01-40388                      13-3615492
   Loews Burlington Cinemas, Inc.                                            01-40394                      13-3590842
   Loews California Theatres, Inc.                                           01-40392                      13-0873262
   Loews Cedar Cinemas, Inc.                                                 01-40384                      13-3281292
   Loews Centerpark Cinemas, Inc.                                            01-40390                      13-3548688
   Loews Century Mall Cinemas, Inc.                                          01-40386                      13-3029435
   Loews Cheri Cinemas, Inc.                                                 01-40398                      22-2995955
   Loews Cherry Tree Mall Cinemas, Inc.                                      01-40396                      13-3029433
   Loews Chicago Cinemas, Inc.                                               01-40400                      13-3488800
   Loews Chisholm Place Cinemas, Inc.                                        01-40402                      13-3040367
   Loews Cinemas Advertising, Inc.                                           01-40404                      51-0382751
   Loews Cineplex International Holdings, Inc.                               01-40403                      95-4760311
   Loews Citywalk Theatre Corporation                                        01-40405                      13-3471804
   Loews Clarksville Cinemas, Inc.                                           01-40407                      13-3590839
   Loews Connecticut Cinemas, Inc.                                           01-40409                      13-3022878
   Loews Coral Spring Cinemas, Inc.                                          01-40411                      Applied For
   Loews Crystal Run Cinemas, Inc.                                           01-40413                      22-3014776
   Loews Deauville Golf Cinemas, Inc.                                        01-40561                      13-3204725
   Loews Deauville Kingwood Cinemas, Inc.                                    01-40559                      13-3242705
   Loews Deauville North Cinemas, Inc.                                       01-40557                      13-3202133
   Loews Deauville Southwest Cinemas, Inc.                                   01-40555                      13-3204724
   Loews Dewitt Cinemas, Inc.                                                01-40552                      13-3465155
   Loews East Hanover Cinemas, Inc.                                          01-40571                      13-3467668
   Loews East Village Cinemas, Inc.                                          01-40515                      13-3472867
   Loews Elmwood Cinemas, Inc.                                               01-40569                      13-2991181
   Loews Exhibition Ride Inc.                                                01-40567                      13-3684440
   Loews Fine Arts Cinemas, Inc.                                             01-40577                      13-3465159
   Loews Fort Worth Cinemas, Inc.                                            01-40575                      13-3360654
   Loews Freehold Mall Cinemas, Inc.                                         01-40573                      22-3000622
   Loews Fresh Pond Cinemas, Inc.                                            01-40581                      13-3594484
   Loews Front Street Cinemas, Inc.                                          01-40582                      13-3488795
   Loews Fuqua Park Cinemas, Inc.                                            01-40579                      13-3467663
   Loews Garden State Cinemas, LLC                                           01-40445                      Applied For
   Loews Greece Cinemas, Inc.                                                01-40580                      13-3281340
   Loews Greenwich Cinemas, Inc.                                             01-40565                      13-3590844
   Loews Greenwood Cinemas, Inc.                                             01-40563                      13-2773641
   Loews Harmon Cove Cinemas, Inc.                                           01-40553                      13-2846741
   Loews Holiday Cinemas, Inc.                                               01-40551                      13-3471810
   Loews Houston Cinemas, Inc.                                               01-40549                      13-0980750
   Loews I-45 Cinemas, Inc.                                                  01-40547                      13-3029432
   Loews Indiana Cinemas, Inc.                                               01-40543                      13-3668437
   Loews Kentucky Cinemas, Inc.                                              01-40545                      13-3668438
   Loews Lafayette Cinemas, Inc.                                             01-40541                      13-2939482
   Loews Levittown Cinemas, Inc.                                             01-40539                      13-3143446
   Loews Lincoln Plaza Cinemas, Inc.                                         01-40550                      13-3048437
   Loews Lincoln Theatre Holding Corp.                                       01-40513                      13-1684091
   Loews Louisville Cinemas, Inc.                                            01-40548                      13-3465153
   Loews Meadowland Cinemas 8, Inc.                                          01-40544                      13-3361946
   Loews Meadowland Cinemas, Inc.                                            01-40546                      13-3091215
   Loews Memorial City Cinemas, Inc.                                         01-40542                      13-3519845
   Loews Merrillville Cinemas, Inc.                                          01-40572                      22-3017546
   Loews Mohawk Mall Cinemas, Inc.                                           01-40568                      22-2929012
   Loews Monroe Cinema, Inc.                                                 01-40570                      13-3281339
   Loews Montgomery Cinemas, Inc.                                            01-40566                      22-2929019
   Loews Mountainside Cinemas, Inc.                                          01-40564                      13-3642143
   Loews New Jersey Cinemas, Inc.                                            01-40560                      13-1820779
   Loews Newark Cinemas, Inc.                                                01-40562                      13-3567035
   Loews Norgate Cinemas, Inc.                                               01-40558                      13-2891593
   Loews North Versailles Cinemas, LLC                                       01-40443                      13-4085637
   Loews Norwalk Cinemas, Inc.                                               01-40516                      13-3590840
   Loews Orland Park Cinemas, Inc.                                           01-40528                      22-3017545
   Loews Orpheum Cinemas, Inc.                                               01-40511                      13-3556932
   Loews Palisades Center Cinemas, Inc.                                      01-40526                      13-3467560
   Loews Paradise Cinemas, Inc.                                              01-40524                      06-1160206
   Loews Park Central Cinemas, Inc.                                          01-40520                      13-2863689
   Loews Pembroke Pines Cinemas, Inc.                                        01-40522                      13-3022879
   Loews Pentagon City Cinemas, Inc.                                         01-40534                      22-2929006
   Loews Piper's Theaters, Inc.                                              01-40536                      22-2974621
   Loews Pittsford Cinemas, Inc.                                             01-40538                      13-3281338
   Loews Plainville Cinemas, LLC                                             01-40441                      13-4085634
   Loews Post Cinemas, Inc.                                                  01-40540                      13-3590838
   Loews Preston Park Cinemas, Inc.                                          01-40530                      13-3073709
   Loews Richmond Mall Cinemas, Inc.                                         01-40532                      13-3188106
   Loews Ridgefield Park Cinemas, Inc.                                       01-40491                      13-3352926
   Loews Rolling Meadows Cinemas, Inc.                                       01-40477                      13-3585995
   Loews Roosevelt Field Cinemas, Inc.                                       01-40479                      13-3411450
   Loews Saks Cinemas, Inc.                                                  01-40481                      13-3281332
   Loews Showboat Cinemas, Inc.                                              01-40483                      13-3070606
   Loews South Shore Cinemas, Inc.                                           01-40487                      13-3281286
   Loews Southland Cinemas, Inc.                                             01-40485                      13-3281334
   Loews Stonybrook Cinemas, Inc.                                            01-40518                      13-3281343
   Loews Theatre Management Corp.                                            01-40512                      13-3274097
   Loews Theatres Clearing Corp.                                             01-40514                      13-3370286
   Loews Toms River Cinemas, Inc.                                            01-40510                      13-3411449
   Loews Towne Cinemas, Inc.                                                 01-40504                      13-3036479
   Loews Trylon Theatre, Inc.                                                01-40502                      13-2991180
   Loews USA Cinemas, Inc.                                                   01-40500                      13-3556697
   Loews Vestal Cinemas, Inc.                                                01-40506                      13-3281331
   Loews Washington Cinemas, Inc.                                            01-40508                      13-3467662
   Loews West Long Branch Cinemas, Inc.                                      01-40498                      13-3590512
   Loews Westerville Cinemas, Inc.                                           01-40556                      13-3281335
   Loews Westport Cinemas, Inc.                                              01-40554                      13-3590843
   Loews Williston Cinemas, Inc.                                             01-40488                      13-3590837
   Loews Worldgate Cinemas, Inc.                                             01-40486                      13-3519809
   Loews Yorktown Cinemas, Inc.                                              01-40496                      13-3281327
   Loews-Hartz Music Makers Theatres, Inc.                                   01-40494                      13-3370285
   Long Island Cinemas, Inc.                                                 01-40492                      13-4099374
   LTM New York, Inc.                                                        01-40490                      13-3406600
   LTM Turkish Holdings, Inc.                                                01-40444                      13-4104481
   Mall Picture Corp.                                                        01-40464                      22-1863347
   Massachusetts Cinema Corp.                                                01-40462                      04-3260300
   Methuen Cinemas, Inc.                                                     01-40460                      13-4094676
   Methuen Cinemas, LLC                                                      01-40463                      13-4089322
   Mickey Amusements, Inc.                                                   01-40458                      31-0713242
   Midcin, Inc.                                                              01-40456                      31-1050013
   Middlebrook Theatre Corporation                                           01-40470                      22-2229126
   Midstate Theatre Corp.                                                    01-40472                      06-1048334
   Mid-States Theatres, Inc.                                                 01-40468                      31-0851111
   Midtown Cinema, Inc.                                                      01-40466                      31-0788457
   Minnesota Cinemas, Inc.                                                   01-40439                      41-0907845
   Montclair Cinemas, Inc.                                                   01-40461                      31-0855953
   Moviehouse Cinemas, Inc.                                                  01-40489                      06-1090493
   Music Makers Theatres, Inc.                                               01-40475                      22-1863281
   New Brunswick Cinemas, Inc.                                               01-40465                      22-2117486
   Nickelodeon Boston, Inc.                                                  01-40473                      04-2647784
   North Star Cinemas, Inc.                                                  01-40471                      13-4094675
   North Versailles Cinemas, Inc.                                            01-40469                      22-2929015
   Northern New England Theatres, Inc.                                       01-40467                      04-2951097
   Nutmeg Theatre Circuit, Inc.                                              01-40484                      22-1706691
   Ohio Cinemas, LLC                                                         01-40459                      13-4089320
   Oxmoor Cinemas, Inc.                                                      01-40482                      31-0818671
   Paramay Picture Corp.                                                     01-40480                      22-1863351
   Parkchester Amusement Corporation                                         01-40509                      13-1150623
   Parsippany Theatre Corp.                                                  01-40478                      13-6169369
   Plainville Cinemas, Inc.                                                  01-40476                      13-3519808
   Plaza Cinemas, Inc.                                                       01-40474                      31-0808754
   Plitt Southern Theatres, Inc.                                             01-40362                      95-3273303
   Plitt Theatres, Inc.                                                      01-40364                      36-2794628
   Poli-New England Theatres, Inc.                                           01-40368                      13-1175325
   Putnam Theatrical Corporation                                             01-40370                      13-1189932
   Quad Cinema Corp.                                                         01-40372                      22-2065970
   Raceland Cinemas, Inc.                                                    01-40366                      31-0901108
   Red Bank Theatre Corporation                                              01-40374                      22-2229129
   Richmond Mall Cinemas, LLC                                                01-40457                      13-4085599
   RKO Century Warner Theatres, Inc.                                         01-40376                      11-2562412
   Rochester Hills Star Theatres, Inc.                                       01-40378                      13-3481309
   Rosemont Cinemas, Inc.                                                    01-40380                      13-4043071
   S & J Theatres, Inc.                                                      01-40382                      95-4464380
   Sack Theatres, Inc.                                                       01-40375                      04-2897798
   Salem Mall Theatre, Inc.                                                  01-40377                      31-0721162
   Seattle Cinemas, Inc.                                                     01-40379                      13-4100667
   Sedgwick Music Company                                                    01-40381                      Applied For
   Skokie Cinemas, Inc.                                                      01-40383                      Applied For
   South Holland Cinemas, Inc.                                               01-40385                      13-4121863
   Springfield Cinemas, Inc.                                                 01-40387                      Applied For
   Springfield Cinemas, LLC                                                  01-40455                      13-4089319
   Star Theatres of Michigan, Inc.                                           01-40389                      13-3481311
   Star Theatres, Inc.                                                       01-40391                      13-3627222
   Stroud Mall Cinemas, Inc.                                                 01-40393                      22-2217247
   Sycamore Theatre, Inc.                                                    01-40395                      31-0728515
   Talent Booking Agency, Inc.                                               01-40507                      13-6155797
   Taylor Star Theatres, Inc.                                                01-40397                      13-3481308
   The Walter Reade Organization, Inc.                                       01-40505                      21-0734851
   Theatre Holdings, Inc.                                                    01-40399                      04-2930979
   Thirty-Fourth Street Cinemas, Inc.                                        01-40527                      13-3036478
   Times Theatres Corporation                                                01-40401                      31-0742026
   Towne Center Cinemas, Inc.                                                01-40430                      31-0866501
   Triangle Theatre Corp.                                                    01-40432                      22-2038655
   Tri-County Cinemas, Inc.                                                  01-40434                      31-0850814
   Tri-Son Supply Corp.                                                      01-40436                      13-3465186
   U.S.A. Cinemas, Inc.                                                      01-40438                      04-2901102
   Village Cinemas, Inc.                                                     01-40440                      13-3087160
   Waterfront Cinemas, LLC                                                   01-40453                      13-4157670
   Webster Chicago Cinemas, Inc.                                             01-40442                      36-4081404
   Westchester Cinemas, Inc.                                                 01-40446                      13-3352921
   Westland Cinemas, Inc.                                                    01-40448                      31-0901110
   White Marsh Cinemas, Inc.                                                 01-40450                      13-3604226
   Woodfield Cinemas, Inc.                                                   01-40452                      13-4043072
   Woodridge Cinemas, Inc.                                                   01-40454                      22-3014787
</TABLE>

                                SCHEDULE II

<PAGE>

                                SCHEDULE II

                     Canadian Debtors in the CCAA Cases

    1.       Cineplex Odeon Corporation

    2.       Cineplex Odeon (Quebec) Inc.

    3.       619918 Ontario Inc.

    4.       795278 Ontario Limited

    5.       796279 Ontario Limited

    6.       The Film House Group Inc.

<PAGE>

                                 EXHIBIT A

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                                 EXHIBIT B

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                                 EXHIBIT C

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                                 EXHIBIT D

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                                 EXHIBIT E

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                                 EXHIBIT F

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                                 EXHIBIT G

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                                 EXHIBIT H

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                                 EXHIBIT I

                  TO BE FILED BY THE DEBTORS PRIOR TO THE
                       HEARING ON THE ADEQUACY OF THE
                            DISCLOSURE STATEMENT

<PAGE>

                     SECURITIES AND EXCHANGE COMMISSION
                           Washington D.C. 20549

                                 FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended                       Commission file number
February 28, 2001                               001-14099

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
               DEBTORS-IN-POSSESSION AS OF FEBRUARY 15, 2001
           (Exact name of Registrant as specified in its charter)

              DELAWARE                             13-3386485
   (State or other jurisdiction        (I.R.S. Employer Identification No.)
  of incorporation or organization)

711 FIFTH AVENUE, NEW YORK, NEW YORK                 10022
(Address of principal executive offices)           (Zip Code)

                               (212) 833-6200
            (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01 per share

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 the 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 of the Registrant was $2,257,584 as of May 22, 2001.

The number of shares of common stock, $.01 par value per share, outstanding
on May 22, 2001 was 58,538,646. The number of shares of Class B non-voting
common stock, $.01 par value per share, outstanding on May 22, 2001 was
84,000 shares.

<PAGE>

<TABLE>
<CAPTION>

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
               DEBTORS-IN-POSSESSION AS OF FEBRUARY 15, 2001
                          FORM 10-K ANNUAL REPORT
                             TABLE OF CONTENTS

PART I

       <S>                                                                                                               <C>
       ITEM 1.    BUSINESS................................................................................................4

       Current Exhibition Industry Environment............................................................................5
       Bankruptcy Proceedings.............................................................................................6
       Fiscal 2001 Overview...............................................................................................7
       Portfolio Management...............................................................................................8
       Theatre Operations.................................................................................................8
       Competition........................................................................................................9
       Segment Information...............................................................................................10
       Seasonality.......................................................................................................10
       Government Regulation.............................................................................................10
       Employees.........................................................................................................11
       Cautionary Notice Regarding Forward Looking Statements............................................................11
       Factors That May Affect Future Performance........................................................................11

       ITEM 2.    PROPERTIES.............................................................................................12

       ITEM 3.    LEGAL PROCEEDINGS......................................................................................12

       Antitrust Proceedings.............................................................................................13
       Environmental Proceedings.........................................................................................13
       Six West Retail Acquisition, Inc..................................................................................14
       ADA Litigation....................................................................................................14
       Metreon Arbitration...............................................................................................14
       Competition Bureau Proceedings....................................................................................14

       ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................................15

PART II

       ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS....................................................................................15

       ITEM 6.    SELECTED HISTORICAL FINANCIAL DATA.....................................................................16

       ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                  RESULTS OF OPERATIONS..................................................................................18

       ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..............................................27

       ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................................27

       ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                  FINANCIAL DISCLOSURE...................................................................................27

</TABLE>

<PAGE>

<TABLE>
<CAPTION>
PART III

       <S>                                                                                                               <C>
       ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................................................28

       ITEM 11.   EXECUTIVE COMPENSATION.................................................................................32

       ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........................................35

       ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................................................43

PART IV

       ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........................................44

SIGNATURES...............................................................................................................45

</TABLE>

<PAGE>

                                   PART I

ITEM 1.  BUSINESS

     Loews Cineplex Entertainment Corporation ("Loews Cineplex", "we", "us"
or "our") is one of the world's  largest  theatre  exhibition  companies in
terms of revenues and operating cash flow.

     As a result of, among other things,  the factors  described  below, on
February  15,  2001,  Loews  Cineplex  and  all of its  wholly  owned  U.S.
subsidiaries  filed  voluntary  petitions to  reorganize  under  Chapter 11
("Chapter 11") of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for
the Southern District of New York (the "Bankruptcy  Court").  In Canada, an
order (the "Initial  Order") to initiate a restructuring of obligations and
operations  under the  Companies'  Creditors  Arrangement  Act ("CCAA") was
obtained on February  15, 2001 from the Ontario  Superior  Court of Justice
(the  "Superior  Court") for our wholly owned  subsidiary,  Cineplex  Odeon
Corporation   ("Cineplex   Odeon")  and  certain  of  its  other   Canadian
subsidiaries.  Additionally,  on February 26, 2001, Loews Cineplex's wholly
owned Austrian subsidiary,  LCE Europlex  KinobetriebsgmbH ("LCE Europlex")
filed a petition for bankruptcy in Vienna,  Austria, and on March 16, 2001,
we filed a  petition  for  bankruptcy  in  Warsaw,  Poland on behalf of our
wholly owned Polish subsidiary.  We are presently  operating our businesses
as  debtors-in-possession  in the U.S. and pursuant to the Initial Order in
Canada (hereinafter  referred to as "Debtors" with respect to both our U.S.
and Canadian operations).  We are authorized to operate our business in the
ordinary course. See the "Bankruptcy Proceedings" section below for further
information.

     Effective  February 15, 2001,  we were  delisted by the New York Stock
Exchange ("NYSE") and therefore, our stock is no longer traded on the NYSE.
Our stock continues to be listed on The Toronto Stock Exchange.

     Loews  Cineplex  was formed by the  combination,  completed on May 14,
1998,  of  the  Loews  Theatres   exhibition   business  of  Sony  Pictures
Entertainment  Inc. ("SPE"),  a wholly owned subsidiary of Sony Corporation
of America  ("SCA"),  and Cineplex  Odeon,  another  major  motion  picture
exhibitor  with  operations  predominantly  in the  U.S.  and  Canada  (the
"Combination").  Loews  Cineplex was the first  commercial  motion  picture
exhibitor  in the U.S.,  perhaps the world,  with  operations  beginning in
1904,  when  Marcus  Loew set up a  "nickelodeon"  in a rented room above a
penny arcade store in  Cincinnati,  Ohio.  Our theatre  circuits have grown
over the years through  internal  development and  acquisitions.  Today, we
operate  theatres under the Loews  Theatres and Cineplex  Odeon names.  Our
partnerships  and joint ventures  operate  theatres  under the Star,  Magic
Johnson, Yelmo Cineplex and Megabox names.

     As of  February  28,  2001,  we owned,  operated or had an interest in
2,563 screens at 294 locations.  Of these, 2,375 screens were located in 20
U.S.  states,  the  District of Columbia and six  Canadian  provinces.  See
"Portfolio  Management" section below for further  discussion.  Our screens
represent  approximately  6.4% of all exhibition  screens in North America.
Our screens are mainly concentrated in densely populated urban and suburban
areas,  with a strong presence in metropolitan New York,  Boston,  Chicago,
Baltimore,  Dallas,  Houston,  Detroit, Los Angeles,  Seattle,  Washington,
D.C.,  Toronto,  Montreal  and  Vancouver.  Approximately  77% of our  U.S.
theatres are located in the 10 largest areas of dominant influence (ADI) in
the U.S.,  and 76% of our Canadian  theatres are located in the top 10 ADIs
in Canada. ADIs are television markets, defined by A.C. Nielsen Company/EDI
- an  international  media  research  firm,  that are used as benchmarks by
certain   entertainment    marketers.   ADI   markets   generally   contain
concentrations of substantial populations. The exhibition industry uses ADI
as  an  important  media  measure  since  there  is a  correlation  between
television and movie viewing audiences.

     Loews  Cineplex  holds  a 50%  partnership  interest  in  each of Star
Theatres  and Magic  Johnson  Theatres.  As of  February  28,  2001,  these
partnerships  held  interests in and operated 15 locations  with a total of
216  screens.   The  Star  theatre   locations  are   concentrated  in  the
metropolitan Detroit, Michigan area. The Magic Johnson theatres are located
in densely populated urban areas with predominantly  minority  populations.
Additionally,  our exhibition  assets include a 50% interest in 161 screens
in 18 locations in Spain  through a joint venture  established  on June 10,
1998 with Yelmo Films S.A.,  a leading  local  Spanish  exhibitor.  We will
continue to build additional  theatres in Spain through this joint venture.
We also have a presence  in Korea  where we hold a 24%  interest in a joint
venture that operates the 16-screen Megabox theatre.  Screens and locations
for all of these  partnerships  are included in the Loews Cineplex  amounts
referred to above.

     Currently,  our principal stockholders include SPE, Universal Studios,
Inc.  ("Universal") and The Charles Rosner Bronfman Discretionary Trust and
related  stockholders (the "Claridge  Group"),  which own 39.5%,  25.5% and
7.3%, respectively, of our capital stock and collectively own approximately
72.5% of our capital stock and 72.4% of our voting common stock.

     LTM Holdings,  Inc., our predecessor,  was incorporated under the laws
of the State of Delaware in 1986. Our principal  offices are located at 711
Fifth Avenue,  New York, New York 10022,  and our telephone number is (212)
833-6200.

     Our Internet home page is:  www.loewscineplex.com.  You can learn more
about us by visiting our website.

CURRENT EXHIBITION INDUSTRY ENVIRONMENT

     During the five years  prior to the  current  year,  the annual  North
American theatre attendance level had experienced a gradual increase from 1
billion to over 1.47 billion patrons and a steady increase in ticket prices
driving the industry-wide box office from $5.0 billion in 1990 to over $7.5
billion in 1999. However, during the current year, the industry experienced
a downturn in attendance of approximately 3% as reflected in year over year
operating performance measures. Although box office revenues have increased
due to increased  ticket prices,  cash flow  generated from  operations has
been  diminished  by the  higher  costs of  operating  so many  screens  in
addition to movie studios  getting a larger portion of box office  receipts
due to shorter film run times (see additional discussion below).

     In addition,  distributors have changed release patterns over the past
several years,  opening films with  significant box office  potential on an
increasing  number of  screens  and  reducing  the  "zones of  exclusivity"
previously held by exhibitors.  Generally, the number of screens for a wide
film release has increased and, while major film releases may have the same
number of play dates,  the run has been compressed into a shorter period of
time over a larger number of screens.  The pressure on distributors to make
a  significant  impact in the opening  weekend for certain films has led to
distributors'  willingness to play films on screens in closer  proximity to
maximize  initial box office  results  which are at high film rent terms to
the  exhibitor.   This  quick  "burn  off"  of  film  has  resulted  in  an
industry-wide increase in film cost (as a percentage of box office revenue)
over the past  several  years.  It is  important  that the number of older,
obsolete  industry-wide screens be reduced significantly to relieve some of
the current pressure being experienced related to film terms.

     The exhibition industry continues to experience  significant liquidity
pressures  caused by a number of factors  including the recent  downturn in
attendance as reflected in year over year operating  performance  measures,
the moderate to aggressive new build strategies  employed by the industry's
larger  exhibitors  which,  coupled with the  difficulty in closing  older,
obsolete theatres, has resulted in an oversupply of theatre screens in many
North  American  markets,  impairment  write-offs  and  losses  on  theatre
dispositions, the continued downward credit ratings of the industry and the
recent bankruptcy filings by several theatre chains,  including five of the
eleven largest  exhibitors,  and defaults of certain loan agreements  which
have been  publicly  disclosed.  The  greater  number of  screens  in North
America  caused by the  industry's  building new theatres and the lack of a
corresponding  number of theatre  closures in the same period have resulted
in a saturation  of screens and have  contributed  to shortened  lengths of
film run times and increased  film cost  percentages  paid by exhibitors to
distributors.  These  factors,  as  well  as the  industry's  disappointing
operating  performance,  have contributed to significant  reductions in the
prices of publicly  traded debt and equity  securities and have  materially
reduced the industry's access to capital,  making it increasingly difficult
to meet  obligations  as they become due. In  addition,  the  industry  has
generally  fallen  out of  favor  with  investors  and  lenders  due to the
liquidity  issues noted above and due to a lack of credit  support from the
usual  capital  markets.  The  industry  has  fallen  on hard  times and is
presently  going  through  one of the most  significant  and  unprecedented
reorganizations in its history.  We have been negatively  affected by these
events and have experienced  significant pressures on our liquidity and our
ability to meet obligations as they became due. In an effort to relieve the
pressures on our liquidity,  we were active in pursuing possible  solutions
including   seeking   capital   through  other  sources   including   asset
securitizations,  equity offerings, sale-leaseback transactions,  strategic
alliances with other exhibitors,  a consensual restructuring of our capital
structure or a restructuring of certain of our subsidiaries. We were unable
to implement  these  transactions  on the scale required to relieve us from
the  continued   deterioration  in  our  liquidity  and  cash  flow.  These
conditions  are among the factors  that led up to us filing for  bankruptcy
protection.

     On  February  14,  2001,  we  signed  a letter  of  intent  with  Onex
Corporation,  Oaktree  Capital  Management,  LLC and Pacific Capital Group,
Inc.  regarding a proposed  acquisition  of us and a  restructuring  of our
outstanding  indebtedness which would be consummated  pursuant to a Chapter
11 plan of  reorganization  and a Canadian CCAA plan of arrangement.  Under
this proposed acquisition and restructuring, those parties to the letter of
intent that hold our bank debt would  convert $250 million of the bank debt
they currently hold into 88% of the outstanding  equity of the Company with
the  remaining 12% of the equity plus warrants to purchase an additional 5%
of such equity being  distributed  to our  unsecured  creditors.  Under the
terms  of  the  letter  of  intent,  the  investor  group  was  granted  an
exclusivity  period of 30 days to  consummate a definitive  agreement  with
regard to our recapitalization  and restructuring.  This exclusivity period
ended on March 17, 2001. Since that time,  Pacific Capital Group,  Inc. has
indicated  that it is no longer  interested  in  pursuing  a  restructuring
transaction involving Loews Cineplex.  While the remaining parties continue
discussions with regard to restructuring our capital structure, there is no
guarantee that a restructuring will be completed.

BANKRUPTCY PROCEEDINGS

     On February 15, 2001,  Loews Cineplex and all of its wholly owned U.S.
subsidiaries  filed voluntary  petitions to reorganize  under Chapter 11 in
the U.S.  Bankruptcy  Court. On February 27, 2001, the Office of the United
States Trustee for the Southern  District of New York (the "U.S.  Trustee")
appointed a statutory  committee of unsecured  creditors  (the  "Creditors'
Committee") to represent the interests of the Debtors' unsecured creditors.
The  Creditors'  Committee  has the right to review  and  object to certain
business  transactions  and  may  participate  in  the  formulation  of our
long-term  business  plan and plan of  reorganization.  We are  required to
reimburse certain fees and expenses of the Creditors' Committee,  including
fees for attorneys and other  professionals,  to the extent  allowed by the
Bankruptcy Court. In Canada, the Initial Order was obtained on February 15,
2001 from the  Superior  Court for our wholly  owned  subsidiary,  Cineplex
Odeon and  certain of its other  Canadian  subsidiaries.  Additionally,  on
February 26, 2001, Loews Cineplex's wholly owned Austrian  subsidiary,  LCE
Europlex, filed a petition for bankruptcy in Vienna, Austria.  Effective as
of February 25,  2001,  LCE  Europlex  abandoned  an existing  eight-screen
theater to the care of the landlord and notified the landlord for a project
in  development  that the Company will not be completing and operating that
theater  in  accordance  with the terms of the  lease.  As a result of this
course of action,  we no longer have any operations or presence in Austria.
Also,  on March 16,  2001,  we filed a petition for  bankruptcy  in Warsaw,
Poland on behalf of our wholly owned Polish  subsidiary  LCE Polska Holding
Sp. z o.o.

     We are presently operating our businesses as  debtors-in-possession in
the U.S. and pursuant to the Initial Order in Canada.  We are authorized to
operate our business in the ordinary course.

     In order to provide  liquidity  over the next fiscal year,  we entered
into an agreement  dated  February 15,  2001,  as amended,  with a group of
lenders  led by Bankers  Trust  Company,  as  Administrative  Agent,  for a
debtor-in-possession credit facility (the "DIP Facility"). The DIP Facility
was   approved   by  the   Bankruptcy   Court  on  April   4,   2001.   The
debtor-in-possession  commitment that we received from Bankers Trust is for
approximately  $146 million,  $60 million of which  consists of a revolving
credit  line with the  remaining  $86  million  used to repay  post-default
advances  (i.e.,  subsequent  to August  31,  2000)  made  under our Senior
Revolving Credit  Facility,  which were secured with mortgages on eleven of
our existing theatre properties,  and to provide for outstanding letters of
credit.  The $60  million  revolving  credit  facility  included in the DIP
Facility will be used (i) to finance our operations in the normal course of
business during the restructuring  process (including the required adequate
protection  payments  and funding the  operating  requirements  and certain
capital projects of Cineplex Odeon Canada - up to a maximum of $20 million)
and (ii) to complete certain "designated" construction projects,  currently
under  construction,  which were committed  prior to the petition date. The
terms of the DIP  Facility  also  require  us to make  adequate  protection
payments on a monthly basis on the pre-default  amounts  borrowed under our
Senior Revolving Credit Facility  (approximately $655 million).  The amount
of the monthly  adequate  protection  payments is based on the base rate of
interest  plus 150 basis points.  This DIP  Facility,  which expires on the
earlier of January 31, 2002 or upon the  occurrence of certain other events
including the  effectiveness  of a plan of  reorganization,  is designed to
provide  liquidity to allow us to operate in the  ordinary  course and meet
certain of our  funding  commitments  for  completion  of  certain  theatre
complexes now under  construction in North America.  Refer to the Liquidity
and  Capital  Resources  section  in  Item  7 and  Notes  1 and  11 to  the
Consolidated  Financial  Statements  in  Items  8  and  14(a)  for  further
discussion.

     As a result of the  Chapter 11 filing,  substantially  all  actions to
secure the payment of pre-petition  indebtedness  are subject to compromise
or other treatment under a plan of  reorganization.  Generally,  actions to
enforce or otherwise  effect  payment of  pre-Chapter  11  liabilities  are
stayed.  Pre-petition  claims secured by our assets ("secured  claims") are
also stayed, although the holders of such claims have the right to move the
court for relief  from the stay.  Pre-petition  secured  claims  (primarily
representing  amounts  borrowed under our Senior Revolving Credit Facility)
are generally secured by all personal property and certain real property of
Loews  Cineplex  and our  domestic  subsidiaries,  a pledge of stock of all
domestic  subsidiaries  and our equity interest in and loans to our foreign
subsidiaries. Although pre-petition claims are generally stayed, as part of
the first day  orders and  subsequent  motions  granted  by the  Bankruptcy
Court,   the   Bankruptcy   Court  approved  our  motions  to  pay  certain
pre-petition  obligations including: (i) payments, on normal terms, to film
distributors, (ii) continuing to honor gift certificates,  movie passes and
other  customer  programs,  (iii)  payment for  employee  wages and related
benefits and  reimbursement of employee business expenses and (iv) adequate
protection payments to the lenders of our Senior Revolving Credit Facility.
We have been and intend to continue to pay undisputed  post-petition claims
of all  vendors,  film  distributors  and other  suppliers  in the ordinary
course of  business.  In  addition,  we may reject  pre-petition  executory
contracts and unexpired  leases with the approval of the  Bankruptcy  Court
with respect to our U.S.  operations.  Any damages resulting from rejection
of  executory  contracts  and  unexpired  leases  are  treated  as  general
unsecured  claims in the United States.  We will notify all known claimants
subject  to the bar  date of their  need to file a proof of claim  with the
Bankruptcy Court. A bar date is the date by which claims against us must be
filed if the claimants wish to receive any  distribution  in the Chapter 11
case.  No bar date has yet been set by the  Bankruptcy  Court.  Differences
between  liability  amounts  estimated  by us and claims filed by creditors
will  be  investigated   and  the  Bankruptcy   Court  will  make  a  final
determination of the allowable claim. The  determination of how liabilities
will  ultimately be settled and treated cannot be made until the Bankruptcy
Court approves a Chapter 11 plan of reorganization.

     As a result of the Initial Order of the Superior Court,  substantially
all  actions  to  enforce  or  otherwise   effect   payment  of  pre-filing
obligations of Cineplex Odeon and its subsidiaries  are stayed.  The rights
of  secured  creditors  to enforce  against  our  Canadian  assets are also
stayed. The stay period expires on June 15, 2001 and Cineplex Odeon intends
to seek an  extension  thereof;  the granting of an extension is within the
discretion of the Superior Court. The Initial Order permits (i) payments on
normal terms to persons  supplying goods and services after the date of the
Initial Order,  including  film  suppliers,  as well as certain  pre-filing
claims, (ii) continuing to honor gift certificates,  movie passes and other
customer  programs,  (iii) payment for employee wages and related  benefits
and  reimbursement  of  employee  business  expenses  as well as  statutory
severance  pay and (iv)  the  borrowing  of up to $20  million  from  Loews
Cineplex and the  granting of security by the assets of Cineplex  Odeon and
its  subsidiaries  to secure such  borrowings.  Cineplex Odeon has been and
intends to continue to pay  undisputed  post-filing  claims of all vendors,
film suppliers and other suppliers in the ordinary  course of business.  In
addition,  the Initial Order permits the repudiation of unexpired leases of
Cineplex  Odeon and its  subsidiaries.  Landlords  whose  leases  have been
repudiated  will be  entitled  to file a claim in the CCAA  proceedings  in
respect of such  repudiation.  The  treatment  of such claims has yet to be
determined and will be set out in a plan of compromise  and  arrangement to
be  presented by Cineplex  Odeon to the Superior  Court and to its affected
creditors. A claims process and claims bar date must also be established to
determine  the  claims  entitled  to vote  on a plan as well as to  receive
distributions  thereunder.  This  will be  determined  by an  order  of the
Superior Court.  Ultimately,  any plan of compromise or arrangement must be
approved  by a vote of a majority in number of  creditors  of each class of
creditors  affected  by the  plan  as  well  as by a  vote  of  holders  of
two-thirds of the value of the claims of each such class. If such a vote is
favorable, the plan must then be sanctioned by the Superior Court.

FISCAL 2001 OVERVIEW

     For the fiscal year ended February 28, 2001, we had revenues of $903.5
million, 70% of which came from box office receipts and 30% from concession
sales and other  revenues.  Based on publicly  available data, our share of
the total industry box office  receipts in North America during fiscal 2001
was  approximately  8.7%  (including  100% of the  operations  of our joint
ventures and  partnerships).  Our current  year  revenues  decreased  $26.9
million in comparison to the prior year revenues of $930.4 million due to a
significant  decline in  attendance  primarily  due to lower  industry-wide
attendance  levels  (approximately  3%) in  comparison  to the  prior  year
(particularly  driven by the "sub-par"  performance  of the summer and fall
film product) and the continued  decline in attendance at many of our older
theatres.  These decreases were partially  offset by the positive impact of
new theatre openings and improvements in admission and concession  revenues
per patron.  For the fiscal year ended  February  28,  2001,  we  generated
$100.0 million of Modified EBITDA (earnings, including equity earnings from
investments in partnerships and joint ventures, before cumulative effect of
change  in  accounting  principle,   interest,   taxes,   depreciation  and
amortization,  loss on sale/disposal  of theatres and other,  restructuring
charges and reorganization costs) which was $44.4 million lower as compared
to the prior year.  This decrease was due  primarily to the  aforementioned
shortfall in attendance  levels partially offset by the favorable impact of
new theatre openings,  higher admission and concession  revenues per patron
and reductions in our overhead levels in our U.S. and Canadian  operations.
We have  incurred a  significant  net loss in fiscal 2001.  The fiscal year
2001  net  loss  of  $436.2  million  includes  charges  for  (i)  loss  on
sale/disposal of theatres and other of $245.8 million,  (ii) reorganization
costs of $42.1 million and (iii)  restructuring  charges of $12.7  million.
Additionally, the net loss for the fiscal year ended February 28, 2001 also
includes a one-time  charge of $7.8  million to reflect  adoption  of Staff
Accounting  Bulletin  ("SAB") No. 101,  "Revenue  Recognition  in Financial
Statements", regarding the accounting for our Passport and Gift Certificate
Programs.  This $7.8 million charge is referred to as "Cumulative Effect of
Change in Accounting Principle" on the face of the statement of operations.
See  additional  discussion  in Results of  Operations  for the fiscal year
ended February 28, 2001 compared to the fiscal year ended February 29, 2000
in Item 7 - Management's Discussion and Analysis of Financial Condition and
Results  of  Operations  and  the  Notes  to  the  Consolidated   Financial
Statements included in Items 8 and 14(a).

<PAGE>

   PORTFOLIO MANAGEMENT

     The  following  table  indicates  the number of theatre  locations and
screens and changes in each during the five fiscal years ended February 28,
2001.  These figures include screens and locations  operated by Star, Magic
Johnson, Yelmo Cineplex and Megabox.

<TABLE>
<CAPTION>

                                                  FISCAL YEAR ENDED FEBRUARY 28 OR 29,                  FIVE YEAR
                                       ----------------------------------------------------------
                                       1997          1998         1999          2000         2001         TOTAL
                                       ----          ----         ----          ----         ----         -----
<S>                                      <C>        <C>           <C>          <C>           <C>         <C>
SCREENS
Beginning of year................        950          959         1,035        2,881         2,926          950
   New builds....................         44           92           168          237           171          712
   Expansions....................         22           12            15            5             6           60
   J.V. investments  -                     -            -           113           22            47          182
     international...............
   Combination...................          -            -         1,723            -             -        1,723
   Dispositions..................        (57)         (28)         (173)        (219)         (587)      (1,064)
                                       ------       ------        ------       ------        ------      -------
Year end.........................        959        1,035         2,881        2,926         2,563        2,563
                                       ======       ======        ======       ======        ======      =======
LOCATIONS
Beginning of year................        154          143           139          423           385          154
   New builds....................          4            6            12           15            12           49
   J.V. investments -                      -            -            14            2             4           20
     international...............
   Combination...................          -            -           312            -             -          312
   Dispositions..................        (15)         (10)          (54)         (55)         (107)        (241)
                                       ------       ------        ------       ------        ------      -------
Year end.........................        143          139           423          385           294          294
                                       ======       ======        ======       ======        ======      =======
Average screens per location.....         6.7          7.4           6.8          7.6           8.7
</TABLE>

Note: The fiscal 2001  dispositions in the table above include 11 locations
comprising  71  screens  which  closed  on  March 1,  2001.  All data as of
February 28, 2001 and for the fiscal year then ended in this Annual  Report
on Form 10-K gives effect to these dispositions.

     We  continue  to close  or  dispose  of  certain  overlapping  theatre
locations and underperforming theatres,  including older, obsolete theatres
that  contribute  only  minimally  to  cash  flow  from  operations  or are
operating at a loss. As a result of  management's  plan to  accelerate  the
disposal of theatres due primarily to continued weak operating  performance
and the continued industry downturn,  we targeted 189 locations  comprising
1,160  screens  for  accelerated   disposition  or  closing  including  108
locations  comprising 645 screens in the U.S., 79 locations  comprising 501
screens in Canada and 2 locations  comprising  14 screens  internationally.
These  theatres  generated  $215.4 million in revenues and $22.2 million in
negative  operating  cash flow during  fiscal 2001.  While in the aggregate
these theatres generate significant revenues, the disposition or closure of
these screens will improve our operating cash flow on an ongoing basis.  In
addition  to the  aforementioned  locations,  we have  also  cancelled  the
development  of five  previously  committed  projects.  Through  the end of
fiscal year 2001,  107 of these  locations  (aggregating  587 screens) have
been closed,  including 11 locations  comprising 71 screens which closed on
March 1, 2001.  The  remaining 82 locations  (573 screens) are targeted for
disposal and/or  renegotiation  during fiscal year 2002. We anticipate that
we will be  successful  in closing  these  theatres  targeted  for disposal
because as  debtors-in-possession  in the U.S.  and pursuant to the Initial
Order in  Canada,  we have the  right,  subject  to  Bankruptcy  Court  and
Superior Court approval and certain other limitations,  to reject/repudiate
unexpired  leases.  In  bankruptcy  to date,  we have  rejected 69 of these
theatre  leases in the U.S.,  repudiated 32 of these theatres in Canada and
terminated  four of these leases in Austria and Poland.  As a result of our
continued  review of the  leases in our  portfolio  and the  results of the
lease  renegotiation  process,   additional  leases  may  be  targeted  for
rejection/repudiation or restructuring in the future.

THEATRE OPERATIONS

     Nearly all of our  screens are located in  multiscreen  theatres.  Our
theatres  averaged 8.7 screens as of February  28, 2001.  This ratio should
increase by closing theatres (including many smaller, older and/or obsolete
theatres),  through  the  selective  construction  of larger  multiplex  or
megaplex theatres and by expanding certain existing theatres.  However, our
current  expansion  plans have been  materially  reduced as a result of our
capital constraints and the Chapter 11 and CCAA filings. Multiplex theatres
enable us to present a variety of films  appealing  to several  segments of
the movie-going public, while serving patrons from common facilities (i.e.,
box office, concession areas, restrooms and lobbies). This strategy enables
us to operate more efficiently and uses more of our theatre capacity. Also,
we  continually  seek to  maximize  cash flows  through  adherence  to cost
containment practices and initiatives.

     We rely upon  advertising and movie schedules in newspapers as well as
on our website to inform our patrons of film  selections and show times. We
also exhibit previews of coming  attractions and films presently playing on
other screens.

     Additionally,  we provide a comprehensive offering of remote ticketing
services,  showtimes,  reviews and movie trailers through an internet movie
portal  company  that we  initially  developed  with five other major movie
theatre companies.

     We are continually  seeking other potential  revenue  opportunities in
addition  to box office and  concession  revenues.  We believe we can be an
attractive  medium  for  advertising  and  joint  marketing  and  promotion
efforts,  due to our offering access to mass audiences.  In fiscal 2001, we
had approximately 128 million patrons, with highly attractive demographics.
We maintain  on-screen  advertising  programs in all of our  theatres  with
local and national advertisers.  Additionally,  during fiscal year 2000, we
entered  into a 3 year  deal in Spain  (through  our Yelmo  Cineplex  joint
venture) with an outside third party  whereby we receive  compensation  for
on-screen   advertising  based  upon  actual  attendance   levels.  We  are
continuing to explore  additional  advertising and marketing  programs with
other  world  class  consumer  product   companies  in  North  America  and
internationally.

     We have also generated  additional  revenue through the leasing of our
theatres for motion picture premieres and screenings,  corporate events and
private  parties.  Some of our  theatres  have  earned  reputations  as the
"preferred"  theatres for these  events given their  locations in key urban
markets as well as their upscale settings.

COMPETITION

     The U.S. motion picture exhibition  industry is generally  fragmented,
with eleven large companies owning or operating a majority of screens.  The
following table presents the eleven largest  exhibition  companies in North
America by box office revenue,  screens and theatres  according to the most
recent publicly available information:

                              BOX OFFICE
COMPANY                   REVENUES (MILLIONS)       SCREENS        THEATRES
-------                   -------------------       -------        --------
Regal/Act III                   $ 767.1               4,328           391
AMC Entertainment               $ 763.1               2,903           211
Loews Cineplex (1)              $ 714.5               2,563           294
Cinemark Cinemas                $ 511.3               2,938           273
United Artists Theatres         $ 372.4               1,599           213
Carmike Cinemas                 $ 315.4               2,438           352
GC Companies                    $ 237.1                 685            78
National Amusements                 N/A               1,079            99
Hoyts Cinemas Corp                  N/A                 926           106
Edwards Theatres                    N/A                 730            63
Century Theatres                    N/A                 722            75

(1)      Includes 100% of our partnerships.

     In 2000, U.S. motion picture attendance was approximately 1.42 billion
which was  approximately  3% lower in comparison to the prior year, and box
office  revenues  exceeded  $7.66  billion,  a 2% increase  over 1999.  The
average ticket price for 2000 was $5.39, an increase of 6% over 1999.

     Exhibitors'  primary  revenues  are derived  from box office  sales of
tickets and sales of concession products.  Box office revenues are directly
related to:

o    attendance,  which  is  driven  by  the  quality  of  the  movie-going
     experience,  including the comfort, cleanliness and convenience of the
     location of theatres,

o    the content and quality of film  product  distributed  by major motion
     picture and independent film studios,

o    the ticket price,

o    the quality of projection and sound presentation, and

o    the level of customer service.

     Exhibitors sell concessions,  which consist of food and beverages,  at
stands  in the  theatres,  and  the  revenues  they  generate  are  largely
dependent on attendance levels, theatre staffing, training and the type and
quality of products offered.

     Exhibitors' primary operating costs include:

o    film costs for licensing rights paid to motion picture distributors,

o    costs of concession products and related supplies and services,

o    labor,

o    occupancy costs, including theatre rents and real estate taxes, and

o    advertising.

     Relationship  Between Motion Picture  Production and  Distribution and
Motion Picture  Exhibition.  The motion  picture  exhibition and the motion
picture production and distribution  industries are closely related. Motion
picture  theatres  are the  primary  initial  distribution  channel for new
motion picture  releases.  Theatrical  success of a motion picture is often
the most important  factor in establishing  its value in cable  television,
pay-per-view,  videocassette  and  other  markets.  At the same  time,  the
ultimate  success  of an  exhibitor's  box office  depends on the  quality,
quantity,  availability and acceptance by movie-going patrons of the motion
pictures  produced  by  production  companies  and  licensed  to the motion
picture exhibitors by distribution companies.

     A few major movie studios and their distribution  operations  dominate
the motion picture  production and distribution  industry in North America.
These include Columbia, TriStar, Universal, The Walt Disney Company, Warner
Bros., Paramount Pictures, Twentieth Century-Fox,  Metro-Goldwyn-Mayer, and
Dreamworks.  Based  on box  office  receipts,  these  studios  account  for
approximately 92% of the motion pictures exhibited in North America.

     Film Licensing.  In order to secure motion  pictures,  exhibitors must
engage in negotiations with film distributors for licensing rights of first
run  feature  motion   pictures.   Exhibitors  and   distributors   conduct
negotiations  on  a  film-by-film  and   theatre-by-theatre   basis.   Film
exhibition  licenses  typically  specify  rental fees based upon weekly box
office  receipts.  The  distributor  generally  receives the greater of the
specified  percentage of the box office  receipts or 90% of the amount left
after  deducting an agreed upon house  overhead  allowance  from box office
receipts.  The specified percentage generally declines over the term of the
engagement and may be negotiated  either prior to, or at the conclusion of,
the engagement.

     If there are multiple  exhibitors  in a film zone, a  distributor  may
offer the exhibitors the opportunity to bid, select a customer, or allocate
its films among some or all of the  exhibitors in the zone.  When films are
not awarded on bid, the exhibitor and  distributor  directly  negotiate the
terms of the  engagement.  Over the past several  years all films have been
licensed to us by direct negotiation.

     It is also important to note that the  distribution of film product in
Canada is based on  historical  relationships  that result in the two major
exhibitors  (Famous Players and us) primarily playing product from specific
suppliers.  As a result,  there can be large fluctuations from year to year
in box office  revenue  performance  based on the  strength of a particular
studio's film  product.  Even though this  situation  has recently  changed
moderately,  the traditional  relationships still hold in most of the major
markets.  One  of  the  challenges  faced  by  us is  to  balance  existing
relationships  with  distributors  in order to receive the  broadest mix of
film product for our theatres in Canada.

     We continue to receive film product in the  ordinary  course.  We have
not experienced any  interruption of film supply as a result of the Chapter
11 and CCAA  filings and we continue to enjoy a supply of film product from
all  distributors.  We have received  Bankruptcy  Court and Superior  Court
approval  to  pay  in  full  all  of  our  pre-petition  and  post-petition
obligations to film distributors in the normal course of business.

 SEGMENT INFORMATION

     See Note 16 to our Consolidated Financial Statements included in Items
8 and 14(a).

SEASONALITY

     The   release  of  motion   pictures   is  often   seasonal,   with  a
disproportionate  number of major  motion  picture  releases  taking  place
during the summer and holiday seasons.  This may cause significant changes,
from quarter to quarter, in our attendance levels,  theatre staffing levels
and reported results. We expect this industry-wide trend to continue.

GOVERNMENT REGULATION

     In the United States,  federal and state  antitrust laws in large part
regulate  the  distribution  of motion  pictures.  These laws have been the
subject of numerous antitrust cases. The most significant of these cases is
U.S. v.  Paramount  Pictures  Inc., et al.,  which was affirmed by the U.S.
Supreme  Court in 1950.  The decision  from the  Paramount  case binds most
major film  distributors and requires the distributors to offer and license
their films to exhibitors on a film-by-film and  theatre-by-theatre  basis.
Consequently,  we cannot be  assured  of a supply  of  motion  pictures  by
entering into long-term  arrangements with major distributors.  Instead, we
must   compete  and   negotiate   for  licenses  on  a   film-by-film   and
theatre-by-theatre basis.

     Motion  picture  exhibitors  are also  subject  to  certain  U.S.  and
Canadian federal,  state,  provincial and local laws governing such matters
as construction, renovation and operation of their theatres, employee wages
and working conditions,  and health and sanitation regulations.  We believe
all of our theatres are in compliance with these requirements.  We are also
subject  to  the  evolving  laws  and  increased  public  attention  on the
accessibility of our theatres to persons with physical disabilities.

EMPLOYEES

     As of February 28, 2001, we employed  approximately  14,000 employees,
including approximately 1,415 full-time and 12,585 part-time employees. Our
employment  levels are generally  directly  related to seasonal  changes in
business activity.  We are a party to collective bargaining agreements with
30 unions, of which  approximately  1,365 employees are members. We believe
that our employee relations are generally good.

CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

     This Annual Report on Form 10-K includes "forward-looking  statements"
within  the  meaning  of  Section  27A of the  Securities  Act of 1933,  as
amended,  and  Section  21E of the  Securities  Exchange  Act of  1934,  as
amended.  All statements included in this Annual Report on Form 10-K, other
than  statements  of  historical  facts,  may  constitute   forward-looking
statements.  Although we believe  that the  expectations  reflected in such
forward looking  statements are  reasonable,  we cannot be assured that the
expectations  will prove to be correct.  Important factors that could cause
results to differ materially from our expectations are disclosed below. All
forward-looking  statements  are expressly  qualified in their  entirety by
these cautionary statements.

FACTORS THAT MAY AFFECT FUTURE PERFORMANCE

     In addition to other factors and matters previously mentioned,  in our
view,  the following  items could cause results to differ  materially  from
those discussed in forward-looking statements:

o    our ability to successfully emerge from our bankruptcy  proceedings in
     a reasonable time period,  including the success of future  operations
     and the ability to meet obligations as they become due;

o    the adequacy of our DIP Facility relevant to our liquidity  throughout
     the bankruptcy period;

o    our high debt  levels,  which need to be  restructured  and reduced as
     part of a Chapter 11 reorganization plan and CCAA plan of arrangement;

o    the  effect  of  economic  conditions  on  a  national,   regional  or
     international basis;

o    competitive pressures in the motion picture exhibition industry;

o    the  financial  resources  of,  and  films  available  to,  us and our
     competitors;

o    the impact of a potential strike by the Screen Actors Guild ("SAG") if
     they are unable to resolve unsettled  contract issues with the studios
     prior to the expiration of the current  contract on June 30, 2001 - an
     unresolved  prolonged  job  action by members of the SAG may result in
     reduced  availability of film product which could adversely  effect us
     and the industry;

o    changes in laws and  regulations,  including  changes in environmental
     and disabilities laws and changes in accounting standards; and

o    opportunities that may be presented to and pursued by us.

     See the  Liquidity  and  Capital  Resources  section  and the  Outlook
section included in the  Management's  Discussion and Analysis of Financial
Condition and Results of Operations included in Item 7.

<PAGE>

ITEM 2.  PROPERTIES

     At February 28, 2001,  Loews Cineplex,  including Star, Magic Johnson,
Yelmo  Cineplex and Megabox  theatres,  operated or had  interests in 2,563
screens  in 294  theatres,  of  which 29  theatres  were  owned by us,  261
theatres   were  leased  and  4  theatres   were   subject  to   management
arrangements.  Our leases are entered into on a long-term  basis. The lease
terms  generally  range  from 20 to 40 years and  contain  various  renewal
options,  generally in intervals of 5 to 10 years.  Theatre  leases provide
for the payment of a fixed annual rent and, sometimes,  a percentage of box
office  receipts or total theatre  revenue.  The following  tables show the
locations of our screens at February 28, 2001,  including our partnerships'
theatres.

<TABLE>
<CAPTION>

                 UNITED STATES                                                     CANADA
-----------------------------------------------               -----------------------------------------------
STATE                      SCREENS   LOCATIONS                PROVINCE                   SCREENS   LOCATIONS
----------------------    ---------  ----------               --------------------      ---------  ----------
<S>                             <C>         <C>               <C>                           <C>          <C>
Arizona...............          33          4                 Alberta.............           137          15
California............          80          9                 British Columbia....            50           8
Connecticut...........          32          3                 Manitoba............            13           3
District of Columbia..          30          9                 Ontario.............           316          37
Florida...............          20          1                 Quebec..............           160          21
Georgia...............          12          1                 Saskatchewan........            27           4
                                                                                         -------    --------
Illinois..............         232         29                     Total...........           703          88
                                                                                         =======    ========
Indiana...............          51          5
Maryland..............         104         12
Massachusetts.........         108         10                                   INTERNATIONAL
Michigan..............         156         10                 -----------------------------------------------
Minnesota.............           4          1                 COUNTRY                    SCREENS   LOCATIONS
New Hampshire.........          12          2                 --------------------      ---------  ----------
New Jersey............         200         18                 Spain...............           161          18
New York..............         255         35                 Korea...............            16           1
Ohio..................          32          2                 Hungary.............             6           1
Pennsylvania..........          49          3                 Turkey..............             5           1
Texas.................         102          9                                           ----------  ---------
Utah..................          30          4                      Total..........           188          21
Virginia..............          21          3                                           ==========  =========
Washington............         109         15                                           ==========  =========
                          --------   --------                    Grand Total......         2,563         294
   Total..............       1,672        185                                           ==========  =========
                          ========   ========
</TABLE>

<PAGE>

     Under the  partnership  agreement  governing the operation of the Star
Theatres  circuit,  we are responsible for film booking  arrangements.  Our
joint venture  partner  manages the theatres under an operating  agreement.
The  partnership  agreement also has  provisions  governing the transfer of
partnership  interests  between  the  partners  and to  unaffiliated  third
parties.

     Under the partnership  agreement  governing the operation of the Magic
Johnson Theatres circuit, we are responsible for film booking  arrangements
and management of the theatres.

     Under the partnership  agreement  governing the operation of the Yelmo
Cineplex  circuit,  our joint venture partner manages the theatres under an
operating  agreement.   The  partnership   agreement  also  has  provisions
governing the transfer of partnership interests between the partners and to
unaffiliated third parties.

ITEM 3.  LEGAL PROCEEDINGS

     On February 15, 2001,  Loews Cineplex and all of its wholly owned U.S.
subsidiaries  (the "U.S.  Debtors")  filed  voluntary  petitions for relief
under Chapter 11 of the U.S.  Bankruptcy Code in the U.S.  Bankruptcy Court
for the Southern District of New York. In addition, on February 15, 2001 an
order to initiate a restructuring  of obligations and operations  under the
CCAA was obtained from the Ontario Superior Court of Justice for our wholly
owned  subsidiary,  Cineplex  Odeon  and  certain  of  its  other  Canadian
subsidiaries.  Additionally,  on February 26, 2001, Loews Cineplex's wholly
owned Austrian subsidiary, LCE Europlex, filed a petition for bankruptcy in
Vienna,  Austria, and on March 16, 2001, we filed a petition for bankruptcy
in Warsaw, Poland on behalf of our wholly owned Polish subsidiary.

     At this time,  we are unable to predict  the outcome of the Chapter 11
and CCAA  proceedings or their effect on our  operations.  Refer to Item 1.
and  Item 7. of this  Form  10-K and  Notes 1, 3 and 4 to the  consolidated
financial statements for additional information.

     We are involved in routine  litigation  and legal  proceedings  in the
ordinary  course  of our  business  relating  to  personal  injury  claims,
employment matters and contractual disputes. Generally, all pre-filing date
litigation against the U.S. Debtors was automatically stayed.  Entities who
were  litigating  such claims  against  Loews  Cineplex  and the other U.S.
Debtors as of the filing date, or who could have done so, instead will have
to file with the Bankruptcy  Court proofs of claim for the amounts to which
they contend they were entitled, subject to the right of Loews Cineplex and
the U.S. Debtors to contest such claims. Alternatively,  creditors may seek
to have the stay lifted to pursue their claims.  In such event,  we and the
other  U.S.  Debtors  may  be  required  to  defend  such  litigation,  but
collection of any  judgments  obtained  will be stayed.  A similar  process
exists for dealing with pre-filing  litigation under the CCAA  proceedings.
Except for those noted below,  we do not have any litigation or proceedings
that we believe will have a material adverse effect on us,  individually or
in the aggregate.

ANTITRUST PROCEEDINGS

     On April 16,  1998,  the United  States of  America,  the State of New
York, by and through its Attorney  General,  Dennis C. Vacco, and the State
of Illinois,  by and through its Attorney  General,  Jim Ryan, on one hand,
and us, Sony  Corporation of America,  Cineplex Odeon and Seagram Co. Ltd.,
on the other hand,  entered  into,  and the  Southern  District of New York
ordered,  a Stipulation & Order  setting  forth a proposed  Final  Judgment
relating to alleged federal  antitrust  violations in New York and Illinois
stemming  from the  Loews/Cineplex  combination.  This  Stipulation & Order
followed  the  filing  of a  complaint  on the same day  relating  to these
alleged violations.  Under the terms of the agreement,  we were required to
divest certain theatres in New York and Chicago.

     Since the Combination,  we pursued the sale of certain theatres in New
York City and Chicago  that were subject to approval by the  Department  of
Justice  ("DOJ"),  in accordance with the terms of an agreement  reached to
permit the  merger of Loews  Theatres  with  Cineplex  Odeon.  As a result,
during the fourth  quarter of fiscal 1999, we sold to  Cablevision  Systems
Corporation 33 screens in 12 theatres in New York City, in accordance  with
the DOJ order,  and an  additional 14 screens in 4 theatres in the suburban
New York area for aggregate cash proceeds of $87.5  million.  Approximately
$87.2 million of these  proceeds was used to pay down our Senior  Revolving
Credit Facility.

     Under the  agreement  with the DOJ,  we were also  required to sell 49
screens at 11 theatre locations in Chicago.  On April 7, 1999, we completed
the sale of 30 screens at 8 of these  theatre  locations  to a third party.
This transaction was not significant to our operating  results or financial
position.  A portion of these  proceeds was utilized to pay down our Senior
Revolving Credit Facility.  Additionally, under the agreement with the DOJ,
we were required to sell the remaining 19 screens at 3 theatre locations in
Chicago.  We were  unable to sell  these  locations  and,  pursuant  to the
original agreement with the DOJ, a trustee was appointed to effect the sale
of these locations. The trustee was also unable to sell these locations and
had  submitted a final  report to the court.  On November 9, 2000,  the DOJ
consented to us retaining these three locations and a stipulation and order
received court approval.

ENVIRONMENTAL PROCEEDINGS

     We own, manage and/or operate  theatres and other  properties that are
subject to certain  U.S.  and  Canadian  federal,  state and local laws and
regulations  relating  to  environmental  protection  and human  health and
safety,  including  those  governing the  investigation  and remediation of
contamination   resulting  from  past  or  present  releases  of  hazardous
substances. Some of these laws and regulations may impose joint and several
liability on statutory classes of persons for the costs of investigation or
remediation  of  contamination,  regardless of fault or the legality of the
original  disposal.  These  persons  include the present or former owner or
operator  of a  contaminated  property  and  companies  that  generated  or
disposed of hazardous substances found at the property.

     Two of our leased  drive-in  theatres,  both in the State of Illinois,
are located on properties  on which third parties  disposed of, or may have
disposed of, substantial  quantities of construction  debris, auto shredder
residue and other debris.  Such material may contain hazardous  substances.
One of these leases  terminated in the ordinary course prior to the Debtors
filing their Chapter 11 cases.  Pursuant to order of the Bankruptcy  Court,
the other  lease was  rejected  in  accordance  with the  Bankruptcy  Code.
Termination or rejection of these leases, however, may not terminate all of
the Debtors'  liability in connection  with the disposal of debris on these
properties.  In addition,  the rejected lease property is the subject of an
action, filed in August 1998 in the Circuit Court of Cook County,  Illinois
by the Illinois  Attorney  General's  office  seeking  civil  penalties and
various  forms of  equitable  relief,  including  the removal of all wastes
allegedly  present  at the  property,  soil  and  groundwater  testing  and
remediation,  if necessary. This action may be stayed, in whole or in part,
as the result of the  commencement  of the Debtors'  Chapter 11 cases.  Our
range  of  probable  liability  with  respect  to  this  action  cannot  be
reasonably estimated at this time due to several unknown factors, including
the scope of contamination at the theatre  property,  the likelihood of any
particular remedial action being required, the allocation of liability,  if
any,  to other  responsible  parties,  and the  ability of such  parties to
satisfy  their share of such  liability,  and the ability of the Debtors to
discharge  certain claims and  liabilities  in connection  with this action
under  Bankruptcy  law. If necessary,  we intend to vigorously  defend this
action and will continue to evaluate future  information  and  developments
with respect to conditions at this property and will periodically  reassess
any  liability  accordingly.  Based  on  the  foregoing,  there  can  be no
assurance that our liability,  if any, in connection  with this action will
not be material.

SIX WEST RETAIL ACQUISITION, INC.

     On July 24,  1997,  Six West Retail  Acquisition,  Inc., a real estate
development  company,  initiated  a  lawsuit  against  us and  some  of our
affiliates  in the U.S.  District  Court for the  Southern  District of New
York, seeking injunctive relief and unspecified  monetary damages. Six West
alleges that we have violated  federal  antitrust laws by engaging in block
booking agreements and monopolizing the motion picture exhibition market in
New York City. Six West owns or leases the Paris and New York Twin theatres
in  Manhattan.  The Paris  theatre was  managed by one of our  subsidiaries
under an oral management  agreement that has been terminated.  The New York
Twin  theatre  is  managed  by one  of our  subsidiaries  under  a  written
management   agreement.   Six  West  also  alleges  that  we  violated  our
contractual and fiduciary responsibilities in managing the two theatres. On
December 3, 1997,  Six West filed an amended  complaint  asserting  similar
claims with  respect to the Festival  Theatre  which was operated by one of
our  subsidiaries  until it was closed in 1994. All of the defendants moved
to dismiss the amended complaint by motion dated January 8, 1998. The court
decided both motions in a memorandum opinion and order dated March 8, 2000.
The court granted defendants' motion to dismiss the contract claims against
the individual  non-corporate defendants and a portion of one claim against
us. The court  denied  the motion  with  respect  to the  remainder  of the
amended  complaint  and  the  non-Loews  Cineplex   corporate   defendants.
Discovery in the action is still in  progress.  This action was stayed with
respect to those  defendants that are among the U.S. Debtors as a result of
the filing of the Chapter 11 petition.  We believe  that Six West's  claims
are without merit and intend to oppose them vigorously.

ADA LITIGATION

     The  Department  of Justice,  in  coordination  with the New York City
Commission on Human Rights,  is currently  investigating  Cineplex  Odeon's
theatres in New York City with respect to its  compliance  with the ADA and
the New York City Human Rights Law. The  Department  of Justice has alleged
that its  investigation has identified  numerous  violations of the ADA. We
have opposed,  and will continue to vigorously  oppose the  allegations and
claims of the Department of Justice with respect to the compliance of these
theatres under the ADA.  However,  we cannot guarantee that the remediation
costs relating to the ADA will not be material.

METREON ARBITRATION

     In May 1997,  we  entered  into a 21 year  lease  with  Metreon,  Inc.
("Metreon"),  an affiliate  of Sony  Corporation  of America,  to operate a
multiplex theatre in an  entertainment/retail  complex developed by Metreon
in San  Francisco.  Since that theatre  opened in June 1999,  we have had a
dispute with Metreon with respect to construction  costs (amount of dispute
is  approximately  $5  million)  that may be our  responsibility  under the
lease,  the  nature of the costs  that  Metreon  is  seeking  to include as
operating  expenses under the lease, and the proper allocation of operating
expenses to our theatre,  based on our proportionate  share of the complex.
To date,  we have been unable to resolve these issues  through  negotiation
with Metreon.  The estimated  difference in operating expenses allocable to
our  theatre,  taking  into  account  differences  over both the  nature of
allocable  costs  and  determination  of  our  proportionate  share  of the
complex, is approximately $3 - $4 million per annum for the duration of the
lease.  Pursuant  to the terms of the lease,  we are to  contribute  to the
operating  expenses of the complex in an amount equal to our  proportionate
share of the total floor area of the complex. Metreon has asserted that our
proportionate  share of the complex is  approximately  49%, while we assert
that our proportionate  share is approximately  32%. On September 19, 2000,
as permitted by the lease,  Metreon filed a demand for arbitration with the
American Arbitration Association seeking a declaration of the proportionate
share of the complex floor area occupied by our theatre. We believe that we
have  meritorious  defenses to all of Metreon's claims against us under the
lease  and  intend  to  vigorously   assert  our  position   regarding  our
proportionate share of the complex.  This arbitration is stayed as a result
of the filing of the Chapter 11 petition.

COMPETITION BUREAU PROCEEDINGS

     The Canadian  Competition  Bureau (the "Bureau")  recently  obtained a
Federal  Court Order  requiring a number of  exhibitors  and  distributors,
including our subsidiaries  (Cineplex Odeon  Corporation and Cineplex Odeon
(Quebec) Inc.), to produce  significant  business  information by April 27,
2001. This Order is in connection with an inquiry by the Bureau relating to
certain practices of motion picture  exhibitors,  including  Cineplex Odeon
Corporation,  and motion picture distributors.  On April 27, 2001, Cineplex
Odeon   complied  with  the  order  and  provided  the  required   business
information to the Competition  Bureau.  We intend to vigorously oppose any
allegation of anti-competitive conduct on our part.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                  PART II

ITEM 5.  MARKET FOR  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS

DIVIDEND POLICY

     We do not pay any  dividends  on our common  stock and are  prohibited
under the terms of our Senior  Revolving  Credit  Facility and DIP Facility
from paying such dividends.

PRICE RANGE OF COMMON STOCK

     Our  common  stock  was  traded  on the New  York  and  Toronto  Stock
Exchanges.  Effective  February 15, 2001,  we were delisted by the New York
Stock Exchange ("NYSE") and therefore, our stock is no longer traded on the
NYSE. Our stock continues to be listed on The Toronto Stock Exchange. As of
May 22,  2001  there  were  approximately  11,200  holders of record of our
common  stock.  The table below sets forth the high and low sales prices of
our common  stock as reported by the New York and Toronto  Stock  Exchanges
for the periods indicated.
<TABLE>
<CAPTION>

                                                                  FIRST       SECOND        THIRD       FOURTH
                                                                QUARTER      QUARTER      QUARTER      QUARTER        TOTAL
                                                            -----------  -----------  -----------  -----------  -----------
<S>                                                       <C>            <C>          <C>          <C>          <C>
FEBRUARY 28, 2001

   Stock prices - New York Stock Exchange (US$)
     High                                                 $        4.38  $      4.38  $      1.88  $      0.81  $      4.38
     Low                                                  $        2.25  $      1.75  $      0.63  $      0.25  $      0.25
   Stock prices - Toronto Stock Exchange (CDN$)
     High                                                 $        6.15  $      6.30  $      2.80  $      1.25  $      6.30
     Low                                                  $        3.55  $      2.50  $      1.00  $      0.30  $      0.30

FEBRUARY 29, 2000

   Stock prices - New York Stock Exchange (US$)
     High                                                 $       12.88  $     10.94  $      8.38  $      6.50  $     12.88
     Low                                                  $        9.13  $      7.94  $      6.19  $      4.13  $      4.13
   Stock prices - Toronto Stock Exchange (CDN$)
     High                                                 $       18.50  $     16.05  $     12.50  $      9.40  $     18.50
     Low                                                  $       13.60  $     11.75  $      9.00  $      5.95  $      5.95

</TABLE>

ITEM 6.  SELECTED HISTORICAL FINANCIAL DATA

     The following table sets forth Selected Historical  Financial Data for
Loews Cineplex  Entertainment  Corporation  ("we",  "us" and "our") for the
five fiscal  years ended  February  28, 2001 and has been  derived from our
annual consolidated financial statements. The Selected Historical Financial
Data and Selected Key Operating  Statistics  should be read in  conjunction
with the separate  consolidated  financial  statements and notes thereto of
Loews Cineplex Entertainment  Corporation and our "Management's  Discussion
and Analysis of Financial  Condition and Results of Operations",  which are
included  elsewhere  in this  Annual  Report  on Form  10-K.  Further,  the
Selected  Historical  Financial  Data  includes  the  financial  results of
Cineplex Odeon Corporation  ("Cineplex  Odeon") for the period from May 15,
1998  to  February  28,  2001.  Cineplex  Odeon  became  our  wholly  owned
subsidiary on May 14, 1998.

<TABLE>
<CAPTION>
                                                                        YEAR ENDED FEBRUARY 28 OR 29,
                                                                        -----------------------------

                                                          2001          2000          1999           1998          1997
                                                   -----------   -----------    ----------    -----------   -----------

                                                                      (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                <C>           <C>            <C>           <C>           <C>
INCOME STATEMENT DATA:
 Box Office                                        $   628,851   $   647,774    $  587,078    $   296,933   $   273,498
 Concession                                            241,034       243,511       228,332        104,009        90,643
 Other                                                  33,631        39,138        35,750         12,568        11,204
                                                   -----------   -----------    ----------    -----------   -----------

 Total Operating Revenue                               903,516       930,423       851,160        413,510       375,345
                                                   -----------   -----------    ----------    -----------   -----------

Theatre operations and other expenses
   (including concession costs)                        753,193       732,957       654,503        307,568       282,480
General and administrative                              50,369        53,031        47,882         28,917        21,447
Depreciation and amortization                          125,533       113,047        90,720         52,307        44,576
Interest expense                                        98,601        72,728        57,216         14,319        14,776
Loss on sale/disposal of theatres and other (A)        245,828         8,388         4,532          7,787         9,951
Restructuring charges (A)                               12,653             -             -              -             -
Reorganization costs (A)                                42,146             -             -              -             -
Income tax expense                                       3,598         1,662         2,187          2,751         2,295
                                                   -----------   -----------    ----------    -----------   -----------
Loss before cumulative effect of change
   in accounting principle                            (428,405)      (51,390)       (5,880)          (139)         (180)
Cumulative effect of change in
   accounting principle, net of tax (B)                  7,841             -             -              -             -
                                                   -----------   -----------    ----------    -----------   -----------

Net loss                                           $  (436,246)  $   (51,390)   $   (5,880)   $      (139)  $      (180)
                                                   ============  ============   ===========   ============  ============

Loss per common share before cumulative
   effect of change in accounting principle:
   basic and diluted                               $     (7.31)  $      (.88)   $     (.12)   $      (.01)  $      (.01)

Loss per common share: basic and diluted           $     (7.44)  $      (.88)   $     (.12)   $      (.01)  $      (.01)

Weighted average shares and equivalent
outstanding (C): basic and diluted                  58,622,646    58,622,646    47,834,541     20,472,807    20,472,807

BALANCE SHEET DATA (AT PERIOD END):
   Cash, equivalents and investments               $    47,200   $    31,735    $   48,174    $     9,064   $     2,160
   Property, equipment and leaseholds              $ 1,068,923   $ 1,218,334    $1,119,977    $   609,152   $   613,692
   Total assets                                    $ 1,677,586   $ 1,907,389    $1,806,201    $   728,551   $   721,372
   Total long-term obligations                     $   179,952   $ 1,074,736    $  943,811    $   336,526   $   339,206
   Total liabilities (D)                           $ 1,501,489   $ 1,288,587    $1,140,905    $   404,040   $   396,722
   Stockholders' equity                            $   176,097   $   618,802    $  665,296    $   324,511   $   324,650

CASH FLOW STATEMENT DATA:
Cash flow (used)/provided by operating activities  $   (43,231)  $    57,097    $   82,711    $    64,185   $    47,976
</TABLE>

(A)  See  Notes  1 and 3 to  the  Consolidated  Financial  Statements  with
     respect to our bankruptcy and financial  reporting in accordance  with
     Statement of Financial Position 90-7 "Financial  Reporting by Entities
     in Reorganization  under the Bankruptcy Code". Also see Notes 4, 5 and
     6  to  the   Consolidated   Financial   Statements   with  respect  to
     restructuring charges,  reorganization costs and loss on sale/disposal
     of theatres and other.

(B)  Represents  a  one-time  charge  to  reflect  the  adoption  of  Staff
     Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
     Statements",  regarding  the  accounting  for our  Passport  and  Gift
     Certificate  Programs.  See  additional  discussion  in  Note 2 to the
     Consolidated  Financial  Statements.

(C)  Restated  in all  periods  presented  to  reflect  impact  of a  stock
     dividend  declared  on  February  5, 1998.

(D)  Includes  liabilities subject to compromise of $471,390 for the fiscal
     year ended  February  28, 2001 and nil for fiscal  years 1997  through
     2000. See Note 3 to the Consolidated  Financial Statements for further
     discussion.

Selected Key Operating Statistics

     The table below sets forth unaudited Selected Key Operating Statistics
for us as of and for each of the periods indicated.  Management views these
statistics  as key financial  measures and believes that certain  investors
find them useful in analyzing  companies in the motion  picture  exhibition
industry. No one measure is more meaningful than another and our management
uses these measures collectively to assess operating performance.  In order
to arrive at a more  meaningful  presentation  of financial  operating data
related to our productivity and performance, except as otherwise noted, all
amounts  below  include  100% of the  operating  results of the  Loeks-Star
Theatres ("LST"), the Magic Johnson Theatres ("MJT") and the Yelmo Cineplex
de Espana ("Yelmo") partnerships in which we have a 50% interest.  Further,
the Selected Key Operating  Statistics  include data for Cineplex Odeon for
the period from May 15, 1998 to February  28, 2001.  Cineplex  Odeon became
our wholly owned subsidiary on May 14, 1998.

<TABLE>
<CAPTION>

                                                                      YEAR ENDED FEBRUARY 28 OR 29,
                                                                      -----------------------------
                                                                                (UNAUDITED)

                                                          2001          2000          1999           1998          1997
                                                   -----------   -----------    ----------    -----------   -----------
<S>                                                <C>           <C>            <C>           <C>           <C>
                                                       (IN THOUSANDS, EXCEPT LOCATIONS, SCREENS AND PER PATRON DATA)

CASH FLOW STATEMENT DATA(1):

Net cash (used)/provided by operating activities   $   (43,231)  $    57,097    $   82,711    $    64,185   $    47,976
Net cash used in investing activities              $  (148,226)  $  (218,503)   $  (91,741)   $   (51,439)  $   (53,254)
Net cash provided/(used) by financing
   activities                                      $   206,922   $   144,967    $   48,140    $    (5,842)  $     5,048
Capital Expenditures (included in investing
activities noted above)                            $   150,859   $   185,350    $  147,198    $    42,431   $    60,920

OPERATING DATA:

Locations operated at period end                           294           385           423            139           143
Screens operated at period end                           2,563         2,926         2,881          1,035           959
Screens per location                                       8.7           7.6           6.8            7.4           6.7
Attendance                                             127,780       135,281       126,605         58,387        53,133
Total revenues                                     $ 1,032,141   $ 1,047,146    $  947,401    $   480,437   $   421,613
Revenues per screen(2)                             $    348.58   $    359.60    $   389.84    $    464.19   $    439.64
Revenues per location(2)                           $  2,752.38   $  2,579.18    $ 2,554.45    $  3,456.38   $  2,948.34
Modified EBITDA(3)                                 $    99,954   $   144,435    $  148,775    $    77,025   $    71,418
Total EBITDA(4)                                    $   123,502   $   165,590    $  163,166    $    86,643   $    78,273
Partners' share of Total EBITDA                    $    11,175   $    11,316    $    8,538    $     6,339   $     4,853
Attributable EBITDA(4)                             $   112,327   $   154,274    $  154,628    $    80,304   $    73,420
Total EBITDA per screen(2)                         $     41.71   $     56.86    $    67.12    $     83.71   $     81.62
Total EBITDA per location(2)                       $    329.34   $    407.86    $   439.80    $    623.33   $    547.36
Total EBITDA per patron                            $      0.97   $      1.22    $     1.29    $      1.48   $      1.47
Box Office  revenue per patron                     $      5.59   $      5.39    $     5.18    $      5.91   $      5.79
Concession revenue per patron                      $      2.16   $      2.05    $     2.03    $      2.14   $      1.98
Concession  margin                                       83.6%         84.1%         84.4%          84.5%         82.8%
Ratio of Total EBITDA to Total Revenue                   12.0%         15.8%         17.2%          18.0%         18.6%
</TABLE>

(1)  Cash  flow   statement   data  includes  cash  flows  from   long-term
     investments  in our  partnerships  and joint ventures to the extent of
     our equity interests.

(2)  All per screen and  location  ratios are  calculated  using a weighted
     average number of screens and locations (including the LST, MJT, Yelmo
     and Megabox partnerships), except for fiscal years 1997 and 1998 which
     are calculated  using the number of screens and locations as of period
     end. The use of weighted  average  amounts in fiscal years 1999,  2000
     and 2001 is due to the inclusion of the  operations of Cineplex  Odeon
     for the period  subsequent to May 14, 1998 and the significant  number
     of  theatre  disposals  and  newly  opened  theatres  in each of these
     periods.  Use of weighted  average number of screens and locations for
     the  remaining  historical  data  would not  result  in  substantially
     different data in comparison to the information presented.

(3)  Modified EBITDA consists of earnings,  including  equity earnings from
     investments in  partnerships  and joint  ventures,  before  cumulative
     effect of change in  accounting  principle,  interest,  income  taxes,
     depreciation and  amortization,  loss on sale/disposal of theatres and
     other, restructuring charges and reorganization costs. Modified EBITDA
     should not be  construed  as an  alternative  to  measuring  operating
     results or cash flows  under U.S.  GAAP.  In  addition,  the  Modified
     EBITDA  measure  presented  herein may not be  comparable to similarly
     titled measures reported by other companies.

(4)  Total EBITDA  consists of Modified  EBITDA plus 100% of the  operating
     results  of our  partnerships.  We  believe  that  Total  EBITDA is an
     important  measure,  in  addition  to cash  flow from  operations  and
     Modified  EBITDA,  in viewing  our  overall  liquidity  and  borrowing
     capacity.

     A  reconciliation  of Modified EBITDA to Total EBITDA and Attributable
EBITDA follows:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED FEBRUARY 28 OR 29,
                                                                     -----------------------------
                                                                              (UNAUDITED)

                                                          2001          2000          1999           1998          1997
                                                   -----------    ----------    ----------    -----------   -----------

                                                                            (IN THOUSANDS)
     <S>                                           <C>           <C>            <C>           <C>           <C>
     Modified EBITDA, including equity
       earnings (as defined above)                 $    99,954   $   144,435    $  148,775    $    77,025   $    71,418
     LESS/(ADD): Equity earnings/(loss)
       included in EBITDA                               (2,269)        1,477         2,685          3,060         2,851
     ADD: EBITDA from partnerships                      21,279        22,632        17,076         12,678         9,706
                                                   -----------   -----------    ----------    -----------   -----------
     Total EBITDA                                      123,502       165,590       163,166         86,643        78,273
     LESS: Partners' share of Total EBITDA              11,175        11,316         8,538          6,339         4,853
                                                   -----------   -----------    ----------    -----------   -----------
     Attributable EBITDA                           $   112,327   $   154,274    $  154,628    $    80,304   $    73,420
                                                   ===========   ===========    ==========    ===========   ===========
</TABLE>

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

     The  following   discussion  of  the  Loews   Cineplex   Entertainment
Corporation  ("we",  "us" and  "our")  financial  condition  and  operating
results  should  be  read  in  conjunction  with  our  Selected  Historical
Financial Data and our audited  consolidated  financial  statements for the
three years ended  February  28,  2001.  The  information  presented  below
includes  the results of Cineplex  Odeon  Corporation  ("Cineplex  Odeon"),
which  became  our  wholly  owned  subsidiary  as  of  May  14,  1998  (the
"Combination"),  for the period from May 15, 1998 through February 28, 2001
and does not include any results prior to that time unless otherwise noted.
Where noted,  for a more  meaningful  comparison,  we have  referred to the
operating  performance of theatres we were required to sell, pursuant to an
agreement  with the Department of Justice  (herein  referred to as the "DOJ
theatres"), as a result of the Combination.

     This  discussion  incorporates  operating  results of  partnerships in
which we have an interest to the extent of our equity  share as required by
the equity method of accounting, except as otherwise noted.

     On February 15, 2001,  Loews Cineplex and all of its wholly owned U.S.
subsidiaries  filed voluntary  petitions to reorganize  under Chapter 11 in
the U.S.  Bankruptcy  Court.  In Canada,  the  Initial  Order to initiate a
restructuring  of obligations and operations under the CCAA was obtained on
February 15, 2001 from the Superior Court for our wholly owned  subsidiary,
Cineplex Odeon and certain of its other Canadian subsidiaries.  The Chapter
11  and  CCAA  filings  are  hereinafter  collectively  referred  to as the
"Bankruptcy  Proceedings".  In addition,  on February 26, 2001,  our wholly
owned Austrian  subsidiary LCE Europlex  KinobetriebsgmbH  filed a petition
for  bankruptcy  in  Vienna,  Austria  and on March  16,  2001,  we filed a
petition  for  bankruptcy  in Warsaw,  Poland on behalf of our wholly owned
Polish subsidiary LCE Polska Holding Sp. z o.o.

     The Chapter 11 and CCAA filings resulted from a sequence of events and
the unforeseen  effect that these events would have in the aggregate on us.
Such events  included,  among  other  things,  (i) the lower  industry-wide
attendance  levels  (approximately  3%) due primarily to the "sub-par" film
performance  during the summer and fall of 2000, (ii) the continued decline
in revenues experienced at many of our older theatres,  (iii) significantly
higher costs associated with building megaplexes and in making improvements
to existing theatres in order to attract and accommodate  larger audiences,
and (iv) significant liquidity pressures.  Faced with significant operating
shortfalls,  unavailability  of credit and our inability to  satisfactorily
achieve a restructuring with our lenders,  among other things, we filed for
bankruptcy  protection  under Chapter 11 in the United States and under the
CCAA in Canada.

     We have  incurred a  significant  net loss in fiscal 2001.  The fiscal
year  2001 net loss of  $436.2  million  includes  charges  for (i) loss on
sale/disposal of theatres and other of $245.8 million,  (ii) reorganization
costs of $42.1 million and (iii)  restructuring  charges of $12.7  million.
See respective discussion below regarding each of these items. The net loss
for the fiscal year ended February 28, 2001 also includes a one-time charge
of $7.8 million to reflect  adoption of Staff  Accounting  Bulletin ("SAB")
No. 101,  "Revenue  Recognition  in Financial  Statements",  regarding  the
accounting  for our  Passport  and Gift  Certificate  Programs.  This  $7.8
million charge is referred to as "Cumulative Effect of Change in Accounting
Principle"  on the face of the  statement  of  operations.  See  additional
discussion  below in  Results  of  Operations  for the  fiscal  year  ended
February 28, 2001 compared to the fiscal year ended February 29, 2000.

     As a result of our recurring  losses,  the Chapter 11 and CCAA filings
and  circumstances  relating to these events,  including our debt structure
and current economic  conditions,  realization of assets and liquidation of
liabilities  are subject to significant  uncertainty.  We believe that cash
from    operations    along    with    financing    provided    through   a
Debtor-in-Possession  Credit Facility entered into on February 15, 2001, as
amended (the "DIP Facility"),  should be available to provide  liquidity to
allow us to continue as a going concern. However, there can be no assurance
of this.  Our ability to continue as a going concern is dependent  upon our
ability to maintain  compliance  with debt covenants under the DIP Facility
and the ability to generate  sufficient  cash from operations and financing
sources to meet our  obligations as they become due. In the event a Chapter
11 plan of reorganization/CCAA  plan of arrangement  (collectively referred
to  as  "plans  of   reorganization")   are  confirmed  by  the  Bankruptcy
Court/Superior  Court and become  effective,  continuation  of our business
thereafter  will  be  dependent  on  our  ability  to  achieve   successful
operations,  maintain  satisfactory capital and liquidity and obtain access
to funds under a credit  facility.  Until the plans of  reorganization  are
confirmed  by the  Bankruptcy  Court/Superior  Court and become  effective,
there  can be no  assurance  that  we will  emerge  from  these  bankruptcy
proceedings,  and the effect of the terms and  conditions  of such plans of
reorganization  on our business cannot be determined and therefore there is
substantial doubt regarding our ability to continue as a going concern.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED  FEBRUARY 28, 2001 COMPARED TO FISCAL YEAR ENDED FEBRUARY
29, 2000

     Operating Revenues of approximately $903.5 million for the fiscal year
ended February 28, 2001 were $26.9 million lower than the comparable period
of the prior year.  Operating  revenues are  generated  primarily  from box
office  revenues and concession  sales.  Box office revenues for the fiscal
year ended  February 28, 2001 of  approximately  $628.9  million were $18.9
million lower, and concession revenues of approximately $241.0 million were
$2.5  million  lower in  comparison  to the fiscal year ended  February 29,
2000.  These  decreases  in  operating  revenues  were due  primarily  to a
significant  decline in  attendance  primarily  due to lower  industry-wide
attendance  levels of  approximately  3% in  comparison  to the prior  year
(particularly  driven by the "sub-par"  performance  of the summer and fall
film product) and the continued  decline in attendance at many of our older
theatres.  This overall decrease in revenues is net of additional  revenues
of  approximately  $90.6 million from new theatre openings and improvements
in admission and concession revenues per patron.

     Operating  Costs of  approximately  $753.2 million for the fiscal year
ended  February 28, 2001 were  approximately  $20.2 million higher than the
fiscal year ended  February 29, 2000.  This  increase was due  primarily to
incremental costs associated with new theatre openings, including occupancy
costs, and the impact of improvements in admission and concession  revenues
per patron. The overall increase in operating costs, which aggregated $77.4
million,  was partially offset by reductions in variable operating expenses
commensurate  with  the  aforementioned   decrease  in  operating  revenues
relating to  attendance  declines  and as a result of the closing of older,
obsolete theatres.

     General and  Administrative  Costs of approximately  $50.4 million for
the fiscal year ended  February  28, 2001 were  approximately  $2.7 million
lower  compared with the fiscal year ended  February 29, 2000 due primarily
to  reductions  in  overhead  levels in our U.S.  and  Canadian  operations
slightly offset by normal inflationary increases.

     Depreciation  and Amortization  Costs of approximately  $125.5 million
for the fiscal year ended  February 28, 2001 were $12.5 million higher than
the fiscal year ended  February 29,  2000,  due  primarily  to  incremental
amortization  expense  resulting  from a change in the estimated  remaining
useful life of goodwill and incremental depreciation related to investments
in new theatres which commenced  operations  partially offset by the effect
of theatre  disposals.  Goodwill  primarily  represents the excess purchase
price  associated  with our  combination  with Cineplex  Odeon in May 1998.
Prior to the  third  quarter  of the  current  fiscal  year,  goodwill  was
amortized  over a 40 year  estimated  useful life. In  connection  with our
third  quarter  review and  assessment  of our  goodwill and as a result of
management's  plan at that time to accelerate the disposal of a significant
number of  screens  in the U.S.  and  Canada,  coupled  with the  continued
industry  downturn,  we had  determined  that a reduction in the  remaining
useful  life  for  goodwill  amortization  was  appropriate.  As a  result,
effective  September  1,  2000,  we  determined  that  a  more  appropriate
remaining  useful life for unamortized  goodwill is 20 years,  resulting in
additional  amortization  expense of approximately  $4.8 million during the
six months ended  February 28, 2001,  net of the impact of the write-off of
allocated goodwill. The remaining $7.7 million increase in depreciation and
amortization  costs was due  primarily  to the  aforementioned  incremental
depreciation related to investments in new theatres partially offset by the
effect  of  theatre  dispositions,  including  the  significant  number  of
theatres targeted for accelerated disposal.

     Restructuring  Charges of  approximately  $12.7 million for the fiscal
year ended  February 28, 2001  includes $8.8 million for  professional  and
advisory fees  associated  with our  evaluation of a longer-term  financial
plan (including amendments to our bank debt) and severance related payments
(approximately $3.9 million) primarily associated with headcount reductions
in our U.S. operations during November 2000.

     Loss on  Sale/Disposal  of  Theatres  and  Other  includes  losses  on
theatres which have been sold or disposed, the write-down of net book value
(including  allocated  goodwill) and other costs  associated  with theatres
targeted for accelerated disposition or lease renegotiation and a charge of
approximately  $4.6 million  related to the impairment of assets related to
the Magic Johnson  Partnership.  The loss on  sale/disposal of theatres and
other of  approximately  $245.8  million for the fiscal year ended February
28, 2001 was $237.4  million higher than the fiscal year ended February 29,
2000, due primarily to the timing,  nature and  characteristics  of theatre
dispositions  and  includes  a  fourth  quarter  charge  of  $80.5  million
primarily  associated  with the write-off of net book value  relating to 32
locations  comprising  246 screens  additionally  targeted for  accelerated
disposal or lease  renegotiation on a short-term basis. For the fiscal year
ended February 28, 2001, the loss on sale/disposal  of theatres  includes a
charge of $245.8 million (consisting primarily of the write-off of net book
value of $207.0 million and allocated  goodwill of $58.5 million  partially
offset by net proceeds  from asset  sales),  including  the  aforementioned
fourth  quarter   charge,   for  a  plan  to  accelerate  the  disposal  of
approximately 189 theatres comprising 1,160 screens in the U.S., Canada and
internationally.  These accelerated  disposal plans were as a result of the
continued decline in attendance levels  experienced at these theatres which
was exacerbated by the "sub-par"  industry-wide  summer and fall box office
levels.  These 189 theatres targeted for disposal  generated $215.4 million
in  revenues  and  negative  operating  cash flow of $22.2  million for the
fiscal year ended February 28, 2001.  During the fiscal year ended February
28, 2001, we actually disposed of 107 of these theatre locations comprising
587 screens  with the  remainder  targeted  for  disposal/renegotiation  in
Fiscal 2002. See the Liquidity and Capital Resources section for additional
information.

     Reorganization  Costs of approximately $42.1 million represent charges
incurred  as  a  result  of  the  activities   related  to  the  Bankruptcy
Proceedings.  Reorganization costs relate to (i) landlord claims related to
the  rejection of 69 theatre  leases (451 screens) in the U.S., 32 theatres
(180 screens)  repudiated  in Canada and four leases  terminated in Austria
and  Poland,  (ii) the  write-off  of  deferred  financing  fees and  (iii)
professional and advisory fees incurred  directly related to and subsequent
to  the  bankruptcy  filing  on  February  15,  2001.  See  Note  4 to  the
consolidated financial statements for additional information.

     Cumulative  effect of change in accounting  principle of approximately
$7.8  million for the fiscal year ended  February  28,  2001  represents  a
one-time charge to reflect adoption of SAB No. 101, "Revenue Recognition in
Financial  Statements",  regarding the accounting for our Passport and Gift
Certificate Programs (hereinafter  referred to as "certificates").  SAB No.
101  was  effective  beginning  December  1,  2000  requiring   retroactive
application to the beginning of our 2001 fiscal year with  restatement,  if
necessary, of all quarters for the current fiscal year. SAB No. 101 impacts
the timing of when  revenues may be recorded for  unredeemed  certificates.
Prior to the issuance of SAB No. 101, we would recognize "breakage revenue"
into income  immediately  upon the sale of  certificates  for the estimated
portion of certificates that would not be redeemed.  However, in accordance
with SAB No. 101, we no longer record breakage revenue upon sale but rather
upon the expiration  date of the  certificate or the date the obligation is
otherwise  fulfilled.  This change in accounting principle has no impact on
cash flows or the value of unredeemed  certificates held by customers.  The
retroactive application of SAB No. 101 to fiscal year 2000 would not have a
significant impact on our revenues.

     Interest  Expense of  approximately  $98.6 million for the fiscal year
ended  February 28, 2001 was  approximately  $25.9 million  higher than the
fiscal  year  ended  February  29,  2000,  due  primarily  to the impact of
additional  borrowings  under our Senior  Revolving Credit Facility coupled
with the impact of an increase in the variable  borrowing  rate relating to
our  Senior  Revolving  Credit  Facility.  See the  Liquidity  and  Capital
Resources section for additional information.

     Attributable  EBITDA of  $112.3  million  for the  fiscal  year  ended
February 28, 2001 decreased  $41.9 million in comparison to the fiscal year
ended February 29, 2000, due primarily to the  aforementioned  shortfall in
attendance  levels  experienced  primarily  during  the  second  and  third
quarters of the current year and the continued sub-par  performance of many
of our older  locations.  These  decreases were  partially  offset by other
increases in  Attributable  EBITDA  including the  favorable  impact of new
theatre  openings,  higher admission and concession  revenue per patron and
the reductions in overhead levels in our U.S. and Canadian  operations,  as
previously  discussed.  Attributable  EBITDA  (earnings  before  cumulative
effect of change in accounting principle, interest, taxes, depreciation and
amortization,  loss on sale/disposal  of theatres and other,  restructuring
charges,  reorganization  costs and equity earnings included in EBITDA plus
EBITDA  from  partnerships,  net of  partners'  share)  is a  measure  that
management uses to evaluate our financial performance.  Attributable EBITDA
measures the amount of cash that we have  available for investment or other
uses and is used by us as a measure of performance.  Attributable EBITDA is
primarily a management  tool and only one measure of financial  performance
to be considered by the investment community. Attributable EBITDA is not an
alternative to measuring operating results or cash flow under U.S. GAAP. In
addition,  the  Attributable  EBITDA  measure  presented  herein may not be
comparable to similarly titled measures reported by other companies.

FISCAL YEAR ENDED FEBRUARY 29, 2000 COMPARED TO FISCAL YEAR ENDED
FEBRUARY 28, 1999

     Operating Revenues of approximately $930.4 million for the fiscal year
ended  February  29, 2000 were $79.3  million  higher  than the  comparable
period of the prior  year.  Box office  revenues  for the fiscal year ended
February  29,  2000 of  approximately  $647.8  million  were $60.7  million
higher, and concession revenues of approximately  $243.5 million were $15.2
million  higher in comparison  to the fiscal year ended  February 28, 1999.
These  increases in operating  revenues were due primarily to the inclusion
of the Cineplex Odeon theatre  operating  results for the full twelve month
period in the current  year as compared to  inclusion  from the date of the
Combination  in the  prior  year  (partially  offset  by the  reduction  in
operating  revenues  related to the sale of the DOJ  theatres),  additional
revenue from new theatre openings and improvements in admission revenue per
patron.  Excluding  the  impact  of  the  Cineplex  Odeon  operations,  our
operating revenues  increased by $50.8 million,  or 12.0%, due primarily to
additional  revenue from new theatre openings and improvements in admission
revenue  per  patron  of $.23.  These  increases,  which  aggregated  $86.6
million,  were partially offset by other reductions in operating  revenues,
which   aggregated   $35.8   million,   including  the  effect  of  theatre
dispositions  and a  decline  in  attendance  levels  at some of our  older
locations.

     Operating  Costs of  approximately  $733.0 million for the fiscal year
ended  February 29, 2000 were  approximately  $78.5 million higher than for
the fiscal year ended  February 28, 1999, due primarily to the inclusion of
the operating  results for the Cineplex  Odeon theatres for the full twelve
month period in the current year as compared to inclusion  from the date of
the  Combination  in the prior year  (partially  offset by the reduction in
operating  costs related to the sale of the DOJ theatres),  increased costs
related  to  the   aforementioned   increase  in  operating   revenues  and
incremental occupancy costs attributable to new theatre openings. Excluding
the impact of the Cineplex Odeon operations,  our operating costs increased
$38.5  million,  or 12.3%,  due  primarily  to the  increase  in  operating
revenues  mentioned  above and an  increase  in film costs  resulting  from
higher than normal film rent terms for the period primarily associated with
the  strong  performance  of Star  Wars -  Episode  I: The  Phantom  Menace
(circuit-wide  impact estimated at $6.2 million).  These  increases,  which
aggregated $67.3 million,  were partially offset by lower costs,  including
the impact of theatre  dispositions and attendance  declines at some of our
older locations, aggregating $28.8 million.

     General and  Administrative  Costs of approximately  $53.0 million for
the fiscal year ended  February 29, 2000 were $5.1 million  higher than for
the fiscal year ended  February 28, 1999, due primarily to the inclusion of
the operating results for the Cineplex Odeon theatres for the entire period
in the  current  year  as  compared  to  inclusion  from  the  date  of the
Combination in the prior year (net of cost savings  realized as a result of
the Combination),  normal  inflationary  increases and the additional costs
related to the continued development of our international operations.

     Depreciation  and Amortization  Costs of approximately  $113.0 million
for the fiscal year ended  February 29, 2000 were $22.3 million higher than
for the fiscal year ended February 28, 1999, due primarily to the inclusion
of the  operating  results for the  Cineplex  Odeon  theatres  for the full
twelve month  period in the current year as compared to inclusion  from the
date of the Combination in the prior year, incremental depreciation related
to investments in new theatres which  commenced  operations and incremental
goodwill  amortization  resulting from the Combination  recorded for a full
twelve month period in the current year in comparison  to a partial  period
in the prior year. The  aforementioned  increases were partially  offset by
the effect of theatre dispositions.

     Loss on Sale/Disposals  of Theatres of approximately  $8.4 million for
the fiscal year ended  February 29, 2000 was $3.9  million  higher than for
the fiscal year ended  February  28,  1999,  due  primarily  to the timing,
nature and  characteristics  of theatre  dispositions.  During  fiscal year
2000, we disposed of 55 theatre  locations  comprising  219 screens,  which
primarily  were  older,  obsolete  theatres  which  generated  marginal  or
negative cash flows. We will continue to  aggressively  dispose of theatres
that are  underperforming  or non-strategic.  See the Liquidity and Capital
Resources section for additional information.

     Interest  Expense of  approximately  $72.7 million for the fiscal year
ended  February 29, 2000 was $15.5 million  higher than for the fiscal year
ended February 28, 1999, due primarily to higher borrowings relating to the
Combination  (including  debt amounts  assumed from Cineplex Odeon) and the
impact of additional  borrowings under our Senior Revolving Credit Facility
to fund  investments in theatres and joint ventures coupled with the impact
of an  increase  in the  variable  borrowing  rate  relating  to our Senior
Revolving Credit Facility.  See the Liquidity and Capital Resources section
for additional information.

     Attributable  EBITDA for the fiscal  year ended  February  29, 2000 of
$154.3  million was $300  thousand  lower in  comparison to the fiscal year
ended  February  28,  1999,  due  primarily  to  the  aforementioned  lower
attendance  levels  experienced at some of our older locations,  the higher
than  normal  film  rental  costs as  previously  discussed,  the impact of
theatre  dispositions  (including  the DOJ  theatres)  and  the  additional
general  and  administrative  costs  relative  to  the  enhancement  of our
international  operations.  These decreases were partially  offset by other
increases  in  Attributable  EBITDA  including  the  impact of new  theatre
openings and higher admissions revenue per patron. Excluding the prior year
impact of the DOJ theatres, Attributable EBITDA for the year ended February
29, 2000 increased $5.5 million or 3.7% over the prior year.

LIQUIDITY AND CAPITAL RESOURCES

     Our industry continues to experience  significant  liquidity pressures
which is evident by the  number of theatre  exhibitors  that have filed for
bankruptcy  within the past year.  These  liquidity  pressures are due to a
number of factors including the downturn in attendance as reflected in year
over year operating  performance measures  (approximately 3%), the moderate
to  aggressive  new build  strategies  employed  by the  industry's  larger
exhibitors  which,  coupled with the difficulty in closing older,  obsolete
theatres,  has resulted in an oversupply  of theatre  screens in many North
American markets, impairment write-offs and losses on theatre dispositions,
the  continued  downward  credit  ratings  of the  industry  and the recent
bankruptcy filings by several theatre chains,  including five of the eleven
largest exhibitors, and defaults of certain loan agreements which have been
publicly  disclosed.  The greater number of screens in North America caused
by the  industry's  building new  theatres and the lack of a  corresponding
number of theatre closures in the same period, has resulted in a saturation
of screens and has  contributed to shortened  lengths of film run times and
increased film cost percentages  paid by exhibitors to distributors.  These
factors,  as well as the industry's  disappointing  operating  performance,
have contributed to significant reductions in the prices of publicly traded
debt and equity securities and has materially reduced the industry's access
to capital,  making it increasingly  difficult to meet  obligations as they
become due. In addition,  the industry  has  generally  fallen out of favor
with investors and lenders due to the liquidity  issues noted above and due
to a lack of credit  support from the usual capital  markets.  The industry
has fallen on hard times and is  presently  going  through  one of the most
significant and unprecedented  reorganizations in its history. We have been
negatively  affected  by  these  events  and have  experienced  significant
pressures  on our  liquidity  and our ability to meet  obligations  as they
became due. In an effort to relieve the pressures on our liquidity, we were
active in pursuing  possible  solutions  including  seeking capital through
other  sources   including   asset   securitizations,   equity   offerings,
sale-leaseback  transactions,  strategic alliances with other exhibitors, a
consensual  restructuring  of our capital  structure or a restructuring  of
certain of our subsidiaries. We were unable to implement these transactions
on the scale required to relieve us from the continued deterioration in our
liquidity and cash flow. These conditions are among the factors that led up
to us filing for bankruptcy protection.

     On February 15, 2001,  Loews Cineplex and all of its wholly owned U.S.
subsidiaries  filed voluntary  petitions to reorganize  under Chapter 11 in
the U.S.  Bankruptcy  Court.  In Canada,  the Initial Order was obtained on
February 15, 2001 from the Superior Court for our wholly owned  subsidiary,
Cineplex Odeon and certain of its other Canadian subsidiaries.  The Chapter
11  and  CCAA  filings  are  hereinafter  collectively  referred  to as the
"Bankruptcy  Proceedings".  In addition,  on February 26, 2001,  our wholly
owned Austrian subsidiary, LCE Europlex, filed a petition for bankruptcy in
Vienna,  Austria and on March 16, 2001, we filed a petition for  bankruptcy
in  Warsaw,  Poland on behalf of our wholly  owned  Polish  subsidiary  LCE
Polska Holding Sp. z o.o.

     We are presently operating our businesses as  debtors-in-possession in
the U.S. and pursuant to the Initial Order in Canada.  We are authorized to
operate our business in the ordinary course.  As a result of the Chapter 11
filing,  substantially  all actions to secure the  payment of  pre-petition
indebtedness  are subject to compromise or other  treatment under a plan of
reorganization.  Generally,  actions to enforce or otherwise effect payment
of pre-Chapter 11 liabilities  are stayed.  Pre-petition  claims secured by
our assets ("secured claims") are also stayed, although the holders of such
claims  have  the  right to move  the  court  for  relief  from  the  stay.
Pre-petition secured claims (primarily  representing amounts borrowed under
our Senior Revolving Credit Facility) are generally secured by all personal
property  and certain  real  property of Loews  Cineplex  and our  domestic
subsidiaries, a pledge of stock of all domestic subsidiaries and our equity
interest in and loans to our foreign  subsidiaries.  Although  pre-petition
claims are generally stayed, as part of the first day orders and subsequent
motions granted by the Bankruptcy  Court, the Bankruptcy Court approved our
motions to pay certain pre-petition obligations including: (i) payments, on
normal  terms,  to  film  distributors,   (ii)  continuing  to  honor  gift
certificates,  movie passes and other customer programs,  (iii) payment for
employee wages and related benefits and  reimbursement of employee business
expenses and (iv) adequate protection payments to the lenders of our Senior
Revolving  Credit  Facility.  We have been and  intend to  continue  to pay
undisputed post-petition claims of all vendors, film distributors and other
suppliers in the ordinary  course of business.  In addition,  we may reject
pre-petition  executory contracts and unexpired leases with the approval of
the  Bankruptcy  Court with  respect to our U.S.  operations.  Any  damages
resulting  from rejection of executory  contracts and unexpired  leases are
treated as general  unsecured  claims in the U.S.  We will notify all known
claimants  subject  to the bar date of their  need to file a proof of claim
with the  Bankruptcy  Court. A bar date is the date by which claims against
us must be filed if  claimants  wish to  receive  any  distribution  in the
Chapter  11 case.  No bar date  has yet been set by the  Bankruptcy  Court.
Differences  between  liability amounts estimated by us and claims filed by
creditors will be investigated  and the Bankruptcy  Court will make a final
determination of the allowable claim. The  determination of how liabilities
will  ultimately be settled and treated cannot be made until the Bankruptcy
Court approves a Chapter 11 plan of reorganization.

     As a result of the Initial Order of the Superior Court,  substantially
all  actions  to  enforce  or  otherwise   effect   payment  of  pre-filing
obligations of Cineplex Odeon and its subsidiaries  are stayed.  The rights
of  secured  creditors  to enforce  against  our  Canadian  assets are also
stayed. The stay period expires on June 15, 2001 and Cineplex Odeon intends
to seek an  extension  thereof;  the granting of an extension is within the
discretion of the Superior Court. The Initial Order permits (i) payments on
normal terms to persons  supplying goods and services after the date of the
Initial Order,  including  film  suppliers,  as well as certain  pre-filing
claims, (ii) continuing to honor gift certificates,  movie passes and other
customer  programs,  (iii) payment for employee wages and related  benefits
and  reimbursement  of  employee  business  expenses  as well as  statutory
severance  pay and (iv)  the  borrowing  of up to $20  million  from  Loews
Cineplex and the  granting of security by the assets of Cineplex  Odeon and
its  subsidiaries  to secure such  borrowings.  Cineplex Odeon has been and
intends to continue to pay  undisputed  post-filing  claims of all vendors,
film suppliers and other suppliers in the ordinary  course of business.  In
addition,  the Initial Order permits the repudiation of unexpired leases of
Cineplex  Odeon and its  subsidiaries.  Landlords  whose  leases  have been
repudiated  will be  entitled  to file a claim in the CCAA  proceedings  in
respect of such  repudiation.  The  treatment  of such claims has yet to be
determined and will be set out in a plan of compromise  and  arrangement to
be  presented by Cineplex  Odeon to the Superior  Court and to its affected
creditors. A claims process and claims bar date must also be established to
determine  the  claims  entitled  to vote  on a plan as well as to  receive
distributions  thereunder.  This  will be  determined  by an  order  of the
Superior Court.  Ultimately,  any plan of compromise or arrangement must be
approved  by a vote of a majority in number of  creditors  of each class of
creditors  affected  by the  plan  as  well  as by a  vote  of  holders  of
two-thirds of the value of the claims of each such class. If such a vote is
favorable, the plan must then be sanctioned by the Superior Court.

     As a result of our recurring  losses,  the Chapter 11 and CCAA filings
and  circumstances  relating to these events,  including our debt structure
and current economic  conditions,  realization of assets and liquidation of
liabilities  are subject to significant  uncertainty.  We believe that cash
from  operations  along with financing  provided the DIP Facility should be
available to provide  liquidity to allow us to continue as a going concern.
However,  there can be no assurance  of this.  Our ability to continue as a
going  concern is dependent  upon our ability to maintain  compliance  with
debt  covenants  under  the  DIP  Facility  and  the  ability  to  generate
sufficient  cash  from  operations  and  financing   sources  to  meet  our
obligations  as  they  become  due.  In the  event  a  Chapter  11  plan of
reorganization/CCAA plan of arrangement (collectively referred to as "plans
of reorganization")  are confirmed by the Bankruptcy  Court/Superior  Court
and become  effective,  continuation  of our  business  thereafter  will be
dependent  on  our  ability  to  achieve  successful  operations,  maintain
satisfactory  capital  and  liquidity  and obtain  access to funds  under a
credit  facility.  Until  plans  of  reorganization  are  confirmed  by the
Bankruptcy  Court/Superior  Court  and  become  effective,  there can be no
assurance that we will emerge from these  bankruptcy  proceedings,  and the
effect of the terms and conditions of such plans of  reorganization  on our
business  cannot be determined  and therefore  there is  substantial  doubt
regarding our ability to continue as a going concern.

     We expect that our current liquidity needs can be financed through the
DIP  Facility.  The DIP Facility was  approved by the  Bankruptcy  Court on
April 4, 2001.  This DIP Facility,  which expires on the earlier of January
31, 2002 or upon the  occurrence  of certain  other  events  including  the
effectiveness of a plan of reorganization, is designed to provide liquidity
to allow us to  operate  in the  ordinary  course  and meet  certain of our
funding  commitments for completion of certain theatre  complexes now under
construction in North America. The debtor-in-possession  commitment that we
received from Bankers Trust is for approximately $146 million,  $60 million
of which consists of a revolving credit line with the remaining $86 million
to repay post-default  advances (i.e.,  subsequent to August 31, 2000) made
under our  Senior  Revolving  Credit  Facility,  which  were  secured  with
mortgages on eleven of our existing theatre properties,  and to provide for
outstanding  letters of credit.  Loans under the DIP Facility bear interest
at the bank's base rate plus 1.5% or LIBOR plus 3.25%. The terms of the DIP
Facility contain certain restrictive  covenants which include:  limitations
on  the  incurrence  of  additional  guarantees,  liens  and  indebtedness,
limitations on the sale of assets and the funding of capital  expenditures.
The DIP Facility also requires  that we meet certain  minimum  consolidated
cumulative earnings before interest, taxes,  depreciation/amortization  and
other expenses as defined. For the months ended February 28, 2001 and March
31, 2001, we were in compliance  with all financial  covenant  requirements
reflected in the DIP Facility.

     The $60 million revolving credit facility included in the DIP Facility
will be used (i) to finance our operations in the normal course of business
during  the   restructuring   process   (including  the  required  adequate
protection  payments  and funding the  operating  requirements  and certain
capital projects of Cineplex Odeon Canada - up to a maximum of $20 million)
and (ii) to complete certain "designated" construction projects,  currently
under construction, which were committed to prior to the petition date. The
terms of the DIP  Facility  also  requires us to make  adequate  protection
payments on a monthly basis on the pre-default  amounts  borrowed under our
Senior Revolving Credit Facility  (approximately $655 million).  The amount
of the monthly  adequate  protection  payments is based on the base rate of
interest plus 150 basis points.  The loan by us to Cineplex Odeon Canada of
up to $20 million was approved by the Superior  Court on February 15, 2001.
This loan has been  secured by the assets of Cineplex  Odeon Canada and its
subsidiaries  with the  security  being held by Deutsche  Bank  (Canada) as
agent. The loan and the security  therefor have been pledged to the lenders
under the DIP Facility.  As of February 28, 2001, no amounts had been drawn
against the DIP  Facility.  As of May 18, 2001,  we have drawn $4.0 million
against the DIP Facility.  Our availability  under the DIP Facility amounts
to $56 million as of May 18, 2001.

     Cash flow used by operating activities for the year ended February 28,
2001 was  approximately  $43.2 million as compared to cash flow provided by
operating  activities  of  approximately  $57.1  million for the year ended
February 29,  2000.  This  decrease is due  primarily to the lower level of
cash flow generated from  operations  and  additional  interest  expense in
comparison  to  the  prior  year.  See  discussion  of  operating   results
previously  presented  in this  "Management's  Discussion  and  Analysis of
Financial Condition and Results of Operations".  We generate cash flow from
our theatre  operations  (including cash generated from  investments in new
builds and reconfigurations of existing theatres).  Also, we preserve cash,
after  applicable  buy-out  costs,  as a result of the closing of obsolete,
unprofitable  or  non-strategic  theatres,  the majority of which  generate
negative cash flow from  operations.  Our revenues are generated  primarily
from  the  sale  of  admission  tickets,  concession  sales  and  ancillary
revenues. Generally, this provides us with working capital operating float,
which is consistent  with the  industry,  since cash revenues are generally
collected  in advance of the  payment of related  expenses.  Our  operating
revenue  levels are directly  related to the success and appeal of the film
product  produced and distributed by the studios.  In addition to cash flow
generated from  operations,  in the past, our liquidity  requirements  have
been funded  primarily by availability  under our Senior  Revolving  Credit
Facility. By reason of the commencement of the Chapter 11 cases, we have no
additional availability under this facility.

     We are continually  seeking other potential  revenue  opportunities in
addition to box office and concession revenues.  Unfortunately, the benefit
resulting from our new build program and additional  ancillary revenues was
overshadowed by the significant decline in revenues  experienced during the
second and third  quarters.  This decline in revenues was  primarily due to
lower than anticipated  industry-wide  attendance levels experienced during
the summer and fall months  (primarily  attributable  to the "sub-par" film
product)  and the  continued  decline in  attendance  at many of our older,
obsolete theatres.

     We  continue  to close  or  dispose  of  certain  overlapping  theatre
locations and underperforming theatres,  including older, obsolete theatres
which  contribute  only  marginally  to cash flow or operate at a cash flow
loss.  In  connection  with  the  Chapter  11 and  CCAA  filings,  we  have
established  reserves  for  settlement  of  landlord  claims as a result of
rejection or  repudiation  of theatre  leases.  These claims may be settled
either  by cash or  equity of Loews  Cineplex  or, in the case of  Cineplex
Odeon, as otherwise  provided in its CCAA plan of  arrangement.  The nature
and  magnitude  of how these  liabilities  will  ultimately  be treated and
settled cannot be determined until a Chapter 11 plan of reorganization/CCAA
plan of arrangement is confirmed by the Bankruptcy  Court or Superior Court
and become  effective.  As of May 15,  2001,  69  theatres  comprising  451
screens have been  approved for  rejection by the  Bankruptcy  Court in the
U.S., 32 theatres comprising 180 screens have been repudiated in Canada and
four leases have been terminated in Austria and Poland.  As a result of our
continued  review of the  leases in our  portfolio  and the  results of the
lease  renegotiation  process,   additional  leases  may  be  targeted  for
rejection or repudiation in the future.

     At February 28, 2001, we had capital spending commitments  aggregating
approximately  $60.4 million that we anticipated funding over the next year
for the completion of construction of 7 theatre  properties  comprising 117
screens.   These  projects  are  currently  under   construction  and  were
previously  committed prior to our bankruptcy filing.  Given the decline in
our cash flow and our need to  satisfactorily  resolve our liquidity  needs
and rationalize our capital structure, we have halted our expansion program
until we are able to resolve our financing needs.

     In  connection  with the  Combination,  we  entered  into a $1 Billion
Senior   Revolving   Credit   Facility  with  Bankers  Trust  Company,   as
administrative  agent. The Senior Revolving Credit Facility,  together with
an $84.5 million equity  contribution  provided by Universal Studios,  Inc.
("Universal"),  replaced the Sony  Corporation  of America  ("SCA")  Credit
Facility and Cineplex Odeon's existing credit facility, funded cash paid to
Sony Pictures Entertainment Inc. ("SPE") and/or its affiliates upon closing
of the Combination,  and provided  ongoing  financing to us to fund working
capital   requirements   and  theatre   expansion  in  North   America  and
internationally. This Senior Revolving Credit Facility was comprised of two
tranches, a $750 million senior secured revolving credit facility,  secured
by substantially all of our assets, other than real property interests, and
the  assets,   other  than  real  property   interests,   of  our  domestic
subsidiaries, and a $250 million uncommitted facility. The Senior Revolving
Credit Facility bears interest,  payable  monthly,  at a rate of either the
current  prime  rate as offered by  Bankers  Trust  Company or an  Adjusted
Eurodollar  rate (as defined in the credit  agreement)  plus an  applicable
margin  based on our Leverage  Ratio (as defined in the credit  agreement).
Our borrowings  under the Senior  Revolving Credit Facility at February 28,
2001  totaled  $733.8   million,   with  an  additional   $6.5  million  of
availability for outstanding  letters of credit.  The amount of accrued and
unpaid  pre-petition  interest is approximately $2.0 million.  By reason of
the Chapter 11 filing, there is no additional availability under the Senior
Revolving Credit Facility. In accordance with the final order approving the
DIP  Facility,  the  Company  is  authorized  to make  adequate  protection
payments in an amount equal to the monthly  interest due on the pre-default
bank  debt   outstanding   under  the  Senior   Revolving  Credit  Facility
(approximately $655 million).

     On  August  5,  1998,   we  issued  $300  million  of  8  7/8%  Senior
Subordinated Notes due 2008 to qualified  institutional  buyers in reliance
on Rule 144A under the Securities Act of 1933, as amended (the  "Securities
Act").  Net  proceeds of $288.6  million  were used  primarily to repay the
Plitt Notes (as defined  below) and borrowings  under the Senior  Revolving
Credit  Facility.  Subsequently,  on November  19,  1998,  we  completed an
offering to exchange $300 million aggregate  principal amount of our 8 7/8%
Senior  Subordinated  Notes  Due  2008,  which  were  registered  under the
Securities Act for a like principal  amount of our privately  placed 8 7/8%
Senior  Subordinated  Notes Due 2008.  On  February 1, 2001,  the  required
interest  payment of $13.3 million due on these Senior  Subordinated  Notes
was blocked by the lenders under our Senior Revolving  Credit Facility.  In
accordance  with the  Indenture,  we had  thirty  days to cure the  default
before such payment  default  became an event of default which would permit
the requisite  holders to accelerate  payment of the outstanding  principal
amount of and accrued  interest on these notes.  These notes  automatically
accelerated  as a result of the  Chapter 11 filing.  We do not at this time
have access to capital to be able to repay these notes or interest in cash.
The payments on the 8 7/8% Senior  Subordinated  Notes,  including interest
have been stayed.

     Our joint  venture in Spain entered into a revolving  credit  facility
with a group of banks in the amount of Euros 75 million  which was put into
place  during  September  2000.  This  facility  is  non-recourse  and  not
guaranteed  by us.  The  loan is fully  collateralized  by the  assets  and
operations  of our joint  venture in Spain.  The proceeds of this  facility
will be used to fund new theatre  construction  activity and  operations of
Yelmo Cineplex in Spain.

     In  connection  with  the  Combination,   we  made  payments  totaling
approximately  $417 million to SPE and its  affiliates  representing  (i) a
cash payment to satisfy all intercompany  indebtedness to affiliates of SCA
as of the closing date ($296  million),  (ii) a cash  payment  equal to the
fair value of  certain  transferred  assets  ($18  million),  and (iii) the
payment of a dividend  to a  subsidiary  of SPE ($103  million).  The first
payment was made on May 14,  1998,  and the final  payment,  which was as a
result of post-closing audit procedures  completed during the third quarter
of fiscal 1999, was made on November 17, 1998.

     As a  result  of the  Combination,  Plitt  Theatres,  Inc.  ("Plitt"),
Cineplex  Odeon's U.S. theatre group,  became our wholly owned  subsidiary.
Plitt had outstanding  $200 million  aggregate  principal amount of 10 7/8%
Senior  Subordinated  Notes due 2004 (the "Plitt  Notes").  The Combination
triggered a "change of control"  under  provisions of the  indenture  under
which the Plitt Notes were issued.  Accordingly,  on June 15,  1998,  Plitt
commenced  an offer to  purchase  any and all of the Plitt  Notes  which it
completed  on August 4,  1998,  with  holders of  approximately  97% of the
outstanding Plitt Notes tendering. Payment for the tendered Plitt Notes was
made during fiscal year 1999 in the amount of $215.9  million,  or 109.261%
of the outstanding  principal  amount of the Plitt Notes,  plus accrued and
unpaid  interest.  On May 13,  1999,  we  called  the  remaining  3% of the
outstanding  Plitt  Notes.  Payment for the called  Plitt Notes was made on
June 15, 1999 in the amount of $2.5  million,  which  included  the premium
paid to noteholders as well as the accrued and unpaid interest.

     On August 5, 1998, we sold to the public in an  underwritten  offering
10 million shares of common stock at a public  offering price of $11.00 per
share. Net proceeds of approximately  $103.0 million were used primarily to
repay our  borrowings  under the Senior  Revolving  Credit  Facility.  Upon
consummation of the equity  offering,  our Class A Non-Voting  common stock
held by SPE  automatically  converted  into an equal  number  of  shares of
common stock and 3,255,212 additional shares of common stock were issued to
Universal  for  no  consideration  under  anti-dilution  provisions  of the
Company's subscription agreement with Universal.

     In August 1998, we entered into interest rate swap agreements, with an
aggregate  notional  amount of $250 million,  for a period of four years to
hedge a portion of the Senior Revolving Credit Facility  variable  interest
rate risk. On May 26, 2000,  we monetized the value of these  contracts and
sold these swaps for $8.65 million.  We believe that we maximized the value
of these  contracts as a result of this sale. As we had accounted for these
swaps as interest  rate hedges,  the gain  realized  from the sale has been
deferred and will be realized pending reorganization of the debt.

     Since the Combination,  we pursued the sale of certain theatres in New
York City and Chicago  that were subject to approval by the  Department  of
Justice  ("DOJ"),  in accordance with the terms of an agreement  reached to
permit the  Combination.  As a result,  during the fourth quarter of fiscal
1999, we sold to Cablevision  Systems Corporation 33 screens in 12 theatres
in New York City,  in accordance  with the DOJ order,  and an additional 14
screens in 4 theatres  in the  suburban  New York area for  aggregate  cash
proceeds of $87.5  million.  Approximately  $87.2 million of these proceeds
was utilized to pay down our Senior Revolving Credit Facility.

     Pursuant to the agreement  with the DOJ, we were also required to sell
49  screens at 11  theatre  locations  in  Chicago.  On April 7,  1999,  we
completed the sale of 30 screens at 8 of these theatre locations to a third
party.  This  transaction was not  significant to our operating  results or
financial  position.  A portion of these  proceeds was utilized to pay down
our Senior  Revolving Credit  Facility.  Additionally,  under the agreement
with the DOJ, we are required to sell the remaining 19 screens at 3 theatre
locations in Chicago.  We were unable to sell these locations and, pursuant
to the original  agreement  with the DOJ, a trustee was appointed to effect
the sale of these  locations.  The  trustee  was also  unable to sell these
locations  and had  submitted a final  report to the court.  On November 9,
2000,  the DOJ  consented  to us  retaining  these  three  locations  and a
stipulation and order received court approval.

     Although  we  continue to realize  net  operating  losses  ("NOL") for
income tax  purposes,  we continue to be subject to levels of minimum state
and local income and capital taxes in North America which are not offset by
our NOLs.  Additionally,  all of our goodwill  arising from the Combination
will be  non-deductible  in  determining  future  income tax expense in the
United  States.  However,  we believe that any additional tax calculated on
the add-back of goodwill  amortization will be substantially  offset by our
NOL carryforward from prior years.

EFFECT OF INFLATION AND FOREIGN CURRENCY

     Inflation and foreign  currency  fluctuations  have not had a material
effect on our operations.

RISK MANAGEMENT

     The overall  objective of our financial risk management  program is to
seek to mitigate any potential  negative  earnings  effects from changes in
foreign exchange and interest rates arising in our business activities.  We
manage these financial  exposures  through  operational  means and by using
various  financial  instruments.  These  practices  may change as  economic
conditions  change.  Under certain  market  conditions,  interest rate swap
contracts and forward currency exchange  contracts are used to adjust these
interest and currency sensitive liabilities.

NEW ACCOUNTING PRONOUNCEMENTS

     On June 23, 1999, the Financial  Accounting Standards Board decided to
defer the  effective  date of Statement of Financial  Accounting  Standards
("SFAS")  No.  133,  "Accounting  for  Derivative  Instruments  and Hedging
Activity". As a result of this deferral, SFAS No. 133 will be effective for
all  of our  fiscal  quarters  beginning  March  1,  2001.  This  statement
standardizes the accounting for derivative  instruments,  including certain
derivative  instruments  embedded in other contracts,  by requiring that we
recognize  those  items  as  assets  or  liabilities  in our  statement  of
financial  position  and measure  them at fair value.  The adoption of this
standard  will not have a significant  impact on our  operating  results or
financial position.

LITIGATION MATTERS

     From time to time,  we are  involved in routine  litigation  and legal
proceedings  in the ordinary  course of business,  such as personal  injury
claims,  employment matters and contractual  disputes.  We believe that the
ultimate  disposition  of  these  matters,  to the  extent  not  previously
provided for, will not have a material  impact on our operating  results or
financial position.  Certain litigation and legal proceedings are discussed
in Item 3 - Legal  Proceedings  and Note 18 of our  consolidated  financial
statements for the fiscal year ended February 28, 2001.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Loews  Cineplex  has  limited  exposure  to  financial  market  risks,
including changes in interest rates,  movement in foreign currency exchange
rates and other relevant market prices.

     As a result of our  bankruptcy  proceedings,  we entered  into the DIP
Facility.  As of February 28, 2001,  no amounts had been drawn  against the
DIP Facility.  As of May 18, 2001, we have $4.0 million outstanding against
the DIP  Facility.  Prior to the Chapter 11 and CCAA  filings,  we borrowed
money under our Senior  Revolving  Credit Facility to fund operating needs,
and at February 28, 2001, we had outstanding  borrowings of $733.8 million.
Prior to the petition date, the amounts borrowed under our Senior Revolving
Credit Facility were subject to interest at a variable interest rate priced
at the  applicable  margin over the bank base rate or LIBOR.  The  weighted
average  interest rate as of February 28, 2001 was 9.2%. As a result of the
Chapter 11 and CCAA  filings,  principal  and interest  payments may not be
made on pre-petition  debt (other than court approved  adequate  protection
payments) until the plan of reorganization defining the repayment terms has
been  approved by the  Bankruptcy  Court.  The amount of accrued and unpaid
pre-petition interest is approximately $2.0 million.

     The amount  outstanding  under our Senior Revolving Credit Facility of
$733.8  million plus $6.5 million  outstanding  under  existing  letters of
credit at February 28, 2001 represents a pre-petition secured claim that is
subject to compromise or other  treatment  under a plan of  reorganization.
Pre-petition  secured claims are stayed although the holders of such claims
have  the  right  to  move  the  court  for  relief  from  the  stay.   The
determination  of how this liability  will  ultimately be treated cannot be
made  until  the  Bankruptcy  Court  approves  a  plan  of  reorganization.
Accordingly, the ultimate amount and settlement terms for this liability is
presently not determinable.

     We are exposed to market risk arising from changes in foreign currency
exchange  rates  as a  result  of  international  operations.  See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this Form 10-K Annual Report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated  financial statements of Loews Cineplex are submitted
as a separate  section of this report.  For a list of financial  statements
and  schedules  filed as part of this  report,  see the "Index to Financial
Statements" on page F-1.

ITEM 9. CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     Not applicable.

<PAGE>

                                  PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  concerning  the directors of Loews  Cineplex is set forth
below.

<TABLE>
<CAPTION>

                                                                               PRINCIPAL OCCUPATION,
NAME, AGE AND POSITION WITH LOEWS CINEPLEX                             BUSINESS EXPERIENCE AND DIRECTORSHIPS
------------------------------------------                             -------------------------------------

<S>                                      <C>              <C>
GEORGE A. COHON...........................64              Mr. Cohon has been Senior  Chairman of the Executive  Committee
                                                          of  McDonald's   Restaurants   of  Canada  Limited  and  Senior
      o    Director (since May 1998)                      Chairman of  McDonald's  in Russia  since 1992.  Mr. Cohon also
                                                          serves as a  director  of The Royal  Bank of Canada  and Astral
                                                          Communications  Inc.  Additionally,  Mr. Cohon is an officer of
                                                          the Order of Canada.

                                                          Mr. Cohon is an independent director.

NORA EPHRON...............................60              Ms.  Ephron  is a  writer,  director  and  producer  of  motion
                                                          pictures.  She has also written a number of books.
      o    Director (since October 1998)
                                                          Ms. Ephron is an independent director.

MEL HARRIS................................58              Mr. Harris has been  Co-President  and Chief Operating  Officer
                                                          of Sony Pictures  since  September  1999.  From  September 1995
      o    Director (since January 2000)                  through August 1999 Mr. Harris served as a Media  Consultant to
                                                          Sony  Pictures.  From February 1992 to August 1995,  Mr. Harris
                                                          was President of Sony Pictures Entertainment Television Group.

                                                          Mr. Harris is a designee of Sony Pictures.

ALLEN KARP................................60              Mr.  Karp has been  Chairman  and Chief  Executive  Officer  of
                                                          Cineplex  Odeon Canada since May 1998.  From May 1993 until May
      o    Chairman and Chief Executive                   1998, Mr. Karp served as President and Chief Executive  Officer
           Officer of Cineplex Odeon Canada               of Cineplex Odeon Corporation.
      o    Director (since May 1998)
                                                          Mr. Karp is a management director.

KENNETH LEMBERGER.........................54              Mr.  Lemberger  has  been  President  of the  Columbia  TriStar
                                                          Motion  Picture Group since January 1997.  From 1994 to January
      o    Director (since May 1998)                      1997, Mr.  Lemberger was Corporate  Executive Vice President of
                                                          Sony Pictures.

                                                          Mr. Lemberger is a designee of Sony Pictures.

FRANK MERGENTHALER........................40              Mr.  Mergenthaler has been Senior Vice President of Finance and
                                                          Deputy Chief Financial  Officer of Vivendi  Universal since its
      o    Director (since May 2001)                      formation in December  2000.  From 1997 to December  2000,  Mr.
                                                          Mergenthaler  served as Senior Vice  President,  Controller and
                                                          Chief  Accounting  Officer of The Seagram Company Ltd. Prior to
                                                          joining The Seagram Company,  Mr. Mergenthaler was a partner at
                                                          Price Waterhouse in New York.

                                                          Mr. Mergenthaler is a designee of Universal.

KAREN RANDALL.............................47              Ms.  Randall  has been  Executive  Vice  President  and General
                                                          Counsel of  Universal  since March 2000.  From 1996 to February
      o    Director (since May 1998)                      2000,  Ms.  Randall served as Senior Vice President and General
                                                          Counsel of Universal.  From 1991 to February  1996, Ms. Randall
                                                          was  Managing  Partner  of the Los  Angeles  office  of  Katten
                                                          Muchin & Zavis.

                                                          Ms. Randall is a designee of Universal.

LAWRENCE J. RUISI.........................53              Mr. Ruisi has been  President  and Chief  Executive  Officer of
                                                          Loews  Cineplex  since May 1998.  Mr.  Ruisi was  President  of
      o    President and Chief Executive Officer          Sony Retail  Entertainment  Inc. from  September 1994 until May
      o    Director (since May 1998)                      1998.  Mr.  Ruisi also served as  Executive  Vice  President of
                                                          Sony Pictures from 1990 through May 1998. In these  capacities,
                                                          Mr.  Ruisi was  responsible  for  oversight  of Sony  Pictures'
                                                          theatrical exhibition group, including the Loews Theatres, Star
                                                          Theatres and Magic Johnson Theatres circuits.

                                                          Mr. Ruisi is a management director.

DIANA SCHULZ..............................36              Ms.  Schulz  joined  Universal's   Corporate   Development  and
                                                          Strategic  Planning  group in 1997 and has been Vice  President
      o    Director (since April 2001)                    of Corporate  Development and Strategic  Planning for Universal
                                                          since  August  1999.  Prior to joining  Universal,  Ms.  Schulz
                                                          served for six years in the Los Angeles  office of McKinsey and
                                                          Company.

                                                          Ms. Schulz is a designee of Universal.

BEDI A. SINGH.............................41              Mr. Singh has been Chief  Financial  Officer and Executive Vice
                                                          President  of Sony  Pictures  since  July 1999.  From  December
      o    Director (since May 2000)                      1996 to June 1999,  Mr. Singh  served as Senior Vice  President
                                                          of Strategic  Planning and Deputy Chief  Financial  Officer for
                                                          Fox Filmed  Entertainment.  From 1994 to 1996, Mr. Singh served
                                                          in the  Office  of the  Chairman  of  News  Corporation  in Los
                                                          Angeles.

                                                          Mr. Singh is a designee of Sony Pictures.

HOWARD STRINGER...........................59              Mr. Stringer has been Chairman and Chief  Executive  Officer of
                                                          Sony  Corporation  of America since May 1997 and as Chairman of
      o    Director (since May 1998)                      Sony Pictures since May 1998.  Mr.  Stringer has also served as
                                                          President  of Sony  Corporation  of America  and as a member of
                                                          the Boards of Directors of Sony  Corporation  of America,  Sony
                                                          Pictures,  Sony Electronics and Sony Music Entertainment,  Inc.
                                                          since May 1997.  From March 1995 to April  1997,  Mr.  Stringer
                                                          was  Chairman  and CEO of  TELE-TV,  a  company  formed by Bell
                                                          Atlantic, Nynex and Pacific Telesis.

                                                          Mr. Stringer is a designee of Sony Pictures.

WILLIAM A. SUTMAN.........................39              Mr. Sutman has been Executive Vice  President  Finance,  Canal+
                                                          Group,  the television  and film division of Vivendi  Universal
      o    Director (since November 1999)                 S.A.  since March 2001.  Prior to that,  Mr.  Sutman  served as
                                                          Senior Vice President and Chief Financial  Officer of Universal
                                                          from August 1999 to February  2001.  Mr. Sutman served as Chief
                                                          Financial  Officer of Universal  from  February  1999 to August
                                                          1999 and as Vice  President and  Controller  of Universal  from
                                                          February  1997 to  February  1999.  From June 1994 to  February
                                                          1997, Mr. Sutman served as Vice President,  Audit for Joseph E.
                                                          Seagram & Sons.

                                                          Mr. Sutman is a designee of Universal.

ROBERT WIESENTHAL.........................34              Mr.  Wiesenthal  has been  Executive  Vice  President and Chief
                                                          Strategy  Officer of Sony  Broadband  Entertainment  since June
      o    Director (since September 2000)                2000.  Prior  to  joining  Sony,  Mr.  Wiesenthal  served  as a
                                                          Managing  Director  for  the  investment  banking  firm  Credit
                                                          Suisse First Boston in New York.

                                                          Mr. Wiesenthal is a designee of Sony Pictures.

MORTIMER B. ZUCKERMAN.....................63              Mr. Zuckerman has been Chairman of Boston Properties,  Inc. for
                                                          over  five  years.   Mr.   Zuckerman   is  also   Chairman  and
      o    Director (since May 1998)                      Editor-in-Chief of U.S. News and World Report,  Chairman of The
                                                          Atlantic  Monthly,  Chairman and  Co-Publisher  of the New York
                                                          Daily News,  Chairman of Fast  Company and  Chairman of Applied
                                                          Graphics Technologies.

                                                          Mr. Zuckerman is an independent director.

Information concerning the executive officers (who are not also directors) of Loews Cineplex is set forth below.

                                                                               PRINCIPAL OCCUPATION,
NAME, AGE AND POSITION WITH LOEWS CINEPLEX                             BUSINESS EXPERIENCE AND DIRECTORSHIPS
------------------------------------------                             -------------------------------------
JOHN C. MCBRIDE, JR.......................45              Mr. McBride has been Senior Vice President and General  Counsel
                                                          of Loews  Cineplex  since  May  1998.  Mr.  McBride  served  as
      o    Senior Vice President and General Counsel      Senior Vice  President,  Legal  Affairs of Sony  Pictures  from
                                                          1996 to 1998.  From 1992 to 1996,  Mr.  McBride  served as Vice
                                                          President,  Legal Affairs of Sony Pictures.  From 1990 to 1992,
                                                          Mr.  McBride  served  as  Assistant  General  Counsel  of  Sony
                                                          Pictures.

TRAVIS REID...............................47              Mr.  Reid has been  President,  North  American  Operations  of
                                                          Loews  Cineplex  since May 1998.  Mr. Reid served as  President
      o    President, North American Operations           of Loews  Theatres from October 1996 until May 1998 and for the
                                                          preceding year served as Executive Vice President,  Film Buying
                                                          of Loews  Theatres.  For the  three  years  prior to 1995,  Mr.
                                                          Reid  served  as  Senior  Vice  President  of  Film  for  Loews
                                                          Theatres.  Prior to joining  Loews  Theatres in 1991,  Mr. Reid
                                                          served  as  Vice   President  of  Film  for  General   Cinema's
                                                          Midwestern, Southwestern and Western regions.

J. EDWARD SHUGRUE.........................51              Mr.  Shugrue has been  President,  International  Operations of
                                                          Loews  Cineplex  since May 1998.  From 1996 until May 1998, Mr.
      o    President, International Operations            Shugrue  served  as  a  senior  corporate   executive  of  Sony
                                                          Pictures'   Corporate   Development   Group,   where   he   was
                                                          responsible    for    identifying    and   developing    growth
                                                          opportunities  for  Sony  Pictures  in  international  markets.
                                                          From 1987 to 1996,  Mr. Shugrue served as President of Columbia
                                                          TriStar  Film  Distributors  International,  the  international
                                                          theatrical arm of Sony Pictures.

JOSEPH SPARACIO...........................41              Mr.  Sparacio has been Vice  President,  Finance and Controller
                                                          of Loews Cineplex since May 1998. Mr.  Sparacio  served as Vice
      o    Vice President, Finance and Controller         President of Finance and  Controller  of Loews  Theatres,  from
                                                          1994 to May 1998.  From 1990 to 1994,  Mr.  Sparacio  served as
                                                          Controller   of  Loews   Theatres.   Prior  to  joining   Loews
                                                          Theatres,  Mr.  Sparacio  spent  eight  years with the New York
                                                          City  office  of the  independent  accounting  firm of  Ernst &
                                                          Young where he was a Senior Manager of Audit.  Mr.  Sparacio is
                                                          a  certified  public  accountant  and a member of the  American
                                                          Institute  of  Certified  Public  Accountants  and the New York
                                                          State Society of Certified Public Accountants.

MINDY TUCKER..............................41              Ms.  Tucker  has  been  Corporate  Vice  President,   Strategic
                                                          Planning and Secretary of Loews  Cineplex  since May 1998.  Ms.
      o    Corporate Vice President, Strategic            Tucker  served as Senior  Vice  President  of  Development  and
           Planning and Secretary                         Planning for Sony Retail  Entertainment  from 1996 to May 1998.
                                                          From  1994 to 1996,  Ms.  Tucker  served as Vice  President  of
                                                          Business Development for Sony Retail  Entertainment.  From 1992
                                                          to 1994,  Ms.  Tucker  served as Vice  President  of  Corporate
                                                          Strategy and Planning of Sony Pictures.

JOHN J. WALKER............................48              Mr.  Walker has been Senior  Vice  President,  Chief  Financial
                                                          Officer and  Treasurer of Loews  Cineplex  since May 1998.  Mr.
      o    Senior Vice President, Chief Financial         Walker  served as Senior  Vice  President  and Chief  Financial
           Officer and Treasurer                          Officer of Loews  Theatres from 1990 until May 1998.  From 1988
                                                          to 1990,  Mr. Walker served as Vice President and Controller of
                                                          Loews  Theatres.  Mr. Walker is a certified  public  accountant
                                                          and a member of the  American  Institute  of  Certified  Public
                                                          Accountants and the New York State Society of Certified  Public
                                                          Accountants.

</TABLE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section  16(a) of the  Securities  Exchange  Act of 1934  requires our
directors  and   executive   officers  to  file  reports  of  holdings  and
transactions  in our shares  with the SEC.  Based on our  records and other
information,  we believe that during the 2001 fiscal year our directors and
executive  officers  and 10%  shareholders  met all  applicable  SEC filing
requirements.

ITEM 11.  EXECUTIVE COMPENSATION

     The table below shows the before-tax  compensation  for the last three
years of our five  highest paid  executive  officers at the end of the 2001
fiscal year.

<TABLE>
<CAPTION>
                                                SUMMARY COMPENSATION TABLE

                                                                                        SECURITIES
                                 FISCAL                               OTHER ANNUAL      UNDERLYING         ALL OTHER
NAME AND PRINCIPAL POSITION       YEAR      SALARY        BONUS     COMPENSATION(1)       OPTIONS        COMPENSATION
-------------------------------  -------  -----------  -----------  ----------------  ---------------  -----------------

<S>                               <C>     <C>          <C>          <C>                   <C>            <C>
Lawrence J. Ruisi..........       2001    $ 750,000    $ 296,000    $     ___             100,000        $ 14,275(2)
   President and Chief            2000    $ 750,000    $ 397,500    $     ___               ___          $ 16,920
   Executive Officer              1999    $ 746,026(3) $ 500,000    $   113,671(4)          ___          $ 21,444

Travis Reid................       2001    $ 474,408    $   ___      $     ___               ___          $ 13,016(5)
   President, North               2000    $ 461,163    $ 175,000    $     ___              40,000        $ 13,737
   American Operations            1999    $ 441,960    $ 225,000    $     ___               ___          $ 16,177

J. Edward Shugrue..........       2001    $ 486,686    $   ___      $   161,937(6)          ___          $ 10,937(7)
   President,                     2000    $ 472,028    $ 145,000    $   181,646(8)         36,000        $ 11,330
   International Operations       1999    $ 320,109    $ 200,000    $    12,918(9)          ___          $ 20,400

John C. McBride, Jr........       2001    $ 340,349    $   ___      $     ___               ___          $ 11,153(10)
   Senior Vice President          2000    $ 343,738    $  75,000    $     ___              24,000        $ 11,362
   and General Counsel            1999    $ 339,400    $ 125,000    $   95,776(11)          ___          $  8,555

John J. Walker.............       2001    $ 286,129    $   ___      $     ___               ___          $ 13,504(12)
   Senior Vice President,         2000    $ 278,136    $ 140,000    $     ___              24,000        $ 11,078
   Chief Financial Officer        1999    $ 265,107    $ 175,000    $     ___               ___          $ 14,005
   and Treasurer
</TABLE>

--------------------------------------------------
(1)  Unless  otherwise  indicated,  with respect to any individual named in
     the  above  table,  the  aggregate  amount  of  perquisites  and other
     personal benefits,  securities or property was less than the lesser of
     $50,000 or 10% of the annual  salary and bonus  reported for the named
     executive officer.

(2)  Represents  amounts paid by us to Mr. Ruisi related to the  following:
     $5,023  contributed  to our savings  plan as a matching  contribution,
     $7,200   contributed   to  our  savings  plan  as  a  profit   sharing
     contribution and $2,052 in premiums paid by us for life insurance.

(3)  Includes  amounts  paid to Mr.  Ruisi  as  President  of  Sony  Retail
     Entertainment,  a  position  in  which  Mr.  Ruisi's  responsibilities
     included  oversight  and direction of the Sony  theatrical  exhibition
     group.

(4)  Represents  amounts  paid to Mr.  Ruisi from the Sony  Corporation  of
     America deferred compensation plan.

(5)  Represents  amounts paid by us to Mr. Reid  related to the  following:
     $5,087  contributed  to our  savings  plan as a matching  contribution
     (including a $492 true-up  contribution),  $7,200  contributed  to our
     savings  plan as a profit  sharing  contribution  and $729 in premiums
     paid by us for life insurance.

(6)  Represents  $149,924 paid to Mr. Shugrue for  relocation  expenses and
     $12,013 paid to Mr. Shugrue for a car allowance.

(7)  Represents amounts paid by us to Mr. Shugrue related to the following:
     $2,679  contributed  to our savings  plan as a matching  contribution,
     $7,200   contributed   to  our  savings  plan  as  a  profit   sharing
     contribution and $1,058 in premiums paid by us for life insurance.

(8)  Represents  $11,257  paid  to  Mr.  Shugrue  for a car  allowance  and
     $170,389 paid to Mr. Shugrue for relocation expenses.

(9)  Represents  amounts  paid  to Mr.  Shugrue  under  the  Sony  Pictures
     deferred compensation plan.

(10) Represents amounts paid by us to Mr. McBride related to the following:
     $3,463  contributed  to our savings  plan as a matching  contribution,
     $7,200   contributed   to  our  savings  plan  as  a  profit   sharing
     contribution and $490 in premiums paid by us for life insurance.

(11) Represents  $14,836  paid  to Mr.  McBride  under  the  Sony  Pictures
     deferred  compensation  plan  and  $80,940  paid  to  Mr.  McBride  as
     relocation expenses.

(12) Represents  amounts paid by us to Mr. Walker related to the following:
     $5,808  contributed  to our  savings  plan as a matching  contribution
     (including a $1,203 true-up  contribution),  $7,200 contributed to our
     savings  plan as a profit  sharing  contribution  and $496 in premiums
     paid by us for life insurance.

<TABLE>
<CAPTION>

                                          OPTION GRANTS IN THE LAST FISCAL YEAR

                                                                                         POTENTIAL REALIZABLE
                                                                                               VALUE
                                        PERCENT OF                                        AT ASSUMED ANNUAL
                           NUMBER OF     TOTAL                                          RATES OF STOCK PRICE
                           SECURITIES    OPTIONS    EXERCISE                              APPRECIATION FOR
                           UNDERLYING    GRANTED     OR BASE                                 OPTION TERMS (2)
                            OPTIONS     IN FISCAL   PRICE PER     EXPIRATION                 ----------------
       NAME                 GRANTED       YEAR      SHARE (1)        DATE                5%                    10%
   ------------             --------     ------     ---------        ----             --------                ----

<S>                         <C>           <C>        <C>         <C>                  <C>                   <C>
Lawrence J. Ruisi...        100,000       29.41%     $3.625      April 26, 2010       $228,375              $526,375
Travis Reid.........          ____        ____        ____           ____               ____                  ____
J. Edward Shugrue...          ____        ____        ____           ____               ____                  ____
John C. McBride, Jr.          ____        ____        ____           ____               ____                  ____
John J. Walker......          ____        ____        ____           ____               ____                  ____
</TABLE>

--------------------

(1)  The per share option exercise  prices  represent the fair market value
     of our common stock as of the date of the grant.  The options vest and
     become  exercisable at the rate of one-fifth per year over a five-year
     period  from the date of the  grant and have a term of ten  years.  In
     addition,  all options  granted  become  exercisable  upon a change of
     control as defined in the 1997 Stock Incentive Plan.

(2)  The amounts  shown in these  columns are  calculated at the 5% and 10%
     rates  set by the  Securities  and  Exchange  Commission  and  are not
     intended to forecast future appreciation of our stock price.

None of the named executive officers were granted stock appreciation rights
during the last fiscal year.

<TABLE>
<CAPTION>

                                  AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES

                                                            NUMBER OF SECURITIES              VALUE OF UNEXERCISED
                           SHARES                      UNDERLYING UNEXERCISED OPTIONS        IN-THE-MONEY OPTIONS AT
                          ACQUIRED                          AT FEBRUARY 28, 2001                FEBRUARY 28, 2001
                             ON           VALUE        ------------------------------    ------------------------------
NAME                      EXERCISE       REALIZED      EXERCISABLE     UNEXERCISABLE     EXERCISABLE      UNEXERCISABLE
----                      --------       --------      -----------     --------------    -----------      -------------

<S>                         <C>            <C>           <C>              <C>                <C>              <C>
Lawrence J. Ruisi...        ____           ____          700,000          300,000            ____             ____
Travis Reid.........        ____           ____          108,000          182,000            ____             ____
J. Edward Shugrue...        ____           ____           97,200          163,800            ____             ____
John C. McBride, Jr.        ____           ____           64,800          109,200            ____             ____
John J. Walker......        ____           ____           64,800          109,200            ____             ____
</TABLE>

EMPLOYMENT AGREEMENTS

     Mr.  Ruisi.  Effective  May 14, 1998,  we entered  into an  employment
agreement  with Mr. Ruisi for a term of five years.  During his  employment
term,  Mr. Ruisi will serve as President and CEO of Loews Cineplex and be a
director of Loews  Cineplex and Cineplex  Odeon  Canada.  Mr. Ruisi will be
paid a base  salary of  $750,000  each year.  He will also be  eligible  to
participate in all of our then-operative  employee benefit plans applicable
generally to our senior executives. Moreover, Mr. Ruisi will be eligible to
receive an annual  bonus  targeted  at $500,000  plus a  specified  cost of
living  adjustment  (but in any  event  not  less  than  $250,000  plus the
specified cost of living adjustment). We made an initial grant to Mr. Ruisi
of options to purchase  900,000  shares of our common  stock at an exercise
price of $13.125.  Of these  options,  800,000 are fully vested and 100,000
will vest on May 14, 2002.  In addition,  on April 26, 2000, we granted Mr.
Ruisi options to purchase 100,000 shares of our common stock at an exercise
price of $3.625.  We are obligated under the terms of Mr. Ruisi's agreement
to grant him an  additional  100,000  options  on each of May 13,  2001 and
2002.  Given that we have recently filed for protection under Chapter 11 of
the Bankruptcy Code, however, the options due to be granted on May 13, 2001
have not been  granted.  The terms of all of these  options are governed by
the 1997 Stock Incentive Plan.

     If we terminate Mr. Ruisi's  employment  without cause, Mr. Ruisi will
receive:

     o    his accrued but unpaid salary and benefits and a pro rata portion
          of the minimum  annual bonus for the year of  termination,  and

     o    his base salary,  employee benefits and minimum annual bonus that
          would  have been  payable  during the  balance of his  employment
          term.

     In addition,  any options  awarded  before his  termination  will vest
immediately  and continue to be  exercisable  in accordance  with our stock
incentive  plan for up to twelve months from the  termination  date. In all
other  termination  events,  Mr.  Ruisi will receive his accrued but unpaid
salary and benefits and a pro rata portion of the minimum  annual bonus for
the year of termination.

     Travis Reid.  Mr. Reid entered into his current  employment  agreement
with us effective May 1, 1998.  This agreement had an initial term of three
years and we had an option to extend it for an additional two years,  which
we exercised on December 8, 2000. Mr. Reid's employment  agreement provides
for an annual base salary of $450,000, with annual cost of living increases
at the end of years one, two and four.  Upon our exercise of the  extension
option,  at the end of year three of his  contract,  Mr. Reid's annual base
salary was  increased  by $50,000.  Mr.  Reid's  agreement  provides for an
annual  bonus  targeted  at  $200,000,  which is  subject  each year to the
attainment of goals to be established by the Board.

     J. Edward Shugrue.  Mr. Shugrue  entered into an employment  agreement
with us effective  December 15, 1997, to serve as President,  International
Operations for a term of four years. We had a one year option to extend his
agreement,  which we exercised on December 8, 2000. Mr. Shugrue's agreement
provides for an annual base salary of $450,000,  with annual cost of living
increases at the end of years one,  two and four and a $50,000  increase at
the end of year three. The agreement also provides an annual bonus targeted
at $200,000,  which is subject each year to the  attainment  of goals to be
established  by the Board,  and  reimbursement  of  relocation  and related
transportation expenses.  Pursuant to his employment agreement, we made Mr.
Shugrue a full-recourse  interest-bearing  loan in the principal  amount of
$1.25 million.

     John C. McBride,  Jr. Mr. McBride entered into an employment agreement
with us effective  January 19, 1998 for a term of five years. Mr. McBride's
agreement provides for an annual base salary of $325,000,  with annual cost
of living  increases  at the end of years  one,  two and four and a $25,000
increase at the end of year  three.  The  agreement  also  provides  for an
annual bonus  targeted at between  $75,000 and  $125,000,  which is subject
each year to the attainment of  performance  goals to be established by the
Board.

     John J.  Walker.  Mr.  Walker  entered  into  his  current  employment
agreement with us effective May 1, 1998. This agreement had an initial term
of three  years and we had an option  to  extend it for an  additional  two
years,  which we exercised  on December 8, 2000.  Mr.  Walker's  employment
agreement provides for an annual base salary of $275,000,  with annual cost
of  living  increases  at the end of  years  one,  two and  four.  Upon our
exercise of the extension option, at the end of year three of his contract,
Mr.  Walker's  annual base salary was  increased by $50,000.  Mr.  Walker's
agreement  provides  for an annual  bonus  targeted at  $125,000,  which is
subject  each  year to the  attainment  of goals to be  established  by the
Board.

     Under the employment  agreements with Messrs.  Reid, Shugrue,  McBride
and  Walker,  during  their  respective  employment  terms,  they  are also
entitled to participate in all employee benefit plans applicable  generally
to our senior executives. They also receive car allowances. If we terminate
the employment of any of Messrs.  Reid, Shugrue,  McBride or Walker without
cause prior to the expiration of their respective terms, the executive will
receive his base  salary,  target  bonus and  benefits  through  such date,
reduced  by any  compensation  paid or  payable  to him in  respect  of any
subsequent employment for the same period.

COMPENSATION OF DIRECTORS

     None of the directors,  other than the independent directors,  receive
compensation from Loews Cineplex to serve in their capacity as directors.

     Annual Cash Retainer  Fees.  Independent  directors  receive an annual
cash stipend of $30,000 per year.

     Meeting Fees.  Independent  directors also receive a fee of $1,000 for
each Board or committee meeting they attend.

     Stock  Compensation.  On April 14,  1999,  we  awarded  to each of our
independent  directors stock options to purchase 5,000 shares of our common
stock.  These  options  were  granted  under  the  terms of our 1997  Stock
Incentive Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     None of the members of the compensation or stock option  committees is
or has been an officer or employee of Loews Cineplex.  No executive officer
of Loews Cineplex  currently  serves on the  compensation  committee or any
similar committee of another public company.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table shows the number of Loews Cineplex common shares
beneficially owned as of May 15, 2001 by:

     o    each person who we know  beneficially owns more than five percent
          of our common shares,
     o    each of our directors,
     o    each executive officer named in the Summary Compensation Table on
          page 32 and
     o    our directors and executive officers as a group.

<TABLE>
<CAPTION>

                                                                                   SHARES BENEFICIALLY OWNED
                                                                           ------------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER                                              NUMBER                PERCENT
-----------------------------------------------------------------------    -------------------     ------------------

<S>                                                                              <C>                    <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE
     5% STOCKHOLDERS:

         Sony Pictures Entertainment Inc.                                        23,137,111(1)          39.5%
         550 Madison Avenue
         New York, New York 10022

         Universal Studios, Inc.                                                 14,946,461(1)(2)       25.5%
         100 Universal City Plaza
         Universal City, California 91608

         MDP Ventures II LLC                                                      6,092,700(3)          10.4%
         c/o Millenium Partners Management LLC
         1995 Broadway
         New York, New York 10023

         The Claridge Group                                                       4,269,216(1)(4)        7.3%
         c/o Claridge Inc.
         1170 Peel Street, 8th Floor
         Montreal, Quebec H3B 4P2

         Dimensional Fund Advisors Inc.                                           3,955,900(5)           6.7%
         1299 Ocean Avenue, 11th Floor
         Santa Monica, California 90401

     DIRECTORS:(6)

         George Cohon                                                                 2,900(7)             *
         Nora Ephron                                                                  2,000(7)             *
         Mel Harris                                                                      (8)               -
         Allen Karp                                                                 537,614(9)             *
         Kenneth Lemberger                                                               (8)               -
         Frank Mergenthaler                                                             (10)               -
         Karen Randall                                                                  (10)               -
         Diana Schulz                                                                   (10)               -
         Bedi A. Singh                                                                   (8)               -
         Howard Stringer                                                                 (8)               -
         William A. Sutman                                                              (10)               -
         Robert Wiesenthal                                                               (8)               -
         Mortimer B. Zuckerman                                                        3,000(7)             *

     EXECUTIVE OFFICERS:

         Lawrence J. Ruisi                                                          850,000(11)          1.5%
         Travis Reid                                                                166,000(12)            *
         J. Edward Shugrue                                                          149,400(13)            *
         John C. McBride, Jr.                                                        99,600(14)            *
         John J. Walker                                                              99,600(15)            *

     ALL DIRECTORS AND EXECUTIVE OFFICERS
     AS A GROUP (22 PERSONS)                                                      1,810,514              3.1%

CLASS B NON-VOTING COMMON STOCK, PAR VALUE $.01 PER SHARE

         Universal Studios, Inc.                                                     80,000             95.2%
         100 Universal City Plaza
         Universal City, California 91608

</TABLE>

----------------------
*    Indicates  beneficial  ownership  or  control  of less  than 1% of the
     outstanding shares of common stock.

(1)  All of such  shares  are  subject  to the  terms  of the  Stockholders
     Agreement.

(2)  Vivendi  Universal S.A. owns an approximately 92% indirect interest in
     Universal.  Based on a Schedule 13D filed with the SEC on December 18,
     2000,  descendants of the late Samuel Bronfman and trusts  established
     for their  benefit  beneficially  owned,  directly or  indirectly,  an
     aggregate  of  88,896,034  of Vivendi  Universal  American  Depository
     Shares and exchange  shares,  representing  approximately  8.6% of the
     then outstanding Vivendi Universal voting rights.

(3)  Based on a Schedule 13G filed by MDP Ventures II LLC ("MDP Ventures"),
     Millenium  Development  Partners II LLC ("Millenium  Development") and
     Christopher  M. Jeffries  ("CMJ") with the SEC on August 25, 2000. MDP
     Ventures is the holder of record with respect to  6,092,700  shares of
     common stock.  Millennium  Development,  as the managing member of MDP
     Ventures, has the power to vote and the power to dispose of the common
     stock held by MDP  Ventures.  CMJ,  as the holder of a majority of the
     limited liability company interests of Millennium Development, has the
     power to manage  Millennium  Development  and  therefore  has the sole
     power to vote and the sole power to  dispose of the common  stock held
     by MDP  Ventures.  The  reporting  parties do not have shared power to
     vote or direct the vote,  or shared  power to dispose or to direct the
     disposition of the common stock.

(4)  Based on a Schedule  13D filed by the  Claridge  Group with the SEC on
     November 15, 2000. Excludes 17,426 shares of common stock owned by the
     wives  of  Mr.  Bronfman  and  Sen.  Kolber,  as to  which  beneficial
     ownership has been disclaimed. Members of the Claridge Group and their
     holdings of voting securities are as follows:
       - The Charles Rosner Bronfman Discretionary Trust: 1,918,907 shares,
       - The Charles Bronfman Trust: 1,000,000 shares,
       - The Charles R. Bronfman Trust: 1,000,000 shares, and
       - Senator E. Leo Kolber: 350,309 shares.

     Charles Rosner Bronfman may be deemed to share beneficial ownership of
     the shares held by the three trusts listed above.

(5)  Based on a Schedule 13G filed by  Dimensional  Fund  Advisors Inc with
     the SEC on February 2, 2001.

(6)  Excludes Mr. Ruisi, a management director, who is included below under
     Executive Officers.

(7)  Includes options to acquire shares of our common stock granted to each
     independent  director on April 14, 1999,  2,000 of which are currently
     exercisable.

(8)  Excludes  23,137,111  shares of common  stock owned by Sony  Pictures.
     Messrs. Harris, Lemberger, Wiesenthal, Singh and Stringer, officers of
     Sony Pictures or its affiliates,  disclaim beneficial ownership of all
     Loews Cineplex shares owned by Sony Pictures.

(9)  Includes 1,714 shares of common stock which are beneficially  owned by
     the Allen and  Sharon  Karp  Trust,  as to which  Mr.  Karp  disclaims
     beneficial  ownership and 535,900  shares of common stock which relate
     to options currently exercisable.

(10) Excludes  14,946,461 shares of common stock and 80,000 shares of Class
     B common stock owned by Universal.  Mr. Sutman, Mr. Mergenthaler,  Ms.
     Randall and Ms.  Schulz,  officers  of  Universal  or its  affiliates,
     disclaim  beneficial  ownership of all Loews Cineplex  shares owned by
     Universal.

(11) Includes 800,000 options currently exercisable.

(12) Represents 166,000 options currently exercisable.

(13) Represents 149,400 options currently exercisable.

(14) Represents 99,600 options currently exercisable.

(15) Represents 99,600 options currently exercisable.

                           STOCKHOLDERS AGREEMENT

     The following is a brief summary of our  Stockholders  Agreement  with
Sony Pictures, Universal and the Claridge Group.

THE BOARD OF DIRECTORS

     The  Stockholders  Agreement  requires us to have a 16-member Board of
Directors. Two of these members must be the most senior executives of Loews
Cineplex. At least three others must be independent directors.  The current
management  directors are Lawrence J. Ruisi, who is our President and Chief
Executive  Officer,  and Allen Karp,  who is Chairman  and Chief  Executive
Officer of Cineplex Odeon Corporation.  As long as Mr. Karp is an executive
officer of Loews Cineplex or an affiliate,  the Agreement says that he must
be one of the management directors.

     An "independent director" is any director who:

     o    is  free  from  any  relationship  that,  in the  opinion  of the
          nominating  committee,  would  interfere  with  the  exercise  of
          independent judgment as a director,

     o    is not an affiliate of Loews Cineplex,  Sony Pictures,  Universal
          or the  Claridge  Group or a current  or former  officer of Loews
          Cineplex,  Sony Pictures or Universal or any of their  respective
          subsidiaries,

     o    does  not  also  act  on a  regular  basis  as an  individual  or
          representative  of  an  organization  serving  as a  professional
          advisor,  legal  counsel or  consultant  to  management  of Loews
          Cineplex,  Sony Pictures,  Universal or the Claridge Group or any
          of their respective subsidiaries, and

     o    does not represent,  and is not a member of the immediate  family
          of,  a  person  who  does not  satisfy  the  requirements  of the
          foregoing four categories.

     Sony  Pictures,  Universal  and the  Claridge  Group are  entitled  to
designate for nomination for election to our Board, the number of directors
that generally corresponds to the percentage of our voting shares they each
own, as follows:

<TABLE>
<CAPTION>

                         APPLICABLE PERCENTAGE                                    NUMBER OF DIRECTORS
----------------------------------------------------------------------            -------------------
<S>                                                                                        <C>
       Equal to or greater than 6.25% and less than 9.375%                                 1
       Equal to or greater than 9.375% and less than 15.625%                               2
       Equal to or greater than 15.625% and less than 21.875%                              3
       Equal to or greater than 21.875% and less than 28.125%                              4
       Equal to or greater than 28.125% and less than 34.375%                              5
       Equal to or greater than 34.375% and less than 40.625%                              6
       Equal to or greater than 40.625% and less than 46.875%                              7
       Equal to or greater than 46.875% and less than 53.125%                              8
       Equal to or greater than 53.125% and less than 59.375%                              9
       Equal to or greater than 59.375% and less than 65.625%                              10
       Equal to or greater than 65.625% and less than 71.875%                              11
       Equal to or greater than 71.875% and less than 78.125%                              12
       Equal to or greater than 78.125% and less than 84.375%                              13
       84.375% and greater..............                                                   14

</TABLE>

     As described  below,  Sony Pictures and Universal  must consent to our
issuance of voting shares above  specified  thresholds.  If we issue shares
below these  thresholds  at a time when their consent would be required for
an  issuance  above the  thresholds,  we do not  include  the new shares in
calculating these percentages.  The Stockholders  Agreement refers to these
percentages as the "applicable  percentage" and they are used to define the
rights of Sony  Pictures,  Universal and the Claridge  Group in a number of
important areas.

     The  following  additional  limitations  and  exceptions  apply to the
general rule of proportionality in Board representation:

     o    until May 14, 2003,  the Claridge  Group is entitled to designate
          one director if it owns more than 3.5% of our common stock,  and,
          after May 14, 2003, if it owns more than 5%,

     o    if Sony Pictures, Universal and the Claridge Group would together
          be  entitled to  designate  more than 14  directors,  each of the
          thresholds  on the  chart  will  be  increased  by  the  smallest
          percentage  that  would  result  in their  being  entitled  to 14
          directors; and

     o    until May 15, 2002, no  stockholder is entitled to designate more
          than eight directors.  This cap ends,  however,  if a stockholder
          would be entitled to designate  more than eight  directors on the
          basis of its "adjusted  applicable  percentage"  ownership of our
          voting shares.  In  calculating  this  percentage,  the agreement
          generally  lets a  stockholder  count the  shares it owned at the
          closing of the  combination,  shares acquired from each other and
          their  permitted  transferees,   shares  acquired  through  their
          exercise of the equity  purchase  rights  described  later on and
          shares  acquired  through  stock splits and the like. It does not
          let them  count  shares  acquired  in the  market,  in  privately
          negotiated  purchases  from third parties or by direct  purchases
          from us except through the exercise of equity purchase rights.

     Sony  Pictures,  Universal  and the  Claridge  Group also agreed among
themselves that:

     o    none  of  them  will be  entitled  to  designate  more  than  six
          directors. However, this cap also ends if one of the stockholders
          could  designate a majority of the  directors on the basis of its
          "adjusted applicable percentage". In addition, this cap increases
          from six directors to seven if the "applicable percentage" of one
          of the stockholders exceeds 45% on or after May 14, 2001.

     o    at any time that either Sony Pictures or Universal's  "applicable
          percentage"  equals or exceeds 40.625% and the  six-director  cap
          applies,  the other has  agreed  that one of its Board  designees
          will  be an  independent  director  so  long  as its  "applicable
          percentage" equals or exceeds 21.875%.

     If Sony Pictures,  Universal and the Claridge Group  collectively  can
designate 13 or more directors,  at least one of the individuals designated
by each of Sony Pictures and  Universal  will be an  independent  director,
unless one of them is only  entitled to  designate  one  director.  In this
case, two of the designees of the other must be independent.

     We and the other  parties to the  Stockholders  Agreement  have agreed
that,  except for the stockholder  designees and the management  directors,
everyone else that we nominate to our Board will be independent, unless the
sitting independent directors waive this requirement.

     Sony  Pictures,  Universal and the Claridge  Group have agreed to vote
their  voting  shares  to  cause  each of their  designees  and each of the
independent directors and management directors designated by the nominating
committee  to be elected to the Board.  We have also agreed to use our best
efforts to cause the election of these designees and nominees.

     At each Board  election,  the  nominating  committee  is charged  with
designating  the  management  directors and the  independent  directors and
determining  whether  prospective  nominees  as  management  directors  and
independent   directors  meet  the  criteria  for  these   positions.   The
Stockholders  Agreement requires the nominating  committee to comprise four
directors, consisting of two independent directors designated by a majority
of the  independent  directors,  one  designee  of  Sony  Pictures  and one
designee of Universal.  The nominating committee does not consider nominees
recommended by other stockholders.

     The  Stockholders  Agreement  requires each  committee of the Board to
include  a  number  of Sony  Pictures  directors  and  Universal  directors
proportionate  to the numbers of their  designees then serving on the whole
Board. The  Stockholders  Agreement  contains other provisions  relating to
committees and various  provisions  relating to the  procedures,  including
meetings and agendas, and the powers of the Board.

     Sony Pictures,  Universal and the Claridge Group have each agreed that
they will not without the prior  written  consent of both Sony Pictures and
Universal:

     o    seek  the  election  or  removal  of  any  director,   except  as
          contemplated in the Stockholders Agreement,

     o    subject  any  shares  of  common  stock to any  arrangement  with
          respect to the voting of such shares,

     o    subject  to  certain  exceptions,  engage  in any  "solicitation"
          within  the  meaning of Rule  14a-11  under the  Exchange  Act of
          proxies or consents or become a  "participant"  in any  "election
          contest" within the meaning of Rule 14a-11 under the Exchange Act
          with respect to Loews Cineplex, or

     o    form a "group"  with respect to any shares of common stock within
          the meaning of Section 13(d)(3) of the Exchange Act, other than a
          group consisting of other parties to the Stockholders  Agreement,
          any of their affiliates and permitted transferees.

CONSENT RIGHTS

     So long as  either  Sony  Pictures  or  Universal  has an  "applicable
percentage"  of at least  17.86%,  it will  have the  right to  consent  to
specified actions by us and our subsidiaries, including:

     o    voluntary   bankruptcy   filings   by  us  or  any   "significant
          subsidiary",

     o    acquisitions   and  dispositions   meeting   specified  tests  of
          materiality,

     o    with limited exceptions,  engaging in any business other than the
          exhibition of films,

     o    transactions  with Sony  Pictures  or  Universal  or any of their
          respective affiliates involving more than $1,000,000 per calendar
          year, excluding arm's-length  transactions in the ordinary course
          of business, including film booking arrangements,

     o    changing the number of directors comprising the entire Board,

     o    issuing  any  voting  shares  or  their   equivalents   exceeding
          specified thresholds,

     o    paying cash dividends or making any other cash  distributions  on
          any shares of our capital stock or securities  convertible  into,
          exchangeable  or  exercisable  for, our capital  stock  exceeding
          specified thresholds,

     o    incurring any debt in excess of specified amounts, with specified
          exceptions,

     o    hiring, or renewing the employment contract of, either of our two
          most senior executive officers,

     o    entering into any arrangement with any holder of voting shares in
          the holder's capacity as a holder which subjects actions taken by
          us or any of  our  subsidiaries  to  the  prior  approval  of any
          person,

     o    entering into certain  discriminatory  stockholder  arrangements,
          including any stockholders rights plan, and

     o    amending our by-laws by action of the Board.

     Sony Pictures and Universal have additional  consent rights if we fail
to meet  specified  budgeted  financial  targets,  including  the  right to
approve:

     o    a new five-year strategic business plan,

     o    making capital expenditures exceeding specified thresholds,

     o    incurring any debt in excess of specified amounts,

     o    incurring liens to secure unsecured debt, and

     o    issuing any of our capital stock.

     Some of these consent rights have exceptions.

     Any dispute between us and either Sony Pictures or Universal  relating
to these consent  rights must be submitted to arbitration by an independent
arbitrator.  Pending  resolution of the dispute,  which  generally  must be
resolved  within ten business days of its  submission,  we may not take the
action which is the subject of the dispute.

     Moreover,  Sony  Pictures,  Universal and the Claridge Group have each
agreed to vote their shares or cause their  designees to the Board to vote,
at the  request of Sony  Pictures or  Universal,  against any action of the
Board or stockholders,  related to any

     o    merger,

     o    voluntary  liquidation,   dissolution  or  winding  up  of  Loews
          Cineplex,

     o    amendment or restatement of our certificate of incorporation, or

     o    amendment or repeal of any provision of Loews Cineplex's by-laws.

     These rights apply only if Sony Pictures' or  Universal's  "applicable
percentage" equals or exceeds 17.86% at the time of the request.

     So long as  Sony  Pictures'  or  Universal's  "applicable  percentage"
equals or exceeds 17.86%,  our certificate of  incorporation  provides that
effecting  a  merger  or   dissolution,   amending   our   certificate   of
incorporation  or  amending  or  repealing  our  by-laws  by  action of the
stockholders  will require the  affirmative  vote or written consent of the
holders of at least 80% of the outstanding  shares of common stock,  unless
the action is approved  by at least 14 members of the Board.  If 14 members
of the Board  approve the matter,  a majority  vote,  or with  respect to a
merger a 66 2/3% vote, will be required. However, this exception to the 80%
vote requirement does not apply to by-law amendments.

     Finally,  so  long  as  Sony  Pictures'  or  Universal's   "applicable
percentage" equals or exceeds 17.86%, neither Sony Pictures, nor Universal,
nor the  Claridge  Group will vote in favor of,  consent in writing  to, or
take any other  action to  effect an  amendment  or repeal of these 66 2/3%
vote provisions of our certificate of incorporation.

APPROVAL OF CERTAIN COMBINATIONS BY DISINTERESTED DIRECTORS

     If Sony Pictures' or  Universal's  "applicable  percentage"  equals or
exceeds 17.86%,  they will not enter into any contract with us, nor will we
otherwise   engage  in  any  transaction  with  them  involving  more  than
$1,000,000  per calendar  year,  unless this  transaction  is approved by a
majority of the disinterested  directors  following  disclosure of material
facts  to the  directors.  This  approval  requirement  does  not  apply to
transactions in the ordinary course of our business, including film booking
arrangements.

RESTRICTIONS ON TRANSFERS OF LOEWS CINEPLEX STOCK

     The  Stockholders  Agreement  includes the following  restrictions  on
transfers by Sony Pictures and Universal:

     Rights to  Participate  in Sales for All Loews  Cineplex  Stockholders
Including  Public  Stockholders.  Neither Sony  Pictures nor  Universal may
transfer,  individually or  collectively,  an aggregate of more than 50% of
our outstanding  voting shares to a third party  transferee  unless each of
our  stockholders has the right to participate in such transfer on the same
basis as Sony  Pictures  or  Universal.  This  right does not apply if Sony
Pictures or Universal  exercises its right of first refusal to purchase the
shares to be transferred.

     Rights to Participate  in Sales for Universal and the Claridge  Group.
Sony Pictures may not transfer more than 50% of our shares  initially owned
by it to any person,  other than a permitted  transferee,  unless Universal
and the Claridge  Group each has the right to  participate in this transfer
on the same basis as Sony Pictures.

     Right of First Refusal of Sony Pictures and  Universal.  Sony Pictures
and Universal have given each other  reciprocal  rights of first refusal in
connection with

     o    any  transfer  in  one  or  more  series  of  related   privately
          negotiated transactions or a public offering if (1) 5% or more of
          the then  outstanding  voting shares are subject to the transfer,
          (2) any transferee would,  following this transfer,  beneficially
          own 5% or more of the  outstanding  voting  shares  or (3) in the
          case of any transfer by Sony  Pictures or any of its  affiliates,
          Sony Pictures' "applicable percentage" exceeds 25%,

     o    any transfer  pursuant to a bona fide third party tender offer or
          exchange offer,

     o    any transfer to us or any of our subsidiaries, and

     o    any  transfer  in a brokers'  transaction  within the  meaning of
          Section 4(4) of the Securities Act.

     No  right  of first  refusal  applies  to any  transfer  between  Sony
Pictures or Universal and any of their respective permitted transferees.

STANDSTILL AGREEMENTS

     Each of Sony Pictures, Universal and the Claridge Group has agreed not
to, and to cause its  affiliates not to,  acquire,  directly or indirectly,
the beneficial ownership of any additional voting shares, except for:

     o    acquisitions  of up  to an  aggregate  of 5% of  the  outstanding
          voting shares during any twelve-month period, subject to specific
          price restrictions and

     o    acquisitions in privately  negotiated  transactions  from five or
          fewer persons pursuant to offers not made generally to holders of
          voting   shares   and   pursuant   to  which  the  value  of  any
          consideration  paid does not exceed 115% of the "market price" as
          determined in accordance  with  regulations  under the Securities
          Act (Ontario).

     These exceptions are not available to a stockholder  whose "applicable
percentage" would equal or exceed 25% after the acquisition if, as a result
of the acquisition,  the public  stockholders  would  beneficially own less
than 20% of the outstanding voting shares.

     There are the following additional exceptions for acquisitions:

     o    from Sony Pictures, Universal or the Claridge Group,

     o    pursuant to the exercise of the equity purchase rights  described
          below,

     o    on terms and conditions approved by the independent directors,

     o    pursuant to a tender or exchange  offer made in  accordance  with
          applicable law,

     o    to restore Sony  Pictures',  Universal's or the Claridge  Group's
          "applicable  percentage"  following a dilutive issuance of voting
          shares, and

     o    acquisitions of shares of common stock upon the conversion of the
          shares of Class B Non-Voting Common Stock.

     Sony  Pictures,  Universal and the Claridge Group have agreed that, in
the case of any permitted  acquisition  that would constitute a "Rule 13e-3
transaction"  as defined in Rule 13e-3 under the Exchange Act, prior to the
consummation of this transaction:

     o    a nationally  recognized  investment bank shall have delivered an
          opinion  to  our  Board  that  the  transaction  is  fair  from a
          financial  point  of view to our  stockholders,  other  than  the
          stockholder initiating the acquisition,

     o    a majority of the  independent  directors shall have approved the
          transaction, and

     o    if our public stockholders  beneficially own more than 20% of our
          voting  shares,  and if  stockholder  approval is required  under
          Delaware law or our certificate of  incorporation,  a majority of
          the shares of common stock held by the public  stockholders shall
          have been voted in favor of the transaction.

     The  standstill  restrictions  terminate on the earlier of (1) May 14,
2004,  and (2) any time after May 14, 2002 if the Claridge  Group ceases to
have the right to designate a director, or upon the occurrence of:

     o    a good faith tender or exchange offer to acquire more than 20% of
          our  voting  shares  made  by  any  person,   except  that  these
          restrictions  shall not terminate for a stockholder  who makes or
          induces  the  tender  or  exchange   offer.   Additionally,   the
          restrictions  will be  reinstated  if the offer is  withdrawn  or
          expires without being consummated,

     o    the  "applicable  percentage" of Sony Pictures,  Universal or the
          Claridge  Group  equaling or  exceeding  80%,  or, in the case of
          Universal,  33 1/3% at any time Universal  beneficially owns more
          voting shares than any other holder,

     o    with  respect  to any  particular  stockholder,  its  "applicable
          percentage" being less than 15% of our voting shares, except that
          the restrictions  will be reinstated if its percentage  ownership
          equals or exceeds 15% of our voting  shares within one year after
          falling below this threshold,

     o    any person (other than Sony Pictures,  Universal and the Claridge
          Group or a permitted  transferee)  beneficially  owning more than
          20% of the voting  shares,  not counting  voting shares  acquired
          from Sony Pictures,  Universal or the Claridge Group, a permitted
          transferee or Loews Cineplex, or

     o    the public stockholders  beneficially owning more than 66 2/3% of
          our voting shares.

     Sony  Pictures  and  Universal  have  agreed  with each  other and the
Claridge  Group has  agreed  with each of them that none of them nor any of
their  affiliates  will acquire,  directly or  indirectly,  the  beneficial
ownership of any of our voting shares:

     o    if  immediately   prior  to  the   acquisition   its  "applicable
          percentage" exceeds 50%, not counting voting shares acquired from
          one another or permitted transferees, or

     o    if, as a result of the acquisition, (1) it would beneficially own
          more than 50% of our voting  shares,  not counting  voting shares
          acquired  from one another or permitted  transferees,  or (2) the
          public  stockholders  would beneficially own less than 20% of our
          voting shares.

     These last  restrictions  do not apply if, upon  consummation  of such
acquisition, the acquiror's "applicable percentage" would be less than 25%.
These  restrictions  do not  prohibit the  acquisition  of shares of common
stock upon the conversion of shares of Class B non-voting common stock.

     These restrictions will terminate if:

     o    the "applicable  percentage" of either Sony Pictures or Universal
          is less than 10%. However, the restrictions will be reinstated if
          the applicable  percentage  equals or exceeds 10% within one year
          after falling below this threshold.

     o    any person makes a good faith tender or exchange offer to acquire
          more than 15% of our outstanding voting shares, except that these
          restrictions  will not terminate  for a stockholder  who makes or
          induces the tender or exchange offer or is acting in concert with
          the person making the offer. Additionally,  the restrictions will
          be reinstated if the offer is withdrawn or expires  without being
          consummated.

     o    any person (other than Sony  Pictures,  Universal or the Claridge
          Group or a permitted transferee)  beneficially owns more than 15%
          of our voting  shares,  not counting  shares  acquired  from Sony
          Pictures,   Universal  or  the  Claridge  Group  or  a  permitted
          transferee,  but only if the sum of the "applicable  percentages"
          of Sony Pictures and Universal is less than 45%.

REGISTRATION RIGHTS

     The  Stockholders  Agreement  gives Sony  Pictures,  Universal and the
Claridge Group demand and piggyback registration rights with respect to the
registration  under the  Securities  Act of shares of common stock owned by
them.  Sony  Pictures,  Universal  and the Claridge  Group are each able to
demand  registration  under the  Securities  Act of shares of common  stock
owned by them,  subject  to  specific  limitations.  In no event will Loews
Cineplex be required to effect,  in the case of each of Sony  Pictures  and
Universal,  more  than four  registrations  on  demand,  in the case of the
Claridge Group, more than one registration on demand, and in the aggregate,
more than nine registrations on demand.

     Sony  Pictures,  Universal and the Claridge  Group also have piggyback
registration  rights to include shares of common stock owned by them in any
registration  statement  filed  by us with  respect  to our  common  stock,
subject to specific exceptions.

EQUITY PURCHASE RIGHTS

     Sony Pictures and Universal have equity  purchase rights if we propose
to issue or sell any  voting  shares in a  transaction  for which they have
rights.  Subject to  applicable  rules of any stock  exchange  on which our
common stock is then listed, their rights will entitle them to acquire from
us a  portion  of the  securities  that  we  propose  to  issue  or sell in
proportion to their respective  "applicable  percentages",  prior to giving
effect to the proposed  issuance or sale. They may exercise their rights in
whole or in part.

ASSIGNMENTS OF RIGHTS AND OBLIGATIONS TO TRANSFEREES

     Permitted  transferees  of Sony  Pictures,  Universal and the Claridge
Group  will be  subject  to the terms and  conditions  of the  Stockholders
Agreement.  In some  circumstances,  third party  transferees will have the
right to  designate  directors.  They may also be entitled to  registration
rights.  Third party  transferees  will not receive the  tag-along  rights,
rights of first  refusal or equity  purchase  rights  described  above.  In
addition,  the consent  rights of Sony  Pictures and  Universal  may not be
assigned to third parties.

CERTAIN REMEDIES

     If either Sony  Pictures or Universal  has a good faith belief that we
or another party to the Stockholders  Agreement is likely to breach, or has
breached, in any material respect, its obligations under the agreement,  it
may deliver  notice of its belief to us and/or the  breaching  stockholder.
When we receive this notice and until the dispute is  resolved,  neither we
nor any  other  party  to the  Agreement  may take any  action  that  would
facilitate  the breach.  If we receive this notice,  we have agreed we will
take reasonable  actions to prevent the breach, if it has not yet occurred,
or to minimize any adverse consequences to the aggrieved  stockholder.  Our
operations may be interrupted or delayed pending such resolution.

     In addition, if Sony Pictures or we breach in any material respect any
of our  obligations to Universal  under the  Stockholders  Agreement,  Sony
Pictures and we must, at the request of Universal,  use our best efforts to
amend our certificate of  incorporation  to authorize a new class of common
stock to be issued by us to  Universal  and its  permitted  transferees  in
exchange  for the  common  stock  held by  them.  This new  class  would be
identical in all respects to the common stock, except that it would entitle
Universal to  proportionate  representation  on the Board on the same basis
that  Universal  is  entitled  to  representation  under  the  Stockholders
Agreement.  Universal's  consent rights would also be  incorporated in this
new class,  and Sony  Pictures  and  Universal  would cease to have consent
rights under the Stockholders Agreement. Such new class of common stock, if
issued,  would be convertible  into shares of common stock on a one-for-one
basis at any time at the discretion of the holder.

TERMINATION

     Except as  otherwise  described  in the  Stockholders  Agreement,  the
rights and obligations of a stockholder  under the  Stockholders  Agreement
terminates when its  "applicable  percentage" is less than 6.25% or, in the
case of the Claridge Group, 3.5% until May 14, 2003 and 5% after that date.
The rights do not end,  however,  if the decrease results from our issuance
of additional voting shares.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Sony Pictures and  Universal are major film studios and  distributors.
We exhibited  films  distributed by Sony Pictures and Universal in the past
and expect to  continue to do so in the future.  We pay Sony  Pictures  and
Universal based on negotiated  and/or contracted rates established on terms
that we believe are equivalent to an  arm's-length  basis.  At February 28,
2001,  we owed Sony  Pictures  approximately  $10.9  million and  Universal
approximately $1.0 million under film licensing  agreements.  We recognized
approximately  $41.0  million  in  film  rental  expenses  relating  to the
exhibition of films  distributed by Sony Pictures and  approximately  $48.2
million  in  film  rental  expenses  relating  to the  exhibition  of  film
distributed by Universal, in each case, for the 2001 fiscal year.

     In  addition  to  the  Stockholders   Agreement  with  Sony  Pictures,
Universal  and the  Claridge  Group  (described  above in Item 12), we have
ongoing  obligations  with Sony  Corporation of America under the following
agreements:

     Trademark  Agreement.  Subject to certain  conditions and  termination
rights,  Sony  Corporation  of America  granted Loews  Cineplex a five-year
right to use the trademark "Sony" and all goodwill associated with the mark
in connection  with the operation of two of our theatres,  the Sony Lincoln
Square  theatre in New York City and the Sony  Metreon  Theatre  located in
Sony's  Metreon   entertainment/retail   complex  in  San  Francisco.  Sony
Corporation of America recently terminated this right pursuant to the terms
of the agreement.

     Tax Sharing and Indemnity  Agreement.  Sony  Corporation of America is
responsible  for and will  indemnify us and our U.S.  subsidiaries  against
certain  consolidated,  combined  and  unitary  federal,  state,  local and
foreign income, franchise and capital taxes for all taxable years ending on
or prior to the closing of our combination with Cineplex Odeon,  except for
taxes incurred by us and our U.S.  subsidiaries  after that date arising by
reason of an audit or court  proceeding.  The  agreement  also  sets  forth
procedures for (1) preparing and filing  consolidated  combined and unitary
federal and state income, franchise and capital tax returns with respect to
taxable years ending on or prior to the combination and (2) the conduct and
settlement  of certain  tax audits and  proceedings  with  respect to these
taxable  years.  We  have  agreed  to  indemnify  and  hold  harmless  Sony
Corporation   of  America  and  Sony   Pictures  with  respect  to  certain
liabilities  that may arise in connection  with  agreements that we assumed
from them at the time of the combination.

     Transition  Services  Agreement.  Sony Corporation of America and Sony
Pictures have agreed to provide us with specified  administrative  services
to the extent we require  such  services to conduct our  operations  in the
ordinary course of business.  They have agreed to provide these services at
prices and rates,  and subject to termination,  as Sony Pictures and we may
agree  upon.  These  terms  must be no less  favorable  to us than would be
obtainable from unaffiliated third parties.

     An   affiliate   of  Sony   Corporation   of  America   developed   an
entertainment/retail  complex in San Francisco.  We entered into a lease to
operate a 3D IMAX(R)  theatre and a  state-of-the-art  15-screen  multiplex
theatre located in this complex.  Total occupancy  related  payments during
fiscal year 2001 were approximately $4.7 million.

     In September  1990,  Cineplex Odeon sold its interest in the Universal
City Cinema motion picture theatre  facility located at the Universal City,
California  retail  and   entertainment   complex  Citywalk  to  Universal.
Universal  has  retained  us to manage  the  18-screen  theatre  there on a
long-term  basis for a fee of 3% of gross  revenue plus 3% of net cash flow
from the  multiplex.  For the  fiscal  year ended  February  28,  2001,  we
received  approximately $636 thousand under this management  agreement with
Universal. During a three-year period beginning from and after the later of
(1) May 14, 2000 and (2) the fifteenth day of the month following the first
month end as of which our debt is less  than  4.75  times our  consolidated
EBITDA for the 12-month period then ended,  Universal can cause us to lease
the Universal City Cinema for 20 years. If Universal  exercises this right,
we will pay  Universal,  for  entering  into the  lease and  conveying  the
related personal  property,  a cash payment equal to (1) ten times the cash
flow of the Universal City Cinema for the 12-month period ended on the last
day of the month  preceding  Universal's  notice of exercise  minus (2) the
cost of eliminating any  deficiencies  from the operating  requirements and
standards  set forth in the lease.  Universal's  put right  will  terminate
three years after it first becomes exercisable.

     We also  currently  operate an IMAX theatre  located in the  18-screen
Universal  City theatre at Citywalk and the  20-screen  Universal  Cineplex
theatre at Universal Studios in Orlando, Florida.

     We  have  entered  into  several   transactions   with  affiliates  of
Millennium   Development,   an  affiliate  of  MDP  Ventures  II  LLC,  and
negotiations are ongoing with respect to other transactions.  We lease real
property  in New York from an  affiliate  of  Millennium.  Total  occupancy
related payments to Millennium  during fiscal year 2001 were  approximately
$5.3  million.  In December  2000,  we entered  into an  agreement  with an
affiliate of Millenium to  restructure  a lease  entered into by one of our
subsidiaries  concerning  a property  in Boston,  Massachusetts.  Under the
terms of the  revised  agreement,  aggregate  base lease  payments  will be
approximately  $3.8 million per year with percentage rent payments based on
the  performance of the theatre.  Payments under this lease are expected to
commence  in  fiscal  year  2002.  Our  Star  Theatres  partnership  and an
affiliate of Millennium each hold a 50% interest in Star Southfield Center,
LLC, which leases real property in Michigan to Star Theatres.  Total rental
related payments to Star Southfield Center, LLC under this lease for fiscal
year 2001 were approximately $2.8 million.

     Pursuant  to  his  employment   agreement,   we  made  Mr.  Shugrue  a
full-recourse interest bearing bridge loan in the principal amount of $1.25
million in 1999. The loan  currently  bears interest at the prime rate plus
2% and is secured by real property and a portfolio of investment securities
owned by Mr. Shugrue's family trust.

     Pursuant to Mr. Karp's employment  agreement,  we made him an interest
bearing loan in the amount of $425,000 in 1999.  The loan bears interest at
the rate of 8.875% pursuant to the terms of his employment agreement.

                                PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this report:

     (1)  Financial  Statements:  The  financial  statements  listed in the
          "Index to Financial Statements" included beginning on page F-1 of
          this report.

     (2)  Financial Statement Schedules:  Valuation and Qualifying Accounts
          included on page S-1 of this report.

          All other  schedules are omitted  because they are not applicable
          or the required  information is shown in the financial statements
          or notes thereto.

     (3)  Exhibits:  The exhibits listed in the "Exhibit Index" included in
          this report.

(b)  Reports on Form 8-K:

     We filed a current  report on Form 8-K dated  December  8,  2000.  The
     report  disclosed in Item 5 that we entered  into the fifth  amendment
     and limited waiver to our credit agreement.

(c)  Exhibits:  The  response to this  portion of Item 14 is submitted as a
     separate section of this report.

(d)  Financial statement schedule: See Item 14(a)(2)

<PAGE>

                                 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.

                                 LOEWS CINEPLEX ENTERTAINMENT
                                 CORPORATION (REGISTRANT)

Dated:  May 29, 2001

                                 /s/ JOHN C. MCBRIDE, JR.
                                 ------------------------------------------
                                 John C. McBride, Jr.
                                 Senior Vice President and General Counsel

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.

<TABLE>
<CAPTION>
Signature                                      Title                                                     Date
---------                                      -----                                                     ----

<S>                                            <C>                                                       <C>
/s/  LAWRENCE J. RUISI                         President, Chief Executive Officer
-------------------------------------          and Director (Principal Executive
Lawrence J. Ruisi                              Officer)                                                  May 29, 2001

/s/  JOHN J. WALKER                            Senior Vice President, Chief
-------------------------------------          Financial Officer and Treasurer
John J. Walker                                 (Principal Financial Officer)
                                                                                                         May 29, 2001

/s/  JOSEPH SPARACIO                           Vice President, Finance and Controller
-------------------------------------          (Principal Accounting Officer)
Joseph Sparacio                                                                                          May 29, 2001

/s/  GEORGE A. COHON                           Director
-------------------------------------
George A. Cohon                                                                                          May 29, 2001

/s/  NORA EPHRON                               Director
-------------------------------------
Nora Ephron                                                                                              May 29, 2001

/s/  MEL HARRIS                                Director
-------------------------------------
Mel Harris                                                                                               May 29, 2001

/s/  ALLEN KARP                                Director
-------------------------------------
Allen Karp                                                                                               May 29, 2001

/s/  KENNETH LEMBERGER                         Director                                                  May 29, 2001
-------------------------------------
Kenneth Lemberger

                                               Director
-------------------------------------
Frank Mergenthaler                                                                                       May 29, 2001

/s/  KAREN RANDALL                             Director
-------------------------------------
Karen Randall                                                                                            May 29, 2001

/s/  DIANA SCHULZ                              Director
-------------------------------------
Diana Schulz                                                                                             May 29, 2001

/s/  BEDI A. SINGH                             Director                                                  May 29, 2001
-------------------------------------
Bedi A. Singh

/s/  HOWARD STRINGER                           Director                                                  May 29, 2001
-------------------------------------
Howard Stringer

                                               Director
-------------------------------------
William A. Sutman                                                                                        May 29, 2001

                                               Director
-------------------------------------
Robert Wiesenthal                                                                                        May 29, 2001

/s/  MORTIMER B. ZUCKERMAN                     Director
-------------------------------------
Mortimer B. Zuckerman                                                                                    May 29, 2001

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                             ANNUAL REPORT ON FORM 10-K
                                                 ITEMS 8 AND 14(a)
                                           INDEX TO FINANCIAL STATEMENTS
                                      LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                                              (DEBTORS-IN-POSSESSION)

<S>                                                                                                             <C>
Report of Management                                                                                            F-2

Report of Independent Accountants                                                                               F-3

Consolidated Balance Sheet at February 28, 2001 and February 29, 2000                                           F-4

Consolidated Statement of Operations for the three years ended February 28, 2001                                F-5

Consolidated Statement of Changes in Stockholders' Equity for the three years ended February 28, 2001           F-6

Consolidated Statement of Cash Flows                                                                            F-7

Notes to Consolidated Financial Statements                                                                      F-8
</TABLE>

Financial Statement Schedule:

For the three years ended  February  28, 2001  Schedule II - Valuation  and
Qualifying Accounts are included on page S-1.

<PAGE>

REPORT OF MANAGEMENT
TO THE SHAREHOLDERS OF LOEWS CINEPLEX ENTERTAINMENT CORPORATION

The  accompanying  consolidated  financial  statements  of  Loews  Cineplex
Entertainment  Corporation  and its  subsidiaries  have  been  prepared  by
management,  who are responsible for the integrity and objectivity of these
statements.  The statements have been prepared in conformity with generally
accepted  accounting  principles in the United  States and include  amounts
based on management's best estimates and judgments.

Management  has  established  and  maintains a system of  internal  control
designed to provide reasonable assurance that errors or irregularities that
could be material to the financial statements are prevented or are detected
within a timely  period.  The system of internal  control  includes  widely
communicated  statements  of  policies  and  business  practices  which are
designed to require all employees to maintain high ethical standards in the
conduct of Company affairs. The internal controls are augmented by policies
and  procedures  that provide for  appropriate  delegation of authority and
division  of  responsibility  and  by a  program  of  internal  audit  with
management follow-up.

The Audit Committee of the Board of Directors, composed entirely of outside
directors,  meets periodically with the Company's independent  accountants,
management and internal auditors to review accounting,  auditing,  internal
accounting  controls  and  financial  reporting  matters.  The  independent
accountants and the internal auditors have free access to this committee.

May 18, 2001

<TABLE>
<CAPTION>

<S>                                             <C>                                          <C>
/s/  Lawrence J. Ruisi                          /s/ John J. Walker                           /s/ Joseph Sparacio
-------------------------------------           ------------------------------------         ----------------------------
Lawrence J. Ruisi                               John J. Walker                               Joseph Sparacio
President & Chief Executive Officer             Senior Vice President,                       Vice President, Finance &
                                                Chief Financial Officer & Treasurer          Controller
</TABLE>

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Loews Cineplex Entertainment Corporation:

In  our  opinion,  the  consolidated  financial  statements  listed  in the
accompanying index present fairly, in all material respects,  the financial
position of Loews Cineplex  Entertainment  Corporation  (the "Company") and
its  subsidiaries  at February  28, 2001 and  February  29,  2000,  and the
results  of their  operations  and their  cash  flows for each of the three
years in the period ended February 28, 2001 in conformity  with  accounting
principles generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the accompanying
index presents fairly, in all material respects,  the information set forth
therein when read in conjunction  with the related  consolidated  financial
statements. These financial statements and financial statement schedule are
the  responsibility of the Company's  management;  our responsibility is to
express an opinion on these  financial  statements and financial  statement
schedule based on our audits.  We conducted our audits of these  statements
in accordance  with  auditing  standards  generally  accepted in the United
States of  America,  which  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,  assessing  the  accounting  principles  used  and  significant
estimates  made  by  management,   and  evaluating  the  overall  financial
statement  presentation.  We believe  that our audits  provide a reasonable
basis for our opinion.

The  accompanying  consolidated  financial  statements  have been  prepared
assuming that the Company will continue as a going  concern.  As more fully
discussed in Note 1 to the financial statements, the Company and certain of
its  subsidiaries  filed  voluntary  petitions  to  reorganize  in  several
jurisdictions,  both  domestically  and  internationally.  These conditions
raise  substantial doubt about the Company's ability to continue as a going
concern.   Management   is  in  the  process  of   developing   a  plan  of
reorganization,   which  includes  the  restructuring  of  certain  of  its
financial   obligations.    In   the   event   a   Chapter   11   plan   of
reorganization/CCAA  plan of  arrangement  are confirmed by the  Bankruptcy
Court/Superior  Court and become  effective,  continuation of the Company's
business  thereafter will be dependent on the Company's  ability to achieve
successful  operations,  maintain  satisfactory  capital and  liquidity and
obtain access to funds under a credit facility. The financial statements do
not include any  adjustments  to reflect the possible  future  effects that
might result from the outcome of this uncertainty on the recoverability and
classification of assets or the amounts and classification of liabilities.

/s/  PricewaterhouseCoopers LLP
-------------------------------
New York, New York
May 18, 2001

<PAGE>

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                          (DEBTORS-IN-POSSESSION)

                         CONSOLIDATED BALANCE SHEET
          (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>

                                                                                                     FEBRUARY 28 or 29,
                                                                                                   2001               2000
                                                                                                   ----               ----
<S>                                                                                          <C>               <C>
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                                                 $    47,200       $    31,735
   Accounts receivable                                                                            11,453            17,288
   Inventories                                                                                     4,056             5,148
   Prepaid expenses and other current assets                                                       7,340             6,057
                                                                                             -----------       -----------
      TOTAL CURRENT ASSETS                                                                        70,049            60,228

PROPERTY, EQUIPMENT AND LEASEHOLDS, NET                                                        1,068,923         1,218,334
OTHER ASSETS
   Investments in and advances to partnerships                                                    95,359            75,932
   Goodwill, net of accumulated amortization of $55,462 and $42,280                              416,514           493,390
   Other intangible assets, net of accumulated amortization of $7,252
        and $5,768                                                                                21,220            22,704
   Deferred charges and other assets                                                               5,521            36,801
                                                                                             -----------       -----------

      TOTAL ASSETS                                                                           $ 1,677,586       $ 1,907,389
                                                                                             ===========       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Accounts payable and accrued expenses                                                     $    88,059       $   201,077
   Deferred revenue                                                                               22,423             8,625
   Debtor-in-possession credit facility                                                                -                 -
   Current maturities of long-term debt                                                          733,844                 -
   Current portion of capital leases and mortgages                                                 5,821             4,149
                                                                                             -----------       -----------
      TOTAL CURRENT LIABILITIES                                                                  850,147           213,851

LONG-TERM DEBT AND OTHER OBLIGATIONS                                                               6,393           839,029
LONG-TERM CAPITAL LEASE OBLIGATIONS                                                               33,919            59,217
ACCRUED PENSION AND POST RETIREMENT BENEFITS                                                       6,766             8,325
OTHER LIABILITIES                                                                                132,874           168,165
                                                                                             -----------       -----------
      TOTAL LONG-TERM LIABILITIES                                                                179,952         1,074,736

LIABILITIES SUBJECT TO COMPROMISE (Note 3)                                                       471,390                 -
                                                                                             -----------       -----------

      TOTAL LIABILITIES                                                                        1,501,489         1,288,587
                                                                                             -----------       -----------

COMMITMENTS AND CONTINGENCIES (Note 18)

STOCKHOLDERS' EQUITY
   Common stock ($.01 par value, 300,000,000 shares authorized;
     58,538,646 shares issued and outstanding in 2001 and 2000)                                      586               586
   Common stock-Class B non-voting ($.01 par value, 10,000,000 shares
     authorized; 84,000 shares issued and outstanding in 2001 and 2000)                                1                 1
   Additional paid-in capital                                                                    671,707           671,707
   Accumulated other comprehensive income                                                         (6,626)             (167)
   Retained deficit                                                                             (489,571)          (53,325)
                                                                                             ------------      ------------

      TOTAL STOCKHOLDERS' EQUITY                                                                 176,097           618,802
                                                                                             -----------       -----------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                             $ 1,677,586       $ 1,907,389
                                                                                             ===========       ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                          (DEBTORS-IN-POSSESSION)

                    CONSOLIDATED STATEMENT OF OPERATIONS
          (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
                                                                                        FOR THE YEARS ENDED
                                                                                         FEBRUARY 28 or 29,

                                                                                2001                2000                1999
                                                                     ---------------      --------------        ------------
<S>                                                                      <C>                 <C>                <C>
REVENUES
   Box office                                                            $   628,851         $   647,774         $   587,078
   Concession                                                                241,034             243,511             228,332
   Other                                                                      33,631              39,138              35,750
                                                                         -----------         -----------         -----------
                                                                             903,516             930,423             851,160
                                                                         -----------         -----------         -----------

EXPENSES
   Theatre operations and other expenses                                     714,132             694,712             618,946
   Cost of concessions                                                        39,061              38,245              35,557
   General and administrative                                                 50,369              53,031              47,882
   Depreciation and amortization                                             125,533             113,047              90,720
   Restructuring charges                                                      12,653                   -                   -
   Loss on sale/disposal of theatres and other                               245,828               8,388               4,532
                                                                         -----------         -----------         -----------

                                                                           1,187,576             907,423             797,637
                                                                         -----------         -----------         -----------

(LOSS)/INCOME FROM OPERATIONS                                               (284,060)            23,000              53,523
Interest expense                                                              98,601              72,728              57,216
Reorganization costs                                                          42,146                   -                   -
                                                                         -----------         -----------         -----------

LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                                    (424,807)            (49,728)             (3,693)
Income tax expense                                                             3,598               1,662               2,187
                                                                         -----------         -----------         -----------

LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE             (428,405)            (51,390)             (5,880)
Cumulative Effect of Change in Accounting Principle, net of tax                7,841                   -                   -
                                                                         -----------         -----------         -----------

NET LOSS                                                                 $  (436,246)        $   (51,390)        $    (5,880)
                                                                         ===========         ===========         ===========

   Weighted Average Shares Outstanding - basic and diluted                58,622,646          58,622,646          47,834,541
                                                                         ===========         ===========         ===========

   Loss per Share before Cumulative Effect of Change
      in Accounting Principle - basic and diluted                        $     (7.31)        $      (.88)        $      (.12)
                                                                         ===========         ===========         ==========

   Loss per Share - basic and diluted                                    $     (7.44)        $      (.88)        $      (.12)
                                                                         ===========         ===========         ==========

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                          (DEBTORS-IN-POSSESSION)

         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
          (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>

                                                                         Class A                   Class B
                                                                           Non-                      Non-
                                                                          voting                    voting
                                              Shares         Amount       Shares        Amount      Shares
                                            ----------      --------    ----------     --------    -------

<S>                                         <C>             <C>         <C>              <C>       <C>
Balance at March 1, 1998                    19,270,321      $   193     1,202,486        $ 12           -

  Exchange of existing
    Cineplex Odeon
    shares in conjunction
    with  the Combination                   17,699,914          177             -           -      84,000
  Issuance of shares to
    Universal  under a
    subscription agreement                   4,426,607           44             -           -           -
  Issuance of shares to SCA
    affiliates for Star
    Theatres and S&J Theatres                2,664,304           27             -           -           -
  Exercise of Stock Options                     19,802            -             -           -           -
  Dividend to SCA affiliates                         -            -             -           -           -
  Issuance of shares in Public
    Offering, net of costs and
    expenses                                10,000,000          100             -           -           -
  Automatic conversion of
    SCA's Class A non-voting
    shares to common shares                  1,202,486           12    (1,202,486)        (12)          -
  Issuance of shares to
    Universal  under an
    anti-dilution agreement                  3,255,212           33             -           -           -
  Comprehensive Income:
    Foreign currency
    translation adjustment                           -            -             -           -           -
    Unrealized loss on
    marketable securities                            -            -             -           -           -
    Net loss for the fiscal year
    ended February 28, 1999

Comprehensive Income                                 -            -             -           -           -
----------------------------------------------------------------------------------------------------------

Balance at February 28, 1999                58,538,646          586             -           -      84,000

  Comprehensive Income:
    Foreign currency
    translation adjustment                           -            -             -           -           -
    Unrealized loss on
    marketable securities                            -            -             -           -           -
    Net loss for the fiscal year
    ended February 29, 2000                          -            -             -           -           -

   Comprehensive Income                              -            -             -           -           -
----------------------------------------------------------------------------------------------------------

Balance at February 29, 2000                58,538,646          586             -           -      84,000

  Comprehensive Income:
    Foreign currency
    translation adjustment                           -            -             -           -           -
    Unrealized gain on
    marketable securities                            -            -             -           -           -
  Net loss for the fiscal year
    ended February 28, 2001                          -            -             -           -           -

   Comprehensive Income                              -            -             -           -           -
----------------------------------------------------------------------------------------------------------

Balance at February 28, 2001                58,538,646       $  586             -     $     -      84,000
                                           ===========       ======      ========     =======      ======

</TABLE>

<TABLE>
<CAPTION>

                                                Accumulated
                                                   Other       Additional      Retained          Total
                                               Comprehensive     Paid-in       Earnings       Stockholders'
                                     Amount        Income        Capital      /(Deficit)         Equity
                                     ------     ------------   -----------   ------------      ----------

<S>                                   <C>        <C>            <C>           <C>              <C>
Balance at March 1, 1998              $  -       $     -        $ 299,277     $  25,029        $ 324,511

  Exchange of existing
    Cineplex Odeon
    shares in conjunction
    with  the Combination                1             -          266,579             -          266,757
  Issuance of shares to
    Universal  under a
    subscription agreement               -             -           84,456             -           84,500
  Issuance of shares to SCA
    affiliates for Star
    Theatres and S&J Theatres            -             -              (27)            -                -
  Exercise of Stock Options              -             -              366             -              366
  Dividend to SCA affiliates             -             -          (81,536)      (21,084)        (102,620)
  Issuance of shares in Public
    Offering, net of costs and
    expenses                             -             -          102,625             -          102,725
  Automatic conversion of
    SCA's Class A non-voting
    shares to common shares              -             -                -             -                -
  Issuance of shares to
    Universal  under an
    anti-dilution agreement              -             -              (33)            -                -
  Comprehensive Income:
    Foreign currency
    translation adjustment               -        (4,407)               -             -           (4,407)
    Unrealized loss on
    marketable securities                -          (656)               -             -             (656)
    Net loss for the fiscal year
    ended February 28, 1999                                                      (5,880)          (5,880)
                                                                                                 --------
Comprehensive Income                     -             -                -             -          (10,943)
---------------------------------------------------------------------------------------------------------

Balance at February 28, 1999             1        (5,063)         671,707        (1,935)         665,296

   Comprehensive Income:
    Foreign currency
    translation adjustment               -         4,988                -             -            4,988
    Unrealized loss on
    marketable securities                -           (92)               -             -              (92)
    Net loss for the fiscal year
    ended February 29, 2000              -             -                -       (51,390)         (51,390)
                                                                                                 --------
   Comprehensive Income                  -             -                -             -          (46,494)
---------------------------------   ---------------------------------------------------------------------

Balance at February 29, 2000             1          (167)         671,707       (53,325)         618,802

   Comprehensive Income:
    Foreign currency
    translation adjustment               -        (7,207)               -             -           (7,207)
    Unrealized gain on
    marketable securities                -           748                -             -              748
   Net loss for the fiscal year
    ended February 28, 2001              -             -                -      (436,246)        (436,246)
                                                                                                ---------
   Comprehensive Income                  -             -                -             -         (442,705)
---------------------------------------------------------------------------------------------------------

Balance at February 28, 2001          $  1      $ (6,626)       $ 671,707    $ (489,571)        $176,097
                                     ======     =========       =========    ===========        =========

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                          (DEBTORS-IN-POSSESSION)

                    CONSOLIDATED STATEMENT OF CASH FLOWS
                       (IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>

                                                                                       FOR THE YEARS ENDED
                                                                                        FEBRUARY 28 or 29,

                                                                              2001                2000                1999
                                                                        -----------         ----------          ----------
<S>                                                                      <C>                 <C>                <C>
OPERATING ACTIVITIES
   Net loss                                                              $(436,246)          $(51,390)          $  (5,880)
   Adjustments to reconcile net loss to net cash provided by
     operating activities:
     Depreciation and amortization                                         125,533            113,047              90,720
     Loss on sale/disposals of theatres and other                          245,828              8,388               4,532
     Reorganization costs                                                   42,146                  -                   -
     Cumulative effect of change in accounting principle                     7,841                  -                   -
     Equity earnings from long-term investments, net of distributions
       received                                                              1,891              3,042               1,506
   Changes in operating assets and liabilities:
     Decrease in accounts receivable                                         4,561                404               5,292
     (Decrease)/increase in accounts payable and accrued expenses          (21,720)             9,555              (6,559)
     Increase in other operating assets and liabilities, net               (13,065)           (25,949)             (6,900)
                                                                         ----------          ---------          ----------

NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES                        (43,231)            57,097              82,711
                                                                         ----------          --------           ---------

INVESTING ACTIVITIES
   Proceeds from sale of assets                                             28,175              3,880              98,192
   Investment in/advances to partnerships, net of repayments               (25,542)           (31,180)            (17,537)
   Merger related costs                                                          -             (5,853)            (25,198)
   Capital expenditures                                                   (150,859)          (185,350)           (147,198)
                                                                         ----------          ---------          ----------

NET CASH USED IN INVESTING ACTIVITIES                                     (148,226)          (218,503)            (91,741)
                                                                         ----------          ---------          ----------

FINANCING ACTIVITIES
   Repayment of debt due to SCA affiliate                                        -                  -            (299,487)
   Proceeds from senior credit facility, net of repayments and
      deferred financing fees                                              203,844            151,025             224,044
   Repayment of long-term debt                                              (5,572)            (3,758)            (34,644)
   Proceeds from sale of interest rate swaps                                 8,650                  -                   -
   Repayment of Plitt Theatre, Inc. notes                                        -             (2,300)           (215,907)
   Proceeds of senior subordinated note offering, net of deferred
      financing fees                                                             -                  -             289,263
   Proceeds from issuance of common stock, net of offering expenses              -                  -             102,991
   Proceeds from issuance of common stock to Universal upon Combination          -                  -              84,500
   Dividend paid to SCA affiliate in Combination                                 -                  -            (102,620)
                                                                         ---------           --------           ----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                  206,922            144,967              48,140
                                                                         ---------           --------           ---------

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                            15,465            (16,439)             39,110
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                              31,735             48,174               9,064
                                                                         ---------           --------           ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                 $  47,200           $ 31,735           $  48,174
                                                                         =========           ========           =========

Supplemental Cash Flow Information:
   Income taxes paid, net of refunds received                            $   2,063           $  1,735           $   3,229
                                                                         =========           ========           =========
   Interest paid (including nil, nil and $6,942 paid to SCA affiliates)  $  81,453           $ 70,716           $  54,583
                                                                         =========           ========           =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                           DEBTORS-IN-POSSESSION

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             (ALL DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS,
                         EXCEPT AS OTHERWISE NOTED)

NOTE 1 - ORGANIZATION AND BUSINESS
----------------------------------

Loews Cineplex  Entertainment  Corporation  ("LCP" or the "Company"),  is a
major motion picture  theatre  exhibition  company with operations in North
America and Europe. The Company operates theatres under the Loews Theatres,
Cineplex Odeon Theatres,  Star Theatres,  Magic Johnson  Theatres,  Megabox
Theatres and Yelmo Cineplex Theatres marquees. As of February 28, 2001, LCP
owns, or has interests in, and operates 2,563 screens at 294 theatres in 20
states, the District of Columbia,  6 Canadian  provinces,  Spain,  Hungary,
Turkey and Korea. The Company's  principal markets include New York and the
metropolitan area, Boston, Chicago,  Baltimore,  Dallas, Houston,  Detroit,
Los Angeles, Seattle and Washington D.C. in the U.S., Toronto, Montreal and
Vancouver in Canada, and Madrid, Spain. The Company holds a 50% partnership
interest  in each of the Yelmo  Cineplex  de Espana  ("Yelmo"),  Loeks-Star
Theatres ("LST") and Magic Johnson Theatres ("MJT")  partnerships and holds
a 24% interest in the Megabox Cineplex,  Inc.  ("Megabox") joint venture in
Korea.  Yelmo,  LST,  MJT and  Megabox  hold  interests  in and  operate 34
locations,  comprising a total of 393 screens.  Screens and  locations  for
these partnerships are included in the Company amounts referred to above.

BANKRUPTCY PROCEEDINGS

The  exhibition  industry  continues to  experience  significant  liquidity
pressures  caused  by  a  number  of  factors  including  the  downturn  in
attendance as reflected in year over year operating  performance  measures,
the moderate to aggressive new build strategies  employed by the industry's
larger  exhibitors  which,  coupled with the  difficulty in closing  older,
obsolete theatres, has resulted in an oversupply of theatre screens in many
North  American  markets,  impairment  write-offs  and  losses  on  theatre
dispositions, the continued downward credit ratings of the industry and the
recent bankruptcy filings by several theatre chains,  including five of the
eleven largest  exhibitors,  and defaults of certain loan agreements  which
have been publicly  disclosed.  These  factors,  as well as the  industry's
disappointing  operating  performance,   have  contributed  to  significant
reductions in the prices of publicly traded debt and equity  securities and
have  materially  reduced  the  industry's  access  to  capital,  making it
increasingly  difficult to meet obligations as they become due. The Company
has been negatively  affected by these events and  experienced  significant
pressures on its liquidity and its ability to meet its  obligations as they
became due.

Due to these factors, among other things, on February 15, 2001, LCP and all
of  its  wholly  owned  U.S.  subsidiaries  filed  voluntary  petitions  to
reorganize  under Chapter 11 ("Chapter 11") of the U.S.  Bankruptcy Code in
the U.S.  Bankruptcy  Court  for the  Southern  District  of New York  (the
"Bankruptcy  Court"). On February 27, 2001, the Office of the United States
Trustee  for  the  Southern  District  of New  York  (the  "U.S.  Trustee")
appointed a statutory  committee of unsecured  creditors  (the  "Creditors'
Committee") to represent the interests of the debtors' unsecured creditors.
The  Creditors'  Committee  has the right to review  and  object to certain
business  transactions  and  may  participate  in  the  formulation  of the
Company's long-term business plan and plan of reorganization. In Canada, an
order (the "Initial  Order") to initiate a restructuring of obligations and
operations  under the  Companies'  Creditors  Arrangement  Act ("CCAA") was
obtained on February  15, 2001 from the Ontario  Superior  Court of Justice
(the "Superior Court") for the Company's wholly owned subsidiary,  Cineplex
Odeon  Corporation  ("Cineplex  Odeon") and  certain of its other  Canadian
subsidiaries.  Additionally,  on February  26,  2001,  LCP's  wholly  owned
Austrian  subsidiary LCE Europlex  KinbetribsgmbH  ("LCE Europlex") filed a
petition for  bankruptcy in Vienna,  Austria.  Also, on March 16, 2001, the
Company filed a petition for bankruptcy in Warsaw,  Poland on behalf of its
wholly owned Polish  subsidiary  LCE Polska  Holding Sp. z o.o. The debtors
are operating their  respective  businesses as  debtors-in-possession.  See
Note 3 - Bankruptcy  Proceedings and Liabilities  Subject to Compromise for
further discussion.

BASIS OF PRESENTATION

The consolidated  financial statements of the Company have been prepared in
accordance with Statement of Position 90-7 "Financial Reporting by Entities
in  Reorganization  under the Bankruptcy  Code" ("SOP 90-7") for the period
beginning  February  15,  2001  and  thereafter,   and  generally  accepted
accounting principles applicable to a going concern which, unless otherwise
noted,  assumes the realization of assets and the payment of liabilities in
the ordinary  course of business.  SOP 90-7 requires (i) that  pre-petition
liabilities  that are subject to  compromise be segregated in the Company's
consolidated  balance sheet as  liabilities  subject to compromise and (ii)
that  revenues,  expenses,  realized  gains and losses,  and provisions for
losses resulting from the  reorganization  and restructuring of the Company
be  reported  separately  as  reorganization   items  in  the  consolidated
statement of operations.  Liabilities as recorded in the amounts  reflected
on the debtors'  books and records may not be paid in full.  As a result of
the  reorganization  proceedings  under  Chapter  11 and CCAA,  the  debtor
companies  may take,  or may be required to take,  actions  which may cause
assets to be realized,  or liabilities to be liquidated,  for amounts other
than those reflected in the consolidated financial statements.

As a result of the  Company's  recurring  losses,  the  Chapter 11 and CCAA
filings and circumstances relating to these events, including the Company's
debt structure and current economic  conditions,  realization of assets and
liquidation of liabilities are subject to significant uncertainty. In order
to provide liquidity over the next fiscal year, the Company entered into an
agreement dated February 15, 2001, as amended,  with a group of lenders led
by   Bankers   Trust   Company,    as    Administrative    Agent,   for   a
Debtor-in-Possession Credit Facility (the "DIP Facility"). The DIP Facility
provided the Company with $60 million in additional  financing  through the
earlier of January 31, 2002 or upon the  occurrence of certain other events
including effectiveness of a Chapter 11 plan of reorganization. See Note 11
to these  consolidated  financial  statements for further  discussion.  The
Company  believes that cash from operations  along with financing  provided
through the DIP Facility should be available to provide  liquidity to allow
the  Company  to  continue  as a going  concern.  However,  there can be no
assurance of this. The accompanying  consolidated  financial  statements of
LCP have been prepared on a going  concern  basis of accounting  and do not
reflect  any  adjustments  that  might  result if the  Company is unable to
continue as a going concern.  The Company's  ability to continue as a going
concern is  dependent  upon its  ability to maintain  compliance  with debt
covenants  under the DIP  Facility  and the ability to generate  sufficient
cash from operations and financing  sources to meet its obligations as they
become due. In the event a Chapter 11 plan of  reorganization/CCAA  plan of
arrangement  (collectively  referred to as "plans of  reorganization")  are
confirmed  by the  Bankruptcy  Court/Superior  Court and become  effective,
continuation of the Company's business  thereafter will be dependent on the
Company's ability to achieve successful  operations,  maintain satisfactory
capital and liquidity  and obtain access to funds under a credit  facility.
Until  the  plans  of  reorganization   are  confirmed  by  the  Bankruptcy
Court/Superior  Court and become effective,  there can be no assurance that
the Company will emerge from these bankruptcy  proceedings,  and the effect
of the  terms  and  conditions  of  such a plan  of  reorganization  on the
Company's  business cannot be determined and therefore there is substantial
doubt regarding the Company's ability to continue as a going concern.

Business Combination
--------------------

On May 14, 1998, pursuant to the Amended and Restated Master Agreement (the
"Master  Agreement")  dated  September 30, 1997, LCP (formerly known as LTM
Holdings,  Inc.) and Cineplex Odeon, another major motion picture exhibitor
with operations in the U.S. and Canada,  combined (the  "Combination").  As
called  for in the  Master  Agreement,  the  outstanding  common  shares of
Cineplex  Odeon  were  exchanged  for LCP  shares  on a ten for one  basis.
Universal  Studios,  Inc.  ("Universal"),  a major  shareholder of Cineplex
Odeon,  contributed  cash of $84.5  million to the Company in exchange  for
additional shares of stock in the Company. Sony Pictures Entertainment Inc.
("SPE") and its affiliates  received a cash payment of  approximately  $417
million  representing  (i) a  cash  payment  to  satisfy  all  intercompany
indebtedness to affiliates of Sony Corporation of America ("SCA") as of the
closing  date,  (ii) a cash  payment  equal  to the fair  value of  certain
transferred  assets, and (iii) the payment of a dividend to a subsidiary of
SPE. The consolidated financial statements include the operating results of
Cineplex Odeon following the date of Combination (May 14, 1998).

At the closing of the  Combination,  the Company issued 7,264,642 shares of
Common  Stock and  80,000  shares  of Class B  Non-Voting  Common  Stock to
Universal,  4,324,003  shares of Common  Stock and 4,000  shares of Class B
Non-Voting  Common Stock to the Charles  Rosner  Bronfman  Family Trust and
certain related shareholders (the "Claridge Group") and 6,111,269 shares of
common stock to the other  shareholders of record of Cineplex Odeon, for an
aggregate  value of  approximately  $266.6  million,  in  exchange  for the
outstanding shares of Cineplex Odeon and its wholly owned subsidiary, Plitt
Theatres,  Inc. ("Plitt"). In addition, the Company issued 4,426,607 shares
of common stock to Universal for consideration of $84.5 million as required
under a subscription agreement, and 2,664,304 shares of Common Stock to SPE
in connection  with the transfer by SPE of its interest in Star Theatres of
Michigan, Inc. ("Star") and S&J Theatres, Inc. ("S&J") to the Company.

On August 5, 1998, the Company sold to the public  pursuant to a registered
public  offering 10 million shares of Common Stock.  Upon  consummation  of
this offering,  the Company's  Class A Non-Voting  Common Stock held by SPE
automatically converted into an equal number of shares of Common Stock, and
3,255,212 additional shares of Common Stock were issued to Universal for no
consideration under anti-dilution  provisions of the Company's subscription
agreement  with  Universal.  As a  result  of  the  public  offering,  SPE,
Universal and the Claridge Group owned 39.5%, 25.5% and 7.4%, respectively,
of the Company's common stock.

The  Combination  has been  accounted  for  under  the  purchase  method of
accounting,  and, accordingly,  the cost to acquire Cineplex Odeon has been
allocated to the assets acquired and liabilities  assumed of Cineplex Odeon
based on their  respective  fair  values,  with the excess  purchase  price
allocated to goodwill.  The Company  arranged for an independent  valuation
and other  studies  required  to  determine  the fair  value of the  assets
acquired  and  liabilities  assumed.  These  valuations  and  studies  were
completed during the first quarter of fiscal 2000.

Since the Combination,  the Company pursued the sale of certain theatres in
New York City and Chicago that were  subject to approval by the  Department
of Justice ("DOJ"), in accordance with the terms of an agreement reached to
permit the  Combination.  As a result,  during the fourth quarter of fiscal
1999, the Company sold to Cablevision  Systems Corporation 33 screens in 12
theatres  in New  York  City,  in  accordance  with the DOJ  order,  and an
additional  14 screens in 4 theatres  in the  suburban  New York area,  for
aggregate  cash proceeds of $87.5 million.  Approximately  $87.2 million of
these  proceeds was  utilized to pay down the  Company's  Senior  Revolving
Credit Facility.

Under the agreement  with the DOJ, the Company was also required to sell 49
screens at 11 theatres in Chicago.  On April 7, 1999, the Company completed
the sale of 30 screens at 8 of these  theatre  locations  to a third party.
This transaction was not significant to the Company's  operating results or
financial  position.  A portion of these  proceeds was utilized to pay down
the Senior  Revolving Credit  Facility.  Additionally,  under the agreement
with the DOJ, the Company was required to sell the  remaining 19 screens at
3 theatre  locations  in  Chicago.  The  Company  was  unable to sell these
locations and,  pursuant to the original  agreement with the DOJ, a trustee
was appointed to effect the sale of these  locations.  The trustee was also
unable to sell these  locations  and had  submitted  a final  report to the
court.  On November 9, 2000,  the DOJ  consented  to the Company  retaining
these three locations and a stipulation and order received court approval.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

Consolidation:  The consolidated  financial statements include the accounts
of  Loews  Cineplex   Entertainment   Corporation   and  its  wholly  owned
subsidiaries,   including   all   entities  in   bankruptcy   operating  as
debtors-in-possession. Majority owned companies are consolidated and 50% or
less owned  investments in which the Company has significant  influence are
accounted   for  under  the  equity  method  of   accounting.   Significant
intercompany accounts and transactions have been eliminated.

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 reported  amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the  financial  statements  and the  reported  amounts of  revenues  and
expenses  during the  reporting  period.  Actual  results could differ from
those estimates.

Revenues and  Expenses:  Substantially  all revenues  are  recognized  when
admission and concession sales are received at the theatres. Other revenues
include the Company's  equity  earnings from  long-term  investments.  Film
rental costs are  recorded,  as revenue is earned,  based upon the terms of
the respective film license arrangements. Advertising costs are expensed as
incurred.

Cash and Cash  Equivalents:  The Company considers all operating funds held
in financial institutions,  cash held by the theatres and all highly liquid
investments with original maturities of three months or less when purchased
to be cash equivalents.

Inventories:  Inventories of concession products are stated at the lower of
cost or market. Cost is determined by the first-in, first-out method.

Long-term   Investments   In/Advances  to   Partnerships:   Investments  in
partnerships are recorded under the equity method of accounting.  Under the
equity  method  the cost of the  investment  is  adjusted  to  reflect  the
Company's  proportionate  share  of the  partnerships'  operating  results.
Advances to partners  represent  advances to  respective  partnerships,  in
which  LCP  has   interests,   for  working   capital  and  other   capital
requirements.

Fair Value of Financial  Instruments:  Cash, accounts receivable,  accounts
payable,  accrued  liabilities  and  notes  payable  are  reflected  in the
financial  statements  at  carrying  value which  approximates  fair value,
except  liabilities  subject to  compromise as disclosed in Note 3 to these
consolidated  financial statements.  Long-term debt principally consists of
obligations  which carry floating  interest rates that approximate  current
market rates.

Property, Equipment and Leaseholds:  Property, equipment and leaseholds are
stated at historical cost less accumulated  depreciation and  amortization.
The Company has acquired the rights to use certain theatre facilities under
previously  existing operating leases from other motion picture exhibitors.
Purchase  values  assigned  to these  theatre  lease  rights  acquired  are
capitalized and amortized over future periods.

Depreciation and amortization are provided on the straight-line  basis over
the following useful lives:

<TABLE>
<S>                                      <C>
        Buildings                        30-40 years
        Equipment                        5-10 years
        Leasehold Improvements           Life of lease but not in excess of useful lives or 40 years
        Theatre Lease Rights             Life of lease but not in excess of useful lives or 40 years
</TABLE>

Interest costs during the period of  development  and  construction  of new
theatre  properties are  capitalized as part of the historical  cost of the
asset.  Interest  capitalized  during the fiscal years ended February 28 or
29, 2001, 2000 and 1999 was $1,328, $3,323 and $2,422, respectively.

Goodwill and Other Intangible Assets: Goodwill, which represents the excess
of the  purchase  price  over the fair  values of net assets  acquired,  is
amortized using the  straight-line  method over its estimated  useful life.
Prior to the third quarter of fiscal 2001, goodwill was amortized over a 40
year estimated  useful life. As a result of the Company's change in outlook
as well as the aforementioned  industry downturn,  the Company re-evaluated
the  period  of   amortization   and  determined   that  these  events  and
circumstances   warranted  a  revised  estimated  useful  life.   Effective
September 1, 2000, the Company determined that a more appropriate remaining
useful life for  unamortized  goodwill is 20 years,  resulting in increased
amortization  expense of  approximately  $4.8 million during the six months
ended  February 28, 2001, net of the write-off of allocated  goodwill.  The
impact on earnings per share was $0.08 per share.  Other intangible assets,
including  management  agreements and tradenames,  are amortized over their
estimated useful lives which range primarily from 5 to 20 years. Management
continuously  assesses the  recoverability of the net unamortized  goodwill
and other  intangibles by  determining  whether the  amortization  of these
balances over the remaining life can be recovered  through projected future
undiscounted  income  from  operations.  Amortization  expense  charged  to
operations  amounted to $18,331,  $13,540  and  $10,751  for  goodwill  and
$1,484,  $1,401 and $1,202 for other intangible  assets for the years ended
February 28 or 29, 2001, 2000 and 1999, respectively.

Long-Lived Assets: Statement of Financial Accounting Standards ("SFAS") No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and Long-Lived
Assets to be Disposed  Of",  requires  the  recoverability  of the carrying
value of long-lived assets to be evaluated when changes occur in historical
operating results, future projections and economic and competitive factors,
among others. The Company  continuously  assesses the recoverability of its
long-lived  assets in accordance with SFAS No. 121, by determining  whether
the  carrying  value  of these  balances  over  the  remaining  life can be
recovered through  undiscounted  projected future cash flows primarily on a
theatre-by-theatre  basis.  In making  its  assessment,  the  Company  also
considers  the useful  lives of its assets,  the  competitive  landscape in
which those assets operate, the introduction of new technologies within the
industry and decay factors (attendance  erosion) in theatre attendance.  As
previously  discussed,  the continued  industry  downturn  coupled with the
oversupply of theatre  screens in many North American  markets,  as well as
the liquidity  issues  experienced by the Company,  resulted in a change in
outlook by the Company  beginning  during the second quarter and continuing
through the fourth  quarter of the current  fiscal year with respect to its
theatre  portfolio.  See  Notes  6 and 8 to  these  Consolidated  Financial
Statements for further discussion.

Stock Based Compensation:  As permitted under SFAS No. 123, "Accounting for
Stock-Based  Compensation",  the  Company  elected to account for its stock
based  compensation  plans under the  provisions of  Accounting  Principles
Board ("APB")  Opinion No. 25,  "Accounting for Stock Issued to Employees",
and related  interpretations.  The Company has complied with the disclosure
requirements of SFAS No. 123 (see Note 17 to these  Consolidated  Financial
Statements).

Income Taxes:  Deferred tax assets and  liabilities  are recognized for the
future  tax  consequences  attributable  to  the  differences  between  the
financial  statement  carrying  amounts,  less  applicable  allowances,  of
existing  assets  and  liabilities  and  their  respective  tax  bases  and
operating  loss and tax  credit  carryforwards.  Deferred  tax  assets  and
liabilities  are  measured  using  enacted  tax rates  expected to apply to
taxable  income  in the  years in which  those  temporary  differences  are
expected to be recovered or settled.  The effect on deferred tax assets and
liabilities  of a change in tax rates is recognized in income in the period
that includes the enactment date.

Foreign Currency  Translation:  The effect of translating  foreign currency
financial statements into U.S. dollars is included in the accumulated other
comprehensive  income account in stockholders'  equity. Gains and losses on
foreign  currency  transactions  are not significant to operations and have
been included in operating expenses.

Earnings  per  Share:  SFAS No.  128,  "Earnings  Per  Share",  establishes
standards  for computing  and  presenting  earnings per share ("EPS") which
applies to entities  with  publicly  held common stock or potential  common
stock.  The Company  calculates  EPS in accordance  with SFAS No. 128 which
states  that basic EPS is computed by  dividing  net  income/(loss)  by the
weighted  average number of common shares  outstanding for the period,  and
diluted EPS is computed  similarly to basic EPS while giving  effect to the
potential  dilution that could occur if  securities  or other  contracts to
issue common stock were exercised or converted into common stock.  However,
pursuant to SFAS No. 128, the  computation  of diluted EPS shall not assume
conversion or exercise of securities that would have an antidilutive effect
on earnings  per share.  Since  including  potential  common  shares in the
diluted per share  computation  always results in an antidilutive per share
amount  when an entity has a net loss,  we have  therefore  not  calculated
diluted  EPS  for  each of the  three  years  ended  February  28,  2001 as
presented in the Consolidated Statement of Operations.

Cumulative  Effect of  Change in  Accounting  Principle:  Staff  Accounting
Bulletin ("SAB") No. 101,  "Revenue  Recognition in Financial  Statements",
regarding the  accounting for the Company's  Passport and Gift  Certificate
Program  ("certificates"),   was  effective  beginning  December  1,  2000,
requiring  retroactive  application  to the beginning of the Company's 2001
fiscal year with restatement, if necessary, of all quarters for the current
fiscal  year.  SAB No.  101  impacts  the  timing of when  revenues  may be
recorded for unredeemed certificates. Prior to the issuance of SAB No. 101,
the Company would recognize "breakage revenue" into income immediately upon
the sale of certificates  for the estimated  portion of  certificates  that
would not be redeemed. However, in accordance with SAB No. 101, the Company
no longer records breakage revenue upon sale but rather upon the expiration
date of certificates or the date the obligation is otherwise fulfilled.  As
a result, the Company recorded a one-time charge of $7.8 million ($0.13 per
share) to reflect  adoption of SAB No.  101.  This $7.8  million  charge is
referred to as "Cumulative Effect of Change in Accounting Principle" on the
face of the statement of operations. The change in accounting principle has
no impact on cash  flows or the value of  unredeemed  certificates  held by
customers.  Additionally, the retroactive application of SAB No. 101 to the
Company's fiscal years 1999 and 2000 would not have a significant impact on
the Company's revenues.

Reclassifications:  Certain fiscal 2000 balances have been  reclassified to
conform with the fiscal 2001 presentation.

New Accounting  Pronouncements:  On June 23, 1999, the Financial Accounting
Standards  Board  decided  to defer  the  effective  date of SFAS No.  133,
"Accounting for Derivative  Instruments and Hedging Activity".  As a result
of this  deferral,  SFAS No. 133 will be effective for all of the Company's
fiscal quarters  beginning March 1, 2001. This statement  standardizes  the
accounting  for  derivative   instruments,   including  certain  derivative
instruments  embedded in other  contracts,  by  requiring  that the Company
recognize  those  items  as  assets  or  liabilities  in the  statement  of
financial position and measure them at fair value. The adoption of SFAS No.
133 will not have a significant  impact on the Company's  operating results
or financial position.

NOTE 3 - BANKRUPTCY PROCEEDINGS AND LIABILITIES SUBJECT TO COMPROMISE
---------------------------------------------------------------------

As  previously  discussed  in  Note  1  to  these  consolidated   financial
statements,  the Company has been operating as debtors-in-possession  under
Chapter 11 in the U.S.  and  pursuant to the Initial  Order of the Superior
Court since  February 15, 2001.  The Company is  authorized  to operate its
business in the ordinary course.

Liabilities Subject to Compromise

As a result of the Chapter 11 filing, all actions to collect the payment of
pre-petition  indebtedness  are subject to  compromise  or other  treatment
under a plan of reorganization.  Generally, actions to enforce or otherwise
effect payment of pre-Chapter 11 liabilities  are stayed.  These claims are
reflected  in  the  February  28,  2001   consolidated   balance  sheet  as
Liabilities  Subject  to  Compromise.  Pre-petition  claims  secured by the
debtor's assets ("secured claims") are also stayed, although the holders of
such  claims  have the right to move the court  for  relief  from the stay.
Pre-petition secured claims (primarily  representing amounts borrowed under
the Senior Revolving Credit Facility) are generally secured by all personal
property and certain real property of LCP and its domestic subsidiaries,  a
pledge of stock of all domestic  subsidiaries  and LCP's equity interest in
and loans to its foreign  subsidiaries.  Although  pre-petition  claims are
generally  stayed,  as part of the first day orders and subsequent  motions
granted by the  Bankruptcy  Court,  the  Bankruptcy  Court  approved  LCP's
motions to pay certain pre-petition obligations including: (i) payments, on
normal  terms,  to  film  distributors,   (ii)  continuing  to  honor  gift
certificates,  movie passes and other customer programs,  (iii) payment for
employee wages and related benefits and  reimbursement of employee business
expenses and (iv) adequate protection payments to the lenders of the Senior
Revolving Credit Facility.  The Company has been and intends to continue to
pay undisputed  post-petition claims of all vendors,  film distributors and
other  suppliers in the  ordinary  course of  business.  In  addition,  the
Company may reject  pre-petition  executory  contracts and unexpired leases
with the approval of the  Bankruptcy  Court with  respect to the  Company's
U.S.  operations.   Any  damages  resulting  from  rejection  of  executory
contracts and unexpired  leases are treated as general  unsecured claims in
the U.S. and are classified as liabilities subject to compromise.  LCP will
notify all known claimants  subject to the bar date of their need to file a
proof of claim with the  Bankruptcy  Court. A bar date is the date by which
claims  against the Company must be filed if the claimants  wish to receive
any  distribution  in the Chapter 11 case.  No bar date has yet been set by
the Bankruptcy  Court.  Differences  between liability amounts estimated by
the Company and claims  filed by  creditors  will be  investigated  and the
Bankruptcy  Court will make a final  determination  of the allowable claim.
The determination of how liabilities will ultimately be settled and treated
cannot be made  until the  Bankruptcy  Court  approves a Chapter 11 plan of
reorganization.  Accordingly,  the ultimate  amount of such  liabilities is
presently not determinable.

As a result of the Initial Order of the Superior Court,  substantially  all
actions to enforce or otherwise effect payment of pre-filing obligations of
Cineplex  Odeon and its  subsidiaries  are  stayed.  The  rights of secured
creditors to enforce against the Company's Canadian assets are also stayed.
These claims are  reflected in the February 28, 2001  consolidated  balance
sheet as Liabilities Subject to Compromise. The stay period expires on June
15, 2001 and  Cineplex  Odeon  intends to seek an  extension  thereof;  the
granting of an extension is within the  discretion  of the Superior  Court.
Although  pre-petition  claims are  generally  stayed,  the  Initial  Order
permits  (i)  payments  on  normal  terms to  persons  supplying  goods and
services after the date of the Initial Order, including film suppliers,  as
well  as  certain  pre-filing   claims,   (ii)  continuing  to  honor  gift
certificates,  movie passes and other customer programs,  (iii) payment for
employee wages and related benefits and  reimbursement of employee business
expenses as well as statutory severance pay and (iv) the borrowing of up to
$20 million from LCP and the granting of security by the assets of Cineplex
Odeon and its  subsidiaries to secure such  borrowings.  Cineplex Odeon has
been and intends to continue to pay  undisputed  post-filing  claims of all
vendors,  film  suppliers  and other  suppliers in the  ordinary  course of
business.  In  addition,  the  Initial  Order  permits the  repudiation  of
unexpired  leases of Cineplex Odeon and its  subsidiaries.  Landlords whose
leases  have been  repudiated  will be entitled to file a claim in the CCAA
proceedings  in respect of such  repudiation.  The treatment of such claims
has yet to be determined  and will be set out in a plan of  compromise  and
arrangement  to be presented by Cineplex Odeon to the Superior Court and to
its affected  creditors.  A claims process and claims bar date must also be
established  to determine the claims  entitled to vote on a plan as well as
to receive distributions thereunder. This will be determined by an order of
the Superior Court. Ultimately,  any plan of compromise or arrangement must
be approved by a vote of a majority in number of creditors of each class of
creditors  affected  by the  plan  as  well  as by a  vote  of  holders  of
two-thirds of the value of the claims of each such class. If such a vote is
favorable, the plan must then be sanctioned by the Superior Court.

Valuation methods used in Chapter 11 reorganization cases vary depending on
the purpose for which they are  prepared  and used and are rarely  based on
generally  accepted   accounting   principles,   the  basis  of  which  the
accompanying financial statements are prepared. Accordingly, the values set
forth in the accompanying  consolidated financial statements are not likely
to be  indicative  of the  values  presented  to or used by the  Bankruptcy
Court.

As of February 28, 2001, the Company has liabilities  subject to compromise
of  approximately  $471.4 million which include the  following:

                                                              Year ended
                                                          February 28, 2001
                                                          -----------------
8 7/8%  Senior  Subordinated  Notes                            $300,000
Interest payable - Senior  Subordinated  Notes                   14,348
Trade payables                                                   31,454
Rent and rent related  charges                                   17,702
Lease  termination  claim liability (see above and Note 4)       94,380
Accrued  Expenses/Other                                          13,506
                                                               --------
        Total                                                  $471,390
                                                               ========

All amounts presented above may be subject to future adjustments  depending
on Bankruptcy Court actions,  further developments with respect to disputed
claims,  determinations of the secured status of certain claims, the values
of any collateral securing such claims, or other events.

Amounts  outstanding  under  the 8 7/8%  Senior  Subordinated  Notes  as of
February 15, 2001 are  classified as  liabilities  subject to compromise in
the  consolidated   statement  of  financial   position  until  a  plan  of
reorganization  is approved and  implemented.  The last  required  interest
payment of $13.3  million  due  February 1, 2001 was blocked by the lenders
under the Senior Revolving  Credit  Facility.  Interest on unsecured claims
has not been  accrued  during the  period  subsequent  to the  filing  date
(February 15, 2001).

The lease termination claim liability is based upon the Company's estimates
of the  landlords'  claims for 69 theatres  (451  screens)  rejected in the
U.S.,  32 theatres  (180  screens)  repudiated  in Canada and four theatres
terminated in Austria and Poland.  In the U.S.,  the amount  accrued by the
Company for a landlord's lease claim, with respect to rejected theatres, is
limited under the Bankruptcy  Code.  This  limitation  provides the Company
with a far  smaller  lease  termination  liability  than  would  have  been
incurred if these leases had been terminated  without the protection of the
Bankruptcy Code. This provision may be subject to future  adjustments based
on claims filed by the landlords and Bankruptcy  Court actions.  In Canada,
the amount payable in respect of repudiated leases is established under the
plan  presented  for approval by the affected  classes of the creditors and
the  Superior  Court.  Although  this  amount is  usually  less than  would
otherwise be payable upon the unilateral  termination of a lease, it is not
prescribed by statute. The Company cannot presently determine or reasonably
estimate the ultimate  liability which may result from the filing of claims
for any  rejected/repudiated  contracts or from additional leases which may
be  rejected/repudiated in connection with the bankruptcy  proceedings.  Of
the  $94.4  million  lease   termination   claim   liability  noted  above,
approximately  $71.4 million  represents  reserves  previously  established
which have been  reclassified  from accrued  expenses  and other  long-term
liabilities  (which had been  previously  related to certain  above  market
lease  obligations)  and $23.0 million  represents a charge recorded in the
4th  quarter  as a  component  of  reorganization  costs - see  Note 4. The
Company is  negotiating  with  certain of its  remaining  landlords  and is
continuing to evaluate its remaining  leases as part of its  reorganization
plan process.

NOTE 4 - REORGANIZATION COSTS
-----------------------------

The Company has incurred  reorganization  related charges of  approximately
$42.1  million for the fiscal year ended  February 28, 2001 which have been
reflected in the Reorganization  Costs line of the Statement of Operations.
Reorganization  costs  are  directly  associated  with  the  reorganization
proceedings  under the Company's  Chapter 11 and CCAA filings.  Included in
such  costs are  amounts  related  to (i)  landlord  claims  related to the
rejection of 69 theatres in the U.S., 32 theatres  repudiated in Canada and
four  leases  terminated  in Austria  and  Poland,  (ii) the  write-off  of
deferred financing fees (previously included in "Deferred Charges and Other
Assets"  in the  Consolidated  Balance  Sheet) and (iii)  professional  and
advisory fees incurred directly related to and subsequent to the bankruptcy
filing on February 15, 2001. Reorganization costs for the fiscal year ended
February 28, 2001 are as follows:

                                                            Year ended
                                                        February 28, 2001
                                                        -----------------
Lease claim charge                                           $ 23,005
Professional advisory fees                                      5,064
Write-off of deferred financing fees and original issue        11,842
  discount
Other expenses directly related to the bankruptcy               2,235
                                                          -----------
     Total                                                   $ 42,146
                                                          ===========

See Note 3 - Liabilities Subject to Compromise regarding the lease claim
charge presented in the table above.

NOTE 5 - RESTRUCTURING CHARGES
------------------------------

The Company  has  incurred  restructuring  charges of  approximately  $12.7
million  for the  fiscal  year  ended  February  28,  2001  which have been
reflected in the Restructuring Charges line of the Statement of Operations.
This charge  includes  $8.8  million for  professional  and  advisory  fees
associated  with our evaluation of a longer-term  financial plan (including
amendments to our bank debt) and severance related payments  (approximately
$3.9 million)  primarily  associated  with  headcount  reductions and other
reductions  in costs in our U.S.  operations  during  November  2000. As of
February 28, 2001, all of these terminated employees have been paid in full
all amounts due as a result of this headcount reduction.

NOTE 6 - LOSS ON SALE/DISPOSAL OF THEATRES AND OTHER
----------------------------------------------------

Loss on  sale/disposal  of theatres and other  includes  losses on theatres
which  have  been  sold or  disposed,  the  write-down  of net  book  value
(including  allocated  goodwill) and other costs  associated  with theatres
targeted for accelerated disposition or lease renegotiation and a charge of
approximately  $4.6 million  related to the impairment of assets related to
the Magic Johnson  Partnership.  The loss on  sale/disposal of theatres and
other of $245.8  million  for the  fiscal  year  ended  February  28,  2001
includes a fourth quarter charge of $80.5 million primarily associated with
the  write-off of net book value  relating to 32 locations  comprising  246
screens  targeted  for  accelerated  disposal or lease  renegotiation  on a
short-term  basis. For the fiscal year ended February 28, 2001, the loss on
sale/disposal of theatres  includes a charge of $245.8 million  (consisting
primarily  of the  write-off  of net  book  value  of  $207.0  million  and
allocated  goodwill of $58.5 million  partially offset by net proceeds from
asset sales),  including the  aforementioned  fourth quarter charge,  for a
plan to accelerate the disposal of  approximately  189 theatres  comprising
1,160 screens in the U.S.,  Canada and  internationally.  These accelerated
disposal  plans were as a result of the  continued  decline  in  attendance
levels experienced at these theatres which was exacerbated by the "sub-par"
industry-wide  summer  and fall  box  office  levels.  These  189  theatres
targeted for  disposal  generated  $215.4  million in revenues and negative
operating cash flow of $22.2 million for the fiscal year ended February 28,
2001.  During the fiscal year ended February 28, 2001, the Company actually
disposed of 107 of these theatre locations  comprising 587 screens with the
remainder targeted for disposal/renegotiation in Fiscal 2002.

The aforementioned  loss on sale/disposal of theatres,  which also includes
the  write-off  of  certain  costs  associated  with  discontinued  theatre
projects,  has been included in the Loss on  Sale/Disposal  of Theatres and
Other line of the Statement of Operations.

NOTE 7 - ACCOUNTS RECEIVABLE
----------------------------

As of February 28, 2001,  accounts  receivable of $11.5 million consists of
trade receivables of $6.3 million and other receivables of $5.2 million. As
of February 29, 2000,  accounts  receivable  of $17.3  million  consists of
trade  receivables  of $9.9 million,  receivables  related to  construction
advances of $4.0 million and other receivables of $3.4 million.

NOTE 8 - PROPERTY, EQUIPMENT AND LEASEHOLDS
-------------------------------------------

Property, equipment and leaseholds consists of:

<TABLE>
<CAPTION>
                                                                   FEBRUARY 28 or 29,
                                                                    2001                 2000
                                                          --------------       --------------
<S>                                                        <C>                <C>
Land                                                       $      61,562      $        85,274
Buildings                                                        486,235              474,386
Equipment                                                        299,371              301,010
Leasehold Improvements                                           187,980              204,496
Theatre Lease Rights                                             358,690              449,254
Construction in Progress                                          58,534               73,148
                                                           -------------       --------------
          TOTAL PROPERTY, EQUIPMENT AND  LEASEHOLDS            1,452,372            1,587,568
Less: Accumulated Depreciation and Amortization                  383,449              369,234
                                                           -------------       --------------
                                                           $   1,068,923       $    1,218,334
                                                           =============       ==============
</TABLE>

The cost of property and equipment  under capital leases  amounted to $40.3
million and $59.5 million,  with  accumulated  depreciation of $9.9 million
and  $10.1  million  as  of  February  28,  2001  and  February  29,  2000,
respectively.  Depreciation expense of property and equipment under capital
leases  is  included  in  depreciation  and  amortization  expense  in  the
Consolidated Statement of Operations.

The Company  continues to review the assets and related  intangibles of its
motion picture theatres for impairment in accordance with the provisions of
SFAS No. 121. As a result of this  process,  the Company has  recognized  a
provision for asset  impairment for theatres we continue to operate of $7.5
million,  $5.5  million and $4.8  million for the years ended  February 28,
2001,  February 29, 2000,  and  February 28, 1999,  respectively,  which is
included  in  depreciation  and  amortization  expense in the  Consolidated
Statement of Operations.

NOTE 9 - LONG-TERM INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
--------------------------------------------------------------

The Company's long-term  investments primarily consist of a 50% interest in
LST which  operated  10 theatres  with 156  screens,  MJT which  operated 5
theatres  with 60 screens,  and Yelmo which  operated 18 theatres  with 161
screens at February 28, 2001.  The Company  accounts for these  investments
following the equity method of accounting.

The Company's  carrying  value of its  investment in LST was  approximately
$13.0 million and $13.5 million,  its  investment in MJT was  approximately
$17.3  million and $19.1  million,  and its  investment  in Yelmo was $57.5
million and $43.3  million,  at February  28, 2001 and  February  29, 2000,
respectively.  The investments were in the form of equity, interest bearing
notes and working capital advances.

The Company's equity share of  (losses)/earnings  in LST, MJT and Yelmo, in
the aggregate, for the fiscal years ended February 28 or 29, 2001, 2000 and
1999 was  approximately  ($2.3)  million,  $1.5  million and $2.7  million,
respectively.  In addition,  the Company recorded a charge of approximately
$4.6  million  related to the write down of certain  assets  related to MJT
which are reflected in the Loss on Sale/Disposal of Theatres and Other line
in the Statement of  Operations.  The following  table  presents  condensed
financial information for the LST, MJT and Yelmo partnerships on a combined
basis:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED FEBRUARY 28 or 29,
                                                                              2001                  2000              1999
                                                                   ---------------       ---------------    --------------
<S>                                                                <C>                   <C>                <C>
Box Office                                                         $        85,632       $        81,531    $       68,410
Concessions/Other                                                           40,844                37,209            30,606
                                                                   ---------------       ---------------    --------------
Total Revenues                                                             126,476               118,740            99,016
Total Operating Costs                                                      100,700                91,319            78,289
General and Administrative Costs                                             4,497                 4,789             3,651
Loss on Sale/Disposal of Theatres and Other                                  7,239                     -                 -
                                                                   ---------------       ---------------    --------------
                                                                            14,040                22,632            17,076
Depreciation and Amortization                                               15,947                10,351             6,905
                                                                   ---------------       ---------------    --------------
(Loss)/Income from Operations                                      $        (1,907)      $        12,281    $       10,171
                                                                   ================      ===============    ==============
Net (Loss)/Income                                                  $       (11,079)      $         2,954    $        5,370
                                                                   ================      ===============    ==============
</TABLE>

NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
-----------------------------------------------

Accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>

                                                 FEBRUARY 28 OR 29,
                                                     2001              2000
                                          ---------------    --------------
<S>                                       <C>                <C>
Accounts payable -- trade                 $        41,942    $       96,783
Accrued occupancy                                   6,583            19,452
Other accrued expenses                             39,534            84,842
                                          ---------------    --------------
                                          $        88,059    $      201,077
                                          ===============    ==============
</TABLE>

At February 28, 2001 and February 29, 2000,  other accrued expenses include
$4.0 million and $21.5 million,  respectively,  of contractual  obligations
and  other   liabilities   related   to  the   Combination.   Additionally,
approximately  $44.0 million and $104.5 million of contractual  obligations
related to the Combination  are included in Other Long-term  Liabilities at
February  28  or  29,  2001  and  2000,  respectively.   These  contractual
obligations  relate  to  unfavorable  above  market  lease  obligations  or
contractual  buyouts for certain theatres  identified in the Cineplex Odeon
circuit at the time of the acquisition and were included in the acquisition
cost of the Combination.  Also see Note 3 to these  consolidated  financial
statements   as  certain   liabilities   in  the  current  year  have  been
reclassified  to  liabilities  subject  to  compromise  as a result  of the
bankruptcy proceedings.

NOTE 11 - LONG-TERM DEBT AND OTHER OBLIGATIONS
----------------------------------------------

Due to the Company's failure to comply with certain financial covenants and
the  commencement  of the  Chapter  11 and CCAA  cases,  the  Company is in
default on substantially all of its pre-petition  debt obligations.  Except
as otherwise  may be  determined  by the  Bankruptcy  Court or the Superior
Court,  the stay  protection  afforded  by the  Chapter  11 and CCAA  cases
prevents  any action from being  taken with  regard to any of the  defaults
under the pre-petition debt  obligations.  Certain of these obligations are
classified as  Liabilities  Subject to Compromise at February 28, 2001. See
Note  3  to  these   consolidated   financial   statements  for  additional
information.   No  interest  has  been  paid  or  accrued  on  indebtedness
subsequent  to the petition  date and no principal  payments have been made
since the petition date. In accordance  with the final order  approving the
DIP  Facility,  the  Company  is  authorized  to make  adequate  protection
payments on a monthly basis in an amount equal to the base rate of interest
plus 150 basis points on the pre-petition  bank debt outstanding  under the
Senior  Revolving  Credit  Facility.  Long-term debt and other  obligations
consist of:

<TABLE>
<CAPTION>
                                                                                                FEBRUARY 28 OR 29,
                                                                                                    2001              2000
                                                                                         ---------------    --------------
<S>                                                                                      <C>                <C>
Senior Revolving Credit Facility due 2003 - average interest rate of 9.2%
   and 7.48% at February 28, 2001 and February 29, 2000, respectively                    $       733,844    $      530,000
Senior Subordinated Notes with interest at 8.875% due 2008, net of
   original issue discount                                                                             -           297,940
Mortgages payable - non-recourse, payable from 1998 through 2008                                       -                 -
   Interest rates from 8.5% to 11.5%                                                              10,746            12,498
                                                                                         ---------------    --------------
                                                                                                 744,590           840,438
Less: Current maturities                                                                         738,197             1,409
                                                                                         ---------------    --------------
                                                                                         $         6,393    $      839,029
                                                                                         ===============    ==============
</TABLE>

Annual  maturities of  obligations  under  long-term debt for the next five
fiscal years and thereafter are set forth as follows:

YEAR ENDING FEBRUARY 28 or 29,         DEBT
------------------------------         ----
         2002                       $738,197
         2003                            250
         2004                            213
         2005                            236
         2006                            261
         Thereafter                    5,433
                                    --------
                                    $744,590

In connection with the Company's  Chapter 11 and CCAA filings,  on February
15, 2001,  the Company  entered into the DIP  Facility  with Bankers  Trust
Company,  as  Administrative  Agent.  The DIP  Facility was approved by the
Bankruptcy  Court on April 4, 2001. The DIP Facility,  which expires on the
earlier of January 31, 2002 or upon the occurrence of certain other events,
including the  effectiveness  of a plan of  reorganization,  is designed to
provide the Company with  liquidity  to operate in the ordinary  course and
meet certain of its funding  commitments  for completion of certain theatre
complexes now under construction in North America. The debtor-in-possession
commitment that LCP received from Bankers Trust is for  approximately  $146
million,  $60 million of which consists of a revolving credit line with the
remaining  $86 million  being used to repay  post-default  advances  (i.e.,
subsequent  to August 31,  2000) made  under the  Senior  Revolving  Credit
Facility,  which were  secured with  mortgages  on eleven of the  Company's
existing  theatre  properties,  and to provide for  outstanding  letters of
credit.  Loans under the DIP Facility bear interest at the bank's base rate
plus  1.5% or LIBOR  plus  3.25%.  The  terms of the DIP  Facility  contain
certain restrictive covenants which include:  limitations on the incurrence
of additional guarantees,  liens and indebtedness,  limitations on the sale
of assets, and the funding of capital  expenditures.  The DIP Facility also
requires  that the Company meet  certain  minimum  consolidated  cumulative
earnings  before  interest,  taxes,   depreciation/amortization  and  other
expenses as defined.  For the months ended  February 28, 2001 and March 31,
2001,   the  Company  was  in  compliance   with  all  financial   covenant
requirements reflected in the DIP Facility.

The $60 million revolving credit facility included in the DIP Facility will
be used to  finance  the  Company's  operations  in the  normal  course  of
business during the restructuring  process (including the required adequate
protection  payments  and funding the  operating  requirements  and certain
capital projects of Cineplex Odeon Canada - up to a maximum of $20 million)
and the completion of certain "designated" construction projects, currently
under construction, which were committed to prior to the petition date. The
terms  of the DIP  Facility  also  require  the  Company  to make  adequate
protection  payments on a monthly basis on the pre-default amounts borrowed
under the Senior  Revolving Credit Facility  (approximately  $655 million).
The amount of the monthly adequate protection payments is based on the base
rate of interest plus 150 basis points. The loan to Cineplex Odeon of up to
$20 million was approved by the Superior  Court on February 15, 2001.  This
loan has been secured by the assets of Cineplex Odeon and its  subsidiaries
with the security  being held by Deutsche Bank (Canada) as agent.  The loan
and the security  therefor  have been pledged to the lenders  under the DIP
Facility.  As of February 28, 2001,  no amounts had been drawn  against the
DIP Facility.  As of May 18, 2001,  $4.0 million has been drawn against the
DIP Facility.  The Company's availability under the DIP Facility amounts to
$56 million as of May 18, 2001.

On August 5,  1998,  the  Company  issued  $300  million  of 8 7/8%  Senior
Subordinated  Notes due 2008.  On February 1, 2001,  the required  interest
payment of $13.3  million  due on the  Company's  Notes was  blocked by the
lenders under the Senior Revolving Credit Facility.  In accordance with the
Indenture,  the Company  had thirty  days to cure the  default  before such
payment default became an event of default which would permit the requisite
holders to accelerate  payment of the outstanding  principal  amount of and
accrued interest on these notes. These notes automatically accelerated as a
result of the  Chapter 11 filing.  The  Company  does not at this time have
access to capital to be able to repay these notes or interest in cash.  The
payments on the 8 7/8% Senior Subordinated Notes, including interest,  have
been stayed and have been reclassified as Liabilities Subject to Compromise
in the February 28, 2001 consolidated balance sheet.

On August 18, 1998, the Company entered into interest rate swap agreements,
with an aggregate  notional  amount of $250  million,  for a period of four
years to hedge a portion of the Senior Revolving  Credit Facility  variable
interest  rate risk.  On May 26, 2000,  the Company  monetized the value of
these  contracts  and sold  these  swaps for  $8.65  million.  The  Company
believes that it maximized the value of these contracts as a result of this
sale. As the Company had accounted for these swaps as interest rate hedges,
the gain  realized  from the sale has been  deferred  and will be  realized
pending the reorganization of the debt.

NOTE 12 - LEASES
----------------

The  Company  conducts  a  significant  part of its  operations  in  leased
premises.  Leases  generally  provide for minimum  rentals plus  percentage
rentals  based upon  sales  volume,  and may  include  escalation  clauses,
guarantees and certain other  restrictions,  and also require the tenant to
pay a portion of real estate taxes and other property  operating  expenses.
Lease terms generally range from 20 to 40 years and contain various renewal
options, generally in intervals of 5 to 10 years.

Future  minimum  rental  commitments  at February  28, 2001 under the above
mentioned  operating  and capital  leases,  having an initial or  remaining
non-cancelable lease term of one or more years are set forth as follows:

                                               OPERATING           CAPITAL
YEAR ENDING FEBRUARY 28 or 29,                    LEASES            LEASES
------------------------------            --------------    --------------
   2002                                  $       105,148    $        4,377
   2003                                          104,281             4,316
   2004                                          101,992             4,374
   2005                                          102,161             4,299
   2006                                          102,432             4,244
   Thereafter                                  1,133,832            43,306
                                         ---------------    --------------
   Total Minimum Rentals                 $     1,649,846            64,916
                                         ===============
  Less Amount Representing Interest                                 29,529
                                                            --------------
  Present Value of Net Minimum Rentals                      $       35,387
                                                            ==============

The future  minimum  rental  commitments  at February 28, 2001 for the next
five fiscal years and thereafter,  as set forth in the table above, exclude
rental commitments for those leases which have been  rejected/repudiated as
a result of the Chapter 11 and CCAA filings.

Minimum rental expense related to operating  leases was $115,050,  $102,888
and  $74,610 for the years ended  February 28 or 29,  2001,  2000 and 1999,
respectively.  Percentage rental expense for those same periods was $4,936,
$7,521 and $7,265, respectively.

NOTE 13 - EMPLOYEE AND POSTRETIREMENT BENEFIT PLANS
---------------------------------------------------

Profit Sharing and Savings Plan

The  Company has a defined  contribution  Profit  Sharing and Savings  Plan
("Savings Plan") for substantially  all eligible salaried  employees in the
United  States and Canada under which the Company  contributes  by matching
50% of the  employee  contribution  up to a maximum of 6% of the  statutory
limit of eligible compensation. A participant may elect to contribute up to
an  additional  10% of  eligible  compensation  (subject  to the  statutory
limit),  however this amount is not eligible for matching  contributions by
the Company.  The Savings Plan also  provides  for special  profit  sharing
contributions,  the annual amount of which is determined at the  discretion
of  the  Company.   The  expense   recorded  by  the  Company   related  to
contributions to the Savings Plan aggregated $2,613,  $2,377 and $1,922 for
the years ended February 28 or 29, 2001, 2000, and 1999, respectively.

Employee Health and Welfare and Other Post-retirement Benefits

The  Company  provides  health and  welfare  benefits  and  post-retirement
benefits to eligible  executives  and  employees  in the United  States and
Canada.  The  Company has  accrued  post-retirement  benefits of $3,535 and
$3,640 at February  28,  2001 and  February  29,  2000,  respectively,  and
recognized an annual cost of $49, nil and $162 for the years ended February
28 or 29, 2001, 2000, and 1999, respectively.  The cost and accrued benefit
obligations  are  calculated  using a discount  rate of 7.5% and 8% for the
years ended  February 28, 2001 and February 29, 2000,  respectively,  and a
health care trend rate of 8% for fiscal  year 2001 (with this rate  assumed
to gradually decrease to 5% for fiscal 2004 and thereafter).

Pension Plans

As a result of the Combination,  the Company acquired the U.S. and Canadian
pension plans previously administered by Cineplex Odeon.

Cineplex  Odeon had a defined  benefit  pension plan covering all full-time
employees in the United States which  provides  benefits  based on years of
service and the employees' compensation for certain periods during the last
years of employment. During fiscal year 1999, the Company decided to freeze
benefits under this plan and convert the plan to a cash balance plan.  This
plan was  restructured  as of  January 1, 1999 and all  eligible  employees
previously  covered under the plan became  eligible to  participate  in the
Company's  Savings Plan. The fair value of the pension plan assets acquired
and  the  projected  benefit   obligations  assumed  as  a  result  of  the
Combination were $6,679 and $12,779, respectively. As of February 28 or 29,
2001  and  2000,   the   pension   fund  assets  were  $8,052  and  $7,256,
respectively,  the projected benefits obligations were $11,125 and $11,137,
respectively,  and the  Company  had  accrued  pension  costs of $3,205 and
$4,661, respectively,  associated with this plan. Additionally, the Company
has  recognized  an annual  cost of $368,  $402 and nil for the year  ended
February 28, 2001,  February 29, 2000 and February 28, 1999,  respectively.
The cost and accrued benefit  obligations  associated with the pension plan
were  calculated  utilizing  a  discount  rate of 7.5% and 8% for the years
ended  February  28,  2001  and  February  29,  2000,  respectively,  and a
long-term rate of return of 8.5% for fiscal years 2001 and 2000.

The  Company  has a  pension  plan  covering  substantially  all  full-time
Canadian  employees.  Prior to  January  1,  1993  this  plan was a defined
benefit  plan,  and  effective  on that date it was  converted to a defined
contribution  plan. At the date of  conversion,  benefits under the defined
benefit  plan were frozen.  The  actuarial  estimate for the plan  covering
Canadian  employees  indicate a surplus of pension fund assets over accrued
benefits  of  approximately  $918 and $1,538 as of  February  28,  2001 and
February 29, 2000,  respectively.  The cost and accrued benefit obligations
associated with the pension plan were calculated  utilizing a discount rate
of 6.5% and 7% and a long-term  rate of return of 7% for fiscal  years 2001
and 2000.

Other Plans

Various  employees  are  covered  by union  sponsored  pension  plans.  The
contributions  are determined in accordance  with  provisions of negotiated
labor  contracts.  Under  these  agreements,  benefit  expenses  aggregated
$1,590, $1,790 and $1,731 for the years ended February 28 or 29, 2001, 2000
and 1999, respectively.

NOTE 14 - RELATED PARTY TRANSACTIONS
------------------------------------

The Company has exhibited films distributed by SPE in the past, and expects
to continue to do so in the future. Payments are based on negotiated and/or
contracted  rates  established on terms that management  believes are on an
arm's-length basis. At February 28, 2001 and February 29, 2000, the Company
owed SPE and  affiliates  $10,866  and  $6,186,  respectively,  under  film
licensing  agreements.  The Company  has  recognized  film rental  expenses
relating to the  exhibition  of films  distributed  by SPE in the amount of
$41,015,  $38,449 and $33,799, for the years ended February 28 or 29, 2001,
2000 and 1999,  respectively.  Additionally,  the Company  leases a theatre
property from an affiliate of SCA. Total occupancy  related payments during
fiscal years 2001 and 2000 were $4,685 and $1,967, respectively.

The Company has exhibited  films  distributed by Universal in the past, and
expects  to  continue  to  do so in  the  future.  Payments  are  based  on
negotiated  and/or  contracted  rates  established on terms that management
believes are on an  arm's-length  basis.  At February 28, 2001 and February
29, 2000, the Company owed Universal $1,014 and $5,221, respectively, under
film licensing agreements.  The Company has recognized film rental expenses
relating to the exhibition of films  distributed by Universal in the amount
of $48,172  and  $51,266  for the years  ended  February 28 or 29, 2001 and
2000, respectively.

At February 28, 1998, the Company had debt due to SCA  affiliates  totaling
$296.3 million.  This amount was comprised of a promissory note and working
capital  advances.  The debt due to SCA affiliates  carried  interest at an
intercompany  interest  rate  determined by SCA (5.9% at February 28, 1998)
and was due October 31, 1998.  This amount was repaid in  conjunction  with
the closing of the Combination on May 14, 1998.  Interest  expense incurred
on the "Debt due to SCA  Affiliates" was $6,942 for the year ended February
28, 1999.

In addition to the above related party  transactions,  SCA and LCP provided
certain services to one another,  primarily relating to activities prior to
the Combination.  SCA affiliates  provided certain services relating to the
following  activities:  Insurance and risk management  services,  including
excess  liability,   workman's  compensation  and  officers  and  directors
coverage among others, benefits administration and payroll processing,  and
tax processing  services.  LCP provided  certain services to SCA affiliates
relating  to the  following  activities:  Finance,  Administrative  and MIS
support.  The net amount charged to the Company for these services amounted
to $25, $143 and $610 for the years ended February 28 or 29, 2001, 2000 and
1999,  respectively.  For the years ended February 28 or 29, 2001, 2000 and
1999,  the  Company  was  also  charged  by a  SCA  affiliate  for  certain
administrative  related  services  in the  amounts  of nil,  nil and  $115,
respectively.  The  Company  believes  the  costs  of the  above  mentioned
services are commensurate with that which would be charged by third parties
for similar services.

The  Company has entered  into  several  transactions  with  affiliates  of
Millennium   Development,   an  affiliate  of  MDP  Ventures  II  LLC,  and
negotiations  are ongoing with respect to other  transactions.  The Company
leases real  property in New York from an  affiliate of  Millennium.  Total
occupancy  related  payments  to  Millennium  during  fiscal year 2001 were
approximately  $5.3 million.  In December 2000, the Company entered into an
agreement  with an affiliate of Millenium to  restructure  a lease  entered
into  by  one  of  its  subsidiaries   concerning  a  property  in  Boston,
Massachusetts.  Under the terms of the revised  agreement,  aggregate  base
lease payments will be approximately  $3.8 million per year with percentage
rent payments based on the performance of the theatre.  Payments under this
lease are  expected to commence in fiscal  year 2002.  The  Company's  Star
Theatres  partnership  and  an  affiliate  of  Millennium  each  hold a 50%
interest in Star  Southfield  Center,  LLC,  which leases real  property in
Michigan to Star Theatres. Total rental related payments to Star Southfield
Center,  LLC under this lease for fiscal year 2001 were  approximately $2.8
million.

NOTE 15 - INCOME TAXES
----------------------

The Company  accounts for income taxes under SFAS No. 109,  "Accounting for
Income Taxes".  This statement applies an asset and liability approach that
requires  the  recognition  of  deferred  tax assets and  liabilities  with
respect to the expected  future tax  consequences  of events that have been
recognized in the consolidated financial statements and tax returns.

For periods  prior to the closing of the  Combination,  the Company filed a
consolidated  tax  return  with SCA for  federal  income tax  purposes  and
combined  tax returns  with SCA in certain  state and local  jurisdictions.
However, for financial reporting purposes,  the Company calculated federal,
state and local  income  taxes as if it filed its returns on a  stand-alone
basis.  For all periods after the closing of the  Combination,  the Company
files a  consolidated  tax return for  federal  income  tax  purposes,  and
appropriate state and local tax returns, independent of SCA.

The provision for income taxes consists of the following:
<TABLE>
<CAPTION>

                                                                      FEBRUARY 28,          FEBRUARY 29,      FEBRUARY 28,
                                                                              2001                  2000              1999
                                                                     -------------        --------------     -------------
<S>                                                                  <C>                  <C>                <C>
Current tax expense/(benefit)
   U.S. Federal                                                      $           -        $            -     $           -
   State and Local                                                           2,000                   593            (1,321)
   Foreign                                                                   1,598                 1,069               618
                                                                     -------------        --------------     -------------
       Total Current                                                         3,598                 1,662              (703)
Deferred tax expense/(benefit)
   U.S. Federal                                                                  -                     -             1,929
   State and Local                                                               -                     -               961
                                                                     -------------        --------------     -------------
       Total tax provision                                           $       3,598        $        1,662     $       2,187
                                                                     =============        ==============     =============
</TABLE>

Reconciliation of the provision for income taxes to the statutory federal
income tax rate follows:
<TABLE>
<CAPTION>

                                                                  FEBRUARY 28,             FEBRUARY 29,            FEBRUARY 28,
                                                                 2001         %            2000       %            1999        %
                                                             ----------------------    -------------------   ----------------------

<S>                                                          <C>           <C>         <C>          <C>       <C>            <C>
(Benefit)/provision on pre-tax (loss)/income before
   cumulative effect of change in accounting principle
   at statutory federal income tax rate                      $ (148,683)   (35.0)      $ (17,405)   (35.0)    $  (1,293)     (35.0)
(Benefit)/provision for state and local taxes (net
   of federal income tax benefit)                                 1,300      0.3             385      0.8          (234)      (6.3)
Change in valuation allowance                                   143,373     33.8          13,205     26.6        (1,000)     (27.1)
Impact of foreign operations (primarily minimum/capital
   taxes)                                                         1,598      0.4           1,069      2.1           618       16.7
Other non-deductible expenses (primarily amortization
   of goodwill and other intangible assets)                       6,010      1.4           4,408      8.9         4,096      110.9
                                                             ----------  -------       ----------  -------   -------------  -------
                                                             $    3,598      0.9       $   1,662      3.4   $       2,187     59.2
                                                             ==========  =======       ==========  =======   =============  =======
</TABLE>

<PAGE>

NOTE 15 - INCOME TAXES, CONTINUED

Significant components of the deferred tax assets and liabilities follow:
<TABLE>
<CAPTION>

                                                                    FEBRUARY 28,            FEBRUARY 29,
                                                                            2001                    2000
                                                                  --------------          --------------
<S>                                                               <C>                     <C>
Net deferred tax assets:
Net operating loss carryforwards                                  $      293,344          $      211,860
Loss on sale/disposals of theatres and other                              96,594                  15,110
Contractual obligations                                                   42,161                  47,119
Book/tax fixed asset basis differences                                    22,757                  25,588
Other                                                                     19,111                  15,150
                                                                  --------------          --------------
                                                                         473,967                 314,827
Less: Valuation allowance                                               (457,817)               (296,854)
                                                                   --------------         ---------------
Total net deferred tax assets                                             16,150                  17,973

Net deferred tax liabilities:
Depreciation and Amortization                                             16,150                  17,973
                                                                  --------------          --------------
Total net deferred tax liabilities                                        16,150                  17,973
                                                                  --------------          --------------

        Net Deferred Tax Liability                                $            -          $            -
                                                                  ==============          ==============
</TABLE>

The  valuation  allowance  of  $457.8  million  as  of  February  28,  2001
represents  a  provision  for  the  uncertainty  as to the  realization  of
deferred tax assets,  including temporary  differences  associated with the
loss on sale and disposals of theatres, certain contractual obligations and
net operating  loss ("NOL")  carryforwards.  The Company has concluded that
based upon expected  future results,  it cannot be reasonably  assured that
the deferred tax asset  balance will be realized.  During the current year,
the valuation  allowance for deferred tax assets increased by approximately
$161.0 million.  This increase was due to the generation of NOLs,  relating
to a book  taxable loss and  additional  temporary  differences,  primarily
relating to the loss on sale and disposals of theatres.

For tax purposes,  NOLs of approximately  $683.3 million,  expiring between
the years 2002 and 2020, are available to offset future taxable  income.  A
portion of the U.S. NOL carryforwards,  in the amount of $253.6 million, is
subject to certain  limitations and restrictions under the Internal Revenue
Code of 1986,  as amended.  Although  the Company  continues to realize net
operating  losses  ("NOLs")  for income tax  purposes,  it  continues to be
subject to levels of minimum  state and local  income and capital  taxes in
North  America,  which  are not  offset by NOLs.  Additionally,  all of the
goodwill arising from the Combination will be non-deductible in determining
future  income tax  expense  in the United  States.  However,  the  Company
believes  that  its NOLs  will  substantially  offset  any  additional  tax
calculated on the add-back of goodwill amortization.

As a  result  of  any  plan  of  reorganization,  the  net  operating  loss
carryforward may be reduced, and possibly eliminated,  due to any potential
extinguishment of debt. In addition, any remaining net operating losses may
be limited due to any potential change in ownership.

No provisions have been made for foreign withholding taxes or United States
income  taxes  associated  with the  cumulative  undistributed  earnings of
foreign  subsidiaries  as of  February  28,  2001,  as these  earnings  are
expected  to be  reinvested  in working  capital and other  business  needs
indefinitely.  A determination  of the amount of unrecognized  deferred tax
liability with respect to such earnings is not practicable.  Moreover,  any
additional   taxes  payable  on  these  earnings  if  remitted,   would  be
substantially offset by U.S. tax credits for foreign taxes already paid.

NOTE 16 - SEGMENT AND GEOGRAPHIC DATA
-------------------------------------

The Company is engaged in one line of business,  motion picture exhibition.
The following table presents  summarized  financial  information  about the
Company by  geographic  area.  There were no  material  amounts of sales or
transfers among geographic areas.
<TABLE>
<CAPTION>

                                                                 UNITED                         INT.'L/
                                                                 STATES           CANADA         OTHER         CONSOLIDATED
                                                          -------------    -------------     -------------     ------------
<S>                                                       <C>              <C>               <C>              <C>
February 28, 2001

   Box office revenue                                     $     516,772    $     110,030     $       2,049    $     628,851
   Concessions                                            $     194,741    $      45,665     $         628    $     241,034
   Total operating revenue                                $     734,223    $     165,395     $       3,898    $     903,516
   Loss from operations                                   $    (169,191)   $    (102,547)    $     (12,322)   $    (284,060)
   Total assets                                           $   1,314,851    $     295,461     $      67,274    $   1,677,586
   Capital expenditures                                   $     108,977    $      41,706     $         176    $     150,859
   Depreciation and amortization expense                  $     100,198    $      24,390     $         945    $     125,533

February 29, 2000

   Box office revenue                                     $     525,698    $     119,847     $       2,229    $     647,774
   Concessions                                            $     191,749    $      51,088     $         674    $     243,511
   Total operating revenue                                $     744,773    $     180,272     $       5,378    $     930,423
   Income/(loss) from operations                          $      28,140    $        (834)    $      (4,306)   $      23,000
   Total assets                                           $   1,487,981    $     362,998     $      56,410    $   1,907,389
   Capital expenditures                                   $     149,158    $      28,778     $       7,414    $     185,350
   Depreciation and amortization expense                  $      91,861    $      20,586     $         600    $     113,047

February 28, 1999

   Box office revenue                                     $     489,980    $      95,895     $       1,203    $     587,078
   Concessions                                            $     186,336    $      41,586     $         410    $     228,332
   Total operating revenue                                $     703,532    $     145,148     $       2,480    $     851,160
   Income/(loss) from operations                          $      45,817    $       9,512     $      (1,806)   $      53,523
   Total assets                                           $   1,444,547    $     339,773     $      21,881    $   1,806,201
   Capital expenditures                                   $     113,978    $      33,220     $           -    $     147,198
   Depreciation and amortization expense                  $      79,744    $      10,851     $         125    $      90,720
</TABLE>

No single customer accounts for more than 10% of total revenues for each of
the three years ended February 28, 2001.

NOTE 17 - STOCK OPTION PLANS
----------------------------

During fiscal 1998, the Company  created the 1997 Stock Incentive Plan (the
"Plan")  providing  for the  granting  of options to  employees,  officers,
directors,  consultants,  and advisors of the Company or an affiliate.  The
Plan  is  administered  by a  committee  of the  Board  of  Directors  (the
"Committee").  The Plan  provides for the grants or awards of incentive and
non-qualified  stock options,  stock  appreciation and dividend  equivalent
rights,  restricted stock, performance units and performance shares. During
December 1997, the Company granted  non-qualified  stock options to certain
key employees.  During April 1999, the Company granted 1,991,472 additional
non-qualified stock options to 900 of its employees.  Additionally,  during
April 2000, the Committee approved a grant of 340,000  non-qualified  stock
options to the Company's employees. Under the Plan, the Company has a total
of 5,862,265 shares  available for the grant of awards.  As of February 28,
2001,  an  aggregate  of  5,143,361  shares were  outstanding  with 718,904
available  for future  grant.  These  options  granted,  in addition to the
options  available  for  future  grant,  could  potentially  dilute  future
earnings per share.  Except in the case of 500,000 options  granted,  which
vested  immediately,  the  options  generally  vest and become  exercisable
ratably over a five year period, commencing on the first anniversary of the
closing date of the Combination, but in any event, will be fully vested and
exercisable as of the fifth  anniversary of the date of grant.  The options
generally expire ten years after grant.

Cineplex  Odeon had a stock option plan in place prior to the  Combination.
Following the Combination, the Cineplex Odeon options were converted to 1.2
million  options  in LCP  shares at an  exchange  ratio of 10 for 1 and the
historical  option  prices  were  converted  by a factor of 10  times.  The
Cineplex Odeon options  denominated in Canadian dollars have been converted
utilizing  the  exchange  rate in  effect  on the date of  conversion.  The
conversion costs relating to the Cineplex Odeon options were not material.

The  following  table  summarizes   information  about  the  stock  options
outstanding  at February 28, 2001 and February 29, 2000 (per share  amounts
are in whole dollars):

<TABLE>
<CAPTION>
                                                                   2001                               2000
                                                                   ----                               ----
                                                        Number of      Weighted Average      Number of   Weighted Average
                                                          Shares        Exercise Price         Shares      Exercise Price
                                                        ---------      ----------------      ---------   ----------------
     <S>                                                 <C>               <C>                <C>            <C>
   Shares  under option:
      Outstanding at beginning of year                   5,152,560         $  12.381          3,336,553      $ 13.059
      Granted                                              340,000         $   3.625          1,991,472      $ 11.140
      Exercised                                                 --         $      --                 --      $     --
      Forfeited/Expired                                   (349,199)        $  10.836           (175,465)     $ 11.201
                                                       -----------------------------        -------------------------
   Outstanding at end of year                            5,143,361         $  11.907          5,152,560      $ 12.381
   Options exercisable at year-end                       2,686,910         $  12.525          2,033,511      $ 12.994
   Weighted average fair value of
     options granted/converted                                             $    1.47                         $   4.35
</TABLE>

The Company  applies APB No. 25 and related  interpretations  in accounting
for the Plan. For purposes of the disclosure below,  compensation costs for
the Plan  have been  determined  based  upon the fair  value at the date of
grant for awards under the Plan, consistent with the methodology under SFAS
No. 123,  utilizing  the  Black-Scholes  option  pricing model based on the
following assumptions:

                                                 2001             2000
                                                 ----             ----
        Expected life (years)                      5                5
        Expected volatility                       38.97%           34.27%
        Expected dividend yield                    --               --
        Risk free interest rate                    6.41%            5.13%

The Company's net loss and loss per share for the years ended  February 28,
2001,  February  29, 2000 and  February  28, 1999 are  presented in the pro
forma amounts indicated below:

<TABLE>
<CAPTION>

                                                                    2001             2000           1999
                                                                    ----             ----           ----
       <S>                                                       <C>                <C>            <C>
       Net loss                           As reported            ($436,246)         ($51,390)      ($5,880)
                                                                 ==========         =========      ========
                                          Pro forma              ($438,097)         ($53,102)      ($7,323)
                                                                 ==========         =========      ========

       Loss per share-basic               As reported              ($7.44)           ($0.88)        ($0.12)
                                                                   =======           =======        =======
                                          Pro forma                ($7.47)           ($0.91)        ($0.15)
                                                                   =======           =======        =======

       Loss per share-diluted             As reported              ($7.44)           ($0.88)        ($0.12)
                                                                   =======           =======        =======
                                          Pro forma                ($7.47)           ($0.91)        ($0.15)
                                                                   =======           =======        =======
</TABLE>

NOTE 18 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

COMMITMENTS
The Company has entered into commitments for the completion of construction
of 7 theatre properties (comprising 117 screens) aggregating  approximately
$60.4 million  anticipated to be funded over the next year. The Company has
also guaranteed an additional  $99.4 million  related to obligations  under
lease agreements entered into by MJT.

METREON ARBITRATION
In May 1997,  the Company  entered into a 21 year lease with Metreon,  Inc.
("Metreon")  an  affiliate  of Sony  Corporation  of America,  to operate a
multiplex theatre in an  entertainment/retail  complex developed by Metreon
in San  Francisco.  Since that theatre opened in June 1999, the Company has
had a dispute with Metreon with respect to  construction  costs  (amount of
dispute  is   approximately   $5  million)   that  may  be  the   Company's
responsibility under the lease. Also, the Company is in dispute with regard
to the nature of the costs that  Metreon is seeking to include as operating
expenses under the lease, and the proper  allocation of operating  expenses
to this theatre, based on the Company's proportionate share of the complex.
To date,  the  Company  has been  unable to resolve  these  issues  through
negotiation with Metreon.  The estimated  difference in operating  expenses
allocable to this theatre,  taking into account  differences  over both the
nature  of  the  allocable  costs  and   determination   of  the  Company's
proportionate  share of the complex,  is  approximately $3 - $4 million per
annum for the  duration  of the lease.  Pursuant to the terms of the lease,
the Company is to contribute to the operating expenses of the complex in an
amount  equal to its  proportionate  share of the total  floor  area of the
complex. Metreon has asserted that the Company's proportionate share of the
complex  is   approximately   49%,  while  the  Company  asserts  that  its
proportionate  share is  approximately  32%.  On  September  19,  2000,  as
permitted by the lease,  Metreon  filed a demand for  arbitration  with the
American Arbitration Association seeking a declaration of the proportionate
share of the  complex  floor area  occupied  by this  theatre.  The Company
believes  that  it has  meritorious  defenses  to all of  Metreon's  claims
against the Company  under the lease and intends to  vigorously  assert its
position regarding its proportionate share of the complex. This arbitration
is stayed as a result of the filing of the Chapter 11 petition.

ADA LITIGATION
The  Department  of  Justice,  in  coordination  with  the  New  York  City
Commission on Human Rights,  is currently  investigating  Cineplex  Odeon's
theatres in New York City with respect to its compliance with the Americans
with  Disabilities  Act ("ADA") and the New York City Human Rights Law. The
Department  of Justice has alleged that its  investigation  had  identified
numerous violations of the ADA. The Company has opposed,  and will continue
to  vigorously  oppose  the  allegations  and claims of the  Department  of
Justice with respect to the  compliance  of these  theatres  under the ADA.
However,  the Company cannot guarantee that the remediation  costs relating
to the ADA will not be material.

ENVIRONMENTAL  LITIGATION Two of the Company's  leased  drive-in  theatres,
both in the State of Illinois,  are located on  properties on which certain
third parties disposed of, or may have disposed of, substantial  quantities
of  construction  debris,  auto  shredder  residue and other  debris.  Such
material may contain hazardous  substances.  One of these leases terminated
in the ordinary  course prior to the Debtors filing their Chapter 11 cases.
Pursuant to an order of the Bankruptcy  Court, the other lease was rejected
in accordance with the Bankruptcy  Code.  Termination or rejection of these
leases,  however,  may  not  terminate  all of the  Debtors'  liability  in
connection  with the disposal of debris on these  properties.  In addition,
the rejected  lease  property is the subject of an action,  filed in August
1998 in the circuit court of Cook County, Illinois by the Illinois Attorney
General's  office  seeking  civil  penalties and various forms of equitable
relief,  including  the  removal  of all  wastes  allegedly  present at the
property, soil and ground water testing and remediation, if necessary. This
action  may  be  stayed,  in  whole  or in  part,  as  the  result  of  the
commencement  of the Debtors's  Chapter 11 cases.  The  Company's  range of
probable  liability  with  respect  to this  action  cannot  be  reasonably
estimated at this time due to several unknown factors,  including the scope
of contamination at the theatre property,  the likelihood of any particular
remedial  action being  required,  the allocation of liability,  if any, to
other responsible parties, and the ability of such parties to satisfy their
share of such  liability,  and the  ability  of the  Debtors  to  discharge
certain  claims  and  liabilities  in  connection  with this  action  under
applicable Bankruptcy law. If necessary,  the Company intends to vigorously
defend against this action and will continue to evaluate future information
and  developments  with  respect to  conditions  at this  property and will
periodically  reassess any liability  accordingly.  Based on the foregoing,
there  can be no  assurance  that  the  Company's  liability,  if  any,  in
connection with this action will not be material.

COMPETITION BUREAU PROCEEDINGS
The Canadian  Competition Bureau (the "Bureau") recently obtained a Federal
Court Order  requiring a number of exhibitors and  distributors,  including
the Company's  subsidiaries  (Cineplex Odeon Corporation and Cineplex Odeon
(Quebec) Inc.), to produce  significant  business  information by April 27,
2001. This Order is in connection with an inquiry by the Bureau relating to
certain practices of motion picture  exhibitors,  including  Cineplex Odeon
Corporation,  and motion picture distributors.  On April 27, 2001, Cineplex
Odeon   complied  with  the  order  and  provided  the  required   business
information to the  Competition  Bureau.  The Company intends to vigorously
oppose any allegation of anti-competitive conduct on its part.

SIX WEST RETAIL ACQUISITION, INC.
On July  24,  1997,  Six  West  Retail  Acquisition,  Inc.,  a real  estate
development  company,  initiated  a  lawsuit  against  us and  some  of our
affiliates  in the U.S.  District  Court for the  Southern  District of New
York, seeking injunctive relief and unspecified  monetary damages. Six West
alleges that we have violated  federal  antitrust laws by engaging in block
booking agreements and monopolizing the motion picture exhibition market in
New York City. Six West owns or leases the Paris and New York Twin theatres
in  Manhattan.  The Paris  theatre was  managed by one of our  subsidiaries
under an oral management  agreement that has been terminated.  The New York
Twin  theatre  is  managed  by one  of our  subsidiaries  under  a  written
management   agreement.   Six  West  also  alleges  that  we  violated  our
contractual and fiduciary responsibilities in managing the two theatres. On
December 3, 1997,  Six West filed an amended  complaint  asserting  similar
claims with  respect to the Festival  Theatre  which was operated by one of
our  subsidiaries  until it was closed in 1994. All of the defendants moved
to dismiss the amended complaint by motion dated January 8, 1998. The court
decided both motions in a memorandum opinion and order dated March 8, 2000.
The court granted defendants' motion to dismiss the contract claims against
the individual  non-corporate defendants and a portion of one claim against
Loews.  The court  denied the motion with  respect to the  remainder of the
amended complaint and the non-Loews corporate defendants.  Discovery in the
action is still in  progress.  This action was stayed with respect to these
defendants that are among the U.S. Debtors as a result of the filing of the
Chapter 11 petition.  We believe that Six West's  claims are without  merit
and intend to oppose them vigorously.

OTHER
Other than the lawsuits noted above,  the Company is a defendant in various
lawsuits  arising in the  ordinary  course of  business  and is involved in
certain environmental matters. From time to time the Company is involved in
disputes with  landlords,  contractors  and other third parties.  It is the
opinion of management  that any liability to the Company which may arise as
a result of these  matters will not have a material  adverse  effect on its
operating results, financial position and cash flows.

NOTE 19 - SELECTED UNAUDITED QUARTERLY DATA
-------------------------------------------

The table below presents selected unaudited  quarterly data(1).  All dollar
amounts  reflected  in the table below are in  thousands  of U.S.  dollars,
except per share amounts.

<TABLE>
<CAPTION>
                                                                FIRST        SECOND       THIRD        FOURTH
                                                             QUARTER (3)     QUARTER      QUARTER    QUARTER(2)       TOTAL
                                                            ------------ -----------  -----------  ------------ -----------

<S>                                                       <C>            <C>          <C>          <C>          <C>
FEBRUARY 28, 2001
   Revenue                                                $     205,270  $   265,018  $   192,137  $   241,091  $   903,516
   Loss from operations                                   $      (9,084) $   (31,033) $  (157,604) $   (86,339) $  (284,060)
   Net loss before cumulative effect
     of change in accounting principle (4)                $     (31,473) $   (55,536) $  (185,895) $  (155,501) $  (428,405)
   Net loss                                               $     (39,314) $   (55,536) $  (185,895) $  (155,501) $  (436,246)
   Loss per share before cumulative effect
     of change in accounting principles - basic
     and diluted                                          $        (.54)  $    (.95)   $    (3.17)  $    (2.65)  $  (7.31)
   Loss per share - basic and diluted                     $        (.67)  $    (.95)   $    (3.17)  $    (2.65)  $  (7.44)

FEBRUARY 29, 2000

   Revenue                                                $     201,784  $   303,292  $   209,250  $   216,097  $   930,423
   (Loss)/Income from operations                          $      (5,155) $    34,291  $    (6,320) $       184  $    23,000
   Net (loss)/income                                      $     (21,879) $    15,863  $   (23,838) $   (21,536) $   (51,390)
   (Loss)/Earnings per share - basic and diluted          $        (.37) $    .27     $    (.41)   $      (.37) $      (.88)
</TABLE>

Earnings  per  share is  computed  independently  for each of the  quarters
presented.  Therefore,  the sum of the quarterly  earnings per share do not
necessarily equal the total for the year.

Notes:
(1)  The Company's  business is seasonal with a substantial  portion of its
     revenues being derived during the summer months and holiday season.

(2)  Depreciation and amortization costs include  adjustments  necessary to
     reflect the allocation of purchase price to the fair value of Cineplex
     Odeon  assets  acquired  and  liabilities   assumed  as  part  of  the
     Combination.  This  allocation  of value was  substantially  completed
     during the fourth quarter of fiscal year 1999 and was completed during
     the first quarter of the fiscal year 2000. As a result, adjustments of
     approximately $3.2 million to reduce previous preliminary estimates of
     depreciation  and  amortization  expense  were  recorded in the fourth
     quarter of fiscal year 1999.

(3)  Reflects required  retroactive  application to the beginning of Fiscal
     2001 of SAB No. 101 "Revenue Recognition in Financial Statements." The
     Company  has  recorded  a one-time  charge of $7.8  million to reflect
     adoption of SAB No. 101. See Note 2 for  additional  information.  The
     retroactive  application of SAB No. 101 to the Company's  quarters for
     fiscal year 2000 would not have a significant  impact on the Company's
     revenues.

(4)  The fourth  quarter  net loss  before  cumulative  effect of change in
     accounting  principle of $155.5 million  includes charges for (i) loss
     on  sale/disposal  of  theatres  and  other  of  $80.5  million,  (ii)
     reorganization costs of $42.1 million and (iii) restructuring  charges
     of $7.3 million.

<PAGE>

                                SCHEDULE II

<TABLE>

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                     VALUATION AND QUALIFYING ACCOUNTS
                       (IN THOUSANDS OF U.S. DOLLARS)

<CAPTION>
                                                 BALANCE AT     ADDITIONS (CHARGED
                                                 BEGINNING OF   TO COSTS AND           DEDUCTIONS AND      BALANCE AT END
                                                 PERIOD         EXPENSES)              OTHER CHARGES         OF PERIOD
                                                 ------------------------------------------------------------------------
<S>                                                <C>                  <C>                  <C>                <C>
YEAR ENDED FEBRUARY 28, 2001
----------------------------
     Reserve for net book value of
          property, equipment and
          leaseholds                                 $137               $7,500               $7,589                $48
     Reserve for other costs                       $1,788               $7,317               $5,914             $3,191

YEAR ENDED FEBRUARY 29, 2000
----------------------------
     Reserve for net book value of
          property, equipment and
          leaseholds                               $7,309               $5,534              $12,706               $137
     Reserve for other costs                       $4,044                   $0               $2,256             $1,788

YEAR ENDED FEBRUARY 28, 1999
----------------------------
     Reserve for net book value of
          property, equipment and
          leaseholds                               $5,999               $4,800               $3,490             $7,309
     Reserve for other costs                       $3,797               $1,050                 $803             $4,044
</TABLE>

<PAGE>

                         ANNUAL REPORT ON FORM 10-K
                           ITEMS 14(a) and 14(c)
                               EXHIBIT INDEX

   2.1(1)      Amended and Restated Master Agreement among Sony Pictures
               Entertainment Inc., Registrant and Cineplex Odeon
               Corporation dated as of September 30, 1997.
   2.2(2)      Amending Agreement dated May 14, 1998.
   2.3(1)      Subscription Agreement by and between Registrant and
               Universal Studios, Inc. dated as of September 30, 1997.
   2.4(1)      Plan of Arrangement.
   3.1(2)      Amended and Restated Certificate of Incorporation of
               Registrant.
   3.2(3)      Amended and Restated By-laws of Registrant.
   10.1(1)     Amended and Restated Stockholders Agreement among
               Registrant, Sony Pictures Entertainment Inc., Universal
               Studios, Inc., The Charles Rosner Bronfman Family Trust and
               Other Parties thereto dated as of September 30, 1997.
   10.2(2)     Tax Sharing and Indemnity Agreement, dated May 14, 1998, by
               and among Registrant and Sony Corporation of America.
   10.3(2)     Sony Trademark Agreement, dated May 14, 1998, by and among
               Registrant and Sony Corporation of America.
   10.4(2)     Transition Services Agreement, dated May 14, 1998, among
               Registrant, Sony Corporation of America and Sony Pictures
               Entertainment, Inc.
   10.5(2)     Sony Entertainment Center Lease made as of May 9, 1997
               between SRE San Francisco Retail Inc. and Loews California
               Theatres Inc. (portions of such exhibit have been filed
               separately with the SEC under an application for
               confidential treatment pursuant to Rule 83 of the SEC Rules
               on Organization, Conduct and Ethics, and Information and
               Regulation (17 CFR (S) 200.83)).
   10.6(2)     Sony YBG Entertainment Center Tenant Work Agreement.
   10.7(1)     Form of Director Indemnification Agreement.
   10.8(1)     Loews Cineplex Entertainment Corporation Amended and
               Restated 1997 Stock Incentive Plan.
   10.9(2)     Credit Agreement, dated as of May 14, 1998, among
               Registrant, as Borrower, the lenders listed therein, as
               Lenders, Bankers Trust Company, as Administrative Agent and
               Co-Syndication Agent, and Bank of America NT&SA, The Bank of
               New York and Credit Suisse First Boston, as Co-Syndication
               Agents.
   10.9.1(6)   First Amendment to Credit Agreement, dated as of February
               29, 2000.
   10.9.2(7)   Second Amendment and Limited Waiver to Credit Agreement,
               dated as of September 19, 2000.
   10.9.3(7)   Third Amendment and Limited Waiver to Credit Agreement,
               dated as of October 16, 2000.
   10.9.4(8)   Fourth Amendment and Limited Waiver to Credit Agreement,
               dated as of November 21, 2000.
   10.9.5(9)   Fifth Amendment and Limited Waiver to Credit Agreement,
               dated as of December 7, 2000.
   10.10(4)    Indenture, dated as of August 5, 1998, by and among
               Registrant and Bankers Trust Company, as Trustee.
   10.10.1(9)  Supplemental Indenture, dated as of December 8, 2000 by and
               among Registrant and HSBC Bank USA as Trustee.
   10.11(2)    Agreement between Registrant and Lawrence J. Ruisi, dated
               April 30, 1998.
   10.13(5)    Agreement between Cineplex Odeon Corporation and Allen Karp,
               dated August 18, 1999.
   10.15(6)    Agreement between Registrant and Seymour H. Smith, dated
               November 1, 1999.
   10.16(6)    Agreement between Registrant and Travis Reid, dated May 1,
               1998.
   10.17(7)    Agreement between Registrant and Joseph Sparacio, dated May
               1, 1998.
   10.18(7)    Agreement between Registrant and John J. Walker, dated May
               1, 1998.
   10.19(6)    Agreement between Registrant and John C. McBride, Jr., dated
               January 19, 1998.
   10.20(6)    Agreement between Registrant and Mindy Tucker, dated
               December 15, 1997.
   10.21(7)    Agreement between Registrant and J. Edward Shugrue, dated
               December 15, 1997.
   21.1        Subsidiaries of the Registrant.
   23.1        Consent of PricewaterhouseCoopers LLP

   (1) Incorporated by reference from Loews Cineplex's Registration
       Statement on Form S-4 filed on February 13, 1998, Commission file
       number 333-46313.
   (2) Incorporated by reference from Loews Cineplex's Annual Report on
       Form 10-K for the fiscal year ended February 28, 1998, as amended.
   (3) Incorporated by reference from Loews Cineplex's Registration
       Statement on Form S-1 filed on June 15, 1998, as amended, Commission
       file number 333-56897.
   (4) Incorporated by reference from Loews Cineplex's Registration
       Statement on Form S-4 filed on October 13, 1998, Commission file
       number 333-64883.
   (5) Incorporated by reference from Loews Cineplex's Quarterly Report on
       Form 10-Q for the period ended August 31, 1999.
   (6) Incorporated by reference from Loews Cineplex's Annual Report on Form
       10-K for the fiscal year ended February 29, 2000.
   (7) Incorporated by reference from Loews Cineplex's Quarterly Report on
       Form 10-Q for the period ended August 31, 2000.
   (8) Incorporated by reference from Loews Cineplex's Current Report on
       Form 8-K, dated November 21, 2000.
   (9) Incorporated by reference from Loews Cineplex's Current Report on
       Form 8-K, dated December 8, 2000.

<PAGE>

                                                               EXHIBIT 21.1

                       SUBSIDIARIES OF THE REGISTRANT

SUBSIDIARY                                               State of Incorporation
----------------------------------------------------     ----------------------
1.       LTM New York, Inc.                              Delaware
2.       Loews Cineplex International Holdings, Inc.     Delaware
3.       Loews Theatre Management Corp.                  Delaware
4.       Star Theatres, Inc.                             Delaware
5.       Star Theatres of Michigan, Inc.                 Delaware
6.       Rochester Hills Star Theatres, Inc.             Michigan
7.       Taylor Star Theatres, Inc.                      Michigan
8.       Loews USA Cinemas Inc,                          Delaware
9.       S & J Theatres Inc.                             California
10.      Hawthorne Amusement Corporation                 New York
11.      Hinsdale Amusement Corporation                  New York
12.      Loews Bay Terrace Cinemas, Inc.                 Delaware
13.      Loews Boulevard Cinemas, Inc.                   New York
14.      Loews Broadway Cinemas, Inc.                    New York
15.      Loews Crystal Run Cinemas, Inc.                 New York
16.      Loews Dewitt Cinemas, Inc.                      New York
17.      Loews East Village Cinemas, Inc.                New York
18.      Loews Elmwood Cinemas, Inc.                     New York
19.      Loews Fine Arts Cinemas, Inc.                   New York
20.      Loews Greece Cinemas, Inc.                      Delaware
21.      Loews Levittown Cinemas, Inc.                   New York
22.      Loews Lincoln Theatre Holding Corp.             New York
23.      Loews Monroe Cinema, Inc.                       Delaware
24.      Loews Orpheum Cinemas, Inc.                     New York
25.      Loews Palisades Center Cinemas, Inc.            New York
26.      Loews Paradise Cinemas, Inc.                    New York
27.      Loews Pittsford Cinemas, Inc.                   Delaware
28.      Loews Roosevelt Field Cinemas, Inc.             New York
29.      Loews South Shore Cinemas, Inc.                 Delaware
30.      Loews Stonybrook Cinemas, Inc.                  Delaware
31.      Loews 34th St. Showplace Cinemas, Inc.          New York
32.      Loews Towne Cinemas, Inc.                       New York
33.      Loews Trylon Theatre, Inc.                      New York
34.      Thrity-Fourth Street Cinemas, Inc.              New York
35.      Poli-New England Theatres, Inc.                 Delaware
36.      Putnam Theatrical Corporation                   New York
37.      71st & 3rd Ave. Corp.                           New York
38.      Tri-Son Supply Corp.                            New York
39.      Westchester Cinemas, Inc.                       New York
40.      Cinema 275 East, Inc.                           Ohio
41.      Cityplace Cinemas, Inc.                         Texas
42.      Colorado Cinemas, Inc.                          Colorado
43.      Crestwood Cinemas, Inc.                         Illinois
44.      District Amusement Corporation                  New York
45.      Eton Amusement Corporation                      New York
46.      Forty-Second Street Cinemas, Inc.               New York
47.      Fountain Cinemas, Inc.                          Texas
48.      Gerard Theatre Corporation                      New York
49.      Kips Bay Cinemas, Inc.                          Delaware
50.      Lance Theatre Corporation                       New York
51.      Liberty Tree Cinema Corp.                       Massachusetts
52.      Loews Akron Cinemas, Inc.                       Delaware
53.      Loews Arlington Cinemas, Inc.                   Delaware
54.      Loews Arlington West Cinemas, Inc.              Texas
55.      Loews Astor Plaza, Inc.                         New York
56.      Loews Baltimore Cinemas, Inc.                   Maryland
57.      Loews Berea Cinemas, Inc.                       Delaware
58.      Loews California Theatres, Inc.                 New York
59.      Loews Cedar Cinemas, Inc.                       Delaware
60.      Loews Centerpark Cinemas, Inc.                  Maryland
61.      Loews Century Mall Cinemas, Inc.                Indiana
62.      Loews Cheri Cinemas, Inc.                       Massachusetts
63.      Loews Cherry Tree Mall Cinemas, Inc.            Indiana
64.      Loews Chicago Cinemas, Inc.                     Illinois
65.      Loews Chisholm Place Cinemas, Inc.              Texas
66.      Loews Cinemas Advertising, Inc.                 Illinois
67.      Loews Clarksville Cinemas, Inc.                 Indiana
68.      Loews Connecticut Cinemas, Inc.                 Connecticut
69.      Loews Coral Spring Cinemas, Inc.                Florida
70.      Loews Deauville Gulf Cinemas, Inc.              Texas
71.      Loews Deauville Kingwood Cinemas, Inc.          Texas
72.      Loews Deauville North Cinemas, Inc.             Texas
73.      Loews Deauville Southwest Cinemas, Inc.         Texas
74.      Loews East Hanover Cinemas, Inc.                New Jersey
75.      Loews Exhibition Ride Inc.                      Delaware
76.      Loews Fort Worth Cinemas, Inc.                  Texas
77.      Loews Freehold Mall Cinemas, Inc.               New Jersey
78.      Loews Fresh Pond Cinemas, Inc.                  Massachusetts
79.      Loews Front Street Cinemas, Inc.                Pennsylvania
80.      Loews Fuqua Park Cinemas, Inc.                  Texas
81.      Loews Greenwich Cinemas, Inc.                   Connecticut
82.      Loews Greenwood Cinemas, Inc.                   Delaware
83.      Loews Harmon Cove Cinemas, Inc.                 New Jersey
84.      Loews Houston Cinemas, Inc.                     Texas
85.      Loews I-45 Cinemas, Inc.                        Texas
86.      Loews Indiana Cinemas, Inc.                     Indiana
87.      Loews Kentucky Cinemas, Inc.                    Kentucky
88.      Loews Lafayette Cinemas, Inc.                   Indiana
89.      Loews Lincoln Plaza Cinemas, Inc.               Texas
90.      Loews Louisville Cinemas, Inc.                  Kentucky
91.      Loews Meadowland Cinemas 8, Inc.                New Jersey
92.      Loews Meadowland Cinemas, Inc.                  New Jersey
93.      Loews Memorial City Cinemas, Inc.               Texas
94.      Loews Merrillville Cinemas, Inc.                Illinois
95.      Loews Montgomery Cinemas, Inc.                  Pennsylvania
96.      Loews Mountainside Cinemas, Inc.                New Jersey
97.      Loews New Jersey Cinemas, Inc.                  New Jersey
98.      Loews Newark Cinemas, Inc.                      New Jersey
99.      Loews Norgate Cinemas, Inc.                     Indiana
100.     Loews Norwalk Cinemas, Inc.                     Connecticut
101.     Farmers Cinemas, Inc.                           Delaware
102.     Loews Orland Park Cinemas, Inc.                 Illinois
103.     Loews Park Central Cinemas, Inc.                Texas
104.     Loews Pembroke Pines Cinemas, Inc.              Florida
105.     Loews Pentagon City Cinemas, Inc.               Virginia
106.     Loews Piper's Theatres, Inc.                    Illinois
107.     North Versailles Cinema Inc.                    Pennsylvania
108.     Loews Preston Park Cinemas, Inc.                Texas
109.     Loews Richmond Mall Cinemas, Inc.               Ohio
110.     Loews Ridgefield Park Cinemas, Inc.             New Jersey
111.     Loews Rolling Meadows Cinemas, Inc.             Illinois
112.     Loews Saks Cinemas, Inc.                        Delaware
113.     Loews Showboat Cinemas, Inc.                    New Jersey
114.     Loews Southland Cinemas, Inc.                   Delaware
115.     Loews Theatres Clearing Corp.                   Delaware
116.     Loews Toms River Cinemas, Inc.                  New Jersey
117.     Loews Vestal Cinemas, Inc.                      Delaware
118.     Loews Washington Cinemas, Inc.                  Delaware
119.     Del Amo Theatres, Inc.                          Delaware
120.     Loews West Long Branch Cinemas, Inc.            New Jersey
121.     Loews Westerville Cinemas, Inc.                 Delaware
122.     Loews Westport Cinemas, Inc.                    Connecticut
123.     Loews Williston Cinemas, Inc.                   Vermont
124.     Loews Worldgate Cinemas, Inc.                   Virginia
125.     Loews Yorktown Cinemas, Inc.                    Delaware
126.     Loews-Hartz Music makers Theatres, Inc.         New Jersey
127.     Andy Candy Co., Inc.                            New Jersey
128.     Castle Theatre Corp.                            Delaware
129.     Cinnaminson Thetare Corp.                       New Jersey
130.     Circle Twin Cinema Corp.                        New Jersey
131.     Freehold Cinema Center, Inc.                    New Jersey
132.     Middlebrook Theatre Corporation                 New Jersey
133.     Music Makers Theatres, Inc.                     New Jersey
134.     Berkeley Cinema Corp.                           New Jersey
135.     Brick Plaza Cinemas, Inc.                       New Jersey
136.     Bricktown Picture Corp.                         New Jersey
137.     College Theatre Corp.                           New Jersey
138.     New Brunswick Cinemas, Inc.                     New Jersey
139.     Crofton Quad Corporation                        Maryland
140.     H&M Cinema Corporation                          Maryland
141.     East Windsor Picture Corp.                      New Jersey
142.     Eatontown Theatre Corp.                         New Jersey
143.     Freehold Picture Corp.                          New Jersey
144.     Mall Picture Corp.                              New Jersey
145.     Paramay Picture Corp.                           New Jersey
146.     Jersey Garden Cinemas, Inc.                     New Jersey
147.     Quad Cinema Corp.                               New Jersey
148.     Red Bank Theatre Corporation                    New Jersey
149.     Stroud Mall Cinemas, Inc.                       Pennsylvania
150.     Triangle Theatre Corp.                          Delaware
151.     Massachusetts Cinema Corp.                      Massachusetts
152.     Minnesota Cinemas, Inc.                         Minnesota
153.     Nutmeg Theatre Circuit, Inc.                    Delaware
154.     Parkchester Amusement Corporation               New York
155.     Parsippany Theatre Corp.                        New Jersey
156.     Plainville Cinemas, Inc.                        Connecticut
157.     Talent Booking Agency, Inc.                     New York
158.     Theatre Holdings, Inc.                          Delaware
159.     Crescent Advertising Corporation                New York
160.     Downstate Theatre Corporation                   New York
161.     Fall River Cinema, Inc.                         Massachusetts
162.     Loews Brookfield Cinemas, Inc.                  Connecticut
163.     Loews Post Cinemas, inc.                        Connecticut
164.     Midstate Theatre Corp.                          New York
165.     U.S.A. Cinemas, Inc.                            Delaware
166.     Loews Bristol Cinemas, Inc.                     Connecticut
167.     Loews Burlington Cinemas, Inc.                  Vermont
168.     Loews Holiday Cinemas, Inc.                     Connecticut
169.     Loews Mohwak Mall Cinemas, Inc.                 New York
170.     Mid-States Theatres, Inc.                       Ohio
171.     Beaver Valley Cinemas, Inc.                     Ohio
172.     Campus Cinemas, Inc.                            Kentucky
173.     Cine West, Inc.                                 Ohio
174.     Cinema Development Corporation                  Ohio
175.     Cinema Investments, Inc.                        Ohio
176.     Continent Cinemas, Inc.                         Ohio
177.     D.H. Garfield Advertising Agency, Inc.          Ohio
178.     Flat Woods Theatre Corporation                  Kentucky
179.     I-75 Theatres, Inc.                             Kentucky
180.     J-Town Cinemas, Inc.                            Kentucky
181.     Lexington Mall Cinemas Corporation              Kentucky
182.     Lexington North Park Cinemas, Inc.              Kentucky
183.     Lexington South Park Cinemas, Inc.              Kentucky
184.     Mickey Amusements, Inc.                         Ohio
185.     Midcin Inc.                                     Kentucky
186.     Midtown Cinema, Inc.                            Kentucky
187.     Montclair Cinemas, Inc.                         Ohio
188.     Oxmoor Cinemas, Inc.                            Kentucky
189.     Plaza Cinemas, Inc.                             Ohio
190.     Raceland Cinemas, Inc.                          Kentucky
191.     Salem Mall Theatre, Inc.                        Ohio
192.     Sycamore Theatre, Inc.                          Ohio
193.     Times Theatres Corporation                      Ohio
194.     Towne Center Cinemas, Inc.                      Ohio
195.     Tri-County Cinemas, Inc.                        Ohio
196.     Westland Cinemas, Inc.                          Kentucky
197.     Moviehouse Cinemas, Inc.                        Connecticut
198.     Nickelodeon Boston, Inc.                        Massachusetts
199.     Northern New England Theatres, Inc.             Massachusetts
200.     Sack Theatres, Inc.                             Massachusetts
201.     Village Cinemas, Inc.                           New York
202.     Webster Chicago Cinemas, Inc.                   Illinois
203.     White Marsh Cinemas, Inc.                       New Jersey
204.     Woodridge Cinemas, Inc.                         Illinois
206.     Plitt Theatres, Inc.                            Delaware
207.     RKO Century Warner Theatres, Inc.               Delaware
208.     The Walter Reade Organization, Inc.             Delaware
209.     Plitt Southern Theatres, Inc.                   Delaware
210.     Cineplex Odeon Films, Inc.                      Delaware
211.     Cineplex Odeon Films International, Inc.        Delaware
212.     C.O.H. Entertainment, Inc.                      Delaware
213.     Sedgwick Music Company                          California
214.     Boston Cinemas, Inc.                            Massachusetts
215.     Illinois Cinemas, Inc.                          Illinois
216.     Loews Citywalk Theatre Corporation              California
217.     Methuen Cinemas, Inc.                           Massachusetts
218.     North Star Cinemas, Inc.                        Illinois
219.     Rosemont Cinemas, Inc.                          Illinois
220.     South Holland Cinemas, Inc.                     Illinois
221.     Woodfield Cinemas, Inc.                         Illinois
222.     Cineplex Odeon Corporation                      Canada
223.     Cineplex Odeon (Quebec) Inc.                    Canada
224.     158983 Canada Inc.                              Canada
225.     Les Films Cineplex Odeon Quebec Inc.            Quebec
226.     619918 Ontario Ltd. (Canada Square)             Ontario
227.     796278 Ontario Limited                          Ontario
228.     796279 Ontario Limited                          Ontario
229.     1002817 Ontario Limited                         Ontario
230.     1002818 Ontario Limited                         Ontario
231.     140075 Canada Limited/Ltee.                     Canada
232.     Cine Parc Mercier Inc.                          Quebec
233.     The Film House Group Inc.                       Ontario
234.     Cineplex Odeon International B.V.               Netherlands
235.     Cineplex Odeon (Barbados) Inc.                  Barbados
236.     Cineplex Odeon Hungary KFT                      Hungary
237.     LTM Spain, S.L.                                 Spain
238.     Cineplex Odeon s.r.o.                           Czech Republic
239.     Europlex LCE KinobetriebsgmbH                   Austria
240.     Downtown Boston Cinemas, LLC                    Delaware
241.     Gateway Cinemas, LLC                            Delaware
242.     Lewisville Cinemas, LLC                         Delaware
243.     Loews North Versailles Cinemas, LLC             Delaware
244.     Loews Plainville Cinemas, LLC                   Delaware
245.     Long Island Cinemas, Inc.                       New York
246.     LTM Turkish Holdings, Inc.                      Delaware
247.     Methuen Cinemas, Inc.                           Delaware
248.     Ohio Cinemas, LLC                               Delaware
249.     Richmond Mall Cinemas, LLC                      Delaware
250.     Seattle Cinemas, Inc.                           Washington
251.     Skokie Cinemas, Inc.                            Illinois
252.     Springfield Cinemas, Inc.                       Illinois
253.     Springfield Cinemas, LLC                        Delaware
254.     Waterfront Cinemas, LLC                         Delaware

<PAGE>

EXHIBIT 23.1

                     CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby  consent to the  incorporation  by reference in the  Registration
Statement on Form S-8 (No. 333-52453,  No. 333-32080, and No. 333-32082) of
Loews Cineplex  Entertainment  Corporation of our report dated May 18, 2001
relating to the  financial  statements  and financial  statement  schedule,
which appears in this Form 10-K.

/s/  PricewaterhouseCoopers LLP
-------------------------------
PricewaterhouseCoopers LLP
New York, New York
May 29, 2001

<PAGE>

                     SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON D.C. 20549

                                 FORM 10-Q

          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                      SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended August 31, 2001

                       Commission file number 1-14099

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
               DEBTORS-IN-POSSESSION AS OF FEBRUARY 15, 2001
           (Exact Name of Registrant as Specified in Its Charter)

              Delaware                                13-3386485
-------------------------------------  ---------------------------------------
   (State or Other Jurisdiction of       (I.R.S. Employer Identification No.)
   Incorporation or Organization)

          711 Fifth Avenue
         New York, New York                             10022
-------------------------------------  ---------------------------------------
        (Address of Principal                        (Zip Code)
         Executive Offices)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:         (212) 833-6200
                                                            --------------

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
                                                   ---

Common Stock outstanding (including non-voting common stock) - 58,622,646
shares at August 31, 2001

<PAGE>

PART I.           FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

<TABLE>
                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                          (DEBTORS-IN-POSSESSION)
                         CONSOLIDATED BALANCE SHEET
    (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE INFORMATION)

<CAPTION>
                                                                         August 31,      February 28,
                                                                               2001              2001
                                                                         ----------      ------------
                                                                        (Unaudited)

                                  ASSETS
<S>                                                                     <C>              <C>
CURRENT ASSETS
     Cash and cash equivalents                                          $    57,809      $     47,200
     Accounts receivable                                                     16,422            11,453
     Inventories                                                              3,975             4,056
     Prepaid expenses and other current assets                                6,283             7,340
                                                                        -----------      ------------
          TOTAL CURRENT ASSETS                                               84,489            70,049

PROPERTY, EQUIPMENT AND LEASEHOLDS, NET                                   1,028,640         1,068,923
OTHER ASSETS
     Investments in and advances to partnerships                             93,019            95,359
     Goodwill, net                                                          405,838           416,514
     Other intangible assets, net                                            20,641            21,220
     Deferred charges and other assets                                        6,603             5,521
                                                                        -----------      ------------
          TOTAL ASSETS                                                  $ 1,639,230      $  1,677,586
                                                                        ===========      ============

                   LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable and accrued expenses                              $   108,205      $     88,059
     Deferred revenue                                                        19,092            22,423
     Current maturities of long-term debt                                   737,057           733,844
     Debtor-in-possession credit facility                                         -                 -
     Current portion of capital leases, mortgages and other                   6,354             5,821
                                                                        -----------      ------------
          TOTAL CURRENT LIABILITIES                                         870,708           850,147

LONG-TERM MORTGAGES                                                           6,305             6,393
LONG-TERM CAPITAL LEASE OBLIGATIONS                                          33,265            33,919
ACCRUED PENSION AND  POST-RETIREMENT OBLIGATIONS                              6,069             6,766
OTHER LIABILITIES                                                           122,073           132,874
                                                                        -----------      ------------
          TOTAL LONG-TERM LIABILITIES                                       167,712           179,952

LIABILITIES SUBJECT TO COMPROMISE (Note 4)                                  480,099           471,390
                                                                        -----------      ------------
          TOTAL LIABILITIES                                               1,518,519         1,501,489
                                                                        -----------      ------------

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY
  Common stock ($.01 par value, 300,000,000 shares authorized;
    58,538,646 shares issued and outstanding at August 31, 2001
    and at February 28, 2001)                                                   586               586
  Common stock-Class B non-voting ($.01 par value, 10,000,000
    shares authorized; 84,000 shares issued and outstanding at
    August 31, 2001 and at February 28, 2001)                                     1                 1
  Additional paid-in capital                                                671,707           671,707
  Accumulated other comprehensive income                                     (7,634)           (6,626)
  Retained deficit                                                         (543,949)         (489,571)
          TOTAL STOCKHOLDERS' EQUITY                                        120,711           176,097

          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $ 1,639,230      $  1,677,586

The accompanying notes are an integral part of these unaudited consolidated
financial statements.

</TABLE>

<TABLE>
                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                          (DEBTORS-IN-POSSESSION)
               UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
    (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS EXCEPT SHARE INFORMATION)

<CAPTION>
                                                               For the Three Months Ended      For the Six Months Ended
                                                               --------------------------      ------------------------
                                                                August 31,      August 31,     August 31,   August 31,
                                                                   2001           2000           2001          2000
                                                                ----------      ----------     ----------   ----------
<S>                                                             <C>             <C>            <C>          <C>
REVENUES
   Box Office                                                   $  190,227      $  182,137     $  317,335   $  325,683
   Concession                                                       70,883          71,416        118,649      125,841
   Other                                                             9,940          11,465         16,586       18,764
                                                                ----------      ----------     ----------   ----------
                                                                   271,050         265,018        452,570      470,288
                                                                ----------      ----------     ----------   ----------

EXPENSES
   Theatre operations and other expenses                           193,502         201,286        339,438      363,671
   Cost of concessions                                              11,558          11,548         19,495       20,187
   General and administrative                                       11,152          13,865         21,103       26,499
   Depreciation and amortization                                    27,070          30,683         55,583       61,269
   Loss on sale/disposal of theatres                                12,278          38,669         17,815       38,779
                                                                ----------      ----------     ----------   ----------
                                                                   255,560         296,051        453,434      510,405
                                                                ----------      ----------     ----------   ----------

INCOME / (LOSS) FROM OPERATIONS                                     15,490         (31,033)          (864)     (40,117)
Interest expense (including adequate protection payments)           15,416          23,515         33,111       45,122
Reorganization costs                                                 9,388               -         19,216            -
                                                                ----------      ----------     ----------   ----------

LOSS BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                            (9,314)        (54,548)       (53,191)     (85,239)
Income tax expense                                                     595             988          1,187        1,770
                                                                ----------      ----------     ----------   ----------

LOSS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE                                   (9,909)        (55,536)       (54,378)     (87,009)
Cumulative effect of change in accounting principle, net                 -               -              -        7,841
of tax                                                          ----------      ----------     ----------   -----------

NET LOSS                                                        $   (9,909)     $  (55,536)  $    (54,378)  $  (94,850)
                                                                ==========      ==========     ==========   ===========

   Weighted Average Shares Outstanding - basic and diluted      58,622,646      58,622,646     58,622,646    8,622,646

   Loss per Share before Cumulative Effect of Change in
   Accounting Principle - basic and diluted                     $    (0.17)     $    (0.95)    $    (0.93)  $    (1.48)
                                                                ==========      ==========     ==========   ===========

   Loss per Share - basic and diluted                           $    (0.17)     $    (0.95)    $    (0.93)  $    (1.62)
                                                                ==========      ==========     ==========   ===========

The accompanying notes are an integral part of these unaudited consolidated
financial statements.

</TABLE>

<PAGE>

<TABLE>

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                          (DEBTORS-IN-POSSESSION)
               UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
                 (ALL AMOUNTS IN THOUSANDS OF U.S. DOLLARS)

<CAPTION>
                                                                                        For the Six Months Ended
                                                                                        ------------------------
                                                                                      August 31,        August 31,
                                                                                            2001              2000
                                                                                      ----------        ----------

<S>                                                                                <C>                <C>
OPERATING ACTIVITIES
   Net loss                                                                        $    (54,378)      $   (94,850)

   Adjustments to reconcile net loss to net cash provided by operating
      activities:
      Depreciation and amortization                                                      55,583            61,269
      Reorganization costs                                                               19,216                 -
      Cumulative effect of change in accounting principle                                     -             7,841
      Loss on sale/disposal of theatres                                                  17,815            38,779
      Equity (earnings)/loss from long-term investments, net of distributions             (416)             2,309
        received
   Changes in operating assets and liabilities:
      (Increase)/decrease in accounts receivable                                         (3,417)            3,270
      Increase in accounts payable and accrued expenses                                   13,030               23
      (Decrease) in other operating assets and liabilities, net                          (7,620)          (13,224)
                                                                                   -------------      -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE REORGANIZATION COSTS
                                                                                          39,813            5,417
   Reorganization costs paid during the period                                           (9,277)                -
                                                                                   -------------      -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                 30,536            5,417
                                                                                   -------------      -----------
INVESTING ACTIVITIES
   Investments in/advances to partnerships, net of repayments                                  -          (18,716)
   Proceeds from sale of assets                                                            1,896            5,338
   Capital expenditures                                                                  (22,856)         (99,893)
                                                                                   -------------      -----------
NET CASH USED IN INVESTING ACTIVITIES                                                    (20,960)        (113,271)
                                                                                   -------------      -----------
FINANCING ACTIVITIES
   Borrowings from Senior Revolving Credit Facility, net of repayments                     1,241          124,009
   Proceeds from sale of interest rate swaps                                                   -            8,650
   (Repayments) / Borrowings from Debtor-in-Possession Credit Facility                         -                -
   Borrowings from West 34th Street Loan                                                     916                -
   Repayment of long-term debt and capital leases                                         (1,124)          (2,215)
                                                                                   -------------      -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                  1,033          130,444
                                                                                   -------------      -----------
INCREASE IN CASH AND CASH EQUIVALENTS                                                     10,609           22,590
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                          47,200           31,735
                                                                                   -------------      -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         $      57,809      $    54,325
                                                                                   =============      ===========

The accompanying notes are an integral part of these unaudited consolidated
financial statements.

</TABLE>

<PAGE>

                  LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                          (DEBTORS-IN-POSSESSION)

            NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
        (ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT AS OTHERWISE NOTED)

NOTE 1  - THE COMPANY AND BASIS OF PRESENTATION
-----------------------------------------------

Loews  Cineplex  Entertainment  Corporation  ("LCP" or the  "Company") is a
major motion picture  theatre  exhibition  company with operations in North
America and Europe. The Company operates theatres under the Loews Theatres,
Cineplex Odeon Theatres,  Star Theatres,  Magic Johnson  Theatres,  Megabox
Theatres and Yelmo Cineplex Theatres  marquees.  As of August 31, 2001, LCP
owns, or has interests in, and operates 2,492 screens at 276 theatres in 20
states and the District of Columbia, six Canadian provinces, Spain, Hungary
and Korea. The Company's principal  geographic markets include New York and
the  metropolitan  area,  Boston,  Chicago,  Baltimore,   Dallas,  Houston,
Detroit,  Los Angeles,  Seattle and Washington  D.C. in the U.S.;  Toronto,
Montreal and Vancouver in Canada;  and Madrid,  Spain.  The Company holds a
50% partnership interest in each of the Yelmo Cineplex de Espana ("Yelmo"),
Loeks-Star Theatres ("LST") and Magic Johnson Theatres ("MJT") partnerships
and holds a 24% interest in the Megabox  Cineplex,  Inc.  ("Megabox") joint
venture in Korea. Yelmo, LST, MJT and Megabox hold interests in and operate
34 locations  comprising a total of 393 screens.  Screens and locations for
these joint ventures are included in the Company amounts referred to above.

BANKRUPTCY PROCEEDINGS

On February  15, 2001,  LCP and all of its wholly  owned U.S.  subsidiaries
(the "Debtors")  filed voluntary  petitions to reorganize  under Chapter 11
("Chapter 11") of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for
the Southern District of New York (the "Bankruptcy Court"). The Debtors are
operating  their business as  debtors-in-possession.  On February 27, 2001,
the Office of the United  States  Trustee for the Southern  District of New
York (the "U.S.  Trustee")  appointed a statutory  committee  of  unsecured
creditors  (the  "Creditors'  Committee") to represent the interests of the
Debtors' unsecured creditors.  In Canada, an order (the "Initial Order") to
initiate a restructuring of obligations and operations under the Companies'
Creditors  Arrangement  Act ("CCAA") was obtained on February 15, 2001 from
the  Ontario  Superior  Court of Justice  (the  "Superior  Court")  for the
Company's wholly owned subsidiary,  Cineplex Odeon  Corporation  ("Cineplex
Odeon") and certain of its other  Canadian  subsidiaries.  In addition,  on
February 26, 2001,  the Company's  wholly owned  Austrian  subsidiary,  LCE
Europlex KinobetriebsgmbH ("LCE Europlex"), filed a petition for bankruptcy
in Vienna, Austria, and on March 16, 2001, the Company filed a petition for
bankruptcy  in  Warsaw,  Poland  on  behalf  of  its  wholly  owned  Polish
subsidiary LCE Polska Holding Sp. z o.o. See Note 4, Liabilities Subject to
Compromise, for further discussion.

BASIS OF PRESENTATION

The unaudited  consolidated  financial  statements of the Company have been
prepared in accordance with Statement of Position 90-7 "Financial Reporting
by Entities in  Reorganization  under the Bankruptcy Code" ("SOP 90-7") and
generally  accepted  accounting  principles  applicable  to a going concern
which,  unless otherwise  noted,  assumes the realization of assets and the
payment  of  liabilities  in the  ordinary  course  of  business.  SOP 90-7
requires (i) that  pre-petition  liabilities that are subject to compromise
be segregated in the Company's  consolidated  balance sheet as  liabilities
subject to compromise and (ii) that revenues,  expenses, realized gains and
losses,  and provisions for losses  resulting from the  reorganization  and
restructuring of the Company be reported separately as reorganization items
in  the  consolidated   statement  of  operations.   As  a  result  of  the
reorganization proceedings under Chapter 11 and CCAA, the Company may take,
or may be required to take,  actions which may cause assets to be realized,
or liabilities to be liquidated,  for amounts other than those reflected in
the unaudited consolidated financial statements.

As a result of the  Company's  recurring  losses,  the  Chapter 11 and CCAA
filings and circumstances relating to these events, including the Company's
debt structure and current economic  conditions,  realization of assets and
liquidation of liabilities are subject to significant uncertainty. In order
to provide liquidity over the next fiscal year, the Company entered into an
agreement dated February 15, 2001, as amended,  with a group of lenders led
by   Bankers   Trust   Company,    as    Administrative    Agent,   for   a
Debtor-in-Possession Credit Facility (the "DIP Facility"). The DIP Facility
provided the Company with $60 million in additional  financing  through the
earlier of January 31, 2002 or upon the  occurrence of certain other events
including the  effectiveness  of a Chapter 11 plan of  reorganization.  See
Note 5 to these  unaudited  consolidated  financial  statements for further
discussion.  The  Company  believes  that cash from  operations  along with
financing  provided through the DIP Facility should be available to provide
liquidity  to allow the Company to continue  as a going  concern.  However,
there can be no assurance of this. The accompanying  unaudited consolidated
financial  statements of LCP have been prepared on a going concern basis of
accounting  and do not reflect  any  adjustments  that might  result if the
Company is unable to continue as a going concern.  The Company's ability to
continue  as a going  concern is  dependent  upon its  ability to  maintain
compliance  with  various  financial  and  other  covenants  under  the DIP
Facility and the ability to generate  sufficient  cash from  operations and
financing  sources to meet its obligations as they become due. In the event
a Chapter 11 plan of reorganization/CCAA plan of arrangement  (collectively
referred to as "plans of  reorganization")  are confirmed by the Bankruptcy
Court/Superior  Court and become  effective,  continuation of the Company's
business  thereafter will be dependent on the Company's  ability to achieve
successful  operations,  maintain  satisfactory  capital and  liquidity and
obtain  access  to  funds  under a  credit  facility.  Until  the  plans of
reorganization  are confirmed by the  Bankruptcy  Court/Superior  Court and
become  effective,  there can be no assurance  that the Company will emerge
from  these  bankruptcy  proceedings,  and  the  effect  of the  terms  and
conditions of such plans of reorganization on the Company's business cannot
be determined. Therefore there is substantial doubt regarding the Company's
ability to continue as a going concern.

The  accompanying  unaudited  consolidated  financial  statements have been
prepared  in  accordance  with  generally  accepted  accounting  principles
("GAAP") for interim financial information;  therefore, they do not include
all  of the  information  and  footnotes  required  by  GAAP  for  complete
financial  statements.  In  the  opinion  of  management,  all  adjustments
considered  necessary  for a fair  presentation  have  been  included.  For
further  information,  refer to the consolidated  financial  statements and
footnotes  thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 2001.

NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
--------------------------------------

Statement of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting
for Derivative  Instruments and Hedging  Activity" was effective for all of
the Company's  fiscal  quarters  beginning  March 1, 2001.  This  statement
standardizes the accounting for derivative  instruments,  including certain
derivative  instruments embedded in other contracts,  by requiring that the
Company  recognize those items as assets or liabilities in the statement of
financial  position  and measure  them at fair value.  The adoption of this
standard by the Company did not have a significant  impact on its operating
results or financial position.

On July 20, 2001, SFAS No. 141, "Business Combinations",  and SFAS No. 142,
"Goodwill and Other Intangible  Assets",  were issued.  SFAS No. 141, which
supersedes  Accounting  Principles  Board Opinion ("APB") No. 16, "Business
Combinations",  requires that the purchase method of accounting be used for
all business  combinations  initiated  after June 30, 2001 and  establishes
specific  criteria for the recognition of intangible assets separately from
goodwill.  SFAS No. 142, which supersedes APB No. 17, "Intangible  Assets",
requires  that goodwill and  indefinite  lived  intangible  assets shall no
longer be  amortized  to  earnings,  but instead be reviewed and tested for
impairment  at  least  annually.  SFAS  No.  142  also  requires  that  the
amortization  period of  intangible  assets with finite  lives be no longer
limited to forty years.  The  amortization  of goodwill by the Company will
cease upon adoption of SFAS No. 142 which will be effective for the Company
beginning March 1, 2002.

On  August  16,  2001,  SFAS No.  143,  "Accounting  for  Asset  Retirement
Obligations",  was issued.  SFAS No. 143  requires the  establishment  of a
liability  for an  asset  retirement  obligation.  SFAS  No.  143  will  be
effective  for the  Company's  fiscal  year  beginning  March 1, 2003.  The
Company is currently  considering  the impact,  if any, that this statement
will have on its financial position and operating results.

On  October  3, 2001,  SFAS No.  144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets",  was issued.  SFAS No. 144 supersedes SFAS
No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets  and of
Long-Lived  Assets  to be  Disposed  Of",  and  portions  of  APB  No.  30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of
a  Segment  of  Business,  and  Extraordinary,   Unusual  and  Infrequently
Occurring Events and Transactions", and amends Accounting Research Bulletin
No.  51,  "Consolidated  Financial  Statements".  SFAS  No.  144  generally
conforms,  among  other  things,  impairment  accounting  for  assets to be
disposed of including those in  discontinued  operations and eliminates the
exception to  consolidation  for which  control is likely to be  temporary.
SFAS  No.  144 will be  effective  for the  Company's  fiscal  year  ending
February 28, 2003. The Company is currently considering the impact, if any,
that this  statement  will have on its  financial  position  and  operating
results.

NOTE 3 - CASH AND CASH EQUIVALENTS
----------------------------------

Cash and cash  equivalents  as of August 31, 2001 and  February  28,  2001,
include   restricted   cash  of   approximately   $1.8   million  and  nil,
respectively, related to funds required to be held in a trust account for a
construction project in Canada.

NOTE 4 - LIABILITIES SUBJECT TO COMPROMISE
------------------------------------------

As  discussed  in  Note  1  to  these  unaudited   consolidated   financial
statements,  the Company has been operating as debtors-in-possession  under
Chapter 11 in the U.S.  and  pursuant to the Initial  Order of the Superior
Court in Canada  since  February  15, 2001.  The Company is  authorized  to
operate its business in the ordinary course.

Liabilities Subject to Compromise

As a result of the  Chapter 11 filing in the U.S.,  all  actions to collect
the payment of pre-petition indebtedness are subject to compromise or other
treatment under a plan of reorganization.  Generally, actions to enforce or
otherwise  effect payment of pre-Chapter 11 liabilities  are stayed.  These
claims are reflected in the August 31, 2001 unaudited  consolidated balance
sheet and the February 28, 2001  consolidated  balance sheet as Liabilities
Subject to Compromise.  Pre-petition  claims  secured  against the Debtors'
assets  ("secured  claims") are also  stayed,  although the holders of such
claims  have  the  right to move  the  court  for  relief  from  the  stay.
Pre-petition secured claims (primarily  representing amounts borrowed under
the Company's Senior  Revolving  Credit Facility) are generally  secured by
all personal  property  and certain  real  property of LCP and its domestic
subsidiaries,  a pledge of the stock of all domestic subsidiaries and LCP's
equity  interest in and loans to its foreign  subsidiaries.  These  secured
claims  have not been  reflected  as  Liabilities  Subject  to  Compromise.
Although pre-petition claims are generally stayed, as part of the first day
orders  and  subsequent  motions  granted  by  the  Bankruptcy  Court,  the
Bankruptcy  Court  approved  LCP's  motions  to  pay  certain  pre-petition
obligations including: (i) payments, on normal terms, to film distributors,
(ii) continuing to honor gift certificates, movie passes and other customer
programs,  (iii)  payment  for  employee  wages and  related  benefits  and
reimbursement of employee  business  expenses and (iv) adequate  protection
payments  to the  lenders  of the Senior  Revolving  Credit  Facility.  The
Company has been and intends to  continue to pay  undisputed  post-petition
claims  of all  vendors,  film  distributors  and  other  suppliers  in the
ordinary  course  of  business.   In  addition,   the  Company  may  reject
pre-petition  executory contracts and unexpired leases with the approval of
the Bankruptcy Court with respect to the Company's U.S. operations. Between
February  15, 2001 and August 31,  2001,  the Company  obtained  Bankruptcy
Court approval to reject 75 leases comprising 506 screens.  As a result, as
of August 31, 2001, the Company has closed 65 of these theatres  comprising
421 screens.  Any damages  resulting from rejection of executory  contracts
and unexpired  leases are treated as general  unsecured  claims in the U.S.
and are classified as liabilities  subject to compromise.  LCP has notified
all known  claimants  subject to the bar date of their need to file a proof
of claim with the Bankruptcy  Court. A bar date is the date by which claims
against  the  Company  must be filed if the  claimants  wish to receive any
distribution  in the Chapter 11 case. On July 27, 2001, the Company filed a
motion  seeking to set a bar date of September 24, 2001. On August 2, 2001,
the  Bankruptcy  Court entered an order  granting the  Company's  motion to
establish a bar date of September 24, 2001.  The bar date was  subsequently
extended by the Bankruptcy Court to September 26, 2001. Differences between
liability  amounts  estimated  by the Company and claims filed by creditors
will  be  investigated,   and  the  Bankruptcy  Court  will  make  a  final
determination  on  the  allowance  of  claims.  The  determination  of  how
liabilities will ultimately be settled and treated cannot be made until the
Bankruptcy Court approves a Chapter 11 plan of reorganization. Accordingly,
the ultimate amount of such liabilities is presently not determinable.

As a  result  of  the  Initial  Order  of the  Superior  Court  in  Canada,
substantially  all  actions  to  enforce  or  otherwise  effect  payment of
pre-filing  obligations of Cineplex Odeon and its  subsidiaries are stayed.
The rights of secured  creditors to enforce against the Company's  Canadian
assets are also stayed.  These claims are  reflected in the August 31, 2001
unaudited consolidated balance sheet and the February 28, 2001 consolidated
balance sheet as  Liabilities  Subject to  Compromise.  The stay period has
been extended through November 30, 2001.  Although  pre-petition claims are
generally stayed, the Initial Order permits (i) payments on normal terms to
persons  supplying  goods and services after the date of the Initial Order,
including  film  suppliers,  as well as  certain  pre-filing  claims,  (ii)
continuing  to honor gift  certificates,  movie  passes and other  customer
programs,  (iii)  payment  for  employee  wages and  related  benefits  and
reimbursement of employee business expenses as well as statutory  severance
pay and (iv) the  borrowing  of up to $20 million from LCP and the granting
of security by the assets of Cineplex Odeon and its  subsidiaries to secure
such  borrowings.  Cineplex  Odeon has been and  intends to continue to pay
undisputed  post-filing  claims of all vendors,  film  suppliers  and other
suppliers in the  ordinary  course of  business.  In addition,  the Initial
Order permits the repudiation of unexpired leases of Cineplex Odeon and its
subsidiaries. Between February 15, 2001 and August 31, 2001, Cineplex Odeon
has  repudiated 40 leases  comprising  235 screens  pursuant to the Initial
Order of the Superior Court. As a result,  as of August 31, 2001,  Cineplex
Odeon has closed 35 of these  theatres  comprising  199 screens.  Landlords
whose leases have been  repudiated  will be entitled to file a claim in the
CCAA  proceedings  in respect of such  repudiation.  The  treatment of such
claims has yet to be determined and will be set out in a plan of compromise
and arrangement to be presented by Cineplex Odeon to the Superior Court and
to its  affected  creditors.  A  claims  process  and  claims  bar date was
established  to determine the claims  entitled to vote on a plan as well as
to receive  distributions  thereunder.  On August 2, 2001,  by order of the
Superior Court,  the claims process was approved and the claims bar date of
September  24,  2001  was  set.  Ultimately,  any  plan  of  compromise  or
arrangement must be approved by a vote of a majority in number of creditors
of each  class of  creditors  affected  by the plan as well as by a vote of
holders of  two-thirds  of the value of the claims of each such  class.  If
such a vote is favorable,  the plan must then be sanctioned by the Superior
Court.

Valuation methods used in Chapter 11 reorganization cases vary depending on
the purpose for which they are  prepared  and used and are rarely  based on
generally  accepted   accounting   principles,   the  basis  of  which  the
accompanying financial statements are prepared. Accordingly, the values set
forth in the accompanying  consolidated financial statements are not likely
to be  indicative  of the  values  presented  to or used by the  Bankruptcy
Court.

As of August 31, 2001 and February 28,  2001,  the Company has  liabilities
subject to compromise of  approximately  $480.1 million and $471.4 million,
respectively, which include the following:

<TABLE>
<CAPTION>
                                                        August 31, 2001    February 28,2001
                                                        ---------------    ----------------
<S>                                                      <C>                  <C>
     8 7/8% Senior Subordinated Notes                    $   300,000          $  300,000
     Interest payable - Senior Subordinated Notes             14,348              14,348
     Trade payables                                           30,694              31,454
     Rent and rent related charges                            19,611              17,702
     Lease termination claim liability (see above)           107,990              94,380
     Accrued expenses/other                                    7,456              13,506
                                                         -----------          ----------
                                                         $   480,099          $  471,390
                                                         ===========          ==========
</TABLE>

All amounts presented above may be subject to future adjustments  depending
on Bankruptcy Court actions,  further developments with respect to disputed
claims,  determinations of the secured status of certain claims, the values
of any collateral securing such claims, or other events.

Amounts  outstanding  under  the 8 7/8%  Senior  Subordinated  Notes  as of
February 15, 2001 are  classified as  liabilities  subject to compromise in
the unaudited  consolidated statement of financial position until a plan of
reorganization  is approved and implemented.  The required interest payment
of $13.3  million due February 1, 2001 was blocked by the lenders under the
Senior  Revolving  Credit  Facility  prior to the filing date.  Interest on
unsecured  claims has not been accrued during the period  subsequent to the
filing date (February 15, 2001).  The amount of additional  unpaid interest
on the 8 7/8%  Senior  Subordinated  Notes  that  would  have been  accrued
through August 31, 2001 approximates $14.4 million.

The lease termination claim liability is based upon the Company's estimates
of the landlords'  claims for 65 theatres (421 screens) rejected and closed
in the U.S., 35 theatres (199 screens)  repudiated and closed in Canada and
four  leases  terminated  in Austria and  Poland.  In the U.S.,  the amount
accrued by the  Company  for a  landlord's  lease  claim,  with  respect to
rejected  theatres,  is limited under the Bankruptcy  Code. This limitation
provides the Company with a far smaller lease  termination  liability  than
would have been  incurred if these leases had been  terminated  without the
protection of the Bankruptcy  Code. This provision may be subject to future
adjustments  based on claims filed by the  landlords and  Bankruptcy  Court
actions.  In Canada,  the amount payable in respect of repudiated leases is
established  under the plan presented for approval by the affected  classes
of the  creditors and the Superior  Court.  Although this amount is usually
less than would  otherwise be payable upon the unilateral  termination of a
lease,  it is not  prescribed  by  statute.  The Company  cannot  presently
determine or reasonably  estimate the ultimate  liability  which may result
from the filing of claims  for any  rejected/repudiated  contracts  or from
additional leases which may be  rejected/repudiated  in connection with the
bankruptcy  proceedings.  The Company is  negotiating  with  certain of its
remaining  landlords and is continuing to evaluate its remaining  leases as
part of its reorganization process.

NOTE 5 - LONG-TERM DEBT AND OTHER OBLIGATIONS
---------------------------------------------

Due to the Company's failure to comply with certain financial covenants and
the  commencement  of the  Chapter  11 and CCAA  cases,  the  Company is in
default on substantially all of its pre-petition  debt obligations.  Except
as otherwise  may be  determined  by the  Bankruptcy  Court or the Superior
Court,  the stay  protection  afforded  by the  Chapter  11 and CCAA  cases
prevents  any action from being  taken with  regard to any of the  defaults
under the pre-petition debt  obligations.  Certain of these obligations are
classified  as  Liabilities  Subject to  Compromise  at August 31, 2001 and
February 28, 2001.  See Note 4 to these  unaudited  consolidated  financial
statements for additional  information.  The Company's borrowings under its
Senior  Revolving  Credit Facility at August 31, 2001 and February 28, 2001
totaled $737.0 million and $733.8 million, respectively, with an additional
$5.0 million and $6.5 million of availability  for  outstanding  letters of
credit,  respectively.  The Senior  Revolving  Credit  Facility  balance at
August 31, 2001 includes approximately $2.0 million of pre-petition accrued
interest which has been  reclassified  as part of the principal  balance of
the Senior Revolving Credit Facility.  The remaining increase in borrowings
of $1.2 million during the six months ended August 31, 2001  represents the
funding of amounts  drawn on  existing  letters of credit  under the Senior
Revolving Credit Facility.

Long-term debt and other obligations consist of:

<TABLE>
<CAPTION>
                                                            August 31,2001    February 28, 2001
                                                            --------------    -----------------
<S>                                                           <C>              <C>
Senior Revolving Credit Facility                              $   737,057      $    733,844
Debtor-in-Possession Credit Facility                                    -                 -
West 34th Street Loan                                                 916                 -
Mortgages payable - non-recourse, payable from 1998
   through 2008, interest rates from 8.5% to 11.5%                 10,248            10,746
                                                              -----------      ------------
                                                                  748,221           744,590
Less: Current maturities                                          741,916           738,197
                                                              -----------      -------------
                                                              $     6,305      $      6,393
                                                              ===========      ============

</TABLE>

In connection with the Company's  Chapter 11 and CCAA filings,  on February
15, 2001,  the Company  entered into the DIP  Facility  with Bankers  Trust
Company,  as  Administrative  Agent.  The DIP  Facility was approved by the
Bankruptcy  Court on April 4, 2001. The DIP Facility,  which expires on the
earlier of January 31, 2002 or upon the occurrence of certain other events,
including the  effectiveness  of a plan of  reorganization,  is designed to
provide the Company with  liquidity  to operate in the ordinary  course and
meet certain of its funding  commitments  for completion of certain theatre
complexes now under construction in North America. The debtor-in-possession
commitment that LCP received from Bankers Trust is for  approximately  $146
million,  $60 million of which consists of a revolving credit line with the
remaining  $86 million  being used to repay  post-default  advances  (i.e.,
subsequent  to August 31,  2000) made  under the  Senior  Revolving  Credit
Facility,  which were  secured with  mortgages  on eleven of the  Company's
existing  theatre  properties,  and to provide for  outstanding  letters of
credit.  Loans under the DIP Facility bear interest at the bank's base rate
plus  1.5% or LIBOR  plus  3.25%.  The  terms of the DIP  Facility  contain
certain restrictive covenants which include:  limitations on the incurrence
of additional  guarantees ,liens and indebtedness,  limitations on the sale
of assets, and limitations on the funding of capital expenditures.  The DIP
Facility also requires that the Company meet certain minimum thresholds for
consolidated     cumulative     earnings    before     interest,     taxes,
depreciation/amortization  and other  expenses as  defined.  For the months
ended  February  28,  2001  through  August 31,  2001,  the  Company was in
compliance with all financial  covenant  requirements  reflected in the DIP
Facility.

The $60 million revolving credit facility included in the DIP Facility will
be used to  finance  the  Company's  operations  in the  normal  course  of
business during the restructuring  process (including the required adequate
protection  payments  and funding the  operating  requirements  and certain
capital  projects of Cineplex  Odeon - up to a maximum of $20  million) and
the completion of certain  "designated"  construction  projects,  currently
under construction, which were committed to prior to the petition date. The
terms  of the DIP  Facility  also  require  the  Company  to make  adequate
protection  payments on the pre-default  amounts  borrowed under the Senior
Revolving Credit Facility  (approximately $655 million).  The amount of the
monthly adequate  protection payments is based on the base rate of interest
plus 150 basis points.  The loan to Cineplex Odeon of up to $20 million was
approved by the Superior  Court on February  15,  2001.  This loan has been
secured  by the  assets of  Cineplex  Odeon and its  subsidiaries  with the
security  being held by Deutsche Bank  (Canada) as agent.  The loan and the
security therefor have been pledged to the lenders under the DIP Facility.

On July 3, 2001, the Bankruptcy  Court  authorized the Company to execute a
Second Amendment to the DIP Facility.  This amendment generally permits the
Company to  separately  finance its  obligations  to complete the 14-screen
theatre  complex  at West  34th  Street  in New York  City,  which  will be
operated by the Company under a long-term  operating lease agreement.  This
theatre was committed to by the Company  prior to the petition  filing date
(February 15, 2001).  Approximately $10.0 million has been spent to date on
this  theatre and the cost to complete  this  theatre is  estimated at $5.8
million,  for the  purchase and  installation  of  furniture,  fixtures and
equipment and certain other tenant  improvements.  The developer has agreed
to provide the Company with  financing of up to $10 million to complete the
West 34th Street  theatre.  The Company and the  developer  have executed a
Loan and  Security  Agreement,  dated June 15,  2001,  to  effectuate  this
financing (the "West 34th Street Loan") and the  Bankruptcy  Court approved
the Loan and  Security  Agreement  on July 3, 2001.  As of August 31, 2001,
$916 thousand had been drawn under the West 34th Street Loan. Additionally,
on  September  10,  2001 and  October  5, 2001,  the  Company  borrowed  an
additional $1.2 million and $1.6 million, respectively, under the West 34th
Street Loan. As collateral  for this loan,  the developer  received,  among
other things, a security interest in an existing  property,  which is owned
by the Company in fee. The Company is presently marketing this property and
the proceeds, if the sale is consummated, will be used to repay any amounts
outstanding  under the West 34th Street Loan and to complete any  remaining
obligations  relative to the West 34th Street theatre. The West 34th Street
Loan is also secured by a lien on the  Company's  interest in the West 34th
Street  lease and the cash flow  generated by the theatre  operations.  The
West 34th  Street  Loan  matures on the  earlier of three years or upon the
Company's emergence from bankruptcy.  The loan bears interest at LIBOR plus
3.25%, which is payable monthly. Principal is payable at maturity.

On June 28,  2001,  the Debtors and Bankers  Trust  entered  into the third
amendment to the DIP Facility (the "Third  Amendment"),  which was approved
by the Bankruptcy  Court on July 13, 2001. The Third Amendment added a $4.5
million replacement letter of credit sublimit to the DIP Facility to enable
the Company to issue  replacement  letters of credit  without  reducing the
Company's  availability  under the DIP Facility for its working capital and
capital  expenditure needs. The Third Amendment does not increase the total
commitment  under  the DIP  Facility.

As of  February  28,  2001,  no  amounts  had been  drawn  against  the DIP
Facility.  As of August 31, 2001, all amounts  previously drawn against the
DIP Facility  had been repaid.  The  Company's  availability  under the DIP
Facility  equals $60  million as of August  31,  2001.  On October 4, 2001,
$10.0  million had been drawn  against  the DIP  Facility,  including  $2.0
million funded by LCP to Cineplex Odeon under the Canadian  sublimit of the
DIP Facility.  The Company's availability under the DIP Facility equals $50
million as of October 11, 2001.

The Company  currently has  outstanding  $300 million  aggregate  principal
amount of 8 7/8%  Senior  Subordinated  Notes (the  "Notes")  due 2008.  On
February 1, 2001, the required interest payment of $13.3 million due on the
Company's  Notes was  blocked by the  lenders  under the  Senior  Revolving
Credit Facility.  In accordance with the Indenture,  the Company had thirty
days to cure the default  before such  payment  default  became an event of
default which would permit the requisite  holders to accelerate  payment of
the outstanding  principal  amount of and accrued  interest on these notes.
These Notes automatically accelerated as a result of the Chapter 11 filing.
The  Company  does not at this time have  access to  capital  to be able to
repay these notes or  interest in cash.  The  payments on the 8 7/8% Senior
Subordinated  Notes,  including  interest,  have been  stayed and have been
reclassified  as  Liabilities  Subject to Compromise in the August 31, 2001
unaudited consolidated balance sheet and the February 28, 2001 consolidated
balance sheet. See Note 4, Liabilities  Subject to Compromise,  for further
discussion.

NOTE 6 - REORGANIZATION COSTS
-----------------------------

The Company has incurred  reorganization  related charges of  approximately
$9.4  million and $19.2  million for the three and six months  ended August
31, 2001,  respectively,  which have been  reflected in the  Reorganization
Costs  line  of the  Statement  of  Operations.  Reorganization  costs  are
directly associated with the reorganization proceedings under the Company's
Chapter  11 and CCAA  filings.  Included  in such  costs for the six months
ended August 31, 2001 are amounts related to (i) landlord claims related to
the rejection of 6 additional theatres  (comprising 55 screens) in the U.S.
and the  repudiation  of 8 additional  theatres  (comprising 55 screens) in
Canada and (ii)  accruals or payments for  professional  and advisory  fees
incurred  directly  related to and subsequent to the  bankruptcy  filing on
February 15, 2001. Reorganization costs are as follows:

<TABLE>
<CAPTION>
                                                       Three months ended      Six months ended
                                                        August 31, 2001        August 31, 2001
                                                       ------------------      ----------------
<S>                                                      <C>                   <C>
Professional advisory fees                               $       5,261         $     10,910
Lease claim charge                                               3,188                6,384
Other expenses directly related to the bankruptcy                  939                1,922
                                                         -------------         ------------
     Total                                               $       9,388         $     19,216
                                                         =============         ============

</TABLE>

NOTE 7 - COMPREHENSIVE INCOME
-----------------------------

The  following  components  are  reflected in the  Company's  comprehensive
income:

<TABLE>
<CAPTION>
                                      Three Months Ended                   Six Months Ended
                                    August 31,      August 31,         August 31,     August 31,
                                          2001            2000               2001           2000
                                    ----------      ----------         ----------     ----------

<S>                               <C>              <C>               <C>             <C>
Net loss                          $   (9,909)       $ (55,536)         $ (54,378)      $(94,850)
Other comprehensive income              (671)           2,735             (1,008)        (1,886)
                                  -----------       ----------        -----------      ---------
Comprehensive income              $  (10,580)       $ (52,801)         $ (55,386)      $(96,736)
                                  ===========       ==========        ===========      =========

<CAPTION>

The following is a reconciliation of the Company's accumulated other
comprehensive income:

                                                                  Six Months Ended
                                                               -------------------
                                                                   August 31, 2001
                                                               -------------------
<S>                                                                      <C>
Accumulated other comprehensive income as of                             $ (6,626)
March 1, 2001
Other comprehensive income for the six months ended
August 31, 2001:
    Foreign currency translation adjustment, net of income
    tax benefit of $754                                                    (1,008)
                                                                         ---------
Accumulated other comprehensive income as of
August 31, 2001                                                          $ (7,634)
                                                                         =========

</TABLE>

NOTE 8 - SEGMENT AND GEOGRAPHIC DATA
------------------------------------

The Company is engaged in one line of business,  motion picture exhibition.
The following table presents  summarized  financial  information  about the
Company by geographic  area.  There were no material amounts of sales among
geographic areas.

<TABLE>
<CAPTION>

                                         UNITED
                                         STATES            CANADA            INT'L      CONSOLIDATED
                                    -------------    -------------     -------------    ------------
<S>                                 <C>              <C>               <C>              <C>
Three Months Ended
August 31, 2001

   Total revenue                    $     222,339    $      48,085     $         626    $    271,050
   Income/(Loss) from operations    $       8,823    $       7,329     $        (662)   $     15,490

Three Months Ended
August 31, 2000

   Total revenue                    $     218,946    $      45,220     $         852    $    265,018
   Loss from operations             $     (27,607)   $      (1,848)    $      (1,578)   $    (31,033)

Six Months Ended
August 31, 2001

   Total revenue                    $     370,660    $      80,827     $       1,083    $    452,570
   (Loss) / Income from operations  $      (3,217)   $       5,277     $      (2,924)   $       (864)
   Total assets                     $   1,282,746    $     290,916     $      65,568    $  1,639,230

Six Months Ended
August 31, 2000

   Total revenue                    $     387,089    $      81,339     $       1,860    $    470,288
   Loss from operations             $     (31,106)   $      (5,977)    $      (3,034)   $    (40,117)

</TABLE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES
--------------------------------------

COMMITMENTS

The Company has entered into commitments for the completion of construction
of 4 theatre properties  (comprising 62 screens) aggregating  approximately
$34.5  million  anticipated  to be funded  over the next year.  The capital
spending  commitment  of  $34.5  million  includes  the  remaining  capital
required  to  complete  the West 34th Street  theatre  (approximately  $5.8
million) which will be funded by a loan from the  developer.  See Note 5 to
these unaudited  consolidated  financial statements for further discussion.
The Company has also  guaranteed  an additional  $97.3  million  related to
obligations under lease agreements entered into by MJT.

METREON ARBITRATION

In May 1997,  the Company  entered into a 21 year lease with Metreon,  Inc.
("Metreon"),  an affiliate  of Sony  Corporation  of America,  to operate a
multiplex theatre in an  entertainment/retail  complex developed by Metreon
in San  Francisco.  Since that theatre opened in June 1999, the Company has
had a dispute with Metreon with respect to  construction  costs  (amount of
dispute  is   approximately   $5  million)   that  may  be  the   Company's
responsibility under the lease. Also, the Company is in dispute with regard
to the nature of the costs that  Metreon is seeking to include as operating
expenses under the lease, and the proper  allocation of operating  expenses
to this theatre, based on the Company's proportionate share of the complex.
To date,  the  Company  has been  unable to resolve  these  issues  through
negotiation with Metreon.  The estimated  difference in operating  expenses
allocable to this theatre,  taking into account  differences  over both the
nature  of  the  allocable  costs  and   determination   of  the  Company's
proportionate  share of the complex,  is  approximately $3 - $4 million per
annum for the  duration  of the lease.  Pursuant to the terms of the lease,
the Company is to contribute to the operating expenses of the complex in an
amount  equal to its  proportionate  share of the total  floor  area of the
complex. Metreon has asserted that the Company's proportionate share of the
complex  is   approximately   47%,  while  the  Company  asserts  that  its
proportionate  share is  approximately  32%.  On  September  19,  2000,  as
permitted by the lease,  Metreon  filed a demand for  arbitration  with the
American Arbitration Association seeking a declaration of the proportionate
share of the  complex  floor area  occupied  by this  theatre.  The Company
believes  that  it has  meritorious  defenses  to all of  Metreon's  claims
against the Company  under the lease and intends to  vigorously  assert its
position regarding its proportionate share of the complex. This arbitration
is stayed as a result of the filing of the Chapter 11 petition.  On May 17,
2001,  Metreon filed a motion for relief from the automatic  stay to pursue
the  arbitration.  The Company filed an objection to Metreon's motion and a
hearing on the motion and the objection is scheduled for October 16, 2001.

ADA LITIGATION

The  Department  of  Justice,  in  coordination  with  the  New  York  City
Commission on Human Rights,  is currently  investigating  Cineplex  Odeon's
theatres in New York City with respect to its compliance with the Americans
with  Disabilities  Act ("ADA") and the New York City Human Rights Law. The
Department  of Justice has alleged that its  investigation  had  identified
numerous violations of the ADA. The Company has opposed,  and will continue
to  vigorously  oppose  the  allegations  and claims of the  Department  of
Justice with respect to the  compliance  of these  theatres  under the ADA.
However,  the Company cannot guarantee that the remediation  costs relating
to the ADA will not be material.

ENVIRONMENTAL LITIGATION

Two drive-in theatres, both formerly leased by the Company and in the State
of Illinois,  are located on  properties  on which  certain  third  parties
disposed  of,  or  may  have   disposed  of,   substantial   quantities  of
construction  debris, auto shredder residue and other debris. Such material
may contain  hazardous  substances.  One of these leases  terminated in the
ordinary  course  prior to the  Debtors  filing  their  Chapter  11  cases.
Pursuant to an order of the Bankruptcy  Court, the other lease was rejected
in accordance with the Bankruptcy  Code.  Termination or rejection of these
leases,  however,  may  not  terminate  all of the  Debtors'  liability  in
connection  with the disposal of debris on these  properties.  In addition,
the rejected  lease  property is the subject of an action,  filed in August
1998 in the circuit court of Cook County, Illinois by the Illinois Attorney
General's  office  seeking  civil  penalties and various forms of equitable
relief,  including  the  removal  of all  wastes  allegedly  present at the
property, soil and ground water testing and remediation, if necessary. This
action  may  be  stayed,  in  whole  or in  part,  as  the  result  of  the
commencement  of the  Debtors'  Chapter 11 cases.  The  Company's  range of
probable  liability  with  respect  to this  action  cannot  be  reasonably
estimated at this time due to several unknown factors,  including the scope
of contamination at the theatre property,  the likelihood of any particular
remedial  action being  required,  the allocation of liability,  if any, to
other responsible parties, and the ability of such parties to satisfy their
share of such  liability,  and the  ability  of the  Debtors  to  discharge
certain  claims  and  liabilities  in  connection  with this  action  under
applicable Bankruptcy law. If necessary,  the Company intends to vigorously
defend against this action and will continue to evaluate future information
and  developments  with  respect to  conditions  at this  property and will
periodically  reassess any liability  accordingly.  Based on the foregoing,
there  can be no  assurance  that  the  Company's  liability,  if  any,  in
connection with this action will not be material.

COMPETITION BUREAU PROCEEDINGS

The Canadian  Competition  Bureau (the  "Bureau")  obtained a Federal Court
Order  requiring a number of  exhibitors  and  distributors,  including the
Company's  subsidiaries  (Cineplex  Odeon  Corporation  and Cineplex  Odeon
(Quebec) Inc.), to produce  significant  business  information by April 27,
2001. This order is in connection with an inquiry by the Bureau relating to
certain practices of motion picture  exhibitors,  including  Cineplex Odeon
Corporation,  and motion picture distributors.  On April 27, 2001, Cineplex
Odeon   complied  with  the  order  and  provided  the  required   business
information to the  Competition  Bureau.  The Company intends to vigorously
oppose any allegation of anti-competitive conduct on its part.

SIX WEST RETAIL ACQUISITION, INC.

On July  24,  1997,  Six  West  Retail  Acquisition,  Inc.,  a real  estate
development  company,  initiated a lawsuit  against the Company and some of
its affiliates in the U.S.  District Court for the Southern District of New
York, seeking injunctive relief and unspecified  monetary damages. Six West
alleges that the Company has violated federal antitrust laws by engaging in
block booking  agreements and  monopolizing  the motion picture  exhibition
market in New York  City.  Six West  owns or leases  the Paris and New York
Twin  theatres in  Manhattan.  The Paris  theatre was managed by one of the
Company's  subsidiaries  under an oral  management  agreement that has been
terminated.  The New York Twin  theatre is managed by one of the  Company's
subsidiaries  under a written management  agreement.  Six West also alleges
that the Company violated its contractual and fiduciary responsibilities in
managing the two theatres.  On December 3, 1997,  Six West filed an amended
complaint  asserting  similar  claims with respect to the Festival  Theatre
which was operated by one of the Company's subsidiaries until it was closed
in 1994.  All of the defendants  moved to dismiss the amended  complaint by
motion  dated  January  8,  1998.  The  court  decided  both  motions  in a
memorandum  opinion  and order  dated  March 8,  2000.  The  court  granted
defendants'  motion to dismiss the contract  claims  against the individual
non-corporate  defendants  and a portion of one claim  against the Company.
The court  denied the motion with  respect to the  remainder of the amended
complaint and the non-LCP corporate defendants.  Discovery in the action is
still in progress.  This action was stayed with respect to these defendants
that are among the U.S. Debtors as a result of the filing of the Chapter 11
petition. LCP believes that Six West's claims are without merit and intends
to oppose them vigorously.

OTHER

Other than the lawsuits noted above,  the Company is a defendant in various
lawsuits  arising in the  ordinary  course of  business  and is involved in
certain environmental matters. From time to time the Company is involved in
disputes with  landlords,  contractors  and other third parties.  It is the
opinion of management  that any liability to the Company which may arise as
a result of these  matters will not have a material  adverse  effect on its
operating results, financial position and cash flows.

NOTE 10 - COMMON STOCK
----------------------

On June 28, 2001,  Universal  Studios,  Inc.  ("Universal") sold 14,946,461
shares of the  Company's  common stock and 63,000  shares of the  Company's
Class B  non-voting  common  stock to  Goldman,  Sachs & Co.  In  addition,
Universal affiliate Universal Studios  International BV sold 17,000 Class B
non-voting  common  shares to  Goldman,  Sachs & Co. All of the shares were
sold  for an  aggregate  purchase  price  of  $1.00.  Following  the  sale,
Universal ceased to own any shares of common stock of the Company.

ITEM 2.   MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION
          AND RESULTS OF OPERATIONS

GENERAL

The following  discussion of the Loews Cineplex  Entertainment  Corporation
("we", "us" and "our") financial  condition and operating results should be
read in conjunction with our unaudited  consolidated  financial  statements
for the three and six month  periods ended August 31, 2001 and 2000 and our
Annual Report on Form 10-K for the fiscal year ended February 28, 2001.

This discussion  incorporates operating results of partnerships in which we
have an  interest  to the extent of our  equity  share as  required  by the
equity method of accounting, except as otherwise noted.

On February  15,  2001,  Loews  Cineplex  and all of its wholly  owned U.S.
subsidiaries  filed voluntary  petitions to reorganize  under Chapter 11 in
the U.S.  Bankruptcy  Court.  In Canada,  the  Initial  Order to initiate a
restructuring  of obligations and operations under the CCAA was obtained on
February 15, 2001 from the Superior Court for our wholly owned  subsidiary,
Cineplex Odeon and certain of its other Canadian subsidiaries.  The Chapter
11  and  CCAA  filings  are  hereinafter  collectively  referred  to as the
"Bankruptcy  Proceedings".  In addition,  on February 26, 2001,  our wholly
owned Austrian  subsidiary LCE Europlex  KinobetriebsgmbH  filed a petition
for  bankruptcy  in  Vienna,  Austria  and on March  16,  2001,  we filed a
petition  for  bankruptcy  in Warsaw,  Poland on behalf of our wholly owned
Polish subsidiary LCE Polska Holding Sp. z o.o.

The Chapter 11 and CCAA filings  resulted from a sequence of events and the
unforeseen effect that these events would have in the aggregate on us. Such
events included, among other things, (i) the lower industry-wide attendance
levels during  calendar year 2000  (approximately  3%) due primarily to the
"sub-par"  film  performance  during the summer and fall of 2000,  (ii) the
continued  decline in revenues  experienced at many of our older  theatres,
(iii) significantly higher costs associated with building megaplexes and in
making   improvements  to  existing   theatres  in  order  to  attract  and
accommodate  larger audiences,  and (iv) significant  liquidity  pressures.
Faced with significant operating  shortfalls,  unavailability of credit and
our inability to satisfactorily  achieve a restructuring  with our lenders,
among other things, we filed for bankruptcy  protection under Chapter 11 in
the United States and under the CCAA in Canada.

As a result of our  recurring  losses,  the Chapter 11 and CCAA filings and
circumstances  relating to these events,  including our debt  structure and
current  economic  conditions,  realization  of assets and  liquidation  of
liabilities  are  subject to  significant  uncertainty.  We are not able to
predict  at this  time  what  impact,  if any,  the  terrorist  attacks  on
September 11, 2001 in New York City and Washington, D.C., and the resulting
consequences,  will have on attendance at our theatres and  consequently on
our operating performance.  We believe that cash from operations along with
financing provided through a  Debtor-in-Possession  Credit Facility entered
into on February  15,  2001,  as amended  (the "DIP  Facility"),  should be
available to provide  liquidity to allow us to continue as a going concern.
However,  there can be no assurance  of this.  Our ability to continue as a
going  concern is dependent  upon our ability to maintain  compliance  with
various  financial  and  other  covenants  under the DIP  Facility  and the
ability to generate  sufficient cash from operations and financing  sources
to meet our  obligations as they become due. In the event a Chapter 11 plan
of  reorganization/CCAA  plan of arrangement  (collectively  referred to as
"plans of reorganization")  are confirmed by the Bankruptcy  Court/Superior
Court and become effective, continuation of our business thereafter will be
dependent  on  our  ability  to  achieve  successful  operations,  maintain
satisfactory  capital  and  liquidity  and obtain  access to funds  under a
credit  facility.  Until the plans of  reorganization  are confirmed by the
Bankruptcy  Court/Superior  Court  and  become  effective,  there can be no
assurance that we will emerge from these  bankruptcy  proceedings,  and the
effect of the terms and conditions of such plans of  reorganization  on our
business  cannot  be  determined.  Therefore  there  is  substantial  doubt
regarding our ability to continue as a going concern.

We continue to close or dispose of certain  overlapping  theatre  locations
and  underperforming  theatres,  including  older,  obsolete  theatres that
contribute  only minimally to cash flow from operations or are operating at
a loss.  As a result  of weak  operating  performance  and the  prior  year
industry downturn, we were successful in disposing of/closing a significant
number of locations  which has had a  significant  impact on our  operating
revenues and costs as reported  for the current  year.  During  fiscal year
2001 and the  first  six  months of fiscal  year  2002,  we have  closed an
aggregate of 128 locations comprising 719 screens. These theatres generated
$95.9  million in total  revenues and $24.3  million in negative  operating
cash  flow  during  fiscal  2001.  While in the  aggregate  these  theatres
generated significant revenues, the disposition or closure of these screens
will improve our operating  cash flow on an ongoing  basis.  As a result of
the  significant  number of  locations  closed,  as of August  31,  2001 we
operate 276 locations  (2,492 screens) as compared to 376 locations  (2,960
screens) at August 31, 2000.  Refer to the liquidity and capital  resources
section for additional information regarding theatre closures.

RESULTS OF OPERATIONS

THREE MONTHS  ENDED  AUGUST 31, 2001  COMPARED TO THREE MONTHS ENDED AUGUST
31, 2000

Operating  Revenues of  approximately  $271.1  million for the three months
ended August 31, 2001 were $6.0 million  higher than the three months ended
August 31, 2000. This overall increase in revenues is net of lower revenues
of approximately  $32.7 million primarily due to the significant  number of
theatres  closed/disposed  of  subsequent  to August  31,  2000  which were
primarily  overlapping  theatre  locations  and  underperforming  theatres,
including older,  obsolete theatres that contributed only minimally to cash
flow from operations or were operating at a loss, as previously  discussed.
Operating  revenues are generated  primarily  from box office  revenues and
concession sales. Box office revenues for the three months ended August 31,
2001 of  approximately  $190.2  million were $8.1  million  higher than the
three  months  ended  August  31,  2000  primarily  due to an  increase  in
attendance  levels  resulting  from new  theatre  openings  and the  strong
performance of film product  experienced in the current period (approximate
8% increase in  industry-wide  attendance for the quarter) coupled with the
favorable  impact of an  improvement  in  admission  revenues per patron of
$0.37 for the three  months ended August 31,  2001.  These  increases  were
partially  offset by the decline in box office revenues  resulting from the
significant  number of  theatres  closed  subsequent  to August  31,  2000.
Concession  revenues  for  the  three  months  ended  August  31,  2001  of
approximately  $70.9 million were $500 thousand  lower in comparison to the
three months ended August 31, 2000 due  primarily to the decline  resulting
from the significant  number of theatres  closed/disposed  of subsequent to
August  31,  2000  partially  offset  by  the  aforementioned  increase  in
attendance volume and an increase in concession revenues per patron.

Operating Costs of approximately  $205.1 million for the three months ended
August 31, 2001 were approximately $7.8 million lower than the three months
ended August 31, 2000.  This  decrease was due  primarily to  reductions in
variable operating expenses  commensurate with the aforementioned  decrease
in operating revenues relating to the significant number of older, obsolete
theatres  closed/disposed  of  subsequent  to August 31, 2000.  The overall
decrease in operating costs which aggregated  $35.0 million,  primarily due
to the  significant  number of theatres  closed/disposed  of as  previously
discussed,  was partially  offset by incremental  costs associated with new
theatre openings,  including  occupancy costs, the impact of an improvement
in admission  revenues per patron and the increase in attendance  levels at
existing locations as previously discussed.

General and  Administrative  Costs of  approximately  $11.2 million for the
three months ended August 31, 2001 were  approximately  $2.7 million  lower
than the three months ended August 31, 2000, due primarily to reductions in
overhead  levels in our U.S. and  Canadian  operations  slightly  offset by
normal inflationary increases.

Depreciation and Amortization Costs of approximately  $27.1 million for the
three months  ended August 31, 2001 were $3.6 million  lower than the three
months  ended  August  31,  2000,  due  primarily  to the effect of theatre
disposals  partially offset by incremental  amortization  expense resulting
from the change in the  estimated  remaining  useful life of  goodwill  and
incremental  depreciation  related to  investments  in new  theatres  which
commenced  operations.  Goodwill  primarily  represents the excess purchase
price  associated with our combination  with Cineplex Odeon  Corporation in
May 1998.  Prior to the third  quarter of fiscal  year 2001,  goodwill  was
amortized  over a 40 year  estimated  useful life. In  connection  with our
fiscal year 2001 third quarter review and assessment of our goodwill and as
a result of management's  plan at that time to accelerate the disposal of a
significant  number of screens in the U.S.  and  Canada,  coupled  with the
continued  industry  downturn,  we had  determined  that a reduction in the
remaining  useful life for  goodwill  amortization  was  appropriate.  As a
result,  effective September 1, 2000, we determined that a more appropriate
remaining  useful life for unamortized  goodwill is 20 years,  resulting in
additional  amortization  expense of approximately  $2.0 million during the
three months ended August 31, 2001,  net of the impact of the  write-off of
allocated goodwill.

Loss on Sale/Disposal  of Theatres of  approximately  $12.3 million for the
three months ended August 31, 2001 was $26.4  million  lower than the three
months  ended  August 31, 2000,  due  primarily  to the timing,  nature and
characteristics  of theatre  dispositions.  During the three  months  ended
August 31, 2001, we disposed of 8 theatre locations  comprising 52 screens,
which primarily were older,  obsolete theatres which generated  marginal or
negative cash flows.  We will  continue to  aggressively  close/dispose  of
theatres that are  underperforming or non-strategic.  See the Liquidity and
Capital Resources section for additional information.

Reorganization  Costs of  approximately  $9.4  million for the three months
ended  August  31,  2001  represent  charges  incurred  as a result  of the
activities  related to the  Bankruptcy  Proceedings.  Reorganization  costs
primarily  relate to (i)  landlord  claims  related to the  rejection of an
additional  4 theatre  leases (29  screens)  in the U.S.  and 6  additional
theatres (46 screens)  repudiated  in Canada  during the three months ended
August 31, 2001 and (ii)  professional and advisory fees incurred  directly
related to and  subsequent to the  bankruptcy  filing on February 15, 2001.
See  Note  6  to  the  consolidated  financial  statements  for  additional
information.

Interest Expense (including adequate protection  payments) of approximately
$15.4 million for the three months ended August 31, 2001 was  approximately
$8.1  million  lower  than the three  months  ended  August 31,  2000,  due
primarily  to lower  interest  expense  relating to the $300 million 8 7/8%
Senior  Subordinated  Notes,  since  interest has been stayed and no longer
accrues as a result of the Bankruptcy Proceedings,  coupled with the impact
resulting from the write-off of unamortized  deferred financing fees during
the fourth  quarter of fiscal year 2001 (also as a result of the Bankruptcy
Proceedings) and a decrease in the variable  borrowing rate relating to our
Senior Revolving Credit Facility. This decrease was partially offset by the
impact of additional  pre-petition  borrowings  under our Senior  Revolving
Credit  Facility  coupled with borrowings  under our DIP Facility.  See the
Liquidity and Capital Resources section for additional information.

Attributable  EBITDA of $58.0 million for the three months ended August 31,
2001 increased $16.9 million in comparison to the three months ended August
31, 2000, due primarily to an increase in attendance volume (approximate 8%
increase in industry-wide attendance for the quarter) and the reductions in
overhead  levels  in  our  U.S.  and  Canadian  operations,  as  previously
discussed,  coupled  with the  favorable  impact of new  theatre  openings,
higher admission  revenue per patron and the positive impact resulting from
the significant number of theatres  closed/disposed of subsequent to August
31,  2000 which were  operating  at a cash flow loss.  Attributable  EBITDA
(earnings before interest,  taxes,  depreciation and amortization,  loss on
sale/disposal    of    theatres,    reorganization    costs   and    equity
earnings/(losses) included in EBITDA plus EBITDA from partnerships,  net of
partners'  share)  is a  measure  that  management  uses  to  evaluate  our
financial performance. Attributable EBITDA measures the amount of cash that
we have  available  for  investment  or  other  uses and is used by us as a
measure of performance.  Attributable EBITDA is primarily a management tool
and only one  measure of  financial  performance  to be  considered  by the
investment  community.   Attributable  EBITDA  is  not  an  alternative  to
measuring operating results or cash flow under U.S. GAAP. In addition,  the
Attributable  EBITDA  measure  presented  herein may not be  comparable  to
similarly  titled measures  reported by other  companies.

SIX MONTHS ENDED AUGUST 31, 2001 COMPARED TO SIX MONTHS ENDED
AUGUST 31, 2000

Operating Revenues of approximately $452.6 million for the six months ended
August 31, 2001 were $17.7  million  lower than the six months ended August
31, 2000.  Box office  revenues for the six months ended August 31, 2001 of
approximately  $317.3  million  were $8.3  million  lower,  and  concession
revenues  of  approximately  $118.7  million  were  $7.2  million  lower in
comparison  to the six months  ended August 31,  2000.  These  decreases in
operating revenues were due primarily to the significant number of theatres
closed/disposed  of  subsequent  to August 31,  2000 which  primarily  were
overlapping  theatre  locations  and  underperforming  theatres,  including
older,  obsolete theatres that contributed only minimally to cash flow from
operations  or were  operating at a loss,  as  previously  discussed.  This
overall decrease in revenues is net of additional revenues of approximately
$42.4 million  primarily  from new theatre  openings and an  improvement in
admission  revenues per patron of $0.36 for the six months ended August 31,
2001.

Operating  Costs of  approximately  $358.9 million for the six months ended
August 31, 2001 were approximately  $24.9 million lower than the six months
ended August 31, 2000.  This  decrease was due  primarily to  reductions in
variable operating expenses  commensurate with the aforementioned  decrease
in  operating  revenues.  The  overall  decrease in  operating  costs which
aggregated $60.4 million,  primarily  relating to the significant number of
older, obsolete theatres  closed/disposed of subsequent to August 31, 2000,
was  partially  offset by  incremental  costs  associated  with new theatre
openings,  including  occupancy  costs, and the impact of an improvement in
admission revenues per patron.

General and Administrative Costs of approximately $21.1 million for the six
months ended August 31, 2001 were approximately $5.4 million lower than the
six months ended August 31, 2000,  due  primarily to reductions in overhead
levels  in our U.S.  and  Canadian  operations  slightly  offset  by normal
inflationary increases.

Depreciation and Amortization Costs of approximately  $55.6 million for the
six months  ended  August  31,  2001 were $5.7  million  lower than the six
months  ended  August  31,  2000,  due  primarily  to the effect of theatre
disposals  partially offset by incremental  amortization  expense resulting
from the change in the  estimated  remaining  useful life of  goodwill,  as
previously discussed,  and incremental  depreciation related to investments
in new theatres  which  commenced  operations.  The change in the estimated
remaining  useful life for  unamortized  goodwill from a 40 year  estimated
useful life to 20 years  resulted  in  additional  amortization  expense of
approximately $4.0 million during the six months ended August 31, 2001, net
of the impact of the write-off of allocated goodwill.

Loss on Sale/Disposal  of Theatres of  approximately  $17.8 million for the
six months  ended  August  31,  2001 was $21.0  million  lower than the six
months  ended  August 31, 2000,  due  primarily  to the timing,  nature and
characteristics of theatre dispositions. During the six months ended August
31, 2001, we disposed of 21 theatre locations comprising 132 screens, which
primarily  were  older,  obsolete  theatres  which  generated  marginal  or
negative cash flows.  We will  continue to  aggressively  close/dispose  of
theatres that are  underperforming or non-strategic.  See the Liquidity and
Capital Resources section for additional information.

Reorganization  Costs of  approximately  $19.2  million  for the six months
ended  August  31,  2001  represent  charges  incurred  as a result  of the
activities  related to the  Bankruptcy  Proceedings.  Reorganization  costs
primarily  relate to (i)  landlord  claims  related to the  rejection of an
additional  6 theatre  leases (55  screens)  in the U.S.  and 8  additional
theatres  (55  screens)  repudiated  in Canada  during the six months ended
August 31, 2001 and (ii)  professional and advisory fees incurred  directly
related to and  subsequent to the  bankruptcy  filing on February 15, 2001.
See  Note  6  to  the  consolidated  financial  statements  for  additional
information.

Cumulative effect of change in accounting  principle of approximately  $7.8
million  for the prior  fiscal  year (six  months  ended  August 31,  2000)
represented  a one-time  charge to  reflect  adoption  of Staff  Accounting
Bulletin ("SAB") No. 101,  "Revenue  Recognition in Financial  Statements",
regarding the  accounting  for our Passport and Gift  Certificate  Programs
(hereinafter  referred  to as  "certificates").  SAB No. 101 was  effective
beginning  December  1,  2000  requiring  retroactive  application  to  the
beginning of our 2001 fiscal  year.  SAB No. 101 impacts the timing of when
revenues may be recorded for unredeemed certificates. Prior to the issuance
of  SAB  No.  101,  we  would  recognize  "breakage  revenue"  into  income
immediately  upon the sale of  certificates  for the  estimated  portion of
certificates  that would not be redeemed.  However,  in accordance with SAB
No. 101, we no longer record breakage revenue upon sale but rather upon the
expiration  date of the certificate or the date the obligation is otherwise
fulfilled.  This change in accounting principle has no impact on cash flows
or the value of unredeemed certificates held by customers.

Interest Expense (including adequate protection  payments) of approximately
$33.1  million for the six months ended  August 31, 2001 was  approximately
$12.0  million  lower  than the six  months  ended  August  31,  2000,  due
primarily  to lower  interest  expense  relating to the $300 million 8 7/8%
Senior  Subordinated  Notes,  since  interest has been stayed and no longer
accrues as a result of the Bankruptcy Proceedings,  coupled with the impact
resulting from the write-off of unamortized  deferred financing fees during
the fourth  quarter of fiscal year 2001 (also as a result of the Bankruptcy
Proceedings).   This  decrease  was  partially  offset  by  the  impact  of
additional  pre-petition  borrowings  under  our  Senior  Revolving  Credit
Facility coupled with borrowings under our DIP Facility.  See the Liquidity
and Capital Resources section for additional information.

Attributable  EBITDA of $79.3  million for the six months  ended August 31,
2001  increased  $14.1 million in comparison to the six months ended August
31, 2000,  due primarily to the favorable  impact of new theatre  openings,
higher admission  revenue per patron,  the reductions in overhead levels in
our U.S. and Canadian operations, as previously discussed, and the positive
impact resulting from the significant number of theatres closed/disposed of
subsequent to August 31, 2000 which were operating at a cash flow loss.

LIQUIDITY AND CAPITAL RESOURCES

Our industry continues to experience significant liquidity pressures, which
is  evident  by the  number  of  theatre  exhibitors  that  have  filed for
bankruptcy  over the past  year.  These  liquidity  pressures  are due to a
number of factors  including the downturn in attendance as reflected in the
prior year over year operating  performance  measures (i.e.,  calendar year
2000 attendance was down by  approximately  3%), the moderate to aggressive
new build strategies  employed by the industry's  larger  exhibitors which,
coupled  with the  difficulty  in closing  older,  obsolete  theatres,  has
resulted  in an  oversupply  of  theatre  screens  in many  North  American
markets,  impairment  write-offs  and losses on theatre  dispositions,  the
downward  credit  ratings of the  industry  and the  bankruptcy  filings by
several theatre chains,  and defaults of certain loan agreements which have
been  publicly  disclosed.  The greater  number of screens in North America
caused  by  the  industry's  building  new  theatres  and  the  lack  of  a
corresponding  number of theatre closures in the same period,  has resulted
in a saturation of screens and has contributed to shortened lengths of film
run times  and  increased  film  cost  percentages  paid by  exhibitors  to
distributors.  These factors have contributed to significant  reductions in
the  prices  of  publicly  traded  debt  and  equity  securities  and  have
materially reduced the industry's access to capital, making it increasingly
difficult to meet obligations as they become due. In addition, the industry
has  generally  fallen out of favor with  investors  and lenders due to the
liquidity  issues noted above and due to a lack of credit  support from the
capital  markets.  The  industry  has fallen on hard times and is presently
going through one of the most significant and unprecedented reorganizations
in its  history.  We had been  negatively  affected by these events and had
experienced  significant pressures on our liquidity and our ability to meet
obligations  as they became due. In an effort to relieve the  pressures  on
our liquidity  prior to our Chapter 11 and CCAA filings,  we were active in
pursuing possible solutions including seeking capital through other sources
including   asset   securitizations,   equity   offerings,   sale-leaseback
transactions,  strategic  alliances  with other  exhibitors,  a  consensual
restructuring of our capital structure or a restructuring of certain of our
subsidiaries.  We were unable to implement these  transactions on the scale
required to relieve us from the  continued  deterioration  in our liquidity
and cash flow. These conditions are among the factors that led to us filing
for bankruptcy protection.

<PAGE>

On February  15,  2001,  Loews  Cineplex  and all of its wholly  owned U.S.
subsidiaries  filed voluntary  petitions to reorganize  under Chapter 11 in
the U.S.  Bankruptcy  Court.  In Canada,  the Initial Order was obtained on
February 15, 2001 from the Superior Court for our wholly owned  subsidiary,
Cineplex Odeon and certain of its other Canadian subsidiaries.  The Chapter
11  and  CCAA  filings  are  hereinafter  collectively  referred  to as the
"Bankruptcy  Proceedings".  In addition,  on February 26, 2001,  our wholly
owned Austrian subsidiary, LCE Europlex, filed a petition for bankruptcy in
Vienna,  Austria and on March 16, 2001, we filed a petition for  bankruptcy
in  Warsaw,  Poland on behalf of our wholly  owned  Polish  subsidiary  LCE
Polska Holding Sp. z o.o.

We are presently operating our businesses as  debtors-in-possession  in the
U.S.  and pursuant to the Initial  Order in Canada.  We are  authorized  to
operate our business in the ordinary course.  As a result of the Chapter 11
filing in the U.S.,  substantially  all  actions to secure  the  payment of
pre-petition  indebtedness  are subject to  compromise  or other  treatment
under a plan of reorganization.  Generally, actions to enforce or otherwise
effect  payment of  pre-Chapter  11  liabilities  are stayed.  Pre-petition
claims secured by our assets ("secured  claims") are also stayed,  although
the holders of such claims have the right to move the court for relief from
the stay.  Pre-petition  secured  claims  (primarily  representing  amounts
borrowed under our Senior Revolving Credit Facility) are generally  secured
by all personal  property and certain real  property of Loews  Cineplex and
our  domestic  subsidiaries,  a pledge of the stock of all of our  domestic
subsidiaries   and  our  equity  interest  in  and  loans  to  our  foreign
subsidiaries.  These secured  claims have not been reflected as Liabilities
Subject to Compromise.  Although  pre-petition claims are generally stayed,
as part of the first day  orders  and  subsequent  motions  granted  by the
Bankruptcy  Court, the Bankruptcy Court approved our motions to pay certain
pre-petition  obligations including: (i) payments, on normal terms, to film
distributors, (ii) continuing to honor gift certificates,  movie passes and
other  customer  programs,  (iii)  payment for  employee  wages and related
benefits and  reimbursement of employee business expenses and (iv) adequate
protection payments to the lenders of our Senior Revolving Credit Facility.
We have been and intend to continue to pay undisputed  post-petition claims
of all  vendors,  film  distributors  and other  suppliers  in the ordinary
course of  business.  In  addition,  we may reject  pre-petition  executory
contracts and unexpired  leases with the approval of the  Bankruptcy  Court
with respect to our U.S.  operations.  Any damages resulting from rejection
of  executory  contracts  and  unexpired  leases  are  treated  as  general
unsecured  claims in the U.S. We have notified all known claimants  subject
to the bar date of their need to file a proof of claim with the  Bankruptcy
Court.  A bar date is the date by which claims  against us must be filed if
claimants wish to receive any  distribution in the Chapter 11 case. On July
27,  2001,  we filed a motion  seeking to set a bar date of  September  24,
2001. On August 2, 2001, the Bankruptcy Court entered an order granting our
motion to  establish a bar date of  September  24,  2001.  The bar date was
subsequently  extended  by the  Bankruptcy  Court to  September  26,  2001.
Differences  between  liability amounts estimated by us and claims filed by
creditors will be investigated  and the Bankruptcy  Court will make a final
determination  on  the  allowance  of  claims.  The  determination  of  how
liabilities will ultimately be settled and treated cannot be made until the
Bankruptcy Court approves a Chapter 11 plan of reorganization.

As a  result  of  the  Initial  Order  of the  Superior  Court  in  Canada,
substantially  all  actions  to  enforce  or  otherwise  effect  payment of
pre-filing  obligations of Cineplex Odeon and its  subsidiaries are stayed.
The rights of secured  creditors to enforce against our Canadian assets are
also stayed.  The stay period has been extended  through November 30, 2001.
The Initial Order permits (i) payments on normal terms to persons supplying
goods and  services  after the date of the Initial  Order,  including  film
suppliers,  as well as certain pre-filing claims,  (ii) continuing to honor
gift certificates,  movie passes and other customer programs, (iii) payment
for  employee  wages and related  benefits  and  reimbursement  of employee
business expenses as well as statutory severance pay and (iv) the borrowing
of up to $20 million  from Loews  Cineplex  and the granting of security by
the  assets  of  Cineplex  Odeon  and  its   subsidiaries  to  secure  such
borrowings.  Cineplex  Odeon  has  been  and  intends  to  continue  to pay
undisputed  post-filing  claims of all vendors,  film  suppliers  and other
suppliers in the  ordinary  course of  business.  In addition,  the Initial
Order permits the repudiation of unexpired leases of Cineplex Odeon and its
subsidiaries.  Landlords whose leases have been repudiated will be entitled
to file a claim in the CCAA proceedings in respect of such repudiation. The
treatment of such claims has yet to be determined  and will be set out in a
plan of compromise and arrangement to be presented by Cineplex Odeon to the
Superior Court and to its affected  creditors.  A claims process and claims
bar date was established to determine the claims entitled to vote on a plan
as well as to receive distributions thereunder. On August 2, 2001, by order
of the Superior  Court,  the claims process was approved and the claims bar
date of September 24, 2001 was set.  Ultimately,  any plan of compromise or
arrangement must be approved by a vote of a majority in number of creditors
of each  class of  creditors  affected  by the plan as well as by a vote of
holders of  two-thirds  of the value of the claims of each such  class.  If
such a vote is favorable,  the plan must then be sanctioned by the Superior
Court.

As a result of our  recurring  losses,  the Chapter 11 and CCAA filings and
circumstances  relating to these events,  including our debt  structure and
current  economic  conditions,  realization  of assets and  liquidation  of
liabilities  are  subject to  significant  uncertainty.  We are not able to
predict  at this  time  what  impact,  if any,  the  terrorist  attacks  on
September 11, 2001 in New York City and Washington, D.C., and the resulting
consequences,  will have on attendance at our theatres and  consequently on
our operating performance.  We believe that cash from operations along with
financing  provided through the DIP Facility should be available to provide
liquidity to allow us to continue as a going concern. However, there can be
no  assurance  of this.  Our  ability  to  continue  as a going  concern is
dependent upon our ability to maintain  compliance  with various  financial
and other  covenants  under the DIP  Facility  and the  ability to generate
sufficient  cash  from  operations  and  financing   sources  to  meet  our
obligations  as  they  become  due.  In the  event  a  Chapter  11  plan of
reorganization/CCAA plan of arrangement (collectively referred to as "plans
of reorganization")  are confirmed by the Bankruptcy  Court/Superior  Court
and become  effective,  continuation  of our  business  thereafter  will be
dependent  on  our  ability  to  achieve  successful  operations,  maintain
satisfactory  capital  and  liquidity  and obtain  access to funds  under a
credit  facility.  Until  plans  of  reorganization  are  confirmed  by the
Bankruptcy  Court/Superior  Court  and  become  effective,  there can be no
assurance that we will emerge from these  bankruptcy  proceedings,  and the
effect of the terms and conditions of such plans of  reorganization  on our
business  cannot be determined  and therefore  there is  substantial  doubt
regarding our ability to continue as a going concern.

We expect that our current  liquidity needs can be financed through the DIP
Facility. The DIP Facility was approved by the Bankruptcy Court on April 4,
2001. The DIP Facility, which expires on the earlier of January 31, 2002 or
upon the occurrence of certain other events including the  effectiveness of
a plan of  reorganization,  is designed to provide liquidity to allow us to
operate in the ordinary course and meet certain of our funding  commitments
for completion of certain theatre complexes now under construction in North
America. The debtor-in-possession  commitment that we received from Bankers
Trust is for approximately $146 million, $60 million of which consists of a
revolving credit line with the remaining $86 million to repay  post-default
advances  (i.e.,  subsequent  to August  31,  2000)  made  under our Senior
Revolving Credit  Facility,  which were secured with mortgages on eleven of
our existing theatre properties,  and to provide for outstanding letters of
credit.  Loans under the DIP Facility bear interest at the bank's base rate
plus  1.5% or LIBOR  plus  3.25%.  The  terms of the DIP  Facility  contain
certain restrictive covenants which include:  limitations on the incurrence
of additional guarantees,  liens and indebtedness,  limitations on the sale
of assets, and limitations on the funding of capital expenditures.  The DIP
Facility  also  requires  that  we  meet  certain  minimum  thresholds  for
consolidated  cumulative  earnings before  interest,  taxes,  depreciation/
amortization  and other expenses as defined.  For the months ended February
28, 2001 through August 31, 2001, we were in compliance  with all financial
covenant requirements reflected in the DIP Facility.

The $60 million revolving credit facility included in the DIP Facility will
be used (i) to finance  our  operations  in the normal  course of  business
during  the   restructuring   process   (including  the  required  adequate
protection  payments  and funding the  operating  requirements  and certain
capital  projects of Cineplex  Odeon - up to a maximum of $20  million) and
(ii) to complete  certain  "designated"  construction  projects,  currently
under construction, which were committed to prior to the petition date. The
terms of the DIP  Facility  also  require  us to make  adequate  protection
payments on a monthly basis on the pre-default  amounts  borrowed under our
Senior Revolving Credit Facility  (approximately $655 million).  The amount
of the monthly  adequate  protection  payments is based on the base rate of
interest plus 150 basis points.  The loan by us to Cineplex  Odeon of up to
$20 million was approved by the Superior  Court on February 15, 2001.  This
loan has been secured by the assets of Cineplex Odeon and its  subsidiaries
with the security  being held by Deutsche Bank (Canada) as agent.  The loan
and the security  therefor  have been pledged to the lenders  under the DIP
Facility.

On July 3, 2001,  the  Bankruptcy  Court  authorized us to execute a Second
Amendment  to the DIP  Facility.  This  amendment  generally  permits us to
separately  finance our  obligations  to  complete  the  14-screen  theatre
complex at West 34th Street in New York City, which we will operate under a
long-term  operating lease  agreement.  This theatre was committed to by us
prior to the petition filing date (February 15, 2001).  Approximately $10.0
million  has been spent to date on this  theatre  and the cost to  complete
this  theatre  is  estimated  at  $5.8   million,   for  the  purchase  and
installation of furniture,  fixtures and equipment and certain other tenant
improvements.  The developer  has agreed to provide  financing of up to $10
million  for us to  complete  the  West  34th  Street  theatre.  We and the
developer have executed a Loan and Security Agreement, dated June 15, 2001,
to  effectuate  this  financing  (the  "West  34th  Street  Loan")  and the
Bankruptcy Court approved the Loan and Security  Agreement on July 3, 2001.
As of August 31,  2001,  $916  thousand  had been drawn under the West 34th
Street Loan.  Additionally,  on September  10, 2001 and October 5, 2001, we
borrowed an additional $1.2 million and $1.6 million,  respectively,  under
the West 34th Street  Loan.  As  collateral  for this loan,  the  developer
received,  among other things, a security interest in an existing property,
which is owned by us in fee. We are presently  marketing  this property and
the proceeds, if the sale is consummated, will be used to repay any amounts
outstanding  under the West 34th Street Loan and to complete any  remaining
obligations  relative to the West 34th Street theatre. The West 34th Street
Loan is also  secured  by a lien on our  interest  in the West 34th  Street
lease and the cash flow generated by the theatre operations.  The West 34th
Street Loan  matures on the  earlier of three  years or upon our  emergence
from  bankruptcy.  The loan bears  interest at LIBOR plus  3.25%,  which is
payable monthly. Principal is payable at maturity.

On June 28, 2001,  we entered into the third  amendment to the DIP Facility
(the "Third  Amendment")  with  Bankers  Trust,  which was  approved by the
Bankruptcy Court on July 13, 2001. The Third Amendment added a $4.5 million
replacement  letter of credit  sublimit to the DIP Facility to enable us to
issue replacement letters of credit without reducing our availability under
the DIP Facility for our working capital and capital expenditure needs. The
Third  Amendment  does not  increase  the  total  commitment  under the DIP
Facility.

As of  February  28,  2001,  no  amounts  had been  drawn  against  the DIP
Facility.  As of August 31, 2001, all amounts  previously drawn against the
DIP  Facility  had been  repaid.  Our  availability  under the DIP Facility
equals $60 million as of August 31, 2001. On October 4, 2001, $10.0 million
had been drawn against the DIP Facility,  including  $2.0 million funded by
us to Cineplex Odeon under the Canadian  sublimit of the DIP Facility.  Our
availability  under the DIP  Facility  equals $50 million as of October 11,
2001.

We generate cash flow from our theatre operations (including cash generated
from investments in new builds and  reconfigurations of existing theatres).
Also, we preserve cash as a result of the closing of obsolete, unprofitable
or  non-strategic  theatres,  the majority of which generate  negative cash
flow from operations. Our revenues are generated primarily from the sale of
admission tickets, concession sales and ancillary revenues. Generally, this
provides us with working capital operating float,  which is consistent with
the industry, since cash revenues are generally collected in advance of the
payment of related  expenses.  Our  operating  revenue  levels are directly
related  to the  success  and  appeal  of the  film  product  produced  and
distributed  by the  studios.  In  addition  to cash  flow  generated  from
operations,   our   liquidity   requirements   have  also  been  funded  by
availability under our DIP Facility.

We continue to close or dispose of certain  overlapping  theatre  locations
and  underperforming  theatres,  including older,  obsolete  theatres which
contribute  only marginally to cash flow or operate at a cash flow loss. In
connection  with the  Chapter  11 and  CCAA  filings,  we have  established
reserves  for  settlement  of landlord  claims as a result of  rejection or
repudiation of theatre  leases.  These claims may be settled either by cash
or equity of Loews Cineplex or, in the case of Cineplex Odeon, as otherwise
provided in its CCAA plan of  arrangement.  The nature and magnitude of how
these  liabilities  will  ultimately  be  treated  and  settled  cannot  be
determined  until  a  Chapter  11  plan  of  reorganization/CCAA   plan  of
arrangement  is confirmed  by the  Bankruptcy  Court or Superior  Court and
become effective. As of August 31, 2001, 75 theatres comprising 506 screens
have been  approved for rejection by the  Bankruptcy  Court in the U.S., 40
theatres  comprising  235 screens have been  repudiated  in Canada and four
leases  have been  terminated  in Austria  and  Poland.  As a result of our
continued  review of the  leases in our  portfolio  and the  results of the
lease  renegotiation  process,   additional  leases  may  be  targeted  for
rejection or repudiation in the future.

At  August  31,  2001,  we had  capital  spending  commitments  aggregating
approximately  $34.5 million that we anticipated funding over the next year
for the completion of  construction of 4 theatre  properties  comprising 62
screens.   These  projects  are  currently  under   construction  and  were
previously  committed prior to our bankruptcy filing.  Given the decline in
our cash flow and our need to  satisfactorily  resolve our liquidity  needs
and rationalize our capital structure, we have halted our expansion program
until we are able to resolve our  financing  needs.  Our  capital  spending
commitment of $34.5  million  includes the  remaining  capital  required to
complete the West 34th Street  theatre  (approximately  $5.8  million).  As
previously  noted,  the  remaining  capital  requirement  to complete  this
theatre will be funded by a loan from the developer.

In connection with the combination  with Cineplex Odeon  Corporation on May
14, 1998 (the "Combination"), we entered into a $1 Billion Senior Revolving
Credit Facility with Bankers Trust Company,  as  administrative  agent. The
Senior  Revolving  Credit  Facility,  together with an $84.5 million equity
contribution  provided by Universal Studios, Inc.  ("Universal"),  replaced
the Sony  Corporation  of America  ("SCA")  Credit  Facility  and  Cineplex
Odeon's  existing  credit  facility,  funded  cash  paid to  Sony  Pictures
Entertainment  Inc.  ("SPE")  and/or  its  affiliates  upon  closing of the
Combination,  and provided ongoing  financing to us to fund working capital
requirements  and theatre  expansion in North America and  internationally.
This Senior Revolving Credit Facility was comprised of two tranches, a $750
million senior secured revolving credit facility,  secured by substantially
all of our  assets,  other than real  property  interests,  and the assets,
other than real property  interests,  of our domestic  subsidiaries,  and a
$250 million  uncommitted  facility.  The Senior  Revolving Credit Facility
bears interest, payable monthly, at a rate of either the current prime rate
as offered by Bankers  Trust  Company or an  Adjusted  Eurodollar  rate (as
defined in the credit  agreement)  plus an  applicable  margin based on our
Leverage Ratio (as defined in the credit  agreement).  Our borrowings under
the Senior  Revolving  Credit  Facility at August 31, 2001 and February 28,
2001  totaled  $737.0  million and $733.8  million,  respectively,  with an
additional  $5.0 million and $6.5 million of  availability  for outstanding
letters  of credit,  respectively.  The Senior  Revolving  Credit  Facility
balance  at  August  31,  2001  includes   approximately  $2.0  million  of
pre-petition  accrued  interest which has been  reclassified as part of the
principal  balance of the Senior Revolving  Credit Facility.  The remaining
increase in borrowings  of $1.2 million  during the six months ended August
31, 2001  represents  the funding of amounts  drawn on existing  letters of
credit under the Senior Revolving Credit Facility. By reason of the Chapter
11 filing,  there is no additional  availability under the Senior Revolving
Credit  Facility.  In  accordance  with the final order  approving  the DIP
Facility, the Company is authorized to make adequate protection payments on
the pre-default  bank debt  outstanding  under the Senior  Revolving Credit
Facility  (approximately $655 million).  The amount of the monthly adequate
protection  payments is based on the base rate of  interest  plus 150 basis
points.

On August 5, 1998,  we issued $300  million of 8 7/8%  Senior  Subordinated
Notes due 2008 to qualified  institutional  buyers in reliance on Rule 144A
under the Securities Act of 1933, as amended (the  "Securities  Act").  Net
proceeds of $288.6 million were used primarily to repay Plitt's outstanding
$200  million  aggregate  principal  amount of 10 7/8% Senior  Subordinated
Notes  and  borrowings   under  the  Senior   Revolving   Credit  Facility.
Subsequently,  on November 19,  1998,  we completed an offering to exchange
$300 million aggregate  principal amount of our 8 7/8% Senior  Subordinated
Notes due 2008,  which were registered  under the Securities Act for a like
principal amount of our privately placed 8 7/8% Senior  Subordinated  Notes
due 2008.  The required  interest  payment of $13.3 million due February 1,
2001 on these Senior  Subordinated  Notes was blocked by the lenders  under
our  Senior  Revolving  Credit  Facility  prior  to  the  filing  date.  In
accordance  with the  Indenture,  we had  thirty  days to cure the  default
before such payment  default  became an event of default which would permit
the requisite  holders to accelerate  payment of the outstanding  principal
amount of and accrued  interest on these notes.  These notes  automatically
accelerated  as a result of the  Chapter 11 filing.  We do not at this time
have access to capital to be able to repay these notes or interest in cash.
The payments on the 8 7/8% Senior  Subordinated  Notes,  including interest
have been stayed.

In August 1998,  we entered into  interest  rate swap  agreements,  with an
aggregate  notional  amount of $250 million,  for a period of four years to
hedge a portion of the Senior Revolving Credit Facility  variable  interest
rate risk. On May 26, 2000,  we monetized the value of these  contracts and
sold these swaps for $8.65 million.  We believe that we maximized the value
of these  contracts as a result of this sale. As we had accounted for these
swaps as interest  rate hedges,  the gain  realized  from the sale has been
deferred and will be realized pending reorganization of the debt.

PROPERTIES

At August 31, 2001, Loews Cineplex,  including Star,  Magic Johnson,  Yelmo
Cineplex and Megabox  theatres,  operated or had interests in 2,492 screens
in 276  theatres,  of which 28 theatres were owned by us, 244 theatres were
leased and 4 theatres  were operated by us under  management  arrangements.
Our leases are entered into on a long-term basis. The lease terms generally
range from 20 to 40 years and contain various renewal options, generally in
intervals  of 5 to 10 years.  Theatre  leases  provide for the payment of a
fixed annual rent and,  sometimes,  a percentage of box office  receipts or
total  theatre  revenue.  The  following  tables show the  locations of our
screens  in  operation  at August 31,  2001,  including  our  partnerships'
theatres.

                              UNITED STATES

STATE                      SCREENS         LOCATIONS
------------------------- ----------- --- ------------
Arizona                           27                3
California                        80                9
Connecticut                       30                2
District of Columbia              28                8
Florida                           20                1
Georgia                           12                1

Illinois                         223               26

Indiana                           51                5
Maryland                         102               11
Massachusetts                    119               10
Michigan                         156               10
Minnesota                          4                1

New Hampshire                     12                2
New Jersey                       215               18
New York                         261               36

Ohio                              32                2

Pennsylvania                      29                2
Texas                            102                9

Utah                              30                4
Virginia                          21                3
Washington                       108               14
                          -----------     ------------
   Total                       1,662              177
                          ===========     ============

                       CANADA

 PROVINCE              SCREENS        LOCATIONS
 ------------------- ------------    -------------
 Alberta                     123               13
 British Columbia             47                7
 Manitoba                     13                3
 Ontario                     279               32
 Quebec                      158               20
 Saskatchewan                 27                4
                     ------------    -------------
    Total                    647               79
                     ============    =============

                    INTERNATIONAL

 COUNTRY               SCREENS        LOCATIONS
 ------------------- ------------    -------------
 Spain                       161               18
 Korea                        16                1
 Hungary                       6                1
                     ------------    -------------
    Total                    183               20
                     ============    =============

 Grand Total               2,492              276
                     ============    =============

<PAGE>

THEATRE PORTFOLIO CHANGES

The following table  indicates the number of theatre  locations and screens
and  changes in each for the three and six months  ended  August 31,  2001.
These  figures  include  screens  and  locations  operated  by Star,  Magic
Johnson, Yelmo Cineplex and Megabox.

<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED                       SIX MONTHS ENDED
                                             AUGUST 31, 2001                          AUGUST 31, 2001
                                            ------------------                       ----------------

                                            NORTH                                   NORTH
                                           AMERICA       INT'L       TOTAL         AMERICA       INT'L       TOTAL
                                           -------       -----       -----         -------       -----       -----
LOCATIONS
---------
<S>                                          <C>           <C>       <C>             <C>           <C>       <C>
Beginning Balance                              261          20         281             273          21         294
New builds                                       3           -           3               3           -           3
J.V. Investments - International                 -           -           -               -           -           -
Dispositions / Closings                         (8)          -          (8)            (20)         (1)        (21)
                                               ---         ---         ---            ----         ---        ----
Ending Balance                                 256          20         276             256          20         276

SCREENS

Beginning Balance                            2,306         183       2,489           2,375         188       2,563
New builds/Expansions                           55           -          55              61           -          61
J.V. Investments - International                 -           -           -               -           -           -
Dispositions / Closings                        (52)          -         (52)           (127)         (5)       (132)
                                               ---         ---         ---            ----         ---        ----
Ending Balance                               2,309         183       2,492           2,309         183       2,492
                                             =====         ===       =====           =====         ===       =====
</TABLE>

Note: The fiscal 2002  dispositions in the table above exclude 11 locations
comprising  71 screens which closed on March 1, 2001.  These  locations and
screens  were  included  in Annual  Report on Form 10-K for the fiscal year
ended February 28, 2001 as fiscal 2001 dispositions.

During the six month period ended August 31, 2001,  we opened three theatre
locations  aggregating  55  screens;  in the  United  States we opened  the
Millennium  Place 19 in Boston,  the Country  Club Hills 16 in Illinois and
the Jersey Gardens 20 in New Jersey. Additionally, we expanded one existing
theatre adding six screens: the Old Orchard Gardens theatre.

During the six month period ended August 31, 2001, we disposed of or closed
21 theatre  locations  comprising  132  screens.  We  continue  to close or
dispose  of  certain  overlapping  theatre  locations  and  underperforming
theatres, including older, obsolete theatres that contribute only minimally
to cash flow from operations or are operating at a loss. As a result of our
continued  review of the  leases in our  portfolio  and the  results of the
lease  renegotiation  process,   additional  leases  may  be  targeted  for
rejection/repudiation or restructuring in the future. We anticipate that we
will be successful in closing/renegotiating additional theatres targeted by
management because as debtors-in-possession in the U.S. and pursuant to the
Initial Order in Canada, we have the right, subject to Bankruptcy Court and
Superior Court approval and certain other limitations,  to reject/repudiate
unexpired  leases.  In  bankruptcy  to date,  we have  rejected 75 of these
theatre  leases in the U.S.,  repudiated 40 of these theatres in Canada and
terminated four of these leases in Austria and Poland.

<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial  Accounting  Standards ("SFAS") No. 133, "Accounting
for Derivative  Instruments and Hedging  Activity" was effective for all of
our fiscal quarters  beginning  March 1, 2001. This statement  standardizes
the accounting for derivative  instruments,  including  certain  derivative
instruments  embedded in other  contracts,  by requiring  that we recognize
those items as assets or liabilities in our statement of financial position
and measure them at fair value.  The adoption of this standard did not have
a significant impact on our operating results or financial position.

On July 20, 2001, SFAS No. 141, "Business Combinations",  and SFAS No. 142,
"Goodwill and Other Intangible  Assets",  were issued.  SFAS No. 141, which
supersedes  Accounting  Principles  Board Opinion ("APB") No. 16, "Business
Combinations",  requires that the purchase method of accounting be used for
all business  combinations  initiated  after June 30, 2001 and  establishes
specific  criteria for the recognition of intangible assets separately from
goodwill.  SFAS No. 142, which supersedes APB No. 16, "Intangible  Assets",
requires  that goodwill and  indefinite  lived  intangible  assets shall no
longer be  amortized  to  earnings,  but instead be reviewed and tested for
impairment  at  least  annually.  SFAS  No.  142  also  requires  that  the
amortization  period of  intangible  assets with finite  lives be no longer
limited  to forty  years.  The  amortization  of  goodwill  will cease upon
adoption of this statement  which will be effective for us beginning  March
1, 2002.

On  August  16,  2001,  SFAS No.  143,  "Accounting  for  Asset  Retirement
Obligations",  was issued.  SFAS No. 143  requires the  establishment  of a
liability  for an  asset  retirement  obligation.  SFAS  No.  143  will  be
effective  for our fiscal year  beginning  March 1, 2003.  We are currently
considering  the  impact,  if any,  that  this  statement  will have on our
financial position and operating results.

On October 3, 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", was issued. SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and of
Long-Lived Assets to be Disposed Of", and portions of APB No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", and amends Accounting Research Bulletin
No. 51, "Consolidated Financial Statements". SFAS No. 144 generally
conforms, among other things, impairment accounting for assets to be
disposed of including those in discontinued operations and eliminates the
exception to consolidation for which control is likely to be temporary.
SFAS No. 144 will be effective for our fiscal year ending February 28,
2003. We are currently considering the impact, if any, that this statement
will have on our financial position and operating results.

EFFECT OF INFLATION AND FOREIGN CURRENCY

Inflation and foreign currency  fluctuations have not had a material effect
on our operations.

CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

This Form 10-Q includes "forward-looking  statements" within the meaning of
Section 27A of the Securities  Act of 1933, as amended,  and Section 21E of
the Securities Exchange Act of 1934, as amended. All statements included in
this Form 10-Q,  other than  statements  of  historical  facts,  including,
without limitation,  certain statements under "Management's  Discussion and
Analysis of Financial  Condition and Results of Operations"  may constitute
forward-looking statements.  Although we believe the expectations reflected
in such  forward-looking  statements are  reasonable,  we cannot be assured
that such  expectations  will prove to be correct.  Important  factors that
could cause actual results to differ  materially from our  expectations are
disclosed  in the  following  section  ("Factors  That  May  Affect  Future
Performance").  All  forward-looking  statements are expressly qualified in
their entirety by these cautionary statements.

<PAGE>

FACTORS THAT MAY AFFECT FUTURE PERFORMANCE

In  addition  to other  factors and  matters  discussed  elsewhere  herein,
factors that, in our view, could cause actual results to differ  materially
from those discussed in forward-looking statements include: (1) our ability
to successfully emerge from our bankruptcy proceedings in a reasonable time
period,  including the success of future operations and the ability to meet
obligations  as they  become  due;  (2) the  adequacy  of our DIP  Facility
relevant to our liquidity  throughout the bankruptcy  period;  (3) our high
debt levels, which need to be restructured and reduced as part of a Chapter
11  reorganization  plan and CCAA plan of  arrangement;  (4) the  effect of
economic  conditions on a national,  regional or  international  basis; (5)
competitive  pressures in the motion picture exhibition  industry;  (6) the
financial resources of, and films available to, us and our competition; (7)
changes in laws and regulations,  including  changes in  environmental  and
disabilities  laws and changes in accounting  standards;  (8) opportunities
that may be  presented to and pursued by us; and (9) the  uncertainty  with
regard to the  impact  on us and the  industry  as a result  of the  tragic
events of the  September  11, 2001 attacks on the World Trade Center in New
York City and on the  Pentagon  in  Washington,  D.C.  which,  among  other
things, resulted in certain changes to the film release schedule.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We have exposure to various market risks,  including interest rate risk and
foreign  currency  exchange rate risk.  See  additional  disclosures in our
Annual Report on Form 10-K for the fiscal year ended February 28, 2001.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Metreon Arbitration

         In May 1997,  we entered into a 21 year lease with  Metreon,  Inc.
         ("Metreon"),  an  affiliate  of Sony  Corporation  of America,  to
         operate a  multiplex  theatre in an  entertainment/retail  complex
         developed by Metreon in San  Francisco.  Since that theatre opened
         in June 1999,  we have had a dispute  with Metreon with respect to
         construction costs (amount of dispute is approximately $5 million)
         that may be our  responsibility  under the lease.  Also, we are in
         dispute  with  regard to the nature of the costs  that  Metreon is
         seeking to include as operating  expenses under the lease, and the
         proper allocation of operating expenses to this theatre,  based on
         our  proportionate  share of the  complex.  To date,  we have been
         unable to resolve these issues through  negotiation  with Metreon.
         The estimated  difference in operating  expenses allocable to this
         theatre,  taking into account  differences over both the nature of
         the allocable costs and determination of our  proportionate  share
         of the complex, is approximately $3 - $4 million per annum for the
         duration of the lease.  Pursuant to the terms of the lease, we are
         to  contribute  to the  operating  expenses  of the  complex in an
         amount equal to our proportionate share of the total floor area of
         the complex.  Metreon has asserted that our proportionate share of
         the  complex  is  approximately  47%,  while  we  assert  that our
         proportionate  share is approximately  32%. On September 19, 2000,
         as permitted by the lease,  Metreon filed a demand for arbitration
         with the American Arbitration Association seeking a declaration of
         the proportionate share of the complex floor area occupied by this
         theatre.  We believe that we have  meritorious  defenses to all of
         Metreon's  claims  against  us  under  the  lease  and  intend  to
         vigorously assert our position  regarding our proportionate  share
         of the  complex.  This  arbitration  is  stayed as a result of the
         filing of the Chapter 11 petition.  On May 17, 2001, Metreon filed
         a  motion  for  relief  from  the  automatic  stay to  pursue  the
         arbitration.  We filed an  objection  to  Metreon's  motion  and a
         hearing on the motion and the  objection is scheduled  for October
         16, 2001.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         Not Applicable

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not Applicable

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

         Not Applicable

ITEM 5.  OTHER INFORMATION

         Not Applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

             None

         (b) Reports on Form 8-K

             The  Company  did not file any  reports on Form 8-K during the
             quarter ended August 31, 2001.

                                 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.

                                    LOEWS CINEPLEX ENTERTAINMENT CORPORATION
                                    (REGISTRANT)

Date:    October 11, 2001

                                    By: /s/ John J. Walker
                                        -------------------------------------
                                        John J. Walker, Senior Vice President
                                        and Chief Financial Officer

                                    By: /s/ Joseph Sparacio
                                        ------------------------------------
                                        Joseph Sparacio, Vice President Finance
                                        and ControllerLOAN AND SECURITY AGREEMENT

                                  by and among

                          NORTHLAND CRANBERRIES, INC.

                                  as Borrower,

                    THE LENDERS THAT ARE SIGNATORIES HERETO

                                as the Lenders,

                                      and

                          FOOTHILL CAPITAL CORPORATION

                    as the Arranger and Administrative Agent

                          Dated as of November 6, 2001

<PAGE>

                          LOAN AND SECURITY AGREEMENT

     THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
November 6, 2001, between and among, on the one hand, Foothill Capital
Corporation and Ableco Finance LLC and the other lenders identified on the
signature pages hereof (such lenders, together with their respective successors
and assigns, are referred to hereinafter each individually as a "Lender" and
collectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, a California
corporation, as the arranger and administrative agent for the Lenders ("Agent"),
and, on the other hand, NORTHLAND CRANBERRIES, INC., a Wisconsin corporation
("Borrower").

     The parties agree as follows:

1.   DEFINITIONS AND CONSTRUCTION.

     1.1  Definitions. As used in this Agreement, the following terms shall have
the following definitions:

          "Ableco" shall mean Ableco Finance LLC, a Delaware limited liability
     company.

          "Account Debtor" means any Person who is or who may become obligated
     under, with respect to, or on account of, an Account, chattel paper, or a
     General Intangible.

          "Accounts" means all of Borrower's now owned or hereafter acquired
     right, title, and interest with respect to "accounts" (as that term is
     defined in the Code), and any and all supporting obligations in respect
     thereof.

          "Additional Documents" has the meaning set forth in Section 4.4.

          "Adjusted Letter of Credit Usage" means, as of the date of
     determination, the sum of (a) 100% of the undrawn amount of all outstanding
     Letters of Credit, plus (b) 100% of the amount of outstanding time drafts
     accepted by an Underlying Issuer as a result of drawings under Underlying
     Letters of Credit.

          "Adjusted Revolver Usage" means, as of any date of determination, the
     sum of (a) the then extant amount of outstanding Advances, plus (b) the
     then extant amount of the Adjusted Letter of Credit Usage.

          "Advances" has the meaning set forth in Section 2.1.

          "Affiliate" means, as applied to any Person, any other Person who,
     directly or indirectly, controls, is controlled by, or is under common
     control with, such Person. For purposes of this definition, "control" means
     the possession, directly or indirectly, of the power to direct the
     management and policies of a Person, whether through the ownership of
     Stock, by contract, or otherwise; provided, however, that, in any event:
     (a) any Person which owns directly or indirectly 10% or more of the
     securities having ordinary voting power for the election of directors or
     other members of the governing body of a Person or 10% or more of the
     partnership

                                       2
<PAGE>

     or other ownership interests of a Person (other than as a limited partner
     of such Person) shall be deemed to control such Person, (b) each director
     (or comparable manager) of a Person shall be deemed to be an Affiliate of
     such Person, and (c) each partnership or joint venture in which a Person is
     a partner or joint venturer shall be deemed to be an Affiliate of such
     Person.

          "Agent" means Foothill, solely in its capacity as agent for the
     Lenders hereunder, and any successor thereto.

          "Agent's Account" means an account at a bank designated by Agent from
     time to time as the account into which Borrower shall make all payments to
     Agent for the benefit of the Lender Group and into which the Lender Group
     shall make all payments to Agent under this Agreement and the other Loan
     Documents; unless and until Agent notifies Borrower and the Lender Group to
     the contrary, Agent's Account shall be that certain deposit account bearing
     account number 323-266193 and maintained by Agent with The Chase Manhattan
     Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, ABA
     #021000021.

          "Agent Advances" has the meaning set forth in Section 2.3(e)(i).

          "Agent's Liens" means the Liens granted by Borrower to Agent for the
     benefit of the Lender Group under this Agreement or the other Loan
     Documents.

          "Agent-Related Persons" means Agent together with its Affiliates,
     officers, directors, employees, and agents.

          "Agreement" has the meaning set forth in the preamble hereto.

          "Applicable Prepayment Premium" means, as of any date of
     determination, an amount equal to (a) during the period of time from and
     after the date of the execution and delivery of this Agreement up to the
     date that is the first anniversary of the Closing Date, 5% multiplied by
     the sum of the Maximum Revolver Amount plus the then outstanding balance of
     the Term Loans, (b) during the period of time from and including the date
     that is the first anniversary of the Closing Date up to the date that is
     the second anniversary of the Closing Date, 4% multiplied by the sum of the
     Maximum Revolver Amount plus the then outstanding balance of the Term
     Loans, (c) during the period of time from and including the date that is
     the second anniversary of the Closing Date up to the date that is the third
     anniversary of the Closing Date, 3% multiplied by the sum of the Maximum
     Revolver Amount plus the then outstanding balance of the Term Loans, (d)
     during the period of time from and including the date that is the third
     anniversary of the Closing Date up to the date that is the fourth
     anniversary of the Closing Date, 2% multiplied by the sum of the Maximum
     Revolver Amount plus the then outstanding balance of the Term Loans, and
     (e) during the period of time from and including the date that is the
     fourth anniversary of the Closing Date up to the Maturity Date, 1%
     multiplied by the sum of the Maximum Revolver Amount plus the then
     outstanding balance of the Term Loans.

          "Assignee" has the meaning set forth in Section 14.1.

                                       3
<PAGE>

          "Assignment and Acceptance" means an Assignment and Acceptance in the
     form of Exhibit A-1.

          "Authorized Person" means any officer or other employee of Borrower.

          "Availability" means, as of any date of determination, if such date is
     a Business Day, and determined at the close of business on the immediately
     preceding Business Day, if such date of determination is not a Business
     Day, the amount that Borrower is entitled to borrow as Advances under
     Section 2.1 (after giving effect to all then outstanding Obligations and
     all sublimits and reserves applicable hereunder).

          "Bankruptcy Code" means the United States Bankruptcy Code, as in
     effect from time to time.

          "Base Rate" means, the rate of interest announced within Wells Fargo
     at its principal office in San Francisco as its "prime rate", with the
     understanding that the "prime rate" is one of Wells Fargo's base rates (not
     necessarily the lowest of such rates) and serves as the basis upon which
     effective rates of interest are calculated for those loans making reference
     thereto and is evidenced by the recording thereof after its announcement in
     such internal publication or publications as Wells Fargo may designate.

          "Base Rate Margin" means one (1%) percentage point.

          "Benefit Plan" means a "defined benefit plan" (as defined in Section
     3(35) of ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of
     Borrower has been an "employer" (as defined in Section 3(5) of ERISA)
     within the past six years.

          "Board of Directors" means the board of directors (or comparable
     managers) of Borrower or any committee thereof duly authorized to act on
     behalf of the board.

          "Books" means Borrower's now owned or hereafter acquired books and
     records (including all of its Records indicating, summarizing, or
     evidencing its assets (including the Collateral) or liabilities, all of its
     Records relating to its business operations or financial condition, and all
     of its goods or General Intangibles related to such information).

          "Borrower" has the meaning set forth in the preamble to this
     Agreement.

          "Borrowing" means a borrowing hereunder consisting of Advances (or
     term loans, in the case of the Term Loans) made on the same day by the
     Lenders (or Agent on behalf thereof) or by Swing Lender in the case of a
     Swing Loan, or by Agent in the case of an Agent Advance.

          "Borrowing Base" has the meaning set forth in Section 2.1.

          "Borrowing Base Certificate" means a certificate in the form of
     Exhibit B-1.

          "Business Day" means any day that is not a Saturday, Sunday, or other
     day on which national banks are authorized or required to close.

          "Capital Lease" means a lease that is required to be capitalized for
     financial

                                       4
<PAGE>

     reporting purposes in accordance with GAAP.

          "Capitalized Lease Obligation" means any Indebtedness represented by
     obligations under a Capital Lease.

          "Cash Equivalents" means (a) marketable direct obligations issued or
     unconditionally guaranteed by the United States or issued by any agency
     thereof and backed by the full faith and credit of the United States, in
     each case maturing within 1 year from the date of acquisition thereof, (b)
     marketable direct obligations issued by any state of the United States or
     any political subdivision of any such state or any public instrumentality
     thereof maturing within 1 year from the date of acquisition thereof and, at
     the time of acquisition, having the highest rating obtainable from either
     S&P or Moody's, (c) commercial paper maturing no more than 1 year from the
     date of acquisition thereof and, at the time of acquisition, having a
     rating of A-1 or P-1, or better, from S&P or Moody's, and (d) certificates
     of deposit or bankers' acceptances maturing within 1 year from the date of
     acquisition thereof either (i) issued by any bank organized under the laws
     of the United States or any state thereof which bank has a rating of A or
     A2, or better, from S&P or Moody's, or (ii) certificates of deposit less
     than or equal to $100,000 in the aggregate issued by any other bank insured
     by the Federal Deposit Insurance Corporation.

          "Cash Management Bank" has the meaning set forth in Section 2.7(a).

          "Cash Management Account" has the meaning set forth in Section 2.7(a).

          "Cash Management Agreements" means those certain cash management
     service agreements, in form and substance satisfactory to Agent, each of
     which is among Borrower, Agent, and one of the Cash Management Banks.

          "Change of Control" means (a) Sun Capital Partners II LP shall cease
     to be the managing member of Sun Northland, LLC, or (b) Sun Northland, LLC
     shall cease to own and control, beneficially and of record more than 50.1%
     or more of the Stock of the Borrower, or (c) Borrower ceases to directly
     own and control 100% of the outstanding capital Stock of each of its
     Subsidiaries extant as of the Closing Date, except with respect to W.S.C.
     Water Management Corp., Borrower ceases to directly own and control 66 2/3%
     of the outstanding capital stock of such Subsidiary, subject to the rights
     of Borrower under Section 7.3(b) to cause certain mergers, dissolutions or
     other actions with respect to Borrower's Subsidiaries.

          "Cliffstar Note" means the Promissory Note dated March8, 2000, in the
     original principal amount of $28,000,000, payable by Cliffstar Corporation
     to Borrower, as in effect on the date hereof.

          "Closing Date" means the date of the making of the initial Advance (or
     other extension of credit) hereunder.

          "Closing Date Business Plan" means the set of Projections of Borrower
     for the 3 year period following the Closing Date (on a year by year basis,
     and for the 1 year period following the Closing Date, on a month by month
     basis), in form and substance (including as to scope and underlying
     assumptions) satisfactory to Agent.

                                       5
<PAGE>

          "Code" means the New York Uniform Commercial Code, as in effect from
     time to time.

          "Collateral" means all of Borrower's now owned or hereafter acquired
     right, title, and interest in and to each of the following:

          (a)  Accounts,

          (b)  Books,

          (c)  Equipment,

          (d)  General Intangibles,

          (e)  Inventory,

          (f)  Investment Property,

          (g)  Negotiable Collateral,

          (h)  Real Property Collateral,

          (i)  Farm Products,

          (j)  money or other assets of Borrower that now or hereafter come into
     the possession, custody, or control of any member of the Lender Group, and

          (k)  the proceeds and products, whether tangible or intangible, of any
     of the foregoing, including proceeds of insurance covering any or all of
     the foregoing, and any and all Accounts, Books, Equipment, General
     Intangibles, Inventory, Investment Property, Negotiable Collateral, Real
     Property, money, deposit accounts, or other tangible or intangible property
     resulting from the sale, exchange, collection, or other disposition of any
     of the foregoing, or any portion thereof or interest therein, and the
     proceeds thereof;

     notwithstanding anything to the contrary set forth in this definition of
     Collateral, Collateral shall not include:

               (i)   the Excluded Collateral,

               (ii)  any rights or interests in any contract, lease, permit,
          license, charter or license agreement covering real or personal
          property, as such, if under the terms of such contract, lease, permit,
          license, charter or license agreement, or applicable law with respect
          thereto, the valid grant of a security interest or lien therein to
          Agent is prohibited and such prohibition has not been or is not waived
          or the consent of the other party to such contract, lease, permit,
          license, charter or license agreement has not been or is not otherwise
          obtained or under applicable law such prohibition cannot be waived;
          provided, that, the foregoing exclusion shall in

                                       6
<PAGE>

          no way be construed (A) to apply if any such prohibition is
          unenforceable under the UCC or other applicable law or (B) so as to
          limit, impair or otherwise affect Agent's unconditional continuing
          security interests in and liens upon any rights or interests of
          Borrower in or to the proceeds thereof, including, without limitation,
          monies due or to become due under any such contract, lease, permit,
          license, charter or license agreement (including any Accounts), or

               (iii) Principal payments on account of the Cliffstar Note and
          "Earnout Amount" payments under and as defined in the Asset Purchase
          Agreement by and between Borrower and Cliffstar Corporation dated
          January 5, 2000 to the extent the aggregate of such payments actually
          received by Agent exceeds $10,000,000.

          "Collateral Access Agreement" means a landlord waiver, bailee letter,
     or acknowledgment agreement of any lessor, warehouseman, processor,
     consignee, or other Person in possession of, having a Lien upon, or having
     rights or interests in the Equipment, Inventory or Books constituting
     Collateral, in each case, in form and substance satisfactory to Agent.

          "Collections" means all cash, checks, notes, instruments, and other
     items of payment (including insurance proceeds, proceeds of cash sales,
     rental proceeds, and tax refunds) of Borrower.

          "Commitment" means, with respect to each Lender, its Revolver
     Commitment, its Term Loan Commitment, or its Total Commitment, as the
     context requires, and, with respect to all Lenders, their Revolver
     Commitments, their Term Loan Commitments, or their Total Commitments, as
     the context requires, in each case as such Dollar amounts are set forth
     beside such Lender's name under the applicable heading on Schedule C-1 or
     on the signature page of the Assignment and Acceptance pursuant to which
     such Lender became a Lender hereunder in accordance with the provisions of
     Section 14.1.

          "Compliance Certificate" means a certificate substantially in the form
     of Exhibit C-1 delivered by the chief financial officer of Borrower to
     Agent.

          "Concentrate Cash Cost" means, per gallon, (A) the sum of (i) Ocean
     Spray's lowest base pool price for raw cranberries for the immediately
     preceding harvest, plus (ii) $3.00, plus (iii) Borrower's per barrel cost
     (as determined by Agent) of hauling and storage of such frozen cranberries
     prior to conversion to concentrate, divided by 1.5 (or such other factor as
     Agent determines to be appropriate, provided that Agent may not decrease
     such factor without the consent of the Required Lenders) plus (B) the per
     gallon cost (as determined by Agent), to convert frozen cranberries into
     such concentrate, including labor, overhead, manufacturing costs and
     depreciation, and shall exclude, without limitation, all hauling and
     storage after conversion into concentrate.

          "Continuing Bank Group" means, individually and collectively, U.S.
     Bank National Association, St. Francis Bank, F.S.B. and ARK CLO 2000-1
     Limited.

          "Continuing Bank Group Documents" means the Amended and Restated
     Credit Agreement, by and among the Borrower and the Continuing Bank Group,
     the Amended and Restated Security Agreement, by Borrower in favor of the
     Continuing Bank Group and the Amended and Restated Collateral Pledge
     Agreement, by Borrower in favor of the Continuing

                                       7
<PAGE>

     Bank Group, the Amended and Restated Mortgages and the Assignments of
     Leases and Rents and Collateral Assignments of Rent by Borrower in favor of
     the Continuing Bank Group, each dated as of the Closing Date, in form and
     substance satisfactory to Agent in its sole discretion.

          "Continuing Bank Group Intercreditor Agreement" means the
     Intercreditor Agreement, dated as of the Closing Date between Agent and the
     Continuing Bank Group, as amended.

          "Continuing Director" means (a) any member of the Board of Directors
     who was a director (or comparable manager) of Borrower on the Closing Date,
     and (b) any individual who becomes a member of the Board of Directors after
     the Closing Date if such individual was appointed or nominated for election
     to the Board of Directors by a majority of the Continuing Directors, but
     excluding any such individual originally proposed for election in
     opposition to the Board of Directors in office at the Closing Date in an
     actual or threatened election contest relating to the election of the
     directors (or comparable managers) of Borrower (as such terms are used in
     Rule 14a-11 under the Exchange Act) and whose initial assumption of office
     resulted from such contest or the settlement thereof.

          "Control Agreement" means a control agreement, in form and substance
     satisfactory to Agent, executed and delivered by Borrower, Agent, and the
     applicable securities intermediary with respect to a Securities Account or
     bank with respect to a deposit account.

          "Cranberry Concentrate Value" shall mean the Eligible Inventory of
     Borrower consisting of gallons of cranberry concentrate, up to a maximum of
     850,000 gallons at any time between October1st and December 31st and
     between January 1st and the last day of February of each year, 675,000
     gallons between March 1st and March 31st of each year, and 500,000 gallons
     at all other times, multiplied, per gallon, by the lesser of (a) (i)
     through April 30, 2002, the weighted average sale price for the immediately
     preceding three (3) months, as determined by Agent, and (ii) thereafter the
     lowest sales price per gallon for Borrower's sales of cranberry concentrate
     in the immediately preceding three (3) months, and (b) the per gallon
     Concentrate Cash Cost of such cranberry concentrate, in each case as
     determined by Agent.

          "Daily Balance" means, with respect to each day during the term of
     this Agreement, the amount of an Obligation owed at the end of such day.

          "DDA" means any checking or other demand deposit account maintained by
     Borrower.

          "Default" means an event, condition, or default that, with the giving
     of notice, the passage of time, or both, would be an Event of Default.

          "Defaulting Lender" means any Lender that fails to make any Advance
     (or other extension of credit) that it is required to make hereunder on the
     date that it is required to do so hereunder.

                                       8
<PAGE>

          "Defaulting Lender Rate" means (a) the Base Rate for the first 3 days
     from and after the date the relevant payment is due, and (b) thereafter, at
     the interest rate then applicable to Advances that are Base Rate Loans
     (inclusive of the Base Rate Margin applicable thereto).

          "Designated Account" means account number 754771517 of Borrower
     maintained with Borrower's Designated Account Bank, or such other deposit
     account of Borrower (located within the United States) that has been
     designated as such, in writing, by Borrower to Agent.

          "Designated Account Bank" means Firstar Bank, N.A., whose office is
     located at Milwaukee, Wisconsin, and whose ABA number is 042000013.

          "Dilution" means, as of any date of determination, a percentage, based
     upon the experience of the immediately prior ninety (90) days, that is the
     result of dividing the Dollar amount of (a) bad debt write-downs,
     discounts, advertising allowances, credits, or other dilutive items with
     respect to the Accounts during such period, by (b) Borrower's Collections
     with respect to Accounts during such period (excluding extraordinary items)
     plus the Dollar amount of clause (a).

          "Dilution Reserve" means, as of any date of determination, an amount
     sufficient to reduce the advance rate against Eligible Accounts by one
     percentage point for each percentage point by which Dilution is in excess
     of 5%.

          "Disbursement Letter" means an instructional letter executed and
     delivered by Borrower to Agent regarding the extensions of credit to be
     made on the Closing Date, the form and substance of which is satisfactory
     to Agent.

          "Dollars" or "$" means United States dollars.

          "Due Diligence Letter" means the due diligence letter sent by Agent's
     counsel to Borrower, together with Borrower's completed responses to the
     inquiries set forth therein, the form and substance of such responses to be
     satisfactory to Agent.

          "EBITDA" means, with respect to any fiscal period, Borrower's and its
     Subsidiaries consolidated net earnings (or loss), minus extraordinary gains
     and interest income, plus interest expense, income taxes, non-cash
     nonrecurring, unusual or extraordinary losses and depreciation and
     amortization for such period, as determined in accordance with GAAP.

          "Eligible Accounts" means those Accounts created by Borrower in the
     ordinary course of its business, that arise out of Borrower's sale of goods
     or rendition of services, that comply with each of the representations and
     warranties respecting Eligible Accounts made by Borrower in the Loan
     Documents, and that are not excluded as ineligible by virtue of one or more
     of the criteria set forth below; provided, however, that such criteria may
     be fixed and revised from time to time by Agent in Agent's Permitted
     Discretion to address the results of any audit performed by Agent from time
     to time after the Closing Date. In determining the amount to be included,
     Eligible Accounts shall be calculated net of customer deposits and
     unapplied cash remitted to Borrower. Eligible Accounts shall not include
     the following, except that:

          (a)  (i) Accounts that the Account Debtor has failed to pay within the
     lesser of

                                       9
<PAGE>

     (A) 90 days of original invoice date and (B) 60 days of the due date, and
     (ii) in the case of Accounts due and owing from up to any three (3) Account
     Debtors, Accounts (on terms satisfactory to Agent) that the Account Debtor
     has failed to pay within the lesser of (A) 120 days of original invoice
     date and (B) 90 days of the due date and provided further that the
     aggregate of Eligible Accounts under this Section (ii) shall not exceed
     $588,000 at any time.

          (b)  Accounts owed by an Account Debtor (or its Affiliates) where 50%
     or more of all Accounts owed by that Account Debtor (or its Affiliates) are
     deemed ineligible under clause (a) above,

          (c)  Accounts with respect to which the Account Debtor is an employee,
     Affiliate, or agent of Borrower,

          (d)  Accounts arising in a transaction wherein goods are placed on
     consignment or are sold pursuant to a guaranteed sale, a sale or return, a
     sale on approval, a bill and hold, or any other terms by reason of which
     the payment by the Account Debtor may be conditional,

          (e)  Accounts that are not payable in Dollars,

          (f)  Accounts with respect to which the Account Debtor either (i) does
     not maintain its chief executive office in the United States, or (ii) is
     not organized under the laws of the United States or any state thereof, or
     (iii) is the government of any foreign country or sovereign state, or of
     any state, province, municipality, or other political subdivision thereof,
     or of any department, agency, public corporation, or other instrumentality
     thereof, unless (A) the Account is supported by an irrevocable letter of
     credit satisfactory to Agent (as to form, substance, and issuer or domestic
     confirming bank) that has been delivered to Agent and is directly drawable
     by Agent, or (B) the Account is covered by credit insurance in form,
     substance, and amount, and by an insurer, satisfactory to Agent,

          (g)  Accounts with respect to which the Account Debtor is either (i)
     the United States or any department, agency, or instrumentality of the
     United States (exclusive, however, of Accounts with respect to which
     Borrower has complied, to the reasonable satisfaction of Agent, with the
     Assignment of Claims Act, 31 USC Section 3727), or (ii) any state of the
     United States (exclusive, however, of (y) Accounts owed by any state that
     does not have a statutory counterpart to the Assignment of Claims Act, or
     (z) Accounts owed by any state that does have a statutory counterpart to
     the Assignment of Claims Act as to which Borrower has complied to Agent's
     satisfaction) provided that Section (g) shall not apply to Accounts which
     are otherwise Eligible Accounts and do not exceed $500,000 in the aggregate
     at any time.

          (h)  Accounts with respect to which the Account Debtor is a creditor
     of Borrower, has or has asserted a right of setoff, has disputed its
     liability, or has made any claim with respect to its obligation to pay the
     Account, to the extent of such claim, right of setoff, or dispute,

          (i)  Accounts with respect to an Account Debtor whose total
     obligations owing to Borrower exceed 10% of all Eligible Accounts (or, in
     the case of Tropicana Products, Inc., Wal-Mart Stores, Inc. and Nestle,
     S.A., obligations owing to Borrower which, in the case of each

                                       10
<PAGE>

     of any two (2) such Account Debtors, exceed 15%, or in the case of any one
     (1) such Account Debtor exceed 20%, or in the case of all such Account
     Debtors exceed 45% in the aggregate, of all Eligible Accounts), to the
     extent of the obligations owing by such Account Debtor in excess of such
     percentage,

          (j)  Accounts with respect to which the Account Debtor is subject to
     an Insolvency Proceeding, is not Solvent, has gone out of business, or as
     to which Borrower has received notice of an imminent Insolvency Proceeding
     or a material impairment of the financial condition of such Account Debtor,

          (k)  Accounts with respect to which the Account Debtor is located in
     the states of New Jersey or Minnesota (or any other state that requires a
     creditor to file a business activity report or similar document in order to
     bring suit or otherwise enforce its remedies against such Account Debtor in
     the courts or through any judicial process of such state), unless Borrower
     has qualified to do business in New Jersey or Minnesota, or such other
     states, or has filed a business activities report with the applicable
     division of taxation, the department of revenue, or with such other state
     offices, as appropriate, for the then-current year, or is exempt from such
     filing requirement,

          (l)  Accounts, the collection of which, Agent, in its Permitted
     Discretion, believes to be doubtful by reason of the Account Debtor's
     financial condition,

          (m)  Accounts that are not subject to a valid and perfected first
     priority Agent's Lien except as otherwise expressly permitted under Section
     (g) above,

          (n)  Accounts with respect to which (i) the goods giving rise to such
     Account have not been shipped and billed to the Account Debtor, or (ii) the
     services giving rise to such Account have not been performed and billed to
     the Account Debtor, or

          (o)  Accounts that represent the right to receive progress payments or
     other advance billings that are due prior to the completion of performance
     by Borrower of the subject contract for goods or services.

          "Eligible Inventory" means Inventory consisting of first quality goods
     held for sale in the ordinary course of Borrower's business located at one
     of Borrower's business locations set forth on Schedule E-1 (or in-transit
     between any such locations), that complies with each of the representations
     and warranties respecting Eligible Inventory made by Borrower in the Loan
     Documents and that is not excluded as ineligible by virtue of the one or
     more of the criteria set forth below; provided, however, that such criteria
     may be fixed and revised from time to time by Agent in Agent's Permitted
     Discretion to address the results of any audit or appraisal performed by
     Agent from time to time after the Closing Date. Borrower may revise
     Schedule E-1, in a manner reasonably acceptable to Agent, upon not less
     than twenty (20) days advance written notice to Agent. In determining the
     amount to be so included, Inventory shall be valued at the lower of cost
     (subject to the other terms and provisions of this Agreement with respect
     to calculation of cost) or market on a basis consistent with Borrower's
     historical accounting practices. An item of Inventory shall not be included
     in Eligible Inventory if:

          (a)  Borrower does not have good, valid, and marketable title thereto,

                                       11
<PAGE>

          (b)  it is not located at one of the locations in the United States
     set forth on Schedule E-1 or in transit from one such location to another
     such location,

          (c)  it is located on real property leased by Borrower or in a
     contract warehouse, in each case, unless it is subject to a Collateral
     Access Agreement executed by the lessor, warehouseman, or other third
     party, as the case may be, and unless it is segregated or otherwise
     separately identifiable from goods of others, if any, stored on the
     premises,

          (d)  it is not subject to a valid and perfected first priority Agent's
     Lien,

          (e)  it consists of goods returned or rejected by Borrower's
     customers, or

          (f)  it consists of goods that are obsolete or slow moving (which with
     respect to goods consisting of concentrate shall be goods held by Borrower
     for three (3) years or more, with respect to goods consisting of frozen
     berries shall be goods held by Borrower for eighteen (18) months or more,
     and with respect to goods consisting of finished goods other than
     concentrate shall be goods held by Borrower for fifteen (15) months or
     more), restrictive or custom items, work-in-process or goods that
     constitute spare parts, packaging and shipping materials, supplies used or
     consumed in Borrower's business, bill and hold goods, defective goods,
     "seconds," or Inventory acquired on consignment.

          "Eligible Transferee" means (a) a commercial bank organized under the
     laws of the United States, or any state thereof, and having total assets in
     excess of $250,000,000, (b) a commercial bank organized under the laws of
     any other country which is a member of the Organization for Economic
     Cooperation and Development or a political subdivision of any such country
     and which has total assets in excess of $250,000,000, provided that such
     bank is acting through a branch or agency located in the United States, (c)
     a finance company, insurance company, or other financial institution or
     fund that is engaged in making, purchasing, or otherwise investing in
     commercial loans in the ordinary course of its business and having
     (together with its Affiliates) total assets in excess of $250,000,000, (d)
     any Affiliate (other than individuals) of a Lender that was party hereto as
     of the Closing Date or any fund, money market account, investment account
     or other account managed by a Lender or an Affiliate of a Lender, (e) so
     long as no Event of Default has occurred and is continuing, any other
     Person approved by Agent and Borrower, and (f) during the continuation of
     an Event of Default, any other Person approved by Agent.

          "Environmental Actions" means any complaint, summons, citation,
     notice, directive, order, claim, litigation, investigation, judicial or
     administrative proceeding, judgment, letter, or other communication from
     any Governmental Authority, or any third party involving violations of
     Environmental Laws or releases of Hazardous Materials from (a) any assets,
     properties, or businesses of Borrower or any predecessor in interest, (b)
     from adjoining properties or businesses, or (c) from or onto any facilities
     which received Hazardous Materials generated by Borrower or any predecessor
     in interest.

          "Environmental Law" means any applicable federal, state, provincial,
     foreign or

                                       12
<PAGE>

     local statute, law, rule, regulation, ordinance, code, legally binding and
     enforceable guideline, legally binding and enforceable written policy, or
     rule of common law now or hereafter in effect and in each case as amended,
     or any judicial or administrative interpretation thereof, including any
     legally binding judicial or administrative order, consent decree or
     judgment, to the extent binding on Borrower, relating to the environment,
     employee health and safety, or Hazardous Materials, including CERCLA; RCRA;
     the Federal Water Pollution Control Act, 33 USC Section 1251 et seq.; the
     Toxic Substances Control Act, 15 USC, Section 2601 et seq.; the Clean Air
     Act, 42 USC Section 7401 et seq.; the Safe Drinking Water Act, 42 USC.
     Section 3803 et seq.; the Oil Pollution Act of 1990, 33 USC. Section 2701
     et seq.; the Emergency Planning and the Community Right-to-Know Act of
     1986, 42 USC. Section 11001 et seq.; the Hazardous Material Transportation
     Act, 49 USC Section 1801 et seq.; and the Occupational Safety and Health
     Act, 29 USC. Section 651 et seq. (to the extent it regulates occupational
     exposure to Hazardous Materials); any state and local or foreign
     counterparts or equivalents, in each case as amended from time to time.

          "Environmental Liabilities and Costs" means all liabilities, monetary
     obligations, Remedial Actions, losses, damages, punitive damages,
     consequential damages, treble damages, costs and expenses (including all
     reasonable fees, disbursements and expenses of counsel, experts, or
     consultants, and costs of investigation and feasibility studies), fines,
     penalties, sanctions, and interest incurred as a result of any claim or
     demand by any Governmental Authority or any third party, and which relate
     to any Environmental Action.

          "Environmental Lien" means any Lien in favor of any Governmental
     Authority for Environmental Liabilities and Costs.

          "Equipment" means all of Borrower's now owned or hereafter acquired
     right, title, and interest with respect to equipment, machinery, machine
     tools, motors, furniture, furnishings, fixtures, vehicles (including motor
     vehicles), tools, parts, goods (other than consumer goods, farm products,
     or Inventory), wherever located, including all attachments, accessories,
     accessions, replacements, substitutions, additions, and improvements to any
     of the foregoing.

          "Equitable Intercreditor Agreement" means the Intercreditor Agreement
     dated as of the Closing Date by and between Agent and The Equitable Life
     Assurance Society of the United States, as amended.

          "ERISA" means the Employee Retirement Income Security Act of 1974, as
     amended, and any successor statute thereto.

          "ERISA Affiliate" means (a) any Person subject to ERISA whose
     employees are treated as employed by the same employer as the employees of
     Borrower under IRC Section 414(b), (b) any trade or business subject to
     ERISA whose employees are treated as employed by the same employer as the
     employees of Borrower under IRC Section 414(c), (c) solely for purposes of
     Section 302 of ERISA and Section 412 of the IRC, any organization subject
     to ERISA that is a member of an affiliated service group of which Borrower
     is a member under IRC Section 414(m), or (d) solely for purposes of Section
     302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that
     is a party to an arrangement with Borrower and whose employees are
     aggregated with the employees of Borrower under IRC Section 414(o).

          "Event of Default" has the meaning set forth in Section 8.

                                       13
<PAGE>

          "Excess Availability" means the amount, as of the date any
     determination thereof is to be made, equal to Availability minus the
     aggregate amount, if any, of all trade payables of Borrower aged in excess
     of historical levels with respect thereto and all book overdrafts in excess
     of historical practices with respect thereto, in each case as determined by
     Agent in its Permitted Discretion.

          "Exchange Act" means the Securities Exchange Act of 1934, as in effect
     from time to time.

          "Excluded Collateral" means the real and personal property of Borrower
     set forth on Schedule 4.1 hereto.

          "Existing Lenders" means individually and collectively, the Continuing
     Bank Group, the Equitable Life Assurance Society of the United States and
     Wood County National Bank.

          "Farm Products" means all of Borrower's now owned or hereafter
     existing or acquired farm products of every kind and nature, including
     without limitation, crops, livestock and supplies used or produced in
     farming operations, and products of crops or livestock, wherever located.

          "Farm Products Sellers" shall mean, individually and collectively,
     sellers or suppliers to Borrower of any farm product (as such term is
     defined in both the Food Security Act and the Code) and including any
     perishable agricultural commodity (as defined in PACA).

          "Fee Letter" means that certain fee letter, dated as of even date
     herewith, between Borrower and Agent, in form and substance satisfactory to
     Agent.

          "Fee Notes" means the Fee Note in the original principal amount of
     $2,500,000, payable by Borrower to Foothill and the Fee Note in the
     original principal amount of $2,500,000 in favor of Ableco.

          "FEIN" means Federal Employer Identification Number.

          "Food Security Act" shall mean the Food Security Act of 1984, 7 U.S.C.
     Section 1631 et. seq., as the same now exists or may hereafter from time to
     time be amended, modified, recodified or supplemented, together with all
     rules and regulations thereunder.

          "Food Security Act Notices" shall have the meaning set forth in
     Section 5.21.

          "Foothill" means Foothill Capital Corporation, a California
     corporation.

          "Frozen Cranberry Sublimit" shall mean, during each month of any year
     of the term of this Agreement, the amount set forth below opposite such
     month:

               October             $10,000,000

               November            $ 9,400,000

                                       14
<PAGE>

               December            $ 8,800,000

               January             $ 8,200,000

               February            $ 7,600,000

               March               $ 7,000,000

               April               $ 6,400,000

               May                 $ 5,800,000

               June                $ 5,200,000

               July                $ 4,600,000

               August              $ 4,000,000

               September           $ 3,400,000

          "Frozen Cranberry Cost" means, per barrel, (i) Ocean Spray's lowest
     base pool price for frozen cranberries for the immediately preceding
     harvest, plus (ii) $3.00, plus (iii) the hauling and storage cost (as
     determined by Agent) of such frozen cranberries prior to conversion to
     concentrate.

          "Frozen Cranberry Value" means the Eligible Inventory of Borrower
     consisting of barrels of frozen cranberries multiplied, per barrel, by the
     lesser of (a) during the first six (6) fiscal months following the Closing
     Date, the weighted average sale price of cranberry concentrate for the
     immediately preceding three (3) months, as determined by Agent, and
     thereafter the lowest sales price per gallon for Borrower's sales of
     cranberry concentrate in the immediately preceding three (3) months, in
     each case, less the per barrel cost to convert such frozen cranberries into
     concentrate, multiplied by 1.5 (or such other multiple as Agent determines
     to be appropriate, provided that Agent may not increase such multiple
     without the consent of the Required Lenders), and (b) the Frozen Cranberry
     Cost of such frozen cranberries.

          "Funding Date" means the date on which a Borrowing occurs.

          "GAAP" means generally accepted accounting principles as in effect
     from time to time in the United States, consistently applied.

          "General Intangibles" means all of Borrower's now owned or hereafter
     acquired right, title, and interest with respect to general intangibles
     (including payment intangibles, contract rights, rights to payment, rights
     arising under common law, statutes, or regulations, choses or things in
     action, goodwill, patents, trade names, trademarks, servicemarks,
     copyrights,

                                       15
<PAGE>

     blueprints, drawings, purchase orders, customer lists, monies due or
     recoverable from pension funds, route lists, rights to payment and other
     rights under any royalty or licensing agreements, infringement claims,
     computer programs, information contained on computer disks or tapes,
     software, literature, reports, catalogs, money, deposit accounts, insurance
     premium rebates, tax refunds, and tax refund claims), and any and all
     supporting obligations in respect thereof, and any other personal property
     other than goods, Accounts, Investment Property, and Negotiable Collateral.

          "Governing Documents" means, with respect to any Person, the
     certificate or articles of incorporation, by-laws, or other organizational
     documents of such Person.

          "Governmental Authority" means any federal, state, local, or other
     governmental or administrative body, instrumentality, department, or agency
     or any court, tribunal, administrative hearing body, arbitration panel,
     commission, or other similar dispute-resolving panel or body.

          "Guarantor" and "Guarantors" means, individually and collectively, NCI
     Foods, LLC, Wildhawk, Inc., Northland Insurance Center, Inc., Northland
     Cranberries Sales Corp., PFVA Acquisition Corp., and Potomac Foods of
     Virginia, Inc.

          "Hazardous Materials" means (a) substances that are defined or listed
     in, or otherwise classified pursuant to, any applicable laws or regulations
     as "hazardous substances," "hazardous materials," "hazardous wastes,"
     "toxic substances," or any other formulation intended to define, list, or
     classify substances by reason of deleterious properties such as
     ignitability, corrosivity, reactivity, carcinogenicity, reproductive
     toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived
     substances, natural gas, natural gas liquids, synthetic gas, drilling
     fluids, produced waters, and other wastes associated with the exploration,
     development, or production of crude oil, natural gas, or geothermal
     resources, (c) any flammable substances or explosives or any radioactive
     materials, and (d) asbestos in any form or electrical equipment that
     contains any oil or dielectric fluid containing levels of polychlorinated
     biphenyls in excess of 50 parts per million.

          "Indebtedness" means (a) all obligations of Borrower for borrowed
     money, (b) all obligations of Borrower evidenced by bonds, debentures,
     notes, or other similar instruments and all reimbursement or other
     obligations of Borrower in respect of letters of credit, bankers
     acceptances, interest rate swaps, or other financial products, (c) all
     obligations of Borrower under Capital Leases, (d) all obligations or
     liabilities of others secured by a Lien on any asset of Borrower,
     irrespective of whether such obligation or liability is assumed, (e) all
     obligations of Borrower for the deferred purchase price of assets (other
     than trade debt incurred in the ordinary course of Borrower's business and
     repayable in accordance with customary trade practices), and (f) any
     obligation of Borrower guaranteeing or intended to guarantee (whether
     directly or indirectly guaranteed, endorsed, co-made, discounted, or sold
     with recourse to Borrower) any obligation of any other Person.

          "Indemnified Liabilities" has the meaning set forth in Section 11.3.

          "Indemnified Person" has the meaning set forth in Section 11.3.

                                       16
<PAGE>

          "Insolvency Proceeding" means any proceeding commenced by or against
     any Person under any provision of the Bankruptcy Code or under any other
     state or federal bankruptcy or insolvency law, assignments for the benefit
     of creditors, formal or informal moratoria, compositions, extensions
     generally with creditors, or proceedings seeking reorganization,
     arrangement, or other similar relief.

          "Intangible Assets" means, with respect to any Person, that portion of
     the book value of all of such Person's assets that would be treated as
     intangibles under GAAP.

          "Inventory" means all Borrower's now owned or hereafter acquired
     right, title, and interest with respect to inventory, including goods held
     for sale or lease or to be furnished under a contract of service, goods
     that are leased by Borrower as lessor, goods that are furnished by Borrower
     under a contract of service, and raw materials, work in process, or
     materials used or consumed in Borrower's business.

          "Inventory Reserves" means reserves (determined from time to time by
     Agent in its Permitted Discretion) for (a) the estimated costs relating to
     unpaid freight charges, warehousing or storage charges, taxes, duties, and
     other similar unpaid costs associated with the acquisition of Eligible
     In-Transit Inventory by Borrower, plus (b)the estimated reclamation claims
     of unpaid sellers of Inventory sold to Borrower.

          "Investment" means, with respect to any Person, any investment by such
     Person in any other Person (including Affiliates) in the form of loans,
     guarantees, advances, or capital contributions (excluding (a) commission,
     travel, and similar advances to officers and employees of such Person made
     in the ordinary course of business, and (b) bona fide Accounts arising from
     the sale of goods or rendition of services in the ordinary course of
     business consistent with past practice), purchases or other acquisitions
     for consideration of Indebtedness or Stock, and any other items that are or
     would be classified as investments on a balance sheet prepared in
     accordance with GAAP.

          "Investment Property" means all of Borrower's now owned or hereafter
     acquired right, title, and interest with respect to "investment property"
     as that term is defined in the Code, and any and all supporting obligations
     in respect thereof.

          "IRC" means the Internal Revenue Code of 1986, as in effect from time
     to time.

          "Issuing Lender" means Foothill or any other Lender that, at the
     request of Borrower and with the consent of Agent agrees, in such Lender's
     sole discretion, to become an Issuing Lender for the purpose of issuing
     L/Cs or L/C Undertakings pursuant to Section 2.12.

          "L/C" has the meaning set forth in Section 2.12(a).

          "L/C Disbursement" means a payment made by the Issuing Lender pursuant
     to a Letter of Credit.

          "L/C Undertaking" has the meaning set forth in Section 2.12(a).

          "Lender" and "Lenders" have the respective meanings set forth in the
     preamble to this Agreement, and shall include any other Person made a party
     to this Agreement in accordance with the provisions of Section 14.1.

                                       17
<PAGE>

          "Lender Group" means, individually and collectively, each of the
     Lenders (including the Issuing Lender) and Agent.

          "Lender Group Expenses" means all (a) costs or expenses (including
     taxes, and insurance premiums) required to be paid by Borrower under any of
     the Loan Documents that are paid or incurred by the Lender Group, (b) fees
     or charges paid or incurred by Lender Group in connection with the Lender
     Group's transactions with Borrower, including, fees or charges for
     photocopying, notarization, couriers and messengers, telecommunication,
     public record searches (including tax lien, litigation, and UCC searches
     and including searches with the patent and trademark office, the copyright
     office, or the department of motor vehicles), filing, recording,
     publication, appraisal (including periodic Collateral appraisals or
     business valuations to the extent of the fees and charges (and up to the
     amount of any limitation) contained in this Agreement), real estate
     surveys, real estate title policies and endorsements, and environmental
     audits, (c) costs and expenses incurred by Agent in the disbursement of
     funds to Borrower (by wire transfer or otherwise), (d) charges paid or
     incurred by Agent resulting from the dishonor of checks, (e) reasonable
     costs and expenses paid or incurred by the Lender Group to correct any
     default or enforce any provision of the Loan Documents, or in gaining
     possession of, maintaining, handling, preserving, storing, shipping,
     selling, preparing for sale, or advertising to sell the Collateral, or any
     portion thereof, irrespective of whether a sale is consummated, (f) audit
     fees and expenses of Lender Group related to audit examinations of the
     Books to the extent of the fees and charges (and up to the amount of any
     limitation) contained in this Agreement, (g) reasonable costs and expenses
     of third party claims or any other suit paid or incurred by the Lender
     Group in enforcing or defending the Loan Documents or in connection with
     the transactions contemplated by the Loan Documents or the Lender Group's
     relationship with Borrower or any guarantor of the Obligations, (h) Agent's
     and each Lender's reasonable fees and expenses (including attorneys fees)
     incurred in advising, structuring, drafting, reviewing, administering, or
     amending the Loan Documents, and (i) Agent's and each Lender's reasonable
     fees and expenses (including attorneys fees) incurred in terminating,
     enforcing (including attorneys fees and expenses incurred in connection
     with a "workout," a "restructuring," or an Insolvency Proceeding concerning
     Borrower or in exercising rights or remedies under the Loan Documents), or
     defending the Loan Documents, irrespective of whether suit is brought, or
     in taking any Remedial Action concerning the Collateral.

          "Lender-Related Person" means, with respect to any Lender, such
     Lender, together with such Lender's Affiliates, and the officers,
     directors, employees, and agents of such Lender.

          "Letter of Credit" means an L/C or an L/C Undertaking, as the context
     requires.

          "Letter of Credit Usage" means, as of any date of determination, the
     aggregate undrawn amount of all outstanding Letters of Credit plus 100% of
     the amount of outstanding time drafts accepted by an Underlying Issuer as a
     result of drawings under Underlying Letters of Credit.

                                       18
<PAGE>

          "Lien" means any interest in an asset securing an obligation owed to,
     or a claim by, any Person other than the owner of the asset, whether such
     interest shall be based on the common law, statute, or contract, whether
     such interest shall be recorded or perfected, and whether such interest
     shall be contingent upon the occurrence of some future event or events or
     the existence of some future circumstance or circumstances, including the
     lien or security interest arising from a mortgage, deed of trust,
     encumbrance, pledge, hypothecation, assignment, deposit arrangement,
     security agreement, conditional sale or trust receipt, or from a lease,
     consignment, or bailment for security purposes and also including
     reservations, exceptions, encroachments, easements, rights-of-way,
     covenants, conditions, restrictions, leases, and other title exceptions and
     encumbrances affecting Real Property.

          "Liquidating Assets" shall mean the assets of Borrower listed on the
     attached Schedule 1.1, as in effect on the Closing Date.

          "Loan Account" has the meaning set forth in Section 2.10.

          "Loan Documents" means this Agreement, the Cash Management Agreements,
     the Control Agreements, the Disbursement Letter, the Fee Letter, the Fee
     Notes, the Letters of Credit, the Mortgages, the Officers' Certificate, the
     Stock Pledge Agreement, the Subsidiary Documents, the Trademark Security
     Agreement, the Warrants, any note or notes executed by Borrower in
     connection with this Agreement and payable to a member of the Lender Group,
     and any other agreement entered into, now or in the future, by Borrower,
     any Guarantor and the Lender Group in connection with this Agreement.

          "Material Adverse Change" means (a) a material adverse change in the
     business, prospects, operations, results of operations, assets, liabilities
     or condition (financial or otherwise) of Borrower, (b) a material
     impairment of Borrower's ability to perform its obligations under the Loan
     Documents to which it is a party or of the Lender Group's ability to
     enforce the Obligations or realize upon the Collateral, or (c) a material
     impairment of the enforceability or priority of the Agent's Liens with
     respect to the Collateral as a result of an action or failure to act on the
     part of Borrower.

          "Material Subsidiary" shall mean any Subsidiary of Borrower, excluding
     W.S.C. Water Management Corp,. which owns assets with a value equal to 5%
     or more of the value of the Borrower's assets, or which owns General
     Intangibles or other property necessary or material to the Borrower's
     conduct of its business.

          "Maturity Date" has the meaning set forth in Section 3.4.

          "Maximum Credit Line" means $50,000,000.

          "Maximum Revolver Amount" means $30,000,000.

          "Mortgages" means, individually and collectively, one or more
     mortgages, deeds of trust, or deeds to secure debt, executed and delivered
     by Borrower in favor of Agent, for the benefit of the Lender Group, in form
     and substance satisfactory to Agent, that encumber the Real Property
     Collateral and the related improvements thereto.

                                       19
<PAGE>

          "Negotiable Collateral" means all of Borrower's now owned and
     hereafter acquired right, title, and interest with respect to letters of
     credit, letter of credit rights, instruments, promissory notes (including,
     but not limited to, Borrower's right to payment of principal and interest
     on the Cliffstar Note), drafts, documents, and chattel paper (including
     electronic chattel paper and tangible chattel paper), and any and all
     supporting obligations in respect thereof.

          "Net Liquidation Percentage" means the percentage of the book value of
     Borrower's Inventory that is estimated to be recoverable in an orderly
     liquidation of such Inventory, such percentage to be as determined from
     time to time by a qualified appraisal company selected by Agent.

          "Obligations" means all loans (including the Term Loans), Advances,
     debts, principal, interest (including any interest that, but for the
     provisions of the Bankruptcy Code, would have accrued), contingent
     reimbursement obligations with respect to outstanding Letters of Credit,
     premiums, liabilities (including all amounts charged to Borrower's Loan
     Account pursuant hereto), obligations, fees (including the fees provided
     for in the Fee Letter), charges, costs, Lender Group Expenses (including
     any fees or expenses that, but for the provisions of the Bankruptcy Code,
     would have accrued), lease payments, guaranties, covenants, and duties of
     any kind and description owing by Borrower to the Lender Group pursuant to
     or evidenced by the Loan Documents and irrespective of whether for the
     payment of money, whether direct or indirect, absolute or contingent, due
     or to become due, now existing or hereafter arising, and including all
     interest not paid when due and all Lender Group Expenses that Borrower is
     required to pay or reimburse by the Loan Documents, by law, or otherwise.
     Any reference in this Agreement or in the Loan Documents to the Obligations
     shall include all amendments, changes, extensions, modifications, renewals
     replacements, substitutions, and supplements, thereto and thereof, as
     applicable, both prior and subsequent to any Insolvency Proceeding.

          "Officers' Certificate" means the representations and warranties of
     officers form submitted by Agent to Borrower, together with Borrower's
     completed responses to the inquiries set forth therein, the form and
     substance of such responses to be satisfactory to Agent.

          "Originating Lender" has the meaning set forth in Section 14.1(e).

          "Overadvance" has the meaning set forth in Section 2.5.

          "PACA" shall mean the Perishable Agricultural Commodities Act, 1930,
     as amended, 7 U.S.C. Section 499a et. seq., as the same now exists or may
     from time to time hereafter be amended, modified, recodified or
     supplemented, together with all rules, regulations and interpretations
     thereunder or related thereto.

          "Participant" has the meaning set forth in Section 14.1(e).

          "Permitted Discretion" means a determination made in good faith and in
     the exercise of reasonable (from the perspective of a secured asset-based
     lender) business judgment.

                                       20
<PAGE>

          "Permitted Dispositions" means (a) sales or other dispositions by
     Borrower of Equipment that is no longer used or useful in the conduct of
     Borrower's business, with a fair market value not to exceed $100,000 in
     each year, or substantially worn, damaged, or obsolete in the ordinary
     course of Borrower's business, (b) sales by Borrower of Inventory to buyers
     in the ordinary course of business, (c) the use or transfer of money or
     Cash Equivalents by Borrower in a manner that is not prohibited by the
     terms of this Agreement or the other Loan Documents, (d) the licensing by
     Borrower, on a non-exclusive basis, of patents, trademarks, copyrights, and
     other intellectual property rights in the ordinary course of Borrower's
     business and (e) the sale or other disposition by Borrower of the
     Liquidating Assets.

          "Permitted Investments" means (a) investments in Cash Equivalents, (b)
     investments in negotiable instruments for collection, (c) advances made in
     connection with purchases of goods or services in the ordinary course of
     business, (d) the Cliffstar Note, (e) Stock of Subsidiaries and (f) Stock
     of Beaver Creek Cranberry Growers Assoc., Inc.

          "Permitted Liens" means (a) Liens held by Agent for the benefit of
     Agent and the Lenders, (b) Liens for unpaid taxes that either (i) are not
     yet delinquent, or (ii) do not constitute an Event of Default hereunder and
     are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1,
     (d) the interests of lessors under operating leases, (e) purchase money
     Liens or the interests of lessors under Capital Leases to the extent that
     such Liens or interests secure Permitted Purchase Money Indebtedness and so
     long as such Lien attaches only to the asset purchased or acquired and the
     proceeds thereof, (f) Liens arising by operation of law in favor of
     warehousemen, landlords, carriers, mechanics, materialmen, laborers, wage
     claimants, or suppliers, incurred in the ordinary course of business of
     Borrower and not in connection with the borrowing of money, and which Liens
     either (i) are for sums not yet delinquent, or (ii) are the subject of
     Permitted Protests, (g) Liens arising from deposits made in connection with
     obtaining worker's compensation or other unemployment insurance, (h) Liens
     or deposits to secure performance of bids, tenders, or leases incurred in
     the ordinary course of business of Borrower and not in connection with the
     borrowing of money, (i) Liens granted as security for surety or appeal
     bonds in connection with obtaining such bonds in the ordinary course of
     business of Borrower, (j) Liens resulting from any judgment or award that
     is not an Event of Default hereunder, (k) Liens with respect to the Real
     Property Collateral that are exceptions to the commitments for title
     insurance issued in connection with the Mortgages, as accepted by Agent,
     (l) with respect to any Real Property that is not part of the Real Property
     Collateral, Liens easements, rights of way, and zoning restrictions that do
     not materially interfere with or impair the use or operation thereof by
     Borrower, and (m) Liens or Trust Claims on Borrower's Inventory or other
     assets, in favor of any Farm Product Seller, whether or not such Liens or
     claims are inchoate or are fully perfected (with respect to perfected
     liens, to the extent Agent has established and maintains a Reserve with
     respect thereto) and payable, arising from any federal or state statute,
     including, without limitation, PACA, the Food Security Act, the Oregon
     Agricultural Produce Lien or Agricultural Services Lien statutes, (O.R.S.
     Section 87.700, et seq.), the Wisconsin Agricultural Lien statute (W.S.A.
     Section 409.109, et seq.), or otherwise arising by operation of law.

          "Permitted Protest" means the right of Borrower to protest any Lien
     (other than any such Lien that secures the Obligations), taxes (other than
     payroll taxes or taxes that are the subject of a United States federal tax
     lien), or rental payment, provided that (a)a reserve with respect to such
     obligation is established on the Books in such amount as is required under

                                       21
<PAGE>

     GAAP, (b)any such protest is instituted promptly and prosecuted diligently
     by Borrower in good faith, and (c)Agent is satisfied that, while any such
     protest is pending, there will be no impairment of the enforceability,
     validity, or priority of any of the Agent's Liens.

          "Permitted Purchase Money Indebtedness" means, as of any date of
     determination, Purchase Money Indebtedness incurred after the Closing Date
     in an aggregate principal amount outstanding at any one time not in excess
     of $1,800,000 on or before the first anniversary of the Closing Date,
     $2,000,000 from and after the first anniversary of the Closing Date and
     before the second anniversary of the Closing Date, and from and after the
     second anniversary of the Closing Date, $2,500,000.

          "Person" means natural persons, corporations, limited liability
     companies, limited partnerships, general partnerships, limited liability
     partnerships, joint ventures, trusts, land trusts, business trusts, or
     other organizations, irrespective of whether they are legal entities, and
     governments and agencies and political subdivisions thereof.

          "Personal Property Collateral" means all Collateral other than Real
     Property.

          "Projections" means Borrower's forecasted (a) balance sheets, (b)
     profit and loss statements, and (c) cash flow statements, all prepared on a
     basis consistent with Borrower's historical financial statements, together
     with appropriate supporting details and a statement of underlying
     assumptions.

          "Pro Rata Share" means:

          (a)  with respect to a Lender's obligation to make Advances and
     receive payments of principal, interest, fees, costs, and expenses with
     respect thereto, the percentage obtained by dividing (i) such Lender's
     Revolver Commitment, by (ii) the aggregate Revolver Commitments of all
     Lenders,

          (b)  with respect to a Lender's obligation to participate in Letters
     of Credit, to reimburse the Issuing Lender, and to receive payments of fees
     with respect thereto, the percentage obtained by dividing (i) such Lender's
     Revolver Commitment, by (ii) the aggregate Revolver Commitments of all
     Lenders,

          (c)  with respect to a Lender's obligation to make the Term Loans and
     receive payments of interest, fees, and principal with respect thereto, the
     percentage obtained by dividing (i) such Lender's Term Loan Commitment, by
     (ii) the aggregate amount of all Lenders' Term Loan Commitments, and

          (d)  with respect to all other matters (including the indemnification
     obligations arising under Section 16.7), the percentage obtained by
     dividing (i) such Lender's Total Commitment, by (ii) the aggregate amount
     of Total Commitments of all Lenders; provided, however, that, in each case,
     in the event all Commitments have been terminated, Pro Rata Share shall be
     determined according to the Commitments in effect immediately prior to such
     termination.

          "PSA" shall mean the Packers and Stockyard Act of 1921, 7 U.S.C.
     Section 181

                                       22
<PAGE>

     et. seq., as the same now exists or may from time to time hereafter be
     amended, modified, recodified or supplemented, together with all rules,
     regulations and interpretations thereunder or related thereto.

          "Purchase Money Indebtedness" means Indebtedness (other than the
     Obligations, but including Capitalized Lease Obligations), incurred at the
     time of, or within 20 days after, the acquisition of any fixed assets for
     the purpose of financing all or any part of the acquisition cost thereof.

          "Real Property" means any estates or interests in real property now
     owned or hereafter acquired by Borrower and the improvements thereto.

          "Real Property Collateral" means the parcel or parcels of Real
     Property identified on Schedule R-1 and any Real Property hereafter
     acquired by Borrower.

          "Record" means information that is inscribed on a tangible medium or
     which is stored in an electronic or other medium and is retrievable in
     perceivable form.

          "Remedial Action" means all actions taken to (a) clean up, remove,
     remediate, contain, treat, monitor, assess, evaluate, or in any way address
     a release or threatened release of Hazardous Materials in the indoor or
     outdoor environment, (b) prevent or minimize a release or threatened
     release of Hazardous Materials so they do not migrate or endanger or
     threaten to endanger public health or welfare or the indoor or outdoor
     environment, (c) perform any pre-remedial studies, investigations, or
     post-remedial operation and maintenance activities, or (d) conduct any
     other actions authorized by 42 USC Section 9601.

          "Report" has the meaning set forth in Section 16.17.

          "Required Availability" means Excess Availability and unrestricted
     cash and Cash Equivalents in an aggregate amount of not less than
     $5,000,000.

          "Required Lenders" means, at any time, Lenders whose Pro Rata Shares
     aggregate 66*% of the Total Commitments, or if the Commitments have been
     terminated irrevocably, 66*% of the Obligations then outstanding.

          "Reserves" means, with respect to the Borrowing Base (a) the Inventory
     Reserves, (b) the Supplemental Reserve, and (c) such other reserves against
     Eligible Accounts, Eligible Inventory or Availability that Agent may, in
     its reasonable credit judgment, establish from time to time. Without
     limiting the generality of the foregoing, (i) Reserves established to
     ensure the payment of accrued Indebtedness or other charges Borrower is
     obligated to pay and discharge pursuant to this Agreement, shall be deemed
     to be a reasonable exercise of Agent's credit judgment and (ii) Agent shall
     have the right at all times to establish a reserve, and to increase and
     decrease such reserve from time to time, in respect of any or all amounts
     owed, or which may under any contingency be owed, by Borrower to any Farm
     Products Sellers, any wage claimants or other Person, which amounts are or
     may be secured by any of the Collateral, or if Agent

                                       23
<PAGE>

     believes in good faith such reserve is or may be necessary to protect it
     against statutory or common law Liens or trust fund claims or other Liens
     in favor of any Farm Products Sellers or any agent to any Farm Product
     Sellers or any other Person with a security interest in the assets of such
     supplier or seller or any category of Indebtedness or other obligation or
     liability owed to a third party, the payment of which is or may be secured
     by a statutory or common law Lien or entitled to the benefit of a trust or
     other Lien upon any of the assets and properties of Borrower.

          "Reserve Percentage" means, on any day, for any Lender, the maximum
     percentage prescribed by the Board of Governors of the Federal Reserve
     System (or any successor Governmental Authority) for determining the
     reserve requirements (including any basic, supplemental, marginal, or
     emergency reserves) that are in effect on such date with respect to
     eurocurrency funding (currently referred to as "eurocurrency liabilities")
     of that Lender, but so long as such Lender is not required or directed
     under applicable regulations to maintain such reserves, the Reserve
     Percentage shall be zero.

          "Revolver Commitment" means, with respect to each Lender, its Revolver
     Commitment, and, with respect to all Lenders, their Revolver Commitments,
     in each case as such Dollar amounts are set forth beside such Lender's name
     under the applicable heading on Schedule C-1 or on the signature page of
     the Assignment and Acceptance pursuant to which such Lender became a Lender
     hereunder in accordance with the provisions of Section 14.1.

          "Revolver Usage" means, as of any date of determination, the sum of
     (a) the then extant amount of outstanding Advances, plus (b) the then
     extant amount of the Letter of Credit Usage.

          "Risk Participation Liability" means, as to each Letter of Credit, all
     reimbursement obligations of Borrower to the Issuing Lender with respect to
     an L/C Undertaking, consisting of (a) the amount available to be drawn or
     which may become available to be drawn, (b) all amounts that have been paid
     by the Issuing Lender to the Underlying Issuer to the extent not reimbursed
     by Borrower, whether by the making of an Advance or otherwise, and (c) all
     accrued and unpaid interest, fees, and expenses payable with respect
     thereto.

          "SEC" means the United States Securities and Exchange Commission and
     any successor thereto.

          "Securities Account" means a "securities account" as that term is
     defined in the Code.

          "Settlement" has the meaning set forth in Section 2.3(e)(i).

          "Settlement Date" has the meaning set forth in Section 2.3(e)(i).

          "Solvent" means, with respect to any Person on a particular date, that
     such Person is not insolvent (as such term is defined in the Uniform
     Fraudulent Transfer Act).

          "Stock" means all shares, options, warrants, interests,
     participations, or other equivalents (regardless of how designated) of or
     in a Person, whether voting or nonvoting, including common stock, preferred
     stock, or any other "equity security" (as such term is defined

                                       24
<PAGE>

     in Rule3a11-1 of the General Rules and Regulations promulgated by the SEC
     under the Exchange Act).

          "Stock Pledge Agreement" means a stock pledge agreement, in form and
     substance satisfactory to Agent, executed and delivered by Borrower to
     Agent with respect to the pledge of the Stock owned by Borrower.

          "Subsidiary" of a Person means a corporation, partnership, limited
     liability company, or other entity in which that Person directly or
     indirectly owns or controls the shares of Stock having ordinary voting
     power to elect a majority of the board of directors (or appoint other
     comparable managers) of such corporation, partnership, limited liability
     company, or other entity.

          "Subsidiary Documents" means the Guarantee, Trademark Security
     Agreement and General Security Agreement by each Guarantor with or in favor
     of Agent and any other agreement entered into, now or in the future, by any
     Guarantor and the Lender Group in connection with this Agreement.

          "Sun Capital" shall mean Sun Capital Partners Management, LLC.

          "Sun Capital Management Agreement" shall mean the Management Services
     Agreement dated as of the Closing Date between Sun Capital and Borrower, as
     in effect on the Closing Date.

          "Supplemental Reserve" means the reserves established at the Closing
     Date in the amount of $4,000,000, which Supplemental Reserve shall decrease
     by $135,000 per month on the first day of each of the first eleven (11)
     months following the Closing Date. On the first anniversary of the Closing
     Date and at all times thereafter, the Supplemental Reserve shall be set at
     $2,500,000 and shall not be reduced.

          "Swing Lender" means Foothill or any other Lender that, at the request
     of Borrower and with the consent of Agent agrees, in such Lender's sole
     discretion, to become the Swing Lender hereunder.

          "Swing Loan" has the meaning set forth in Section 2.3(d)(i).

          "Taxes" has the meaning set forth in Section 16.11.

          "Term Loans" has the meaning set forth in Section 2.2.

          "Term Loan A Amount" means $10,000,000.

          "Term Loan B Amount" means $10,000,000.

          "Term Loan Commitment" means, with respect to each Lender, its Term
     Loan Commitment, and, with respect to all Lenders, their Term Loan
     Commitments, in each case as such Dollar amounts are set forth beside such
     Lender's name under the applicable heading on Schedule C-1 or on the
     signature page of the Assignment and Acceptance pursuant to which such
     Lender became a Lender hereunder in accordance with the provisions of
     Section 14.1.

                                       25
<PAGE>

          "Terminating Bank Group" shall mean Bank of America, National Trust &
     Savings Association, M&I Marshall & Isley Bank, Bank Boston N.A., LaSalle
     National Bank National Association and Wells Fargo Bank Minnesota, N.A.

          " Terminating Bank Group Documents" shall mean in form and substance
     satisfactory to Agent, from the Terminating Bank Group respecting, among
     other things, the amount necessary to repay in full all of the obligations
     of Borrower owing to the Terminating Bank Group and obtain a release of all
     of the Liens existing in favor of the Terminating Bank Group in and to the
     assets of Borrower.

          "Total Commitment" means, with respect to each Lender, its Total
     Commitment, and, with respect to all Lenders, their Total Commitments, in
     each case as such Dollar amounts are set forth beside such Lender's name
     under the applicable heading on Schedule C-1 attached hereto or on the
     signature page of the Assignment and Acceptance pursuant to which such
     Lender became a Lender hereunder in accordance with the provisions of
     Section 14.1.

          "Trademark Security Agreement" means a Trademark Security Agreement
     executed and delivered by Borrower and Agent, the form and substance of
     which is satisfactory to Agent.

          "Underlying Issuer" means a third Person which is the beneficiary of
     an L/C Undertaking and which has issued a letter of credit at the request
     of the Issuing Lender for the benefit of Borrower.

          "Underlying Letter of Credit" means a letter of credit that has been
     issued by an Underlying Issuer.

          "Voidable Transfer" has the meaning set forth in Section 17.7.

          "Warrant" shall mean the warrants issued by Borrower and delivered to
     each Lender entitling each Lender to purchase for a nominal price its pro
     rata share of up to 5% of the fully diluted common stock of Borrower, upon
     terms and conditions satisfactory to such Lender in its sole discretion.

          "Wells Fargo" means Wells Fargo Bank, National Association, a national
     banking association.

     1.2  Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower and its Subsidiaries on a
consolidated basis unless the context clearly requires otherwise.

     1.3  Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.

                                       26
<PAGE>

     1.4  Construction. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including" is
not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement or any
other Loan Document refer to this Agreement or such other Loan Document, as the
case may be, as a whole and not to any particular provision of this Agreement or
such other Loan Document, as the case may be. Section, subsection, clause,
schedule, and exhibit references herein are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the other Loan Documents to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein). Any reference herein to any Person shall be construed to
include such Person's successors and assigns. Any requirement of a writing
contained herein or in the other Loan Documents shall be satisfied by the
transmission of a Record and any Record transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein.

     1.5  Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.

2.   LOAN AND TERMS OF PAYMENT.

     2.1  Revolver Advances.

          (a)  Subject to the terms and conditions of this Agreement, and during
     the term of this Agreement, each Lender with a Revolver Commitment agrees
     (severally, not jointly or jointly and severally) to make advances
     ("Advances") to Borrower in an amount at any one time outstanding not to
     exceed such Lender's Pro Rata Share of an amount equal to the lesser of:

               (i)   the Maximum Revolver Amount less the Letter of Credit Usage
          or

               (ii)  the Borrowing Base less the Letter of Credit Usage, less
          the aggregate amount of the Reserves. For purposes of this Agreement,
          "Borrowing Base," as of any date of determination, shall mean the
          result of:

                     (A)   the lesser of:

                           (1)  85% of the Dollar amount of Eligible Accounts,
                     less the amount, if any, of the Dilution Reserve, and

                           (2)  a Dollar amount equal to Borrower's Collections
                     with respect to Accounts for the immediately preceding 60
                     day period, plus

                     (B)   the lesser of:

                           (1)  $25,000,000 during the first year after the
                     Closing Date and

                                       27
<PAGE>

                     $20,000,000 thereafter; and

                           (2)  the sum of (a) the lesser of (x) the Frozen
                     Cranberry Sublimit, (y) sixty-five percent (65%) of the
                     Frozen Cranberry Value, and (z) eighty percent (80%) of the
                     net recovery liquidation value of Eligible Inventory
                     consisting of frozen cranberries as determined from time to
                     time after closing by appraisers acceptable to Agent, plus
                     (b) the lesser of (x) $10,000,000, (y) sixty-five percent
                     (65%) of the Cranberry Concentrate Value, and (z) eighty
                     percent (80%) of the net recovery liquidation value of
                     Eligible Inventory consisting of cranberry concentrate as
                     determined from time to time after closing by appraisers
                     acceptable to Agent, plus

                           (3)  the lesser of (x)sixty-five percent (65%) of the
                     cost of Eligible Inventory consisting of other finished
                     goods and other raw materials, and (y)eighty percent (80%)
                     of the net recovery liquidation value of eligible inventory
                     consisting of such other finished goods and other raw
                     materials as determined by appraisers acceptable to Agent,
                     less

                     (C)   the aggregate amount of the Reserves, if any,
               including those established by Agent under Section 2.1(b).

          (b)  Anything to the contrary in this Section 2.1 notwithstanding, in
     addition to the Reserves, Agent shall have the right to establish reserves
     in such amounts, and with respect to such matters, as Agent in its
     Permitted Discretion shall deem necessary or appropriate, against the
     Borrowing Base, including reserves with respect to (i) sums that Borrower
     is required to pay (such as taxes, assessments, insurance premiums, or, in
     the case of leased assets, rents or other amounts payable under such
     leases) and has failed to pay under any Section of this Agreement or any
     other Loan Document, and (ii) amounts owing by Borrower to any Person to
     the extent secured by a Lien on, or trust over, any of the Collateral
     (other than any existing Permitted Lien set forth on Schedule P-1 which is
     specifically identified thereon as entitled to have priority over the
     Agent's Liens), which Lien or trust, in the Permitted Discretion of Agent
     likely would have a priority superior to the Agent's Liens (such as Liens
     or trusts in favor of landlords, warehousemen, carriers, mechanics,
     materialmen, laborers, or suppliers, or Liens or trusts for ad valorem,
     excise, sales, or other taxes where given priority under applicable law) in
     and to such item of the Collateral. In addition to the foregoing, Agent
     shall have the right to have the Inventory reappraised by a qualified
     appraisal company selected by Agent from time to time after the Closing
     Date for the purpose of redetermining the Net Liquidation Percentage of the
     Eligible Inventory portion of the Collateral and, as a result,
     redetermining the Borrowing Base.

          (c)  The Lenders with Revolver Commitments shall have no obligation to
     make additional Advances hereunder to the extent such additional Advances
     would cause the Revolver Usage to exceed the Maximum Revolver Amount.

          (d)  Amounts borrowed pursuant to this Section may be repaid and,
     subject to the terms and conditions of this Agreement, reborrowed at any
     time during the term of this Agreement.

     2.2  Term Loans. Subject to the terms and conditions of this Agreement, on
the

                                       28
<PAGE>

Closing Date each Lender with a Term Loan Commitment agrees (severally, not
jointly or jointly and severally) to make term loans, in the form of Term Loan A
and Term Loan B (collectively, the "Term Loans"), to Borrower in an amount equal
to such Lender's Pro Rata Share of each of the Term Loan A Amount and the Term
Loan B Amount. The Term Loans shall be repaid on the following dates and in the
following amounts:

                                   TERM LOAN A

               Date                                Each Installment Amount

December 1, 2001 and the first day of                      $166,667
each month thereafter

                                   TERM LOAN B

               Date                                Each Installment Amount

November 30th of each year                                 $625,000

the last day of February of each year                      $625,000

May 31st of each year                                      $625,000

August 31st of each year                                   $625,000

The outstanding unpaid principal balance and all accrued and unpaid interest
under the Term Loans shall be due and payable on the date of termination of this
Agreement, whether by its terms, by prepayment, or by acceleration. All amounts
outstanding under the Term Loans shall constitute Obligations. In addition to
the regularly scheduled payments of principal due on Term Loan B, Borrower shall
make mandatory prepayments of Term Loan B in an amount equal to the aggregate of
all principal payments in excess of $625,000 per calendar quarter received by
Borrower in each calendar quarter on account of the Cliffstar Note and all
payments received by Borrower in each calendar quarter on account of the earnout
payments payable under the Asset Purchase Agreement by and between Borrower and
Cliffstar Corporation dated January 5, 2000. Each such prepayment shall be
applied against the unpaid installment of Term Loan B in the inverse order of
maturity thereof.

     2.3  Borrowing Procedures and Settlements.

          (a)  Procedure for Borrowing. Each Borrowing shall be made by an
     irrevocable written request by an Authorized Person delivered to Agent
     (which notice must be

                                       29
<PAGE>

     received by Agent no later than 10:00 a.m. (California time) on the
     Business Day prior to the date that is the requested Funding Date in the
     case of a request for an Advance or the Term Loan specifying (i) the amount
     of such Borrowing, and the requested Funding Date, which shall be a
     Business Day; provided, however, that in the case of a request for a Swing
     Loan in an amount of $3,000,000, or less, such notice will be timely
     received if it is received by Agent no later than 10:00 a.m. (California
     time) on the Business Day that is the requested Funding Date) specifying
     (i) the amount of such Borrowing, and (ii) the requested Funding Date,
     which shall be a Business Day. At Agent's election, in lieu of delivering
     the above-described written request, any Authorized Person may give Agent
     telephonic notice of such request by the required time, with such
     telephonic notice to be confirmed in writing within 24 hours of the giving
     of such notice.

          (b)  Agent's Election. Promptly after receipt of a request for a
     Borrowing pursuant to Section 2.3(a), Agent shall elect, in its discretion,
     (i) to have the terms of Section 2.3(c) apply to such requested Borrowing,
     or (ii) if the Borrowing is for an Advance, to request Swing Lender to make
     a Swing Loan pursuant to the terms of Section 2.3(d) in the amount of the
     requested Borrowing; provided, however, that if Swing Lender declines in
     its sole discretion to make a Swing Loan pursuant to Section 2.3(d), Agent
     shall elect to have the terms of Section 2.3(c) apply to such requested
     Borrowing.

          (c)  Making of Advances.

               (i)   In the event that Agent shall elect to have the terms of
          this Section 2.3(c) apply to a requested Borrowing as described in
          Section 2.3(b), then promptly after receipt of a request for a
          Borrowing pursuant to Section 2.3(a), Agent shall notify the Lenders,
          not later than 1:00 p.m. (California time) on the Business Day
          immediately preceding the Funding Date applicable thereto, by
          telecopy, telephone, or other similar form of transmission, of the
          requested Borrowing. Each Lender shall make the amount of such
          Lender's Pro Rata Share of the requested Borrowing available to Agent
          in immediately available funds, to Agent's Account, not later than
          10:00 a.m. (California time) on the Funding Date applicable thereto.
          After Agent's receipt of the proceeds of such Advances (or the Term
          Loan, as applicable), upon satisfaction of the applicable conditions
          precedent set forth in Section 3 hereof, Agent shall make the proceeds
          thereof available to Borrower on the applicable Funding Date by
          transferring immediately available funds equal to such proceeds
          received by Agent to Borrower's Designated Account; provided, however,
          that, subject to the provisions of Section 2.3(i), Agent shall not
          request any Lender to make, and no Lender shall have the obligation to
          make, any Advance (or its portion of the Term Loans) if Agent shall
          have actual knowledge that (1) one or more of the applicable
          conditions precedent set forth in Section 3 will not be satisfied on
          the requested Funding Date for the applicable Borrowing unless such
          condition has been waived, or (2) the requested Borrowing would exceed
          the Availability on such Funding Date.

               (ii)  Unless Agent receives notice from a Lender on or prior to
          the Closing Date or, with respect to any Borrowing after the Closing
          Date, at least one (1) Business Day prior to the date of such
          Borrowing, that such Lender will not make available as and when
          required hereunder to Agent for the account of Borrower the amount of
          that Lender's Pro Rata Share of the Borrowing, Agent may assume that
          each Lender has made

                                       30
<PAGE>

          or will make such amount available to Agent in immediately available
          funds on the Funding Date and Agent may (but shall not be so
          required), in reliance upon such assumption, make available to
          Borrower on such date a corresponding amount. If and to the extent any
          Lender shall not have made its full amount available to Agent in
          immediately available funds and Agent in such circumstances has made
          available to Borrower such amount, that Lender shall on the Business
          Day following such Funding Date make such amount available to Agent,
          together with interest at the Defaulting Lender Rate for each day
          during such period. A notice submitted by Agent to any Lender with
          respect to amounts owing under this subsection shall be conclusive,
          absent manifest error. If such amount is so made available, such
          payment to Agent shall constitute such Lender's Advance on the date of
          Borrowing for all purposes of this Agreement. If such amount is not
          made available to Agent on the Business Day following the Funding
          Date, Agent will notify Borrower of such failure to fund and, upon
          demand by Agent, Borrower shall pay such amount to Agent for Agent's
          account, together with interest thereon for each day elapsed since the
          date of such Borrowing, at a rate per annum equal to the interest rate
          applicable at the time to the Advances composing such Borrowing. The
          failure of any Lender to make any Advance on any Funding Date shall
          not relieve any other Lender of any obligation hereunder to make an
          Advance on such Funding Date, but no Lender shall be responsible for
          the failure of any other Lender to make the Advance to be made by such
          other Lender on any Funding Date.

               (iii) Agent shall not be obligated to transfer to a Defaulting
          Lender any payments made by Borrower to Agent for the Defaulting
          Lender's benefit, and, in the absence of such transfer to the
          Defaulting Lender, Agent shall transfer any such payments to each
          other non-Defaulting Lender member of the Lender Group ratably in
          accordance with their Commitments (but only to the extent that such
          Defaulting Lender's Advance was funded by the other members of the
          Lender Group) or, if so directed by Borrower and if no Default or
          Event of Default had occurred and is continuing (and to the extent
          such Defaulting Lender's Advance was not funded by the Lender Group),
          retain same to be re-advanced to Borrower as if such Defaulting Lender
          had made Advances to Borrower. Subject to the foregoing, Agent may
          hold and, in its Permitted Discretion, re-lend to Borrower for the
          account of such Defaulting Lender the amount of all such payments
          received and retained by it for the account of such Defaulting Lender.
          Solely for the purposes of voting or consenting to matters with
          respect to the Loan Documents, such Defaulting Lender shall be deemed
          not to be a "Lender" and such Lender's Commitment shall be deemed to
          be zero. This Section shall remain effective with respect to such
          Lender until (x) the Obligations under this Agreement shall have been
          declared or shall have become immediately due and payable, (y) the
          non-Defaulting Lenders, Agent, and Borrower shall have waived such
          Defaulting Lender's default in writing, or (z) the Defaulting Lender
          makes its Pro Rata Share of the applicable Advance and pays to Agent
          all amounts owing by Defaulting Lender in respect thereof. The
          operation of this Section shall not be construed to increase or
          otherwise affect the Commitment of any Lender, to relieve or excuse
          the performance by such Defaulting Lender or any other Lender of its
          duties and obligations hereunder, or to relieve or excuse the
          performance by Borrower of its duties and obligations hereunder to
          Agent or to the Lenders other than such Defaulting Lender. Any such
          failure to fund by any Defaulting Lender shall constitute a material
          breach by such Defaulting Lender of this Agreement and shall entitle
          Borrower at its

                                       31
<PAGE>

          option, upon written notice to Agent, to arrange for a substitute
          Lender to assume the Commitment of such Defaulting Lender, such
          substitute Lender to be acceptable to Agent. In connection with the
          arrangement of such a substitute Lender, the Defaulting Lender shall
          have no right to refuse to be replaced hereunder, and agrees to
          execute and deliver a completed form of Assignment and Acceptance
          Agreement in favor of the substitute Lender (and agrees that it shall
          be deemed to have executed and delivered such document if it fails to
          do so) subject only to being repaid its share of the outstanding
          Obligations (including an assumption of its Pro Rata Share of the Risk
          Participation Liability) without any premium or penalty of any kind
          whatsoever; provided further, however, that any such assumption of the
          Commitment of such Defaulting Lender shall not be deemed to constitute
          a waiver of any of the Lender Groups' or Borrower's rights or remedies
          against any such Defaulting Lender arising out of or in relation to
          such failure to fund.

          (d)  Making of Swing Loans.

               (i)   In the event Agent shall elect, with the consent of Swing
          Lender, as a Lender, to have the terms of this Section 2.3(d) apply to
          a requested Borrowing as described in Section 2.3(b), Swing Lender as
          a Lender shall make such Advance in the amount of such Borrowing (any
          such Advance made solely by Swing Lender as a Lender pursuant to this
          Section 2.3(d) being referred to as a "Swing Loan" and such Advances
          being referred to collectively as "Swing Loans") available to Borrower
          on the Funding Date applicable thereto by transferring immediately
          available funds to Borrower's Designated Account. Each Swing Loan is
          an Advance hereunder and shall be subject to all the terms and
          conditions applicable to other Advances, and all payments on any Swing
          Loan shall be payable to Swing Lender as a Lender solely for its own
          account (and for the account of the holder of any participation
          interest with respect to such Swing Loan). Subject to the provisions
          of Section 2.3(i), Agent shall not request Swing Lender as a Lender to
          make, and Swing Lender as a Lender shall not make, any Swing Loan if
          Agent has actual knowledge that (i) one or more of the applicable
          conditions precedent set forth in Section 3 will not be satisfied on
          the requested Funding Date for the applicable Borrowing unless such
          condition has been waived, or (ii) the requested Borrowing would
          exceed the Availability on such Funding Date. Swing Lender as a Lender
          shall not otherwise be required to determine whether the applicable
          conditions precedent set forth in Section 3 have been satisfied on the
          Funding Date applicable thereto prior to making, in its sole
          discretion, any Swing Loan.

               (ii)  The Swing Loans shall be secured by the Agent's Liens,
          shall constitute Advances and Obligations hereunder, and shall bear
          interest at the rate applicable from time to time to Advances that are
          Base Rate Loans.

          (e)  Agent Advances.

               (i)   Agent hereby is authorized by Borrower and the Lenders,
          from time to time in Agent's sole discretion, (1) after the occurrence
          and during the continuance of a

                                       32
<PAGE>

          Default or an Event of Default, or (2) at any time that any of the
          other applicable conditions precedent set forth in Section 3 have not
          been satisfied, to make Advances to Borrower on behalf of the Lenders
          that Agent, in its Permitted Discretion deems necessary or desirable
          (A) to preserve or protect the Collateral, or any portion thereof, (B)
          to enhance the likelihood of repayment of the Obligations, or (C) to
          pay any other amount chargeable to Borrower pursuant to the terms of
          this Agreement, including Lender Group Expenses and the costs, fees,
          and expenses described in Section 10 (any of the Advances described in
          this Section 2.3(e) shall be referred to as "Agent Advances");
          provided, that notwithstanding anything to the contrary contained in
          this Section 2.3(e), the aggregate principal amount of Agent Advances
          outstanding at any one time, when taken together with the aggregate
          principal amount of Overadvances made in accordance with Section
          2.3(i) outstanding at any time, shall not exceed an amount equal to
          the lesser of (x) 10% of the Borrowing Base then in effect and (y)
          $3,000,000. Each Agent Advance is an Advance hereunder and shall be
          subject to all the terms and conditions applicable to other Advances,
          except that all payments thereon shall be payable to Agent solely for
          its own account (and for the account of the holder of any
          participation interest with respect to such Agent Advance).

               (ii)  The Agent Advances shall be repayable on demand and secured
          by the Agent's Liens granted to Agent under the Loan Documents, shall
          constitute Advances and Obligations hereunder, and shall bear interest
          at the rate applicable from time to time to Advances.

          (f)  Settlement. It is agreed that each Lender's funded portion of the
     Advances is intended by the Lenders to equal, at all times, such Lender's
     Pro Rata Share of the outstanding Advances. Such agreement notwithstanding,
     Agent, Swing Lender and the other Lenders agree (which agreement shall not
     be for the benefit of or enforceable by Borrower) that in order to
     facilitate the administration of this Agreement and the other Loan
     Documents, settlement among them as to the Advances and the Agent Advances
     shall take place on a periodic basis in accordance with the following
     provisions:

               (i)   Agent shall request settlement ("Settlement") with the
          Lenders on a weekly basis, or on a more frequent basis if so
          determined by Agent, (1) on behalf of Swing Lender, with respect to
          each outstanding Swing Loan, (2) for itself, with respect to each
          Agent Advance, and (3) with respect to Collections received, as to
          each by notifying the Lenders by telecopy, telephone, or other similar
          form of transmission, of such requested Settlement, no later than 2:00
          p.m. (California time) on the Business Day immediately prior to the
          date of such requested Settlement (the date of such requested
          Settlement being the "Settlement Date"). Such notice of a Settlement
          Date shall include a summary statement of the amount of outstanding
          Advances, Swing Loans, and Agent Advances for the period since the
          prior Settlement Date. Subject to the terms and conditions contained
          herein (including Section 2.3(c)(iii)): (y) if a Lender's balance of
          the Advances, Swing Loans, and Agent Advances exceeds such Lender's
          Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of
          a Settlement Date, then Agent shall, by no later than 12:00 p.m.
          (California time) on the Settlement Date, transfer in immediately
          available funds to the account of such Lender as such Lender may
          designate, an amount such that each such Lender shall, upon receipt of
          such amount, have as of the Settlement Date, its Pro Rata Share of the
          Advances, Swing Loans, and Agent Advances, and (z) if a Lender's
          balance of the Advances, Swing Loans, and Agent Advances is less than
          such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent
          Advances as of a Settlement Date, such Lender shall no later than
          12:00 p.m. (California time) on the Settlement Date transfer in
          immediately available funds to the Agent's Account, an amount such
          that each such Lender shall, upon transfer of such amount, have as of
          the

                                       33
<PAGE>

          Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and
          Agent Advances. Such amounts made available to Agent under clause (z)
          of the immediately preceding sentence shall be applied against the
          amounts of the applicable Swing Loan or Agent Advance and, together
          with the portion of such Swing Loan or Agent Advance representing
          Swing Lender's Pro Rata Share thereof, shall constitute Advances of
          such Lenders. If any such amount is not made available to Agent by any
          Lender on the Settlement Date applicable thereto to the extent
          required by the terms hereof, Agent shall be entitled to recover for
          its account such amount on demand from such Lender together with
          interest thereon at the Defaulting Lender Rate.

               (ii)  In determining whether a Lender's balance of the Advances,
          Swing Loans, and Agent Advances is less than, equal to, or greater
          than such Lender's Pro Rata Share of the Advances, Swing Loans, and
          Agent Advances as of a Settlement Date, Agent shall, as part of the
          relevant Settlement, apply to such balance the portion of payments
          actually received in good funds by Agent with respect to principal,
          interest, fees payable by Borrower and allocable to the Lenders
          hereunder, and proceeds of Collateral. To the extent that a net amount
          is owed to any such Lender after such application, such net amount
          shall be distributed by Agent to that Lender as part of such next
          Settlement.

               (iii) Between Settlement Dates, Agent, to the extent no Agent
          Advances or Swing Loans are outstanding, may pay over to Swing Lender
          any payments received by Agent, that in accordance with the terms of
          this Agreement would be applied to the reduction of the Advances, for
          application to Swing Lender's Pro Rata Share of the Advances. If, as
          of any Settlement Date, Collections received since the then
          immediately preceding Settlement Date have been applied to Swing
          Lender's Pro Rata Share of the Advances other than to Swing Loans, as
          provided for in the previous sentence, Swing Lender shall pay to Agent
          for the accounts of the Lenders, and Agent shall pay to the Lenders,
          to be applied to the outstanding Advances of such Lenders, an amount
          such that each Lender shall, upon receipt of such amount, have, as of
          such Settlement Date, its Pro Rata Share of the Advances. During the
          period between Settlement Dates, Swing Lender with respect to Swing
          Loans, Agent with respect to Agent Advances, and each Lender (subject
          to the effect of letter agreements between Agent and individual
          Lenders) with respect to the Advances other than Swing Loans and Agent
          Advances, shall be entitled to interest at the applicable rate or
          rates payable under this Agreement on the daily amount of funds
          employed by Swing Lender, Agent, or the Lenders, as applicable.

          (g)  Notation. Agent shall record on its books the principal amount of
     the Advances owing to each Lender, including the Swing Loans owing to Swing
     Lender and Agent Advances owing to Agent, and the interests therein of each
     Lender, from time to time. In addition, each Lender is authorized, at such
     Lender's option, to note the date and amount of each payment or prepayment
     of principal of such Lender's Advances in its books and records, including
     computer

                                       34
<PAGE>

     records, such books and records constituting conclusive evidence, absent
     manifest error, of the accuracy of the information contained therein.

          (h)  Lenders' Failure to Perform. All Advances (other than Swing Loans
     and Agent Advances) shall be made by the Lenders contemporaneously and in
     accordance with their Pro Rata Shares. It is understood that (i) no Lender
     shall be responsible for any failure by any other Lender to perform its
     obligation to make any Advance (or other extension of credit) hereunder,
     nor shall any Commitment of any Lender be increased or decreased as a
     result of any failure by any other Lender to perform its obligations
     hereunder, and (ii) no failure by any Lender to perform its obligations
     hereunder shall excuse any other Lender from its obligations hereunder.

          (i)  Optional Overadvances. Any contrary provision of this Agreement
     notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as
     applicable, and Agent or Swing Lender, as applicable, may, but is not
     obligated to, knowingly and intentionally, continue to make Advances
     (including Swing Loans) to Borrower notwithstanding that an Overadvance
     exists or thereby would be created, so long as (i) after giving effect to
     such Advances (including a Swing Loan), the outstanding Adjusted Revolver
     Usage does not exceed the Borrowing Base by more than an amount equal to
     the lesser of 10% of the Borrowing Base then in effect and $3,000,000, (ii)
     after giving effect to such Advances (including a Swing Loan), the
     outstanding Revolver Usage (except for and excluding amounts charged to the
     Loan Account for interest, fees, or Lender Group Expenses) does not exceed
     the Maximum Revolver Amount, (iii) the aggregate principal amount of
     Overadvances made pursuant to this Section 2.3(i) when taken together with
     the aggregate principal amount of Agent Advances made pursuant to Section
     2.3(e) does not exceed at any time an amount equal to the lesser of (1) 10%
     of the Borrowing Base then in effect and (2) $3,000,000, and (iv) at the
     time of the making of any such Advance (including a Swing Loan), Agent does
     not believe, in good faith, that the Overadvance created by such Advance
     will be outstanding for more than 90 days. The foregoing provisions are for
     the exclusive benefit of Agent, Swing Lender and the Lenders and are not
     intended to benefit Borrower in any way. The Advances and Swing Loans that
     are made pursuant to this Section 2.3(i) shall be subject to the same terms
     and conditions as any other Advance or Swing Loan, except that the rate of
     interest applicable thereto shall be the rate applicable to Advances under
     Section 2.6(c) hereof without regard to the presence or absence of a
     Default or Event of Default.

               (i)   In the event Agent obtains actual knowledge that the
          Revolver Usage exceeds the amounts permitted by the preceding
          paragraph, regardless of the amount of, or reason for, such excess,
          Agent shall notify Lenders as soon as practicable (and prior to making
          any (or any additional) intentional Overadvances (except for and
          excluding amounts charged to the Loan Account for interest, fees, or
          Lender Group Expenses) unless Agent determines that prior notice would
          result in imminent harm to the Collateral or its value), and the
          Lenders with Revolver Commitments thereupon shall, together with
          Agent, jointly determine the terms of arrangements that shall be
          implemented with Borrower intended to reduce, within a reasonable
          time, the outstanding principal amount of the Advances to Borrower to
          an amount permitted by the preceding paragraph. In the event Agent or
          any Lender disagrees over the terms of reduction or repayment of any
          Overadvance, the terms of reduction or repayment thereof shall be
          implemented according to the determination of the Required Lenders.

                                       35
<PAGE>

               (ii)  Each Lender with a Revolver Commitment shall be obligated
          to settle with Agent as provided in Section 2.3(e) for the amount of
          such Lender's Pro Rata Share of any unintentional Overadvances by
          Agent reported to such Lender, any intentional Overadvances made as
          permitted under this Section 2.3(h), and any Overadvances resulting
          from the charging to the Loan Account of interest, fees, or Lender
          Group Expenses.

     2.4  Payments.

          (a)  Payments by Borrower.

               (i)   Except as otherwise expressly provided herein, all payments
          by Borrower shall be made to Agent's Account for the account of the
          Lender Group and shall be made in immediately available funds, no
          later than 11:00 a.m. (California time) on the date specified herein.
          Any payment received by Agent later than 11:00 a.m. (California time)
          shall be deemed to have been received on the following Business Day
          and any applicable interest or fee shall continue to accrue until such
          following Business Day.

               (ii)  Unless Agent receives notice from Borrower prior to the
          date on which any payment is due to the Lenders that Borrower will not
          make such payment in full as and when required, Agent may assume that
          Borrower has made (or will make) such payment in full to Agent on such
          date in immediately available funds and Agent may (but shall not be so
          required), in reliance upon such assumption, distribute to each Lender
          on such due date an amount equal to the amount then due such Lender.
          If and to the extent Borrower does not make such payment in full to
          Agent on the date when due, each Lender severally shall repay to Agent
          on demand such amount distributed to such Lender, together with
          interest thereon at the Defaulting Lender Rate for each day from the
          date such amount is distributed to such Lender until the date repaid.

          (b)  Apportionment and Application of Payments.

               (i)   Except as otherwise provided with respect to Defaulting
          Lenders and except as otherwise provided in the Loan Documents
          (including letter agreements between Agent and individual Lenders),
          aggregate principal and interest payments shall be apportioned ratably
          among the Lenders (according to the unpaid principal balance of the
          Obligations to which such payments relate held by each Lender) and
          payments of fees and expenses (other than fees or expenses that are
          for Agent's separate account, after giving effect to any letter
          agreements between Agent and individual Lenders) shall be apportioned
          ratably among the Lenders having a Pro Rata Share of the type of
          Commitment or Obligation to which a particular fee relates. All
          payments shall be remitted to Agent and all such payments (other than
          payments received while no Default or Event of Default has occurred
          and is continuing and which relate to the payment of principal or
          interest of specific Obligations or which relate to the payment of
          specific fees), and all proceeds of Accounts or other Collateral
          received by Agent, shall be applied as follows:

                     (A)   first, to pay any Lender Group Expenses then due to
               Agent under

                                       36
<PAGE>

               the Loan Documents, until paid in full,

                     (B)   second, to pay any Lender Group Expenses then due to
               the Lenders under the Loan Documents, on a ratable basis, until
               paid in full,

                     (C)   third, to pay any fees then due to Agent (for its
               separate accounts, after giving effect to any letter agreements
               between Agent and individual Lenders) under the Loan Documents
               until paid in full,

                     (D)   fourth, to pay any fees then due to any or all of the
               Lenders (after giving effect to any letter agreements between
               Agent and individual Lenders) under the Loan Documents, on a
               ratable basis, until paid in full,

                     (E)   fifth, to pay interest due in respect of all Agent
               Advances, until paid in full,

                     (F)   sixth, ratably to pay interest due in respect of the
               Advances (other than Agent Advances) and the Term Loans until
               paid in full,

                     (G)   seventh, to pay the principal of all Agent Advances
               until paid in full,

                     (H)   eighth, ratably to pay all principal amounts then due
               and payable (other than as a result of an acceleration thereof)
               with respect to the Term Loans until paid in full,

                     (I)   ninth, to pay the principal of all Swing Loans until
               paid in full,

                     (J)   tenth, to pay the principal of all Advances until
               paid in full,

                     (K)   eleventh, if an Event of Default has occurred and is
               continuing, to pay the outstanding principal balance of the Term
               Loans (in the inverse order of the maturity of the installments
               due thereunder) until the Term Loans are paid in full,

                     (L)   twelfth, if an Event of Default has occurred and is
               continuing, to Agent, to be held by Agent, for the ratable
               benefit of Issuing Lender and those Lenders having a Revolver
               Commitment, as cash collateral in an amount up to 105% of the
               then extant Letter of Credit Usage until paid in full,

                     (M)   thirteenth, to pay any other Obligations until paid
               in full, and

                     (N)   fourteenth, to Borrower (to be wired to the
               Designated Account) or such other Person entitled thereto under
               applicable law.

               (ii)  Agent promptly shall distribute to each Lender, pursuant to
          the applicable wire instructions received from each Lender in writing,
          such funds as it may be entitled to receive, subject to a Settlement
          delay as provided in Section 2.3(e).

                                       37
<PAGE>

               (iii) In each instance, so long as no Default or Event of
          Default has occurred and is continuing, Section 2.4(b) shall not be
          deemed to apply to any payment by Borrower specified by Borrower to be
          for the payment of specific Obligations then due and payable (or
          prepayable) under any provision of this Agreement.

               (iv)  For purposes of the foregoing, "paid in full" means payment
          of all amounts owing under the Loan Documents according to the terms
          thereof, including loan fees, service fees, professional fees,
          interest (and specifically including interest accrued after the
          commencement of any Insolvency Proceeding), default interest, interest
          on interest, and expense reimbursements, whether or not the same would
          be or is allowed or disallowed in whole or in part in any Insolvency
          Proceeding.

               (v)   In the event of a direct conflict between the priority
          provisions of this Section 2.4 and other provisions contained in any
          other Loan Document, it is the intention of the parties hereto that
          such priority provisions in such documents shall be read together and
          construed, to the fullest extent possible, to be in concert with each
          other. In the event of any actual, irreconcilable conflict that cannot
          be resolved as aforesaid, the terms and provisions of this Section 2.4
          shall control and govern.

     2.5  Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to the Lender Group pursuant to Sections 2.1 and
2.12 is greater than either the Dollar or percentage limitations set forth in
Sections 2.1 or 2.12, (an "Overadvance"), Borrower immediately shall pay to
Agent, in cash, the amount of such excess, which amount shall be used by Agent
to reduce the Obligations in accordance with the priorities set forth in Section
2.4(b). In addition, Borrower hereby promises to pay the Obligations (including
principal, interest, fees, costs, and expenses) in Dollars in full to the Lender
Group as and when due and payable under the terms of this Agreement and the
other Loan Documents.

     2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and
Calculations.

          (a)  Interest Rates. Except as provided in clause (c) below, all
     Obligations (except for undrawn Letters of Credit) that have been charged
     to the Loan Account pursuant to the terms hereof shall bear interest on the
     Daily Balance thereof at a per annum rate equal to the Base Rate plus the
     Base Rate Margin.

          The foregoing notwithstanding, at no time shall any portion of the
     non-contingent Obligations bear interest on the Daily Balance thereof at a
     per annum rate less than 7%. To the extent that interest accrued hereunder
     at the rate set forth herein would be less than the foregoing minimum daily
     rate, the interest rate chargeable hereunder for such day automatically
     shall be deemed increased to the minimum rate.

          (b)  Letter of Credit Fee. Borrower shall pay Agent (for the ratable
     benefit of the Lenders with a Revolver Commitment, subject to any letter
     agreement between Agent and individual Lenders), a Letter of Credit fee (in
     addition to the charges, commissions, fees, and costs set forth in Section
     2.12(e)) which shall accrue at a rate equal to 2.5% per annum times the
     Daily Balance of the undrawn amount of all outstanding Letters of Credit.

          (c)  Default Rate. Upon the occurrence and during the continuation of
     an

                                       38
<PAGE>

     Event of Default (and at the election of Agent or the Required Lenders),

               (i)   all Obligations (except for undrawn Letters of Credit )
          that have been charged to the Loan Account pursuant to the terms
          hereof shall bear interest on the Daily Balance thereof at a per annum
          rate equal to four (4) percentage points above the per annum rate
          otherwise applicable hereunder, and

               (ii)  the Letter of Credit fee provided for above shall be
          increased to four (4) percentage points above the per annum rate
          otherwise applicable hereunder.

          (d)  Payment. Interest, Letter of Credit fees, and all other fees
     payable hereunder shall be due and payable, in arrears, on the first day of
     each month at any time that Obligations or Commitments are outstanding.
     Borrower hereby authorizes Agent, from time to time without prior notice to
     Borrower, to charge such interest and fees, all Lender Group Expenses (as
     and when incurred), the charges, commissions, fees, and costs provided for
     in Section 2.12(e) (as and when accrued or incurred), the fees and costs
     provided for in Section 2.11 (as and when accrued or incurred), and all
     other payments as and when due and payable under any Loan Document
     (including the installments due and payable with respect to the Term Loan)
     to Borrower's Loan Account, which amounts thereafter constitute Advances
     hereunder and shall accrue interest at the rate then applicable to Advances
     hereunder. Any interest not paid when due shall be compounded by being
     charged to Borrower's Loan Account and shall thereafter constitute Advances
     hereunder and shall accrue interest at the rate then applicable to
     Advances.

          (e)  Computation. All interest and fees chargeable under the Loan
     Documents shall be computed on the basis of a 360 day year for the actual
     number of days elapsed. In the event the Base Rate is changed from time to
     time hereafter, the rates of interest hereunder based upon the Base Rate
     automatically and immediately shall be increased or decreased by an amount
     equal to such change in the Base Rate.

          (f)  Intent to Limit Charges to Maximum Lawful Rate. In no event shall
     the interest rate or rates payable under this Agreement, plus any other
     amounts paid in connection herewith, exceed the highest rate permissible
     under any law that a court of competent jurisdiction shall, in a final
     determination, deem applicable. Borrower and the Lender Group, in executing
     and delivering this Agreement, intend legally to agree upon the rate or
     rates of interest and manner of payment stated within it; provided,
     however, that, anything contained herein to the contrary notwithstanding,
     if said rate or rates of interest or manner of payment exceeds the maximum
     allowable under applicable law, then, ipso facto, as of the date of this
     Agreement, Borrower is and shall be liable only for the payment of such
     maximum as allowed by law, and payment received from Borrower in excess of
     such legal maximum, whenever received, shall be applied to reduce the
     principal balance of the Obligations to the extent of such excess.

     2.7  Cash Management.

          (a)  Borrower shall (i) establish and maintain cash management
     services of a type and on terms satisfactory to Agent at one or more of the
     banks set forth on Schedule 2.7(a) (each, a "Cash Management Bank"), and
     shall request in writing and otherwise take such

                                       39
<PAGE>

     reasonable steps to ensure that all of its Account Debtors forward payment
     of the amounts owed by them directly to such Cash Management Bank, and (ii)
     deposit or cause to be deposited promptly, and in any event no later than
     the first Business Day after the date of receipt thereof, all Collections
     (including those sent directly by Account Debtors to a Cash Management
     Bank) into a bank account in Agent's name (a "Cash Management Account") at
     one of the Cash Management Banks.

          (b)  Each Cash Management Bank shall establish and maintain Cash
     Management Agreements with respect to the Cash Management Accounts with
     Agent and Borrower, in form and substance acceptable to Agent. Each such
     Cash Management Agreement shall provide, among other things, that (i) all
     items of payment deposited in such Cash Management Account and proceeds
     thereof are held by such Cash Management Bank as agent or
     bailee-in-possession for Agent, (ii) the Cash Management Bank has no rights
     of setoff or recoupment or any other claim against the applicable Cash
     Management Account other than for payment of its service fees and other
     charges directly related to the administration of such Cash Management
     Account and for returned checks or other items of payment, and (iii) it
     immediately will forward by daily sweep all amounts in the applicable Cash
     Management Account to the Agent's Account.

          (c)  So long as no Default or Event of Default has occurred and is
     continuing, Borrower may amend Schedule 2.7(a) to add or replace a Cash
     Management Bank or Cash Management Account; provided, however, that (i)
     such prospective Cash Management Bank shall be satisfactory to Agent and
     Agent shall have consented in writing in advance to the opening of such
     Cash Management Account with the prospective Cash Management Bank, and (ii)
     prior to the time of the opening of such Cash Management Account, Borrower
     and such prospective Cash Management Bank shall have executed and delivered
     to Agent a Cash Management Agreement. Borrower shall close any of its Cash
     Management Accounts (and establish replacement cash management accounts in
     accordance with the foregoing sentence) promptly and in any event within 30
     days of notice from Agent that the creditworthiness of any Cash Management
     Bank is no longer acceptable in Agent's reasonable judgment, or as promptly
     as practicable and in any event within 60 days of notice from Lender Group
     that the operating performance, funds transfer, or availability procedures
     or performance of the Cash Management Bank with respect to Cash Management
     Accounts or Agent's liability under any Cash Management Agreement with such
     Cash Management Bank is no longer acceptable in Agent's reasonable
     judgment.

          (d)  The Cash Management Accounts shall be cash collateral accounts,
     with all cash, checks and similar items of payment in such accounts
     securing payment of the Obligations, and in which Borrower is hereby deemed
     to have granted a Lien to Agent.

     2.8  Crediting Payments; Float Charge. The receipt of any payment item by
Agent (whether from transfers to Agent by the Cash Management Banks pursuant to
the Cash Management Agreements or otherwise) shall not be considered a payment
on account unless such payment item is a wire transfer of immediately available
federal funds made to the Agent's Account or unless and until such payment item
is honored when presented for payment. Should

                                       40
<PAGE>

any payment item not be honored when presented for payment, then Borrower shall
be deemed not to have made such payment and interest shall be calculated
accordingly. Anything to the contrary contained herein notwithstanding, any
payment item shall be deemed received by Agent only if it is received into the
Agent's Account on a Business Day on or before 11:00 a.m. (California time). If
any payment item is received into the Agent's Account on a non-Business Day or
after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have
been received by Agent as of the opening of business on the immediately
following Business Day. From and after the Closing Date, Agent shall be entitled
to charge Borrower for one (1) Business Day of 'clearance' or 'float' at the
rate applicable to Base Rate Loans under Section 2.6 on all Collections that are
received by Borrower (regardless of whether forwarded by the Cash Management
Banks to Agent). This across-the-board one (1) Business Day clearance or float
charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of the financing of Borrower and shall apply
irrespective of whether or not there are any outstanding monetary Obligations;
the effect of such clearance or float charge being the equivalent of charging
one (1) Business Days of interest on such Collections. The parties acknowledge
and agree that the economic benefit of the foregoing provisions of this Section
2.8 shall be for the exclusive benefit of Agent.

     2.9  Designated Account. Agent is authorized to make the Advances and the
Term Loan, and Issuing Lender is authorized to issue the Letters of Credit,
under this Agreement based upon telephonic or other instructions received from
anyone purporting to be an Authorized Person, or without instructions if
pursuant to Section 2.6(d). Borrower agrees to establish and maintain the
Designated Account with the Designated Account Bank for the purpose of receiving
the proceeds of the Advances requested by Borrower and made by Agent or the
Lenders hereunder. Unless otherwise agreed by Agent and Borrower, any Advance,
Agent Advance, or Swing Loan requested by Borrower and made by Agent or the
Lenders hereunder shall be made to the Designated Account.

     2.10 Maintenance of Loan Account; Statements of Obligations. Agent shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged with the Term Loan, all Advances (including Agent
Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to
Borrower or for Borrower's account, the Letters of Credit issued by Issuing
Lender for Borrower's account, and with all other payment Obligations hereunder
or under the other Loan Documents, including, accrued interest, fees and
expenses, and Lender Group Expenses. In accordance with Section 2.8, the Loan
Account will be credited with all payments received by Agent from Borrower or
for Borrower's account, including all amounts received in the Agent's Account
from any Cash Management Bank. Agent shall render statements regarding the Loan
Account to Borrower, including principal, interest, fees, and including an
itemization of all charges and expenses constituting Lender Group Expenses
owing, and such statements shall be conclusively presumed to be correct and
accurate and constitute an account stated between Borrower and the Lender Group
unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver
to Agent written objection thereto describing the error or errors contained in
any such statements.

     2.11 Fees. Borrower shall pay to Agent the following fees and charges,
which fees and charges shall be non-refundable when paid (irrespective of
whether this Agreement is terminated thereafter) and shall be apportioned among
the Lenders in accordance with the terms of letter

                                       41
<PAGE>

agreements between Agent and individual Lenders:

          (a)  Unused Line Fee. On the first day of each month during the term
     of this Agreement, an unused line fee in an amount equal to .50% per annum
     times the result of (a) the Maximum Revolver Amount, less (b) the sum of
     (i) the average Daily Balance of Advances that were outstanding during the
     immediately preceding month, plus (ii) the average Daily Balance of the
     Letter of Credit Usage during the immediately preceding month,

          (b)  Fee Letter Fees. As and when due and payable under the terms of
     the Fee Letter, Borrower shall pay to Agent the fees set forth in the Fee
     Letter, and

          (c)  Audit, Appraisal, and Valuation Charges. For the separate account
     of Agent, audit, appraisal, and valuation fees and charges as follows (i) a
     fee of $850 per day, per auditor, plus out-of-pocket expenses for each
     financial audit of Borrower performed by personnel employed by Agent, (ii)
     if implemented, a one time charge of $5,000 plus out-of-pocket expenses for
     expenses for the establishment of electronic collateral reporting systems,
     (iii) a fee of $1,500 per day per appraiser, plus out-of-pocket expenses,
     for each appraisal of the Collateral performed by personnel employed by
     Agent, and (iv) the actual charges paid or incurred by Agent if it elects
     to employ the services of one or more third Persons to perform financial
     audits of Borrower, to appraise the Collateral, or any portion thereof, or
     to assess Borrower's business valuation. For any strategic business advisor
     or consultant retained by Agent, at the direction of the Required Lenders,
     (the "Strategic Advisor"), retained not less than three (3) months after
     the Closing Date, to conduct an exit strategy analysis. Borrower shall
     fully cooperate with any Strategic Advisor and shall authorize Strategic
     Advisor to provide such information and reports from time to time with
     respect to Borrower and Guarantors and their financial condition, business,
     assets, liabilities and prospects, as Agent shall from time to time
     request. All reasonable fees and expenses of any Strategic Advisors shall
     be solely the responsibility of Borrower.

     2.12 Letters of Credit.

          (a)  Subject to the terms and conditions of this Agreement, the
     Issuing Lender agrees to issue letters of credit for the account of
     Borrower (each, an "L/C") or to purchase participations or execute
     indemnities or reimbursement obligations (each such undertaking, an "L/C
     Undertaking") with respect to letters of credit issued by an Underlying
     Issuer (as of the Closing Date, the prospective Underlying Issuer is to be
     Wells Fargo) for the account of Borrower. To request the issuance of an L/C
     or an L/C Undertaking (or the amendment, renewal, or extension of an
     outstanding L/C or L/C Undertaking), Borrower shall hand deliver or
     telecopy (or transmit by electronic communication, if arrangements for
     doing so have been approved by the Issuing Lender) to the Issuing Lender
     and Agent (reasonably in advance of the requested date of issuance,
     amendment, renewal, or extension) a notice requesting the issuance of an
     L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking to be
     amended, renewed, or extended, the date of issuance, amendment, renewal, or
     extension, the date on which such L/C or L/C Undertaking is to expire, the
     amount of such L/C or L/C Undertaking, the name and address of the
     beneficiary thereof (or the beneficiary of the Underlying Letter of Credit,
     as applicable), and such other information as shall be necessary to
     prepare, amend, renew, or extend such L/C or L/C Undertaking. If requested
     by the Issuing Lender, Borrower also shall be an applicant under the
     application with respect to any Underlying Letter of Credit that is to be
     the subject of an L/C

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<PAGE>

     Undertaking. The Issuing Lender shall have no obligation to issue a Letter
     of Credit if any of the following would result after giving effect to the
     requested Letter of Credit:

               (i)   the Adjusted Letter of Credit Usage would exceed the
          Borrowing Base less the amount of outstanding Advances, or

               (ii)  the Letter of Credit Usage would exceed $5,000,000, or

               (iii) the Letter of Credit Usage would exceed the Maximum
          Revolver Amount less the then extant amount of outstanding Advances.

          Borrower and the Lender Group acknowledge and agree that certain
     Underlying Letters of Credit may be issued to support letters of credit
     that already are outstanding as of the Closing Date. Each Letter of Credit
     (and corresponding Underlying Letter of Credit) shall have an expiry date
     no later than 30 days prior to the Maturity Date and all such Letters of
     Credit (and corresponding Underlying Letter of Credit) shall be in form and
     substance acceptable to the Issuing Lender (in the exercise of its
     Permitted Discretion), including the requirement that the amounts payable
     thereunder must be payable in Dollars. If Issuing Lender is obligated to
     advance funds under a Letter of Credit, Borrower immediately shall
     reimburse such L/C Disbursement to Issuing Lender by paying to Agent an
     amount equal to such L/C Disbursement not later than 11:00 a.m., California
     time, on the date that such L/C Disbursement is made, if Borrower shall
     have received written or telephonic notice of such L/C Disbursement prior
     to 10:00 a.m., California time, on such date, or, if such notice has not
     been received by Borrower prior to such time on such date, then not later
     than 11:00 a.m., California time, on the Business Day that Borrower
     receives such notice, if such notice is received prior to 10:00 a.m.,
     California time, on the date of receipt, and, in the absence of such
     reimbursement, the L/C Disbursement immediately and automatically shall be
     deemed to be an Advance hereunder and, thereafter, shall bear interest at
     the rate then applicable to Advances under Section 2.6. To the extent an
     L/C Disbursement is deemed to be an Advance hereunder, Borrower's
     obligation to reimburse such L/C Disbursement shall be discharged and
     replaced by the resulting Advance. Promptly following receipt by Agent of
     any payment from Borrower pursuant to this paragraph, Agent shall
     distribute such payment to the Issuing Lender or, to the extent that
     Lenders have made payments pursuant to Section 2.12(c) to reimburse the
     Issuing Lender, then to such Lenders and the Issuing Lender as their
     interest may appear.

          (b)  Promptly following receipt of a notice of L/C Disbursement
     pursuant to Section 2.12(a), each Lender with a Revolver Commitment agrees
     to fund its Pro Rata Share of any Advance deemed made pursuant to the
     foregoing subsection on the same terms and conditions as if Borrower had
     requested such Advance and Agent shall promptly pay to Issuing Lender the
     amounts so received by it from the Lenders. By the issuance of a Letter of
     Credit (or an amendment to a Letter of Credit increasing the amount
     thereof) and without any further action on the part of the Issuing Lender
     or the Lenders with Revolver Commitment, the Issuing Lender shall be deemed
     to have granted to each Lender with a Revolver Commitment, and each Lender
     with a Revolver Commitment shall be deemed to have purchased, a
     participation in each Letter of Credit, in an amount equal to its Pro Rata
     Share of the Risk Participation Liability of such

                                       43
<PAGE>

     Letter of Credit, and each such Lender agrees to pay to Agent, for the
     account of the Issuing Lender, such Lender's Pro Rata Share of any payments
     made by the Issuing Lender under such Letter of Credit. In consideration
     and in furtherance of the foregoing, each Lender with a Revolver Commitment
     hereby absolutely and unconditionally agrees to pay to Agent, for the
     account of the Issuing Lender, such Lender's Pro Rata Share of each L/C
     Disbursement made by the Issuing Lender and not reimbursed by Borrower on
     the date due as provided in clause (a) of this Section, or of any
     reimbursement payment required to be refunded to Borrower for any reason.
     Each Lender with a Revolver Commitment acknowledges and agrees that its
     obligation to deliver to Agent, for the account of the Issuing Lender, an
     amount equal to its respective Pro Rata Share pursuant to this Section
     2.12(b) shall be absolute and unconditional and such remittance shall be
     made notwithstanding the occurrence or continuation of an Event of Default
     or Default or the failure to satisfy any condition set forth in Section 3
     hereof. If any such Lender fails to make available to Agent the amount of
     such Lender's Pro Rata Share of any payments made by the Issuing Lender in
     respect of such Letter of Credit as provided in this Section, Agent (for
     the account of the Issuing Lender) shall be entitled to recover such amount
     on demand from such Lender together with interest thereon at the Defaulting
     Lender Rate until paid in full.

          (c)  Borrower hereby agrees to indemnify, save, defend, and hold the
     Lender Group harmless from any loss, cost, expense, or liability, and
     reasonable attorneys fees incurred by the Lender Group arising out of or in
     connection with any Letter of Credit; provided, however, that Borrower
     shall not be obligated hereunder to indemnify for any loss, cost, expense,
     or liability that is caused by the gross negligence or willful misconduct
     of the Issuing Lender or any other member of the Lender Group. Borrower
     agrees to be bound by the Underlying Issuer's regulations and
     interpretations of any Underlying Letter of Credit or by Issuing Lender's
     interpretations of any L/C issued by Issuing Lender to or for Borrower's
     account, even though this interpretation may be different from Borrower's
     own, and Borrower understands and agrees that the Lender Group shall not be
     liable for any error, negligence, or mistake, whether of omission or
     commission, in following Borrower's instructions or those contained in the
     Letter of Credit or any modifications, amendments, or supplements thereto.
     Borrower understands that the L/C Undertakings may require Issuing Lender
     to indemnify the Underlying Issuer for certain costs or liabilities arising
     out of claims by Borrower against such Underlying Issuer. Borrower hereby
     agrees to indemnify, save, defend, and hold the Lender Group harmless with
     respect to any loss, cost, expense (including reasonable attorneys fees),
     or liability incurred by the Lender Group under any L/C Undertaking as a
     result of the Lender Group's indemnification of any Underlying Issuer;
     provided, however, that Borrower shall not be obligated hereunder to
     indemnify for any loss, cost, expense, or liability that is caused by the
     gross negligence or willful misconduct of the Issuing Lender or any other
     member of the Lender Group.

          (d)  Borrower hereby authorizes and directs any Underlying Issuer to
     deliver to the Issuing Lender all instruments, documents, and other
     writings and property received by such Underlying Issuer pursuant to such
     Underlying Letter of Credit and to accept and rely upon the Issuing
     Lender's instructions with respect to all matters arising in connection
     with such Underlying Letter of Credit and the related application.

          (e)  Any and all charges, commissions, fees, and costs incurred by the
     Issuing Lender relating to Underlying Letters of Credit shall be Lender
     Group Expenses for purposes of this Agreement and immediately shall be
     reimbursable by Borrower to Agent for the account of

                                       44
<PAGE>

     the Issuing Lender; it being acknowledged and agreed by Borrower that, as
     of the Closing Date, the issuance charge imposed by the prospective
     Underlying Issuer is .825% per annum times the face amount of each
     Underlying Letter of Credit, that such issuance charge may be changed from
     time to time, and that the Underlying Issuer also imposes a schedule of
     charges for amendments, extensions, drawings, and renewals.

          (f)  If by reason of (i) any change in any applicable law, treaty,
     rule, or regulation or any change in the interpretation or application
     thereof by any Governmental Authority, or (ii) compliance by the Underlying
     Issuer or the Lender Group with any direction, request, or requirement
     (irrespective of whether having the force of law) of any Governmental
     Authority or monetary authority including, Regulation D of the Federal
     Reserve Board as from time to time in effect (and any successor thereto):

               (i)   any reserve, deposit, or similar requirement is or shall be
          imposed or modified in respect of any Letter of Credit issued
          hereunder, or

               (ii)  there shall be imposed on the Underlying Issuer or the
          Lender Group any other condition regarding any Underlying Letter of
          Credit or any Letter of Credit issued pursuant hereto,

     and the result of the foregoing is to increase, directly or indirectly, the
     cost to the Lender Group of issuing, making, guaranteeing, or maintaining
     any Letter of Credit or to reduce the amount receivable in respect thereof
     by the Lender Group, then, and in any such case, Agent may, at any time
     within a reasonable period after the additional cost is incurred or the
     amount received is reduced, notify Borrower, and Borrower shall pay on
     demand such amounts as Agent may specify to be necessary to compensate the
     Lender Group for such additional cost or reduced receipt, together with
     interest on such amount from the date of such demand until payment in full
     thereof at the rate then applicable to Advances hereunder. The
     determination by Agent of any amount due pursuant to this Section, as set
     forth in a certificate setting forth the calculation thereof in reasonable
     detail, shall, in the absence of manifest or demonstrable error, be final
     and conclusive and binding on all of the parties hereto.

     2.13 Capital Requirements. If, after the date hereof, any Lender determines
that (a) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (b) compliance by such
Lender or its parent bank holding company with any guideline, request, or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), will have the effect of reducing the return on such Lender's
or such holding company's capital as a consequence of such Lender's Commitments
hereunder to a level below that which such Lender or such holding company could
have achieved but for such adoption, change, or compliance (taking into
consideration such Lender's or such holding company's then existing policies
with respect to capital adequacy and assuming the full utilization of such
entity's capital) by any amount deemed by such Lender to be material, then such
Lender may notify Borrower and Agent thereof. Following receipt of such notice,
Borrower agrees to pay such Lender on demand the amount of such reduction of
return of capital as and when such reduction is determined, payable within 90
days after presentation by such Lender of a statement in the amount and setting
forth in

                                       45
<PAGE>

reasonable detail such Lender's calculation thereof and the assumptions upon
which such calculation was based (which statement shall be deemed true and
correct absent manifest error). In determining such amount, such Lender may use
any reasonable averaging and attribution methods.

3.   CONDITIONS; TERM OF AGREEMENT.

     3.1  Conditions Precedent to the Initial Extension of Credit. The
obligation of the Lender Group (or any member thereof) to make the initial
Advance (or otherwise to extend any credit provided for hereunder), is subject
to the fulfillment, to the satisfaction of Agent, of each of the conditions
precedent set forth below:

          (a)  the Closing Date shall occur on or before December 5, 2001;

          (b)  Agent shall have received all financing statements required by
     Agent, duly authorized by Borrower and the Guarantors, and Agent shall have
     received searches reflecting the filing of all such financing statements;

          (c)  Agent shall have received each of the following documents, in
     form and substance satisfactory to Agent, duly executed, and each such
     document shall be in full force and effect:

               (i)    [intentionally omitted];

               (ii)   the Disbursement Letter;

               (iii)  the Fee Notes;

               (iv)   the Fee Letter;

               (v)    the Cash Management Agreements;

               (vi)   the Mortgages;

               (vii)  the Officers' Certificate;

               (viii) the Subsidiary Documents;

               (ix)   Sun Capital Management Agreement;

               (x)    the Trademark Security Agreement;

               (xi)   the Terminating Bank Group Documents, together with UCC
          termination statements and other documentation evidencing the
          termination by the Terminating Bank Group of its Liens in and to the
          properties and assets of Borrower,

               (xii)  the Warrants;

               (xiii) the Continuing Bank Group Intercreditor Agreement and the
          Equitable Intercreditor Agreement;

                                       46
<PAGE>

          (d)  Agent shall have received a certificate from the Secretary of
     Borrower attesting to the resolutions of Borrower's Board of Directors
     authorizing its execution, delivery, and performance of this Agreement and
     the other Loan Documents to which Borrower is a party and authorizing
     specific officers of Borrower to execute the same;

          (e)  Agent shall have received copies of Borrower's Governing
     Documents, as amended, modified, or supplemented to the Closing Date,
     certified by the Secretary of Borrower;

          (f)  Agent shall have received a certificate of status with respect to
     Borrower, dated within 10 days of the Closing Date, such certificate to be
     issued by the appropriate officer of the jurisdiction of organization of
     Borrower, which certificate shall indicate that Borrower is in good
     standing in such jurisdiction;

          (g)  Agent shall have received certificates of status with respect to
     Borrower, each dated within 30 days of the Closing Date, such certificates
     to be issued by the appropriate officer of the jurisdictions (other than
     the jurisdiction of organization of Borrower) in which its failure to be
     duly qualified or licensed would constitute a Material Adverse Change,
     which certificates shall indicate that Borrower is in good standing in such
     jurisdictions;

          (h)  Agent shall have received a certificate from the Secretary of
     Guarantor attesting to the resolutions of Guarantor's Board of Directors
     authorizing its execution, delivery, and performance of the Loan Documents
     to which Guarantor is a party and authorizing specific officers of
     Guarantor to execute the same;

          (i)  Agent shall have received copies of Guarantor's Governing
     Documents, as amended, modified, or supplemented to the Closing Date,
     certified by the Secretary of Guarantor;

          (j)  Agent shall have received a certificate of status with respect to
     Guarantor, dated within 10 days of the Closing Date, such certificate to be
     issued by the appropriate officer of the jurisdiction of organization of
     Guarantor, which certificate shall indicate that Guarantor is in good
     standing in such jurisdiction;

          (k)  Agent shall have received certificates of status with respect to
     Guarantor, each dated within 30 days of the Closing Date, such certificates
     to be issued by the appropriate officer of the jurisdictions (other than
     the jurisdiction of organization of Guarantor) in which its failure to be
     duly qualified or licensed would constitute a Material Adverse Change,
     which certificates shall indicate that Guarantor is in good standing in
     such jurisdictions;

          (l)  Agent shall have received the original Cliffstar Note and any
     related documents as Agent may request, in its sole discretion, including
     without limitation, a Note Pledge Agreement and a certificate from an
     officer of Borrower satisfactory to Agent that, except as set forth on
     Schedule 3.1(l), no payment default has occurred on account of the
     Cliffstar Note and that, to Borrower's knowledge, no event of default has
     occurred under Cliffstar Corporation's existing bank credit facility;

                                       47
<PAGE>

          (m)  Agent shall have received copies of the fully executed Continuing
     Bank Group Documents and such documents shall be in full force and effect,
     and no event of default shall have occurred thereunder;

          (n)  Agent shall have received from Borrower a written analysis of the
     tax consequences to Borrower of the refinancing of Borrower's existing
     Indebtedness to the Bank Group from Borrower's independent accountants with
     respect to the foregoing, all of which shall be satisfactory to Agent in
     its sole discretion.

          (o)  Agent shall have received from Borrower copies of all written
     agreements with its Farm Product Sellers, and with its other material
     vendors and material customers, as well as Borrower's written analysis of
     any arrangements with such vendors or customers, which may not be
     memorialized in writing, all of which shall be satisfactory to Agent, in
     Agent's sole discretion.

          (p)  No Default or Event of Default exists as of the Closing Date;

          (q)  Agent shall have received a certificate of insurance, together
     with the endorsements thereto, as are required by Section 6.7, the form and
     substance of which shall be satisfactory to Agent;

          (r)  Agent shall have received Collateral Access Agreements from Wood
     County National Bank, Congress Financial Corporation and such other parties
     as Lender may require in its sole discretion with respect to, without
     limitation, the following locations: 2321 West Grand Avenue, Wisconsin
     Rapids, Wisconsin 54455, and Cornelius, Oregon;

          (s)  [Intentionally omitted];

          (t)  Agent shall have received from Borrower a written analysis of
     Borrower's preferential wage claims and related Liens, along with an
     opinion of counsel to Borrower with respect to the foregoing, all of which
     shall be satisfactory to Agent in its sole discretion;

          (u)  Agent shall have received satisfactory evidence (including a
     certificate of the chief financial officer of Borrower) that, except as
     listed on Schedule 3.1(u), all tax returns required to be filed by Borrower
     have been timely filed and all taxes upon Borrower or its properties,
     assets, income, and franchises (including Real Property taxes and payroll
     taxes) have been paid prior to delinquency, except such taxes that are the
     subject of a Permitted Protest;

          (v)  Borrower shall have the Required Availability after giving effect
     to the initial extensions of credit hereunder;

          (w)  Agent shall have completed its business, legal, and collateral
     due diligence, including (i) a collateral audit and review of Borrower's
     books and records and verification of Borrower's representations and
     warranties to the Lender Group, the results of which shall be satisfactory
     to Agent, and (ii) an inspection of each of the locations where Inventory
     is located, the results of which shall be satisfactory to Agent;

                                       48
<PAGE>

          (x)  Agent shall have received completed reference checks with respect
     to Borrower's senior management, the results of which are satisfactory to
     Agent in its sole discretion;

          (y)  Agent shall have received an appraisal of the Liquidation
     Percentage applicable to Borrower's Inventory and an appraisal of
     Borrower's Equipment, the results of which shall be satisfactory to Agent
     and an analysis by a third party industry expert satisfactory to Agent of
     the Hilco Appraisal Services LLC Inventory Appraisal dated November, 2000,
     in form and substance satisfactory to Agent;

          (z)  Agent shall have received a testing, satisfactory to Agent in all
     respects from a market expert satisfactory to Agent, of the Borrower's
     Inventory, including the concentrate Inventory, verifying that Inventory is
     in good and saleable condition.

          (aa) Agent shall have received Borrower's Closing Date Business Plan
     together with a certificate of the chief executive officer of Borrower
     stating that the Closing Date Business Plan has been prepared on a
     reasonable basis and in good faith and is based on assumptions believed by
     Borrower to be reasonable at the time made and from the best information
     then available to Borrower;

          (bb) Borrower shall pay all Lender Group Expenses incurred in
     connection with the transactions evidenced by this Agreement;

          (cc) Agent shall have received (i) appraisals of the Real Property
     Collateral satisfactory to Agent, and (ii) mortgagee title insurance
     policies (or marked commitments to issue the same) for the Real Property
     Collateral issued by a title insurance company satisfactory to Agent (each
     a "Mortgage Policy" and, collectively, the "Mortgage Policies") in amounts
     satisfactory to Agent assuring Agent that the Mortgages on such Real
     Property Collateral are valid and enforceable first priority mortgage Liens
     on such Real Property Collateral free and clear of all defects and
     encumbrances except Permitted Liens, and the Mortgage Policies otherwise
     shall be in form and substance satisfactory to Agent;

          (dd) Agent shall have received a phase-I environmental report and a
     real estate survey with respect to each parcel composing the Real Property
     Collateral; the environmental consultants and surveyors retained for such
     reports or surveys, the scope of the reports or surveys, and the results
     thereof shall be acceptable to Agent;

          (ee) [Intentionally deleted];

          (ff) Borrower shall have received all licenses, approvals or evidence
     of other actions required by any Governmental Authority in connection with
     the execution and delivery by Borrower of this Agreement or any other Loan
     Document or with the consummation of the transactions contemplated hereby
     and thereby;

          (gg) Borrower shall have received a cash equity investment from Sun
     Capital in an amount not less than $6,300,000, net of all fees paid or
     payable to Sun Capital at closing of such equity investment, on terms and
     conditions satisfactory to Agent, in its sole discretion; and

                                       49
<PAGE>

          (hh) all other documents and legal matters in connection with the
     transactions contemplated by this Agreement shall have been delivered,
     executed, or recorded and shall be in form and substance satisfactory to
     Agent.

          (ii) Agent shall have received from Borrower a written analysis
     identifying all crops which it purchases from agricultural producers, all
     states in which it conducts processing operations or receives its product
     for processing, and all states in which the crops purchased by Borrower
     have been grown, along with an opinion from Borrower's counsel with respect
     to the applicability of any state or federal statutory agricultural liens
     or trust rights with respect to 90% or more of the crops subject to
     Borrower's purchases, all of which shall be satisfactory to Agent, in its
     sole discretion.

     3.2  Conditions Subsequent to the Initial Extension of Credit. The
obligation of the Lender Group (or any member thereof) to continue to make
Advances (or otherwise extend credit hereunder) is subject to the fulfillment,
on or before the date applicable thereto, of each of the conditions subsequent
set forth below (the failure by Borrower to so perform or cause to be performed
constituting an Event of Default):

          (a)  within 60 days prior to or 30 days after the Closing Date,
     deliver to Agent certified copies of the policies of insurance, together
     with the endorsements thereto, as are required by Section 6.7, the form and
     substance of which shall be satisfactory to Agent and its counsel; and

          (b)  Satisfy all terms and conditions set forth in the Letter re:
     certain Post Closing Items dated as of the Closing Date, by Borrower in
     favor of Lender, within the applicable time as set forth therein.

     3.3  Conditions Precedent to all Extensions of Credit. The obligation of
the Lender Group (or any member thereof) to make all Advances (or to extend any
other credit hereunder) shall be subject to the following conditions precedent:

          (a)  the representations and warranties contained in this Agreement
     and the other Loan Documents shall be true and correct in all material
     respects on and as of the date of such extension of credit, as though made
     on and as of such date (except to the extent that such representations and
     warranties relate solely to an earlier date),

          (b)  no Default or Event of Default shall have occurred and be
     continuing on the date of such extension of credit, nor shall either result
     from the making thereof,

          (c)  no injunction, writ, restraining order, or other order of any
     nature prohibiting, directly or indirectly, the extending of such credit
     shall have been issued and remain in force by any Governmental Authority
     against Borrower, Agent, any Lender, or any of their Affiliates.

          (d)  no Material Adverse Change shall have occurred, except as set
     forth on Schedule 3.3(d) as in effect on the Closing Date.

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<PAGE>

     3.4  Term. This Agreement shall become effective upon the execution and
delivery hereof by Borrower, Agent, and the Lenders and shall continue in full
force and effect for a term ending on November 6, 2006 (the "Maturity Date").
The foregoing notwithstanding, the Lender Group, upon the election of the
Required Lenders, shall have the right to terminate its obligations under this
Agreement immediately and without notice upon the occurrence and during the
continuation of an Event of Default.

     3.5  Effect of Termination. On the date of termination of this Agreement,
all Obligations (including contingent reimbursement obligations of Borrower with
respect to outstanding Letters of Credit) immediately shall become due and
payable without notice or demand. No termination of this Agreement, however,
shall relieve or discharge Borrower of its duties, Obligations, or covenants
hereunder and the Agent's Liens in the Collateral shall remain in effect until
all Obligations have been fully and finally discharged and the Lender Group's
obligations to provide additional credit hereunder have been terminated. When
this Agreement has been terminated and all of the Obligations have been fully
and finally discharged and the Lender Group's obligations to provide additional
credit under the Loan Documents have been terminated irrevocably, Agent will, at
Borrower's sole expense, execute and deliver any UCC termination statements,
lien releases, mortgage releases, re-assignments of trademarks, discharges of
security interests, and other similar discharge or release documents (and, if
applicable, in recordable form) as are reasonably necessary to release, as of
record, the Agent's Liens and all notices of security interests and liens
previously filed by Agent with respect to the Obligations.

     3.6  Early Termination by Borrower. Borrower has the option, at any time
upon 30 days prior written notice to Agent, to terminate this Agreement by
paying to Agent, for the benefit of the Lender Group, in cash, the Obligations
(including either (i) providing cash collateral to be held by Agent for the
benefit of those Lenders with a Revolver Commitment in an amount equal to 105%
of the then extant Letter of Credit Usage, or (ii) causing the original Letters
of Credit to be returned to the Issuing Lender), in full, together with the
Applicable Prepayment Premium (to be allocated based upon letter agreements
between Agent and individual Lenders). Notwithstanding anything to the contrary
contained herein, in the event the Obligations are paid in full and the Loan
Documents are terminated as the result of a conventional bank credit facility
provided by Wells Fargo Bank and no Event of Default exists as of the date of
termination, the Applicable Prepayment Premium shall be waived. If Borrower has
sent a notice of termination pursuant to the provisions of this Section, then
the Commitments shall terminate and Borrower shall be obligated to repay the
Obligations (including either (i) providing cash collateral to be held by Agent
for the benefit of those Lenders with a Revolver Commitment in an amount equal
to 105% of the then extant Letter of Credit Usage, or (ii) causing the original
Letters of Credit to be returned to the Issuing Lender), in full, together with
the Applicable Prepayment Premium, on the date set forth as the date of
termination of this Agreement in such notice. In the event of the termination of
this Agreement and repayment of the Obligations at any time prior to the
Maturity Date, for any other reason, including (a) termination upon the election
of the Required Lenders to terminate after the occurrence of an Event of
Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateral in
any Insolvency Proceeding, or (iv) restructure, reorganization, or compromise of
the Obligations by

                                       51
<PAGE>

the confirmation of a plan of reorganization or any other plan of compromise,
restructure, or arrangement in any Insolvency Proceeding, then, in view of the
impracticability and extreme difficulty of ascertaining the actual amount of
damages to the Lender Group or profits lost by the Lender Group as a result of
such early termination, and by mutual agreement of the parties as to a
reasonable estimation and calculation of the lost profits or damages of the
Lender Group, Borrower shall pay the Applicable Prepayment Premium to Agent (to
be allocated based upon letter agreements between Agent and individual Lenders),
measured as of the date of such termination.

4.   CREATION OF SECURITY INTEREST.

     4.1  Grant of Security Interest. Borrower hereby grants to Agent, for the
benefit of the Lender Group, a continuing security interest in all of its right,
title, and interest in all currently existing and hereafter acquired or arising
Collateral in order to secure prompt repayment of any and all of the Obligations
in accordance with the terms and conditions of the Loan Documents and in order
to secure prompt performance by Borrower of each of its covenants and duties
under the Loan Documents. The Agent's Liens in and to the Collateral shall
attach to all Collateral without further act on the part of Agent or Borrower.
Anything contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Dispositions, Borrower has no authority,
express or implied, to dispose of any item or portion of the Collateral.

     4.2  Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, and if and to
the extent that perfection or priority of Agent's security interest is dependent
on or enhanced by possession, Borrower, immediately upon the request of Agent,
shall endorse and deliver physical possession of such Negotiable Collateral to
Agent.

     4.3  Collection of Accounts, General Intangibles, and Negotiable
Collateral. At any time after the occurrence and during the continuation of an
Event of Default, Agent or Agent's designee may (a) notify Account Debtors of
Borrower that the Accounts, chattel paper, or General Intangibles have been
assigned to Agent or that Agent has a security interest therein, or (b) collect
the Accounts, chattel paper, or General Intangibles directly and charge the
collection costs and expenses to the Loan Account. Borrower agrees that it will
hold in trust for the Lender Group, as the Lender Group's trustee, any
Collections on account of Collateral that it receives and immediately will
deliver said Collections to Agent or a Cash Management Bank in their original
form as received by Borrower.

     4.4  Delivery of Additional Documentation Required. At any time upon the
request of Agent, Borrower shall execute and deliver to Agent, any and all
financing statements, original financing statements in lieu of continuation
statements, fixture filings, security agreements, pledges, assignments,
endorsements of certificates of title, and all other documents (the "Additional
Documents") that Agent may request in its Permitted Discretion, in form and
substance satisfactory to Agent, to perfect and continue perfected or better
perfect the Agent's Liens in the Collateral (whether now owned or hereafter
arising or acquired), to create and

                                       52
<PAGE>

perfect Liens in favor of Agent in any Real Property acquired after the Closing
Date, and in order to fully consummate all of the transactions contemplated
hereby and under the other Loan Documents. To the maximum extent permitted by
applicable law, Borrower authorizes Agent to execute any such Additional
Documents in Borrower's name and authorizes Agent to file such executed
Additional Documents in any appropriate filing office. In addition, on such
periodic basis as Agent shall require, Borrower shall (a) provide Agent with a
report of all new patentable, copyrightable, or trademarkable materials acquired
or generated by Borrower during the prior period, (b) cause all patents,
copyrights, and trademarks acquired or generated by Borrower that are not
already the subject of a registration with the appropriate filing office (or an
application therefor diligently prosecuted) to be registered with such
appropriate filing office in a manner sufficient to impart constructive notice
of Borrower's ownership thereof, and (c) cause to be prepared, executed, and
delivered to Agent supplemental schedules to the applicable Loan Documents to
identify such patents, copyrights, and trademarks as being subject to the
security interests created thereunder.

     4.5  Power of Attorney. Borrower hereby irrevocably makes, constitutes, and
appoints Agent (and any of Agent's officers, employees, or agents designated by
Agent) as Borrower's true and lawful attorney, with power to (a) if Borrower
refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower on any of the documents
described in Section 4.4, (b) at any time that an Event of Default has occurred
and is continuing, sign Borrower's name on any invoice or bill of lading
relating to the Collateral, drafts against Account Debtors, or notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse
Borrower's name on any Collection item that may come into the Lender Group's
possession and which is Collateral or proceeds of Collateral, (e) at any time
that an Event of Default has occurred and is continuing, make, settle, and
adjust all claims under Borrower's policies of insurance and make all
determinations and decisions with respect to such policies of insurance, except
to the extent that property covered by such insurance does not constitute
Collateral and (f) at any time that an Event of Default has occurred and is
continuing, settle and adjust disputes and claims respecting the Accounts,
chattel paper, or General Intangibles directly with Account Debtors, for amounts
and upon terms that Agent determines to be reasonable, and Agent may cause to be
executed and delivered any documents and releases that Agent determines to be
necessary. The appointment of Agent as Borrower's attorney, and each and every
one of its rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid and performed
and the Lender Group's obligations to extend credit hereunder are terminated.

     4.6  Right to Inspect. Agent and each Lender (through any of their
respective officers, employees, or agents) shall have the right during regular
business hours prior to the occurrence of any Event of Default and at any time
after the occurrence of an Event of Default, from time to time hereafter to
inspect the Books and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, quality, value, condition
of, or any other matter relating to, the Collateral.

     4.7  Control Agreements. Borrower agrees that it will not transfer assets
out of any Securities Accounts other than as permitted under Section 7.19 and,
if to another securities intermediary, unless each of Borrower, Agent, and the
substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control

                                       53
<PAGE>

Agreement in respect of any Securities Accounts or other Investment Property
shall be modified by Borrower without the prior written consent of Agent. Upon
the occurrence and during the continuance of a Default or Event of Default,
Agent may notify any securities intermediary to liquidate the applicable
Securities Account or any related Investment Property maintained or held thereby
and remit the proceeds thereof to the Agent's Account.

5.   REPRESENTATIONS AND WARRANTIES.

     In order to induce the Lender Group to enter into this Agreement, Borrower
makes the following representations and warranties to the Lender Group which
shall be true, correct, and complete, in all material respects, as of the date
hereof, and shall be true, correct, and complete, in all material respects, as
of the Closing Date, and at and as of the date of the making of each Advance (or
other extension of credit) made thereafter, as though made on and as of the date
of such Advance (or other extension of credit) (except to the extent that such
representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:

     5.1  No Encumbrances. Borrower has good and indefeasible title to the
Collateral and the Real Property constituting Collateral, free and clear of
Liens except for Permitted Liens.

     5.2  Eligible Accounts. The Eligible Accounts are bona fide existing
payment obligations of Account Debtors created by the sale and delivery of
Inventory or the rendition of services to such Account Debtors in the ordinary
course of Borrower's business, owed to Borrower without defenses, disputes,
offsets, counterclaims, or rights of return or cancellation. As to each Eligible
Account, such Account is not:

          (a)  owed by an employee, Affiliate, or agent of Borrower,

          (b)  on account of a transaction wherein goods were placed on
     consignment or were sold pursuant to a guaranteed sale, a sale or return, a
     sale on approval, a bill and hold, or on any other terms by reason of which
     the payment by the Account Debtor may be conditional,

          (c)  payable in a currency other than Dollars,

          (d)  owed by an Account Debtor that has or has asserted a right of
     setoff, has disputed its liability, or has made any claim with respect to
     its obligation to pay the Account,

          (e)  owed by an Account Debtor that is subject to any Insolvency
     Proceeding or is not Solvent or as to which Borrower has received notice of
     an imminent Insolvency Proceeding or a material impairment of the financial
     condition of such Account Debtor,

          (f)  on account of a transaction as to which the goods giving rise to
     such Account have not been shipped and billed to the Account Debtor or the
     services giving rise to such Account have not been performed and accepted
     by the Account Debtor,

          (g)  a right to receive progress payments or other advance billings
     that are due prior to the completion of performance by Borrower of the
     subject contract for goods or services, and

                                       54
<PAGE>

          (h)  an Account that has not been billed to the customer.

     5.3  Eligible Inventory. All Eligible Inventory is of good and merchantable
quality, free from defects. As to each item of Eligible Inventory, such
Inventory is:

          (a)  owned by Borrower free and clear of all Liens other than Liens in
     favor of Lender,

          (b)  either located at one of the locations set forth on Schedule E-1
     or in transit from one such location to another such location,

          (c)  not located on real property leased by Borrower or in a contract
     warehouse, in each case, unless subject to a Collateral Access Agreement
     executed by the lessor, the warehouseman, or other third party, as the case
     may be, and unless segregated or otherwise separately identifiable from
     goods of others, if any, stored on the premises,

          (d)  not goods that have been returned or rejected by Borrower's
     customers, and

          (e)  not goods that are obsolete or slow moving, restrictive or custom
     items, work-in-process, or that constitute spare parts, packaging and
     shipping materials, supplies used or consumed in Borrower's business, bill
     and hold goods, defective goods, "seconds," or Inventory acquired on
     consignment.

     5.4  Equipment. All of the Equipment is used or held for use in Borrower's
business and is fit for such purposes.

     5.5  Location of Inventory and Equipment. The Inventory and Equipment
constituting Collateral are not stored with a bailee, warehouseman, or similar
party and are located only at the locations identified on Schedule 5.5. Borrower
may from time to time update Schedule 5.5 so long as (i) Borrower gives Agent
not less than thirty (30) days advance written notice and (ii) Borrower delivers
to Agent a Collateral Access Agreement with respect to each additional location
listed on any revised Schedule 5.5.

     5.6  Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the type, quality, and quantity of its Inventory and
the book value thereof.

     5.7  Location of Chief Executive Office; FEIN. The chief executive office
of Borrower is located at the address indicated in Schedule 5.7 and Borrower's
FEIN is identified in Schedule 5.7. Borrower may from time to time update
Schedule 5.7 so long as (i) Borrower gives Agent not less than thirty (30) days
advance written notice and (ii) Borrower delivers to Lender a Collateral Access
Agreement with respect to each additional location listed on any revised
Schedule 5.7.

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<PAGE>

     5.8  Due Organization and Qualification; Subsidiaries.

          (a)  Borrower is duly organized and existing and in good standing
     under the laws of the jurisdiction of its organization and qualified to do
     business in any state where the failure to be so qualified reasonably could
     be expected to have a Material Adverse Change.

          (b)  Set forth on Schedule 5.8(b) is a complete and accurate
     description as of the Closing Date of the authorized capital Stock of
     Borrower, by class, and, as of the Closing Date, a description of the
     number of shares of each such class that are issued and outstanding. Other
     than as described on Schedule 5.8(b), there are no subscriptions, options,
     warrants, or calls relating to any shares of Borrower's capital Stock,
     including any right of conversion or exchange under any outstanding
     security or other instrument. Borrower is not subject to any obligation
     (contingent or otherwise) to repurchase or otherwise acquire or retire any
     shares of its capital Stock or any security convertible into or
     exchangeable for any of its capital Stock.

          (c)  Set forth on Schedule 5.8(c), is a complete and accurate list of
     Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction
     of their organization, (ii) the number of shares of each class of common
     and preferred Stock authorized for each of such Subsidiaries, and (iii) the
     number and the percentage of the outstanding shares of each such class
     owned directly or indirectly by Borrower. All of the outstanding capital
     Stock of each such Subsidiary has been validly issued and is fully paid and
     non-assessable, except as otherwise expressly provided under Wisconsin
     Stat.180.0622(2)(b).

          (d)  Except as set forth on Schedule 5.8(c), there are no
     subscriptions, options, warrants, or calls relating to any shares of
     Borrower's Subsidiaries' capital Stock, including any right of conversion
     or exchange under any outstanding security or other instrument. Neither
     Borrower nor any of its Subsidiaries is subject to any obligation
     (contingent or otherwise) to repurchase or otherwise acquire or retire any
     shares of Borrowers' Subsidiaries' capital Stock or any security
     convertible into or exchangeable for any such capital Stock.

          (e)  Borrower is in compliance with all applicable provisions of law,
     including, without limitation, the Food Security Act, PACA and Borrower,
     and each of its subsidiaries and affiliates possess all necessary
     authorizations, permits and licenses to lawfully conduct business
     operations. Borrower, and each of Borrower's subsidiaries, affiliates,
     divisions and branches possess all necessary dealer's license(s) under
     PACA, and such licenses are current and valid.

     5.9  Due Authorization; No Conflict.

          (a)  The execution, delivery, and performance by Borrower of this
     Agreement and the Loan Documents to which it is a party have been duly
     authorized by all necessary action on the part of Borrower.

          (b)  The execution, delivery, and performance by Borrower of this
     Agreement and the Loan Documents to which it is a party do not and will not
     (i)violate any provision of federal, state, or local law or regulation
     applicable to Borrower, the Governing Documents of Borrower, or any order,
     judgment, or decree of any court or other Governmental Authority binding on
     Borrower, (ii) conflict with, result in a breach of, or constitute (with
     due notice or lapse of time or both) a default under any material
     contractual obligation of Borrower, (iii) result

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<PAGE>

     in or require the creation or imposition of any Lien of any nature
     whatsoever upon any properties or assets of Borrower, other than Permitted
     Liens, or (iv) require any approval of Borrower's interestholders or any
     approval or consent of any Person under any material contractual obligation
     of Borrower, except to the extent any such approval or consent has been
     obtained.

          (c)  Other than the filing of financing statements, fixture filings,
     and Mortgages and NASDAQ disclosure statements, the execution, delivery,
     and performance by Borrower of this Agreement and the Loan Documents to
     which Borrower is a party do not and will not require any registration
     with, consent, or approval of, or notice to, or other action with or by,
     any Governmental Authority or other Person.

          (d)  This Agreement and the other Loan Documents to which Borrower is
     a party, and all other documents contemplated hereby and thereby, when
     executed and delivered by Borrower will be the legally valid and binding
     obligations of Borrower, enforceable against Borrower in accordance with
     their respective terms, except as enforcement may be limited by equitable
     principles or by bankruptcy, insolvency, reorganization, moratorium, or
     similar laws relating to or limiting creditors' rights generally.

          (e)  The Agent's Liens on Collateral are validly created, perfected,
     and first priority Liens, subject only to Permitted Liens.

          (f)  The execution, delivery, and performance by each Guarantor of the
     Loan Documents to which it is a party have been duly authorized by all
     necessary action on the part of Guarantor.

          (g)  The execution, delivery, and performance by Guarantor of the Loan
     Documents to which it is a party do not and will not (i)violate any
     provision of federal, state, or local law or regulation applicable to
     Guarantor, the Governing Documents of Guarantor, or any order, judgment, or
     decree of any court or other Governmental Authority binding on Guarantor,
     (ii)conflict with, result in a breach of, or constitute (with due notice or
     lapse of time or both) a default under any material contractual obligation
     of Guarantor, (iii)result in or require the creation or imposition of any
     Lien of any nature whatsoever upon any properties or assets of Guarantor,
     other than Permitted Liens, or (iv)require any approval of Guarantor's
     interestholders or any approval or consent of any Person under any material
     contractual obligation of Guarantor.

          (h)  The execution, delivery, and performance by Guarantor of the Loan
     Documents to which Guarantor is a party do not and will not require any
     registration with, consent, or approval of, or notice to, or other action
     with or by, any Governmental Authority or other Person.

          (i)  The Loan Documents to which Guarantor is a party, and all other
     documents contemplated hereby and thereby, when executed and delivered by
     Guarantor will be the legally valid and binding obligations of Guarantor,
     enforceable against Guarantor in accordance with their respective terms,
     except as enforcement may be limited by equitable principles or by
     bankruptcy, insolvency, reorganization, moratorium, or similar laws
     relating to or limiting creditors' rights generally.

     5.10 Litigation. Other than those matters disclosed on Schedule 5.10, there
are no

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<PAGE>

actions, suits, or proceedings pending or, to the best knowledge of Borrower,
threatened against Borrower, or any of its Subsidiaries, as applicable, except
for (a) matters that are fully covered by insurance (subject to customary
deductibles), and (b) matters arising after the Closing Date that, if decided
adversely to Borrower, or any of its Subsidiaries, as applicable, reasonably
could not be expected to result in a Material Adverse Change.

     5.11 No Material Adverse Change. All financial statements relating to
Borrower or Guarantors that have been delivered by Borrower to the Lender Group
have been prepared in accordance with GAAP (except, in the case of unaudited
financial statements, for the lack of footnotes and being subject to year-end
audit adjustments) and present fairly in all material respects, Borrower's (or
Guarantors, as applicable) financial condition as of the date thereof and
results of operations for the period then ended. There has not been a Material
Adverse Change with respect to Borrower and Guarantors taken as a whole, since
the date of the latest financial statements submitted to the Lender Group on or
before the Closing Date.

     5.12 Fraudulent Transfer.

          (a)  Borrower is Solvent after giving effect to transactions
     contemplated on the Closing Date by Borrower with Agent, Lenders, Sun
     Capital, the Terminating Bank Group and the Continuing Bank Group.

          (b)  No transfer of property is being made by Borrower and no
     obligation is being incurred by Borrower in connection with the
     transactions contemplated by this Agreement or the other Loan Documents
     with the intent to hinder, delay, or defraud either present or future
     creditors of Borrower.

     5.13 Employee Benefits. Except as set forth on Schedule 5.13, none of
Borrower, any of its Subsidiaries, or any of their ERISA Affiliates maintains or
contributes to any Benefit Plan.

     5.14 Environmental Condition. Except as set forth on Schedule 5.14, (a) to
Borrower's knowledge, none of Borrower's assets has ever been used by Borrower
or by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials, where such
production, storage, handling, treatment, release or transport was in violation,
in any material respect, of applicable Environmental Law, (b) to Borrower's
knowledge, none of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
Hazardous Materials disposal site, (c) Borrower has not received notice that a
Lien arising under any Environmental Law has attached to any revenues or to any
Real Property owned or operated by Borrower, and (d) Borrower has not received a
summons, citation, notice, or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.

     5.15 Brokerage Fees. Except as set forth on Schedule 5.15,Borrower has not
utilized the services of any broker or finder in connection with Borrower's
obtaining financing from the Lender Group under this Agreement and no brokerage
commission or finders fee is payable by Borrower in connection herewith.

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<PAGE>

     5.16 Intellectual Property. Borrower owns, has rights to use or holds
licenses in, all trademarks, trade names, copyrights, patents, patent rights,
and licenses that are necessary to the conduct of its business as currently
conducted. Attached hereto as Schedule 5.16 is a true, correct, and complete
listing of all material patents, patent applications, trademarks, trademark
applications, copyrights, and copyright registrations as to which Borrower is
the owner or is an exclusive licensee. Borrower may from time to time update
Schedule 5.16 on not less than thirty (30) days advance written notice to Agent.

     5.17 Leases. Except as expressly set forth on Schedule 5.17, Borrower
enjoys peaceful and undisturbed possession under all leases material to the
business of Borrower and to which it is a party or under which it is operating.
All of such leases are valid and subsisting and no material default by Borrower
exists under any of them.

     5.18 DDAs. Set forth on Schedule 5.18 are all of Borrower's DDAs,
including, with respect to each depository (i) the name and address of such
depository, and (ii) the account numbers of the accounts maintained with such
depository. Borrower may from time to time update Schedule 5.18 on not less than
thirty (30) days advance written notice to Agent.

     5.19 Complete Disclosure. All factual information (taken as a whole)
furnished by or on behalf of Borrower in writing to Agent or any Lender
(including all information contained in the Schedules hereto or in the other
Loan Documents) for purposes of or in connection with this Agreement, the other
Loan Documents, or any transaction contemplated herein or therein is, and all
other such factual information (taken as a whole) hereafter furnished by or on
behalf of Borrower in writing to Agent or any Lender will be, true and accurate,
in all material respects, on the date as of which such information is dated or
certified and not incomplete by omitting to state any fact necessary to make
such information (taken as a whole) not misleading in any material respect at
such time in light of the circumstances under which such information was
provided. On the Closing Date, the Closing Date Projections represent, and as of
the date on which any other Projections are delivered to Agent, such additional
Projections represent Borrower's good faith best estimate of its future
performance for the periods covered thereby.

     5.20 Indebtedness. Set forth on Schedule 5.20 is a true and complete list
of all Indebtedness of Borrower outstanding immediately prior to the Closing
Date that is to remain outstanding after the Closing Date and such Schedule
accurately reflects the aggregate principal amount of such Indebtedness as of
the Closing Date and the principal terms thereof.

     5.21 Notices from Farm Products Sellers, etc.

          (a)  Except as set forth in Schedule 5.21(a) hereto, Borrower has not,
     within the one (1) year period prior to the date hereof, received any
     written notice pursuant to the applicable provisions of the Food Security
     Act, or pursuant to the Code or any state statutory agricultural or
     producers' lien laws or any other applicable local laws from (i) any Farm
     Products Seller or (ii) any lender to any Farm Products Seller or any other
     Person with a security interest in the assets of any Farm Products Seller
     or (iii) the Secretary of State (or equivalent official) or other
     Governmental Authority of any State, Commonwealth or political subdivision
     thereof

                                       59
<PAGE>

     in which any Farm Products purchased by Borrower are produced, in any case
     advising or notifying Borrower of the intention of such Farm Products
     Seller or other Person to preserve the benefits of any trust, lien or other
     interest applicable to any assets of Borrower established in favor of such
     Farm Products Seller or other Person under any other law other than PACA or
     claiming a Lien or security interest in and to any perishable agricultural
     commodity or any other Farm Products which may be or have been purchased by
     Borrower or any related or other assets of Borrower (all of the foregoing,
     together with any such notices as Borrower may at any time hereafter
     receive, collectively, the "Food Security Act Notices").

          (b)  Borrower is not engaged in, and shall not engage in, raising,
     cultivating, propagating, fattening or grazing, livestock operations, or
     other farming operations.

          (c)  Borrower is not and shall not function as a meat packer,
     "livestock dealer", or "live poultry dealer" as those terms are defined
     under the PSA nor does or shall Borrower purchase or deal in any type of
     livestock, live poultry, or the slaughtered carcasses thereof whatsoever.

6.   AFFIRMATIVE COVENANTS.

     Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower shall
and shall cause each of its Subsidiaries to do all of the following:

     6.1  Accounting System. Maintain a system of accounting that enables
Borrower to produce financial statements in accordance with GAAP and maintain
records pertaining to the Collateral that contain information as from time to
time reasonably may be requested by Agent. Borrower also shall keep an inventory
reporting system that shows all additions, sales, claims, returns, and
allowances with respect to the Inventory.

     6.2  Collateral Reporting. Provide Agent (and if so requested by Agent,
with copies for each Lender) with the following documents at the following times
in form satisfactory to Agent:

     Daily                   (a) a sales journal, collection journal, and credit
                             register since the last such schedule and a
                             calculation of the Borrowing Base as of such date;

                             (b) notice of all returns, disputes, or claims in
                             excess of $5,000;

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<PAGE>

     Weekly                  (c) Inventory reports specifying Borrower's cost
                             and the wholesale market value of its Inventory, by
                             category, including without limitation a breakout
                             of cranberry concentrate and frozen cranberries by
                             gallons and pounds, respectively, with additional
                             detail showing additions to and deletions from the
                             Inventory;

                             (d) an invoice register, including the price per
                             gallon paid with respect to each sale, and
                             including a certification as to the lowest per
                             gallon price paid by any customer during the period
                             covered by such invoice register;

     Monthly (not later      (e) a detailed calculation of the Borrowing Base
     than the 15th day       (including detail regarding those Accounts that are
     of each month)          not Eligible Accounts);

                             (f) a detailed aging, by total, of the Accounts,
                             together with a reconciliation to the detailed
                             calculation of the Borrowing Base previously
                             provided to Agent;

                             (g) a summary aging, by vendor, of Borrower's
                             accounts payable and any book overdraft;

                             (h) a calculation of Dilution for the prior month;

                             (i) a cranberry concentrate forecast;

                             (j) a Schedule listing all inventory owned by
                             Nestle U.S.A., Inc. or Apple & Eve, LLC in the
                             Borrower's possession;

                             (k) a listing of Farm Products Sellers and amounts
                             owed to each such Person;

     Quarterly               (l) a detailed list of Borrower's customers;

                             (m) a report regarding Borrower's accrued, but
                             unpaid, ad valorem taxes;

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<PAGE>

     Upon request by         (n) copies of invoices in connection with the
     Agent                   Accounts, credit memos, remittance advices, deposit
                             slips, shipping and delivery documents in
                             connection with the Accounts and, for Inventory and
                             Equipment acquired by Borrower, purchase orders and
                             invoices;

                             (o) such other reports as to the Collateral, or the
                             financial condition of Borrower, as Agent may
                             request;

     Upon occurrence         (p) immediate notice of any default or notice of
                             default received with respect to the Cliffstar
                             Note, or the Continuing Bank Documents or the
                             federal multi-peril crop insurance policy
                             including a copy of any written notice received by
                             Borrower;

                             (q) within five (5) Business Days of Borrower's
                             receipt thereof, a copy of any notice or report
                             with respect to any earnout or similar
                             calculations with respect to the Cliffstar Note.

     In addition, Borrower agrees to cooperate fully with Agent to facilitate
and implement a system of electronic collateral reporting in order to provide
electronic reporting of each of the items set forth above.

     6.3  Financial Statements, Reports, Certificates. Deliver to Agent, with
copies to each Lender:

          (a)  as soon as available, but in any event within 30 days (45 days in
     the case of a month that is the end of one of the first 3 fiscal quarters
     in a fiscal year or that is the month immediately following the Closing
     Date) after the end of each month during each of Borrower's fiscal years,

               (i)   a company prepared consolidated balance sheet, income
          statement, and statement of cash flow covering Borrower's and its
          Subsidiaries' operations during such period,

               (ii)  a certificate signed by the chief financial officer of
          Borrower to the effect that:

                     (A)   the financial statements delivered hereunder have
               been prepared in accordance with GAAP (except for the lack of
               footnotes and being subject to year-end audit adjustments) and
               fairly present in all material respects the financial condition
               of Borrower and its Subsidiaries,

                     (B)   the representations and warranties of Borrower
               contained in this Agreement and the other Loan Documents are true
               and correct in all material respects on and as of the date of
               such certificate, as though made on and as of such date (except
               to the extent that such representations and warranties relate
               solely to an earlier date), and

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<PAGE>

                     (C)   there does not exist any condition or event that
               constitutes a Default or Event of Default (or, to the extent of
               any non-compliance, describing such non-compliance as to which he
               or she may have knowledge and what action Borrower has taken, is
               taking, or proposes to take with respect thereto), and

               (iii) for each month that is the date on which a financial
          covenant in Section 7.20 is to be tested, a Compliance Certificate
          demonstrating, in reasonable detail, compliance at the end of such
          period with the applicable financial covenants contained in Section
          7.20, and

          (b)  as soon as available, but in any event within 120 days after the
     end of each of Borrower's fiscal years,

               (i)   financial statements of Borrower and its Subsidiaries for
          each such fiscal year, audited by independent certified public
          accountants reasonably acceptable to Agent and certified, without any
          qualifications (including, without limitation, (i) any going concern
          or like qualification or exception or (ii) any qualification as to the
          scope of such audit), by such accountants to have been prepared in
          accordance with GAAP (such audited financial statements to include a
          balance sheet, income statement, and statement of cash flow and, if
          prepared, such accountants' letter to management),

               (ii)  a certificate of such accountants addressed to Agent and
          the Lenders stating that such accountants do not have knowledge of the
          existence of any Default or Event of Default under Section 7.20,

          (c)  as soon as available, but in any event within 30 days prior to
     the start of each of Borrower's fiscal years,

               (i)   copies of Borrower's Projections, in form and substance
          (including as to scope and underlying assumptions) satisfactory to
          Agent, in its sole discretion, for the forthcoming 3 years, year by
          year, and for the forthcoming fiscal year, month by month, certified
          by the chief financial officer of Borrower as being such officer's
          good faith best estimate of the financial performance of Borrower
          during the period covered thereby,

          (d)  if and when filed by Borrower,

               (i)   Form 10-Q quarterly reports, Form 10-K annual reports, and
          Form 8-K current reports,

               (ii)  any other filings made by Borrower with the SEC,

               (iii) copies of Borrower's federal income tax returns, and any
          amendments thereto, filed with the Internal Revenue Service, and

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<PAGE>

               (iv)  any other information that is provided by Borrower to its
          shareholders generally,

          (e)  if and when filed by Borrower and as requested by Agent,
     satisfactory evidence of payment of applicable excise taxes in each
     jurisdictions in which (i) Borrower conducts business or is required to pay
     any such excise tax, (ii) where Borrower's failure to pay any such
     applicable excise tax would result in a Lien on the properties or assets of
     Borrower, or (iii) where Borrower's failure to pay any such applicable
     excise tax reasonably could be expected to result in a Material Adverse
     Change,

          (f)  as soon as Borrower has knowledge of any event or condition that
     constitutes a Default or an Event of Default, notice thereof and a
     statement of the curative action that Borrower proposes to take with
     respect thereto, and

          (g)  upon the request of Agent, any other report reasonably requested
     relating to the financial condition of Borrower.

     In addition to the financial statements referred to above, Borrower agrees
to deliver financial statements prepared on both a consolidated and
consolidating basis and agrees that no Subsidiary of Borrower will have a fiscal
year different from that of Borrower. Borrower agrees that its independent
certified public accountants are authorized to communicate with Agent and to
release to Agent whatever financial information concerning Borrower Agent
reasonably may request. Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Agent pursuant to or in accordance
with this Agreement, and agrees that Agent may contact directly any such
accounting firm or service bureau in order to obtain such information.

     6.4  Return. Cause returns and allowances, as between Borrower and its
Account Debtors, to be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory with a sale price in
excess of $25,000, or any Account Debtors return inventory in any fiscal quarter
with a sale price in excess of $50,000 in the aggregate, to Borrower, Borrower
promptly shall determine the reason for such return and, if Borrower accepts
such return, issue a credit memorandum (with a copy to be sent to Agent) in the
appropriate amount to such Account Debtor. If, at a time when an Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to Borrower, Borrower promptly shall determine the reason for such return and,
if Agent consents (which consent shall not be unreasonably withheld), issue a
credit memorandum (with a copy to be sent to Agent) in the appropriate amount to
such Account Debtor.

     6.5  Maintenance of Properties. Except as expressly set forth on Schedule
5.17, maintain and preserve all of its properties which are necessary or useful
in the proper conduct to its business in good working order and condition,
ordinary wear and tear excepted, and comply at all times with the provisions of
all leases to which it is a party as lessee so as to prevent any loss or
forfeiture thereof or thereunder.

     6.6  Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due

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<PAGE>

or payable by, or imposed, levied, or assessed against Borrower or any of its
assets to be paid in full, before delinquency or before the expiration of any
extension period, except to the extent that the validity of such assessment or
tax shall be the subject of a Permitted Protest. Borrower will make timely
payment or deposit of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Agent with proof satisfactory to Agent indicating that Borrower has made
such payments or deposits. Borrower shall deliver satisfactory evidence of
payment of applicable excise taxes in each jurisdictions in which Borrower is
required to pay any such excise tax.

     6.7  Insurance.

          (a)  At Borrower's expense, maintain insurance respecting its assets
     wherever located, covering loss or damage by fire, theft, explosion, and
     all other hazards and risks as ordinarily are insured against by other
     Persons engaged in the same or similar businesses. Borrower also shall
     maintain business interruption, public liability, multi-peril crop and
     product liability insurance, as well as insurance against larceny,
     embezzlement, and criminal misappropriation. All such policies of insurance
     shall be in such amounts and with such insurance companies as are
     reasonably satisfactory to Agent. Borrower shall deliver copies of all such
     policies to Agent with a satisfactory lender's loss payable endorsement
     naming Agent as sole loss payee (with respect to Collateral) or additional
     insured, as appropriate. Each policy of insurance or endorsement shall
     contain a clause requiring the insurer to give not less than 30 days prior
     written notice to Agent in the event of cancellation of the policy for any
     reason whatsoever.

          (b)  Borrower shall give Agent prompt notice of any loss covered by
     such insurance. Agent shall have the exclusive right to adjust any losses
     payable under any such insurance policies in excess of $100,000, without
     any liability to Borrower whatsoever in respect of such adjustments. Any
     monies received as payment for any loss with respect to Collateral under
     any insurance policy mentioned above (other than liability insurance
     policies) or as payment of any award or compensation for condemnation or
     taking by eminent domain, shall be paid over to Agent to be applied at the
     option of the Required Lenders either to the prepayment of the Obligations
     or shall be disbursed to Borrower under staged payment terms reasonably
     satisfactory to the Required Lenders for application to the cost of
     repairs, replacements, or restorations. Any such repairs, replacements, or
     restorations shall be effected with reasonable promptness and shall be of a
     value at least equal to the value of the items of property destroyed prior
     to such damage or destruction.

          (c)  Borrower will not take out separate insurance concurrent in form
     or contributing in the event of loss with that required to be maintained
     under this Section 6.7 with respect to Collateral, unless Agent is included
     thereon as named insured with the loss payable to Agent under a lender's
     loss payable endorsement or its equivalent. Borrower immediately shall
     notify Agent whenever such separate insurance is taken out, specifying the
     insurer thereunder and full particulars as to the policies evidencing the
     same, and copies of such policies promptly shall be provided to Agent.

     6.8  Location of Inventory and Equipment. Keep the Inventory and Equipment
only at the locations identified on Schedule 5.5; provided, however, that
Borrower may amend Schedule 5.5 so long as such amendment occurs by written
notice to Agent not less than 30 days

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<PAGE>

prior to the date on which Inventory or Equipment constituting Collateral is
moved to such new location, so long as such new location is within the
continental United States, and so long as, at the time of such written
notification, Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected the Agent's Liens on such assets and
also provides to Agent a Collateral Access Agreement.

     6.9  Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any Governmental Authority, including
the Fair Labor Standards Act, the Americans With Disabilities Act, PACA, the
Food Security Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not result in
and reasonably could not be expected to result in a Material Adverse Change.

     6.10 Leases. Except as expressly set forth on Schedule 5.17, pay when due
all rents and other amounts payable under any leases to which Borrower is a
party or by which Borrower's properties and assets are bound, unless such
payments are the subject of a Permitted Protest.

     6.11 Brokerage Commissions. Pay any and all brokerage commission or finders
fees incurred in connection with or as a result of Borrower's obtaining
financing from the Lender Group under this Agreement. Borrower agrees and
acknowledges that payment of all such brokerage commissions or finders fees
shall be the sole responsibility of Borrower, and Borrower agrees to indemnify,
defend, and hold Agent and the Lender Group harmless from and against any claim
of any broker or finder arising out of Borrower's obtaining financing from the
Lender Group under this Agreement.

     6.12 Existence. At all times preserve and keep in full force and effect
Borrower's valid existence and good standing and any rights and franchises
material to Borrower's businesses.

     6.13 Environmental.

          (a)  Keep any property either owned or operated by Borrower free of
     any Environmental Liens or post bonds or other financial assurances
     sufficient to satisfy the obligations or liability evidenced by such
     Environmental Liens, (b) comply, in all material respects, with
     Environmental Laws and provide to Agent documentation of such compliance
     which Agent reasonably requests, (c) promptly notify Agent of any release
     of a Hazardous Material in any reportable quantity from or onto property
     owned or operated by Borrower and take any Remedial Actions required to
     abate said release or otherwise to come into compliance with applicable
     Environmental Law, and (d) promptly provide Agent with written notice
     within 10 days of the receipt of any of the following: (i) notice that an
     Environmental Lien has been filed against any of the real or personal
     property of Borrower, (ii) commencement of any Environmental Action or
     notice that an Environmental Action will be filed against Borrower, and
     (iii) notice of a violation, citation, or other administrative order which
     reasonably could be expected to result in a Material Adverse Change.

     6.14 Agricultural Products.

          (a)  Borrower shall pay, not later than seven (7) Business Days prior
     to the date required for payment therein, the amount of any outstanding
     invoices for the purchase of perishable agricultural commodities (as
     defined in PACA) which is required to be paid within

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<PAGE>

     thirty (30) days of Borrower's acceptance of such commodities unless
     Borrower has obtained from the Farm Products Seller of such commodities a
     waiver of its rights under PACA in form and substance acceptable to Agent;
     provided, however, that in the event that any such invoice requires payment
     upon delivery, payment shall be made on such date of delivery. Borrower
     acknowledges that Agent shall establish a reserve against the Borrowing
     Base in the amount of, at any given time, all accounts payable to sellers
     of perishable agricultural commodities with terms of thirty (30) days
     (after Borrower's receipt and acceptance of such commodities) or less,
     unless Borrower has obtained from any such seller a waiver of its rights
     under PACA, in form and substance acceptable to Agent. Borrower shall at
     all times comply with all existing and future Food Security Act Notices
     during their periods of effectiveness under the Food Security Act,
     including, without limitation, directions to make payments to the Farm
     Products Seller by issuing payment instruments directly to the secured
     party with respect to any assets of the Farm Products Seller or jointly
     payable to the Farm Products Seller and any secured party with respect to
     the assets of such Farm Products Seller, as specified in the Food Security
     Act Notice, so as to terminate or release the security interest in any farm
     products maintained by such Farm Products Seller or any secured party with
     respect to the assets of such Farm Products Seller under the Food Security
     Act.

          (b)  Borrower shall take all other actions as may be reasonably
     required, if any, to ensure that any perishable agricultural commodity (in
     whatever form) or other Farm Products are purchased free and clear of any
     security interest, Lien, trust or other claim in favor of any Farm Products
     Seller or any secured party with respect to the assets of any Farm Products
     Seller, including, without limitation, registration with all states which
     have established central filing systems as contemplated under the Food
     Security Act.

          (c)  Borrower shall notify Agent in writing within three (3) Business
     Days after receipt by Borrower of any Food Security Act Notice or amendment
     to a previous Food Security Act Notice and including any notice from any
     Farm Products Seller of the intention of such Farm Products Seller to
     preserve the benefits of any trust applicable to any assets of Borrower
     established in favor of such Farm Products Seller or other Person under the
     provisions of PACA or any local law, and within such three (3) Business
     Days, Borrower shall provide Agent with a true, correct and complete copy
     of such Food Security Act Notice or amendment or other notice, as the case
     may be, and including any master lists of effective financing statements
     delivered to Borrower pursuant to the Food Security Act. Borrower shall,
     upon Agent's request, at any time and from time to time, furnish Agent with
     a true, correct and complete list of Persons from whom Borrower or any
     Subsidiary purchases any perishable agricultural commodity or other Farm
     Products and the outstanding amounts owed by Borrower or any other
     Subsdiary to such Person.

     In the event Borrower receives a Food Security Act Notice, Borrower shall
     pay the related invoice within one (1) Business Day of receipt of such Food
     Security Act Notice and notify Agent of such receipt; provided, however,
     that such invoice may remain unpaid if, and only so long as (i) appropriate
     legal or administrative action has been commenced in good faith and is
     being diligently pursued or defended by Borrower, (ii) adequate reserves
     with respect to such contest are maintained on the books of Borrower, in
     accordance with GAAP, (iii) the ability of

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<PAGE>

     the vendor to pursue any fights or enforce any Liens or trusts provided
     under PACA has been stayed or otherwise legally prohibited during the
     pendency of such action, (iv) Agent shall have established a Reserve
     against the Borrowing Base in an amount at least equal to the amount
     claimed to be due by such vendor under the relevant invoice (but without
     duplication of any Reserve established under Section 6.14(a)) and (v)
     Borrower shall promptly pay or discharge such contested invoice and all
     additional charges, interest, penalties and expenses, if any, and shall
     deliver to Agent evidence reasonably acceptable to Agent of such payment,
     if such contest is terminated or discontinued adversely to Borrower or the
     conditions set forth in this Section 6.14(c) are no longer met, and (vi)
     Agent has not advised Borrower in writing that Agent reasonably believes
     that nonpayment thereof could have or result in a Material Adverse Change.

     6.15 Disclosure Updates. Promptly and in no event later than 7 Business
Days after obtaining knowledge thereof, (a) notify Agent if any written
information, exhibit, or report furnished to the Lender Group contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light of
the circumstances in which made, and (b) correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgement,
filing, or recordation thereof.

7.   NEGATIVE COVENANTS.

     Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not and will not permit any of its Subsidiaries to do any of the following:

     7.1  Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:

          (a)  Indebtedness evidenced by this Agreement and the other Loan
     Documents, together with Indebtedness owed to Underlying Issuers with
     respect to Underlying Letters of Credit,

          (b)  Indebtedness set forth on Schedule 5.20,

          (c)  Permitted Purchase Money Indebtedness, and

          (d)  refinancings, renewals, or extensions of Indebtedness permitted
     under clauses (b) and (c) of this Section 7.1 (and continuance or renewal
     of any Permitted Liens associated therewith) so long as: (i) the terms and
     conditions of such refinancings, renewals, or extensions do not, in Agent's
     judgment, materially impair the prospects of repayment of the Obligations
     by Borrower or materially impair Borrower's creditworthiness, (ii) such
     refinancings, renewals, or extensions do not result in an increase in the
     principal amount of, or interest rate with respect to, the Indebtedness so
     refinanced, renewed, or extended, (iii) such refinancings, renewals, or
     extensions do not result in a shortening of the average weighted maturity
     of the Indebtedness so refinanced, renewed, or extended, nor are they on
     terms or conditions that, taken as a whole, are materially more burdensome
     or restrictive to Borrower, and (iv) if the Indebtedness that is
     refinanced, renewed, or extended was subordinated in right of payment to
     the Obligations, then the terms and conditions of the refinancing, renewal,
     or extension Indebtedness

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<PAGE>

     must include subordination terms and conditions that are at least as
     favorable to the Lender Group as those that were applicable to the
     refinanced, renewed, or extended Indebtedness.

     7.2  Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced, renewed, or
extended under Section 7.1(d) and so long as the replacement Liens only encumber
those assets that secured the refinanced, renewed, or extended Indebtedness).

     7.3  Restrictions on Fundamental Changes.

          (a)  Enter into any merger, consolidation, reorganization, or
     recapitalization, or reclassify its Stock.

          (b)  Liquidate, wind up, or dissolve itself (or suffer any liquidation
     or dissolution provided that Borrower may, so long as (i) no Event of
     Default has occurred or would directly result, (ii) Agent has received not
     less than thirty (30) days advance written notice and (iii) no Material
     Adverse Change would result, cause one or more of its wholly-owned
     Subsidiaries to enter into any merger or consolidation with any other
     wholly-owned Subsidiary of Borrower, or to liquidate, windup or dissolve.

          (c)  Convey, sell, lease, license, assign, transfer, or otherwise
     dispose of, in one transaction or a series of transactions, all or any
     substantial part of its assets other than sales of Inventory in the
     ordinary course of business or as otherwise expressly permitted under this
     Agreement.

     7.4  Disposal of Assets. Other than Permitted Dispositions, convey, sell,
lease, license, assign, transfer, or otherwise dispose of any of Borrower's
Collateral, or any other assets of Borrower constituting Collateral or any other
assets of Borrower if, with respect to other assets of Borrower not constituting
Collateral, such action would result in a Material Adverse Change.

     7.5  Change Name. Change Borrower's name, FEIN, corporate structure, or
identity, or add any new fictitious name; provided, however, that Borrower may
change its name upon at least 30 days prior written notice to Agent of such
change and so long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected the Agent's Liens.

     7.6  Guarantee. Except as expressly set forth on Schedule 5.20, guarantee
or otherwise become in any way liable with respect to the obligations of any
third Person except by endorsement of instruments or items of payment for
deposit to the account of Borrower or which are transmitted or turned over to
Agent.

     7.7  Nature of Business. Make any change in the principal nature of its
business.

     7.8  Prepayments and Amendments.

          (a)  Except in connection with a refinancing permitted by Section
     7.1(d), or

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<PAGE>

     except as expressly permitted under the Continuing Bank Group Intercreditor
     Agreement, prepay, redeem, defease, purchase, or otherwise acquire any
     Indebtedness of Borrower, other than the Obligations in accordance with
     this Agreement, and

          (b)  Except in connection with a refinancing permitted by Section
     7.1(d), or except as expressly permitted under the Continuing Bank Group
     Intercreditor Agreement, directly or indirectly, amend, modify, alter,
     increase, or change any of the terms or conditions of any agreement,
     instrument, document, indenture, or other writing evidencing or concerning
     Indebtedness permitted under Sections 7.1(b) or (c).

     7.9  Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.

     7.10 Consignments. Consign any Inventory constituting Collateral or sell
any Inventory constituting Collateral on bill and hold, sale or return, sale on
approval, or other conditional terms of sale.

     7.11 Distributions. Make any distribution or declare or pay any dividends
(in cash or other property, other than common Stock) on, or purchase, acquire,
redeem, or retire any of Borrower's Stock, of any class, whether now or
hereafter outstanding provided that so long as (i) no Event of Default exists or
has occurred and is continuing, (ii) Borrower has Excess Availability of not
less than $350,000 immediately after giving effect to such payment and (iii)
Agent receives not less than twenty (20) days advance written notice, Borrower
may redeem employee-owned Stock of the Borrower, in an aggregate amount not to
exceed $350,000 in any Fiscal Year, upon such employee's termination of
employment or death.

     7.12 Accounting Methods. Modify or change its method of accounting (other
than as may be required to conform to GAAP) or enter into, modify, or terminate
any agreement currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation or storage of
Borrower's accounting records without said accounting firm or service bureau
agreeing to provide Agent information regarding the Collateral or Borrower's
financial condition.

     7.13 Investments. Except for Permitted Investments, directly or indirectly,
make or acquire any Investment or incur any liabilities (including contingent
obligations) for or in connection with any Investment; provided, however, that
Borrower shall not have Permitted Investments (other than in the Cash Management
Accounts, advances made in connection with purchase of goods and services in the
ordinary course of business, the Cliffstar Note, Stock of Subsidiaries and Stock
of Beaver Creek Cranberry Grower Assoc. Inc.) in excess of $100,000 outstanding
at any one time unless Borrower and the applicable securities intermediary or
bank have entered into Control Agreements governing such Permitted Investments,
as Agent shall determine in its Permitted Discretion, to perfect (and further
establish) the Agent's Liens in such Permitted Investments.

     7.14 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's business, upon fair
and reasonable terms, that are fully disclosed to Agent, and that are no less
favorable to Borrower than would be obtained in an arm's length transaction

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<PAGE>

with a non-Affiliate, provided that, so long as (i) no Event of Default under
Section 7.20 of this Agreement has occurred or would result, (ii) Borrower has
Excess Availability of not less than $500,000 immediately after giving effect to
such payment and (iii) Agent has received not less than fifteen (15) days
advance written notice of such payment, Borrower may pay regularly scheduled
fees and out of pocket expenses payable under the Sun Management Agreement as in
effect on the Closing Date.

     7.15 Suspension. Suspend or go out of a substantial portion of its
business.

     7.16 [Intentionally Omitted]

     7.17 Use of Proceeds. Use the proceeds of the Advances and the Term Loan
for any purpose other than (a) on the Closing Date, (i) to repay, in full (after
giving effect to the Terminating Bank Group Documents), the outstanding
principal, accrued interest, and accrued fees and expenses owing to the
Terminating Bank Group, (ii) to repay in part, the outstanding principal,
accrued interest, and accrued fees and expenses owing to the Continuing Bank
Group and (iii) to pay transactional fees, costs, and expenses incurred in
connection with this Agreement, the other Loan Documents, and the transactions
contemplated hereby and thereby, and (b) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted purposes.

     7.18 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees. Relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to Agent and so long as, at
the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected the
Agent's Liens and also provides to Agent a Collateral Access Agreement with
respect to such new location. The Inventory and Equipment constituting
Collateral shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Agent's prior written consent.

     7.19 Securities Accounts. Establish or maintain any Securities Account
unless Agent shall have received a Control Agreement in respect of such
Securities Account. Borrower shall not transfer assets out of any Securities
Account; provided, however, that, so long as no Event of Default has occurred
and is continuing or would result therefrom, Borrower may use such assets (and
the proceeds thereof) to the extent not prohibited by this Agreement.

     7.20 Financial Covenants.

          (a)  Minimum EBITDA. Fail to maintain EBITDA, measured on a fiscal
     month-end basis, of not less than the required amount set forth in the
     following table for the applicable period set forth opposite thereto;

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<PAGE>

  Applicable Amount                      Applicable Period

       ($897,298)      For the 3 month period ending January 31, 2002

        $429,998       For the 4 month period ending February 28, 2002

       ($339,393)      For the 5 month period ending March 31, 2002

       ($288,953)      For the 6 month period ending April 30, 2002

       ($293,551)      For the 7 month period ending May 31, 2002

       ($566,533)      For the 8 month period ending June 30, 2002

      $1,044,984       For the 9 month period ending July 31, 2002

      $2,132,232       For the 10 month period ending August 31, 2002

      $2,442,526       For the 11 month period ending September 30, 2002

      $2,959,933       For the 12 month period ending October 31, 2002

      $2,826,729       For the 12 month period ending November 30, 2002

      $5,692,444       For the 12 month period ending December 31, 2002

      $6,778,870       For the 12 month period ending January 31, 2003

      $6,499,141       For the 12 month period ending February 28, 2003

                                       72
<PAGE>

      $8,543,857       For the 12 month period ending March 31, 2003

      $9,529,124       For the 12 month period ending April 30, 2003

     $10,862,950       For the 12 month period ending May 31, 2003

     $12,756,309       For the 12 month period ending June 30, 2003

     $12,215,248       For the 12 month period ending July 31, 2003

     $12,511,558       For the 12 month period ending August 31, 2003

     $13,909,954       For the 12 month period ending October 31, 2003

     $14,000,000       For the 12 month period ending September 30, 2003 and
                       each rolling twelve month period (measured at the end of
                       each fiscal month) thereafter

          (b)  Capital Expenditures. Make Capital Expenditures in any fiscal
     year in excess of the amount of $1,386,000 for each Fiscal Year. So long
     as, as of the end of any Fiscal Year, no Event of Default then exists or
     has occurred and is continuing, the amount of Capital Expenditures
     permitted in such Fiscal Year which remains unused may be added to the
     permitted amount of Capital Expenditures in the immediately following
     Fiscal Year. In the event that Borrower requests an increase to the amount
     of Capital Expenditures permitted under this Section, and so long as no
     Event of Default has then occurred the Agent and Required Lenders shall not
     charge an amendment or similar fee in connection with any increase in such
     amount agreed to by the Required Lenders, provided that Agent and Required
     Lenders shall have no commitment or obligation whatsoever, of any kind or
     nature, to agree to any such increase.

8.   EVENTS OF DEFAULT.

     Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:

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     8.1  If Borrower or any Guarantor which is a Material Subsidiary fails to
pay when due and payable, or when declared due and payable, all or any portion
of the Obligations (whether of principal, interest (including any interest
which, but for the provisions of the Bankruptcy Code, would have accrued on such
amounts), fees and charges due the Lender Group, reimbursement of Lender Group
Expenses, or other amounts constituting Obligations);

     8.2  If Borrower or any Guarantor which is a Material Subsidiary fails to
perform, keep, or observe: (a) any term, provision, condition, covenant, or
agreement contained in Section 6.2 or Section 6.3 and such failure continues for
a period of five (5) days after the date of such failure; provided that a single
failure, for up to five (5) days, in any fiscal quarter to perform, keep or
observe any one of the daily and weekly reporting requirements contained in
Section 6.2 shall not, so long as no other Event of Default then exists or has
occurred and is continuing, constitute an Event of Default; (b) any term,
provision, condition, covenant or agreement contained in Sections 6.4, 6.5, 6.6,
6.8 or 6.10 and such failure continues for a period of fifteen (15) days after
the date of such failure or (c) any other term, provision, condition, covenant
or agreement contained in this Agreement or in any of the other Loan Documents;

     8.3  If any material portion of Borrower's or any of its material
Subsidiaries' assets is attached, seized, subjected to a writ or distress
warrant, levied upon, or comes into the possession of any third Person;

     8.4  If an Insolvency Proceeding is commenced by Borrower or any of its
Material Subsidiaries;

     8.5  If an Insolvency Proceeding is commenced against Borrower, or any of
its Material Subsidiaries, and any of the following events occur: (a) Borrower
or the Subsidiary consents to the institution of such Insolvency Proceeding
against it, (b) the petition commencing the Insolvency Proceeding is not timely
controverted, (c) the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof; provided,
however, that, during the pendency of such period, Agent (including any
successor agent) and each other member of the Lender Group shall be relieved of
their obligations to extend credit hereunder, (d) an interim trustee is
appointed to take possession of all or any substantial portion of the properties
or assets of, or to operate all or any substantial portion of the business of,
Borrower or any of its Subsidiaries, or (e) an order for relief shall have been
entered therein;

     8.6  If Borrower or any of its Material Subsidiaries is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs;

     8.7  If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any of its Material Subsidiaries' assets by the
United States, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether choate or otherwise, upon any of Borrower's or any of its Subsidiaries'
assets and the same is not paid before such payment is delinquent;

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     8.8  If a judgment or other claim in excess of $ 50,000 becomes a Lien or
encumbrance upon any material portion of Borrower's or any of its Subsidiaries'
assets;

     8.9  If there is a default in any material agreement, including, without
limitation, the Continuing Bank Group Documents, to which Borrower or any of its
Subsidiaries is a party and such default (a) occurs at the final maturity of the
obligations thereunder, or (b) results in a right by the other party thereto,
irrespective of whether exercised, to accelerate the maturity of Borrower's or
its Subsidiaries' obligations thereunder, to terminate such agreement, or to
refuse to renew such agreement pursuant to an automatic renewal right therein;

     8.10 If Borrower or any of its Subsidiaries makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;

     8.11 If any misstatement or misrepresentation exists now or hereafter in
any warranty, representation, statement, or Record made to the Lender Group by
Borrower, its Subsidiaries, or any officer, employee, agent, or director of
Borrower or any of its Subsidiaries;

     8.12 The occurrence of an event of default of any kind, except as set forth
on Schedule 3.1(u), under the Cliffstar Note, provided that the failure on the
part of Cliffstar to make interest or principal payments under the Cliffstar
Note shall not constitute an Event of Default if the Borrower timely pays to the
Agent the regularly scheduled Term Loan B principal payments on the dates such
regularly scheduled payments are due, notwithstanding such nonpayment by
Cliffstar;

     8.13 If the obligation of a Guarantor under any Guaranty is limited or
terminated by operation of law or by Guarantor thereunder, except to the extent
such obligation is limited or terminated by operation of law upon a merger,
liquidation or dissolution expressly permitted under this Agreement; or

     8.14 If this Agreement or any other Loan Document that purports to create a
Lien, shall, for any reason, fail or cease to create a valid and perfected and,
except to the extent permitted by the terms hereof or thereof, first priority
Lien on or security interest in the Collateral covered hereby or thereby; or

     8.15 Any provision of any Loan Document shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by Borrower, or a proceeding shall be commenced by Borrower or any
Guarantor which is a Material Subsidiary, or by any Governmental Authority
having jurisdiction over Borrower, seeking to establish the invalidity or
unenforceability thereof, or Borrower or any Guarantor which is a Material
Subsidiary shall deny that Borrower or such Guarantor has any liability or
obligation purported to be created under any Loan Document.

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<PAGE>

9.   THE LENDER GROUP'S RIGHTS AND REMEDIES.

     9.1  Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default, the Required Lenders (at their election but without
notice of their election and without demand) may authorize and instruct Agent to
do any one or more of the following on behalf of the Lender Group (and Agent,
acting upon the instructions of the Required Lenders, shall do the same on
behalf of the Lender Group), all of which are authorized by Borrower:

          (a)  Declare all Obligations, whether evidenced by this Agreement, by
     any of the other Loan Documents, or otherwise, immediately due and payable;

          (b)  Cease advancing money or extending credit to or for the benefit
     of Borrower under this Agreement, under any of the Loan Documents, or under
     any other agreement between Borrower and the Lender Group;

          (c)  Terminate this Agreement and any of the other Loan Documents as
     to any future liability or obligation of the Lender Group, but without
     affecting any of the Agent's Liens in the Collateral and without affecting
     the Obligations;

          (d)  Settle or adjust disputes and claims directly with Account
     Debtors for amounts and upon terms which Agent considers advisable, and in
     such cases, Agent will credit Borrower's Loan Account with only the net
     amounts received by Agent in payment of such disputed Accounts after
     deducting all Lender Group Expenses incurred or expended in connection
     therewith;

          (e)  Cause Borrower to hold all returned Inventory in trust for the
     Lender Group, segregate all returned Inventory from all other assets of
     Borrower or in Borrower's possession and conspicuously label said returned
     Inventory as the property of the Lender Group;

          (f)  Without notice to or demand upon Borrower, make such payments and
     do such acts as Agent considers necessary or reasonable to protect its
     security interests in the Collateral. Borrower agrees to assemble the
     Personal Property Collateral if Agent so requires, and to make the Personal
     Property Collateral available to Agent at a place that Agent may designate
     which is reasonably convenient to both parties. Borrower authorizes Agent
     to enter the premises where the Personal Property Collateral is located, to
     take and maintain possession of the Personal Property Collateral, or any
     part of it, and to pay, purchase, contest, or compromise any Lien that in
     Agent's determination appears to conflict with the Agent's Liens and to pay
     all expenses incurred in connection therewith and to charge Borrower's Loan
     Account therefor. With respect to any of Borrower's owned or leased
     premises, Borrower hereby grants Agent a license to enter into possession
     of such premises and to occupy the same, without charge, in order to
     exercise any of the Lender Group's rights or remedies provided herein, at
     law, in equity, or otherwise, subject to the express terms and conditions
     of the Continuing Bank Group Intercreditor Agreement;

          (g)  Without notice to Borrower (such notice being expressly waived),
     and without constituting a retention of any collateral in satisfaction of
     an obligation (within the meaning of the Code), set off and apply to the
     Obligations any and all (i) balances and deposits of Borrower held by the
     Lender Group (including any amounts received in the Cash Management
     Accounts), or (ii) Indebtedness at any time owing to or for the credit or
     the account of Borrower held by the Lender Group, subject to the Continuing
     Bank Group Intercreditor Agreement;

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<PAGE>

          (h)  Hold, as cash collateral, any and all balances and deposits of
     Borrower held by the Lender Group, and any amounts received in the Cash
     Management Accounts, to secure the full and final repayment of all of the
     Obligations;

          (i)  Ship, reclaim, recover, store, finish, maintain, repair, prepare
     for sale, advertise for sale, and sell (in the manner provided for herein)
     the Personal Property Collateral. Borrower hereby grants to Agent a license
     or other right to use, without charge, Borrower's labels, patents,
     copyrights, trade secrets, trade names, trademarks, service marks, and
     advertising matter, or any property of a similar nature, as it pertains to
     the Personal Property Collateral, in completing production of, advertising
     for sale, and selling any Personal Property Collateral and Borrower's
     rights under all licenses and all franchise agreements shall inure to the
     Lender Group's benefit;

          (j)  Sell the Personal Property Collateral at either a public or
     private sale, or both, by way of one or more contracts or transactions, for
     cash or on terms, in such manner and at such places (including Borrower's
     premises) as Agent determines is commercially reasonable. It is not
     necessary that the Personal Property Collateral be present at any such
     sale;

          (k)  Agent shall give notice of the disposition of the Personal
     Property Collateral as follows:

               (i)   Agent shall give Borrower a notice in writing of the time
          and place of public sale, or, if the sale is a private sale or some
          other disposition other than a public sale is to be made of the
          Personal Property Collateral, the time on or after which the private
          sale or other disposition is to be made; and

               (ii)  The notice shall be personally delivered or mailed, postage
          prepaid, to Borrower as provided in Section 12, at least 10 days
          before the earliest time of disposition set forth in the notice; no
          notice needs to be given prior to the disposition of any portion of
          the Personal Property Collateral that is perishable or threatens to
          decline speedily in value or that is of a type customarily sold on a
          recognized market;

          (l)  Agent, on behalf of the Lender Group, may credit bid and purchase
     at any public sale; and

          (m)  Agent may seek the appointment of a receiver or keeper to take
     possession of all or any portion of the Collateral or to operate same and,
     to the maximum extent permitted by law, may seek the appointment of such a
     receiver without the requirement of prior notice or a hearing;

          (n)  The Lender Group shall have all other rights and remedies
     available at law or in equity or pursuant to any other Loan Document; and

          (o)  Any deficiency that exists after disposition of the Personal
     Property Collateral as provided above will be paid immediately by Borrower.
     Any excess will be returned, without interest and subject to the rights of
     third Persons, by Agent to Borrower.

     9.2  Remedies Cumulative. The rights and remedies of the Lender Group under
this

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<PAGE>

Agreement, the other Loan Documents, and all other agreements shall be
cumulative. The Lender Group shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender Group shall constitute a waiver,
election, or acquiescence by it.

10.  TAXES AND EXPENSES.

     If Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, Agent, in its sole discretion and without prior
notice to Borrower, may do any or all of the following: (a) make payment of the
same or any part thereof, (b) set up such reserves in Borrower's Loan Account as
Agent deems necessary to protect the Lender Group from the exposure created by
such failure, or (c) in the case of the failure to comply with Section 6.8
hereof, obtain and maintain insurance policies of the type described in Section
6.8 and take any action with respect to such policies as Agent deems prudent.
Any such amounts paid by Agent shall constitute Lender Group Expenses and any
such payments shall not constitute an agreement by the Lender Group to make
similar payments in the future or a waiver by the Lender Group of any Event of
Default under this Agreement. Agent need not inquire as to, or contest the
validity of, any such expense, tax, or Lien and the receipt of the usual
official notice for the payment thereof shall be conclusive evidence that the
same was validly due and owing.

11.  WAIVERS; INDEMNIFICATION.

     11.1 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of documents,
instruments, chattel paper, and guarantees at any time held by the Lender Group
on which Borrower may in any way be liable.

     11.2 The Lender Group's Liability for Collateral. Borrower hereby agrees
that: (a) so long as Agent complies with its obligations, if any, under the
Code, the Lender Group shall not in any way or manner be liable or responsible
for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto
occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof, or (iv) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of
loss, damage, or destruction of the Collateral shall be borne by Borrower.

     11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold the
Agent-Related Persons, the Lender-Related Persons with respect to each Lender,
each Participant, and each of their respective officers, directors, employees,
agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the
fullest extent permitted by law) from and against any and all claims, demands,
suits, actions, investigations, proceedings, and damages, and all reasonable

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<PAGE>

attorneys fees and disbursements and other costs and expenses actually incurred
in connection therewith (as and when they are incurred and irrespective of
whether suit is brought), at any time asserted against, imposed upon, or
incurred by any of them (a) in connection with or as a result of or related to
the execution, delivery, enforcement, performance, or administration of this
Agreement, any of the other Loan Documents, or the transactions contemplated
hereby or thereby, and (b) with respect to any investigation, litigation, or
proceeding related to this Agreement, any other Loan Document, or the use of the
proceeds of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission, event, or
circumstance in any manner related thereto (all the foregoing, collectively, the
"Indemnified Liabilities"). The foregoing to the contrary notwithstanding,
Borrower shall have no obligation to any Indemnified Person under this Section
11.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations. If any
Indemnified Person makes any payment to any other Indemnified Person with
respect to an Indemnified Liability as to which Borrower was required to
indemnify the Indemnified Person receiving such payment, the Indemnified Person
making such payment is entitled to be indemnified and reimbursed by Borrower
with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO
EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE
OR IN PART CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH
INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

12.  NOTICES.

     Unless otherwise provided in this Agreement, all notices or demands by
Borrower or Agent to the other relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, electronic mail (at such
email addresses as Borrower or Agent, as applicable, may designate to each other
in accordance herewith), or telefacsimile to Borrower or Agent, as the case may
be, at its address set forth below:

          If to Borrower:          NORTHLAND CRANBERRIES, INC.
                                   800 First Avenue South
                                   Wisconsin Rapids, Wisconsin 54495
                                   Attn: Mr. John Swendrowski
                                   Fax No. 715-422-6800

          with copies to:          Foley & Lardner
                                   777 E. Wisconsin Avenue
                                   Milwaukee, Wisconsin 53202
                                   Attn: Patricia Lane, Esq.
                                   Fax No. 414-297-4900

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<PAGE>

                                               -and-

                                   Sun Capital Partners
                                   5200 Town Center Circle
                                   Suite 470
                                   Boca Raton, Florida 33486
                                   Attn: C. Deryl Couch
                                         General Counsel
                                   Fax No. 561-394-0540

          If to Agent:             FOOTHILL CAPITAL CORPORATION
                                   2450 Colorado Avenue
                                   Suite 3000 West
                                   Santa Monica, California  90404
                                   Attn: Business Finance Division Manager
                                   Fax No. 310-453-7413

                                   FOOTHILL CAPITAL CORPORATION
                                   400 Northpark Town Center
                                   1000 Abernathy Road, N.E.
                                   Suite 1450
                                   Atlanta, Georgia 30328
                                   Attn: Business Finance Division Manager
                                   Fax No. 770-508-1375

          with copies to:          OTTERBOURG, STEINDLER, HOUSTON
                                    & ROSEN, P.C.
                                   230 Park Avenue
                                   New York, New York 10169
                                   Attn: Mitchell M. Brand, Esq.
                                   Fax No. 212-682-6104

                                   ABLECO FINANCE LLC
                                   450 Park Avenue, 28th Floor
                                   New York, New York 10022
                                   Attn. Eric F. Miller
                                   Fax No: 212-758-5305

                                   SCHULTE ROTH & ZABLE LLP
                                   919 Third Avenue
                                   New York, New York 10022
                                   Attn. Frederic L. Ragucci, Esq.
                                   Fax No: 212-593-5955

     Agent and Borrower may change the address at which they are to receive
notices

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<PAGE>

hereunder, by notice in writing in the foregoing manner given to the other
party. All notices or demands sent in accordance with this Section 12, other
than notices by Agent in connection with enforcement rights against the
Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or five (5) Business Days after the
deposit thereof in the mail. Borrower acknowledges and agrees that notices sent
by the Lender Group in connection with the exercise of enforcement rights
against Collateral under the provisions of the Code shall be deemed sent when
deposited in the mail or personally delivered, or, where permitted by law,
transmitted by telefacsimile or any other method set forth above.

13.  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

          (a)  THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
     (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN
     RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND
     ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND
     THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR
     RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
     CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

          (b)  THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
     CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
     AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF
     NEW YORK, STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING
     ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
     AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO
     BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.
     BORROWER AND THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER
     APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
     CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
     ACCORDANCE WITH THIS SECTION 13(b).

          (c)  BORROWER AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE
     RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
     ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
     CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
     DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND THE
     LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
     KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
     CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF

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<PAGE>

     LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
     TRIAL BY THE COURT.

14.  ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

     14.1 Assignments and Participations.

          (a)  Any Lender may, with the written consent of Agent (provided that
     no written consent of Agent shall be required in connection with any
     assignment and delegation by a Lender to an Eligible Transferee and no
     notice to Agent shall be required in connection with any assignment and
     delegation by a Lender to an Affiliate of a Lender or a fund or account
     managed by a Lender or an Affiliate of a Lender), assign and delegate to
     one or more assignees (each an "Assignee") all, or any ratable part of all,
     of the Obligations, the Commitments and the other rights and obligations of
     such Lender hereunder and under the other Loan Documents, in a minimum
     amount of $5,000,000 (except that such minimum amount shall not apply to
     any Affiliate of a Lender or any fund or account managed by a Lender or an
     Affiliate of Lender); provided, however, that Borrower and Agent may
     continue to deal solely and directly with such Lender in connection with
     the interest so assigned to an Assignee until (i) written notice of such
     assignment, together with payment instructions, addresses, and related
     information with respect to the Assignee, have been given to Borrower and
     Agent by such Lender and the Assignee, (ii) such Lender and its Assignee
     have delivered to Borrower and Agent an Assignment and Acceptance in form
     and substance satisfactory to Agent, and (iii) the assignor Lender or
     Assignee has paid to Agent for Agent's separate account a processing fee in
     the amount of $5,000. Anything contained herein to the contrary
     notwithstanding, the consent of Agent shall not be required (and payment of
     any fees shall not be required) if such assignment is in connection with
     any merger, consolidation, sale, transfer, or other disposition of all or
     any substantial portion of the business or loan portfolio of such Lender or
     the Assignee is an Affiliate of or a fund money market account, investment
     account or other account managed by a Lender or an Affiliate of a Lender.

          (b)  From and after the date that Agent notifies the assignor Lender
     (with a copy to Borrower) that it has received an executed Assignment and
     Acceptance and payment of the above-referenced processing fee, (i) the
     Assignee thereunder shall be a party hereto and, to the extent that rights
     and obligations hereunder have been assigned to it pursuant to such
     Assignment and Acceptance, shall have the rights and obligations of a
     Lender under the Loan Documents, and (ii) the assignor Lender shall, to the
     extent that rights and obligations hereunder and under the other Loan
     Documents have been assigned by it pursuant to such Assignment and
     Acceptance, relinquish its rights (except with respect to Section 11.3
     hereof) and be released from its obligations under this Agreement (and in
     the case of an Assignment and Acceptance covering all or the remaining
     portion of an assigning Lender's rights and obligations under this
     Agreement and the other Loan Documents, such Lender shall cease to be a
     party hereto and thereto), and such assignment shall affect a novation
     between Borrower and the Assignee.

          (c)  By executing and delivering an Assignment and Acceptance, the
     assigning

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<PAGE>

     Lender thereunder and the Assignee thereunder confirm to and agree with
     each other and the other parties hereto as follows: (1) other than as
     provided in such Assignment and Acceptance, such assigning Lender makes no
     representation or warranty and assumes no responsibility with respect to
     any statements, warranties or representations made in or in connection with
     this Agreement or the execution, legality, validity, enforceability,
     genuineness, sufficiency or value of this Agreement or any other Loan
     Document furnished pursuant hereto, (2) such assigning Lender makes no
     representation or warranty and assumes no responsibility with respect to
     the financial condition of Borrower or the performance or observance by
     Borrower of any of its obligations under this Agreement or any other Loan
     Document furnished pursuant hereto, (3) such Assignee confirms that it has
     received a copy of this Agreement, together with such other documents and
     information as it has deemed appropriate to make its own credit analysis
     and decision to enter into such Assignment and Acceptance, (4) such
     Assignee will, independently and without reliance upon Agent, such
     assigning Lender or any other Lender, and based on such documents and
     information as it shall deem appropriate at the time, continue to make its
     own credit decisions in taking or not taking action under this Agreement,
     (5) such Assignee appoints and authorizes Agent to take such actions and to
     exercise such powers under this Agreement as are delegated to Agent, by the
     terms hereof, together with such powers as are reasonably incidental
     thereto, and (6) such Assignee agrees that it will perform all of the
     obligations which by the terms of this Agreement are required to be
     performed by it as a Lender.

          (d)  Immediately upon each Assignee's making its processing fee
     payment, if applicable, under the Assignment and Acceptance and receipt and
     acknowledgment by Agent of such fully executed Assignment and Acceptance,
     this Agreement shall be deemed to be amended to the extent, but only to the
     extent, necessary to reflect the addition of the Assignee and the resulting
     adjustment of the Commitments arising therefrom. The Commitment allocated
     to each Assignee shall reduce such Commitments of the assigning Lender pro
     tanto.

          (e)  Any Lender may at any time, with the written consent of Agent,
     sell to one or more commercial banks, financial institutions, or other
     Persons not Affiliates of such Lender (a "Participant") participating
     interests in its Obligations, the Commitment, and the other rights and
     interests of that Lender (the "Originating Lender") hereunder and under the
     other Loan Documents (provided that no written consent of Agent shall be
     required in connection with any sale of any such participating interests by
     a Lender to an Eligible Transferee); provided, however, that (i) the
     Originating Lender shall remain a "Lender" for all purposes of this
     Agreement and the other Loan Documents and the Participant receiving the
     participating interest in the Obligations, the Commitments, and the other
     rights and interests of the Originating Lender hereunder shall not
     constitute a "Lender" hereunder or under the other Loan Documents and the
     Originating Lender's obligations under this Agreement shall remain
     unchanged, (ii) the Originating Lender shall remain solely responsible for
     the performance of such obligations, (iii) Borrower, Agent, and the Lenders
     shall continue to deal solely and directly with the Originating Lender in
     connection with the Originating Lender's rights and obligations under this
     Agreement and the other Loan Documents, (iv) no Lender shall transfer or
     grant any participating interest under which the Participant has the right
     to approve any amendment to, or any consent or waiver with respect to, this
     Agreement or any other Loan Document, except to the extent such amendment
     to, or consent or waiver with respect to this Agreement or of any other
     Loan Document would (A) extend the final maturity date of the Obligations
     hereunder in which such Participant is participating, (B) reduce the
     interest rate applicable to the Obligations hereunder in which such
     Participant is

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     participating, (C) release all or a material portion of the Collateral or
     guaranties (except to the extent expressly provided herein or in any of the
     Loan Documents) supporting the Obligations hereunder in which such
     Participant is participating, (D) postpone the payment of, or reduce the
     amount of, the interest or fees payable to such Participant through such
     Lender, or (E) change the amount or due dates of scheduled principal
     repayments or prepayments or premiums, and (v) all amounts payable by
     Borrower hereunder shall be determined as if such Lender had not sold such
     participation, except that, if amounts outstanding under this Agreement are
     due and unpaid, or shall have been declared or shall have become due and
     payable upon the occurrence of an Event of Default, each Participant shall
     be deemed to have the right of set-off in respect of its participating
     interest in amounts owing under this Agreement to the same extent as if the
     amount of its participating interest were owing directly to it as a Lender
     under this Agreement. The rights of any Participant only shall be
     derivative through the Originating Lender with whom such Participant
     participates and no Participant shall have any rights under this Agreement
     or the other Loan Documents or any direct rights as to the other Lenders,
     Agent, Borrower, the Collections, the Collateral, or otherwise in respect
     of the Obligations. No Participant shall have the right to participate
     directly in the making of decisions by the Lenders among themselves.

          (f)  In connection with any such assignment or participation or
     proposed assignment or participation, a Lender may disclose all documents
     and information which it now or hereafter may have relating to Borrower or
     Borrower's business.

          (g)  Any other provision in this Agreement notwithstanding, any Lender
     may at any time create a security interest in, or pledge, all or any
     portion of its rights under and interest in this Agreement in favor of any
     Federal Reserve Bank in accordance with Regulation A of the Federal Reserve
     Bank or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal
     Reserve Bank may enforce such pledge or security interest in any manner
     permitted under applicable law.

     14.2 Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without the Lenders' prior written consent and any prohibited assignment shall
be absolutely void ab initio. No consent to assignment by the Lenders shall
release Borrower from its Obligations. A Lender may assign this Agreement and
the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 14.1 hereof and, except as expressly required pursuant to
Section 14.1 hereof, no consent or approval by Borrower is required in
connection with any such assignment.

15.  AMENDMENTS; WAIVERS.

     15.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Required Lenders (or by Agent at the written request
of the Required Lenders) and Borrower and then any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by all of the Lenders affected thereby and
Borrower, do any of the following:

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          (a)  increase or extend any Commitment of any Lender,

          (b)  postpone or delay any date fixed by this Agreement or any other
     Loan Document for any payment of principal, interest, fees, or other
     amounts due hereunder or under any other Loan Document,

          (c)  reduce the principal of, or the rate of interest on, any loan or
     other extension of credit hereunder, or reduce any fees or other amounts
     payable hereunder or under any other Loan Document,

          (d)  change the percentage of the Commitments that is required to take
     any action hereunder,

          (e)  amend, modify or waive this Section or any provision of the
     Agreement providing for consent or other action by all Lenders,

          (f)  release Collateral other than as permitted by Section 16.12,

          (g)  change the definition of "Required Lenders" or "Pro Rata Share",

          (h)  contractually subordinate any of the Agent's Liens,

          (i)  release Borrower or any Guarantor from any obligation for the
     payment of money, or

          (j)  increase the advance rate with respect to Advances (except for
     the restoration of an advance rate after the prior reduction thereof),

          (k)  amend, modify or waive any of the provisions of the Intercreditor
     Agreements,

          (l)  change the definition of Borrowing Base or the definitions of
     Eligible Accounts, Eligible Inventory, Reserves, Inventory Reserves,
     Supplemental Reserves, Maximum Revolver Amount, Term Loan A Amount or Term
     Loan B Amount, or change Section 2.1(a) or Section 2.1(b) or any definition
     or term used in any of the foregoing definitions or Sections,

          (m)  amend, modify or waive any of the provisions of Section 2.1(d),
     2.2, 2.3(e)(i), 2.3(i), 2.4(b), 15.1 or 16 or change the definitions used
     in any such Sections.

     and, provided further, however, that no amendment, waiver or consent shall,
     unless in writing and signed by Agent, Issuing Lender, or Swing Lender, as
     applicable, affect the rights or duties of Agent, Issuing Lender, or Swing
     Lender, as applicable, under this Agreement or any other Loan Document. The
     foregoing notwithstanding, any amendment, modification, waiver, consent,
     termination, or release of, or with respect to, any provision of this
     Agreement or any other Loan Document that relates only to the relationship
     of the Lender Group among themselves, and that does not affect the rights
     or obligations of Borrower, shall not require consent by or the agreement
     of Borrower.

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     The Agent and the Lenders have executed a side letter agreement on the
Closing Date pursuant to which the Agent and the Lenders have agreed to certain
intercreditor arrangements, including but not limited to, certain arrangements
regarding allocation of payments of the Obligations. The rights and duties of
the Agent and the Lenders with respect to such matters, are subject to such
agreement.

     15.2 Replacement of Holdout Lender.

          (a)  If any action to be taken by the Lender Group or Agent hereunder
     requires the unanimous consent, authorization, or agreement of all Lenders,
     and a Lender ("Holdout Lender") fails to give its consent, authorization,
     or agreement, then Agent, upon at least 5 Business Days prior irrevocable
     notice to the Holdout Lender, may permanently replace the Holdout Lender
     with one or more substitute Lenders (each, a "Replacement Lender"), and the
     Holdout Lender shall have no right to refuse to be replaced hereunder. Such
     notice to replace the Holdout Lender shall specify an effective date for
     such replacement, which date shall not be later than 15 Business Days after
     the date such notice is given.

          (b)  Prior to the effective date of such replacement, the Holdout
     Lender and each Replacement Lender shall execute and deliver an Assignment
     and Acceptance Agreement, subject only to the Holdout Lender being repaid
     its share of the outstanding Obligations (including an assumption of its
     Pro Rata Share of the Risk Participation Liability and the payment of all
     fees by or otherwise due to such Holdout Lender as of the date of such
     replacement) without any premium or penalty of any kind whatsoever. If the
     Holdout Lender shall refuse or fail to execute and deliver any such
     Assignment and Acceptance Agreement prior to the effective date of such
     replacement, the Holdout Lender shall be deemed to have executed and
     delivered such Assignment and Acceptance Agreement. The replacement of any
     Holdout Lender shall be made in accordance with the terms of Section 14.1,
     provided, that, in no event shall any Lender be required to become a
     Replacement Lender. Until such time as the Replacement Lenders shall have
     acquired all of the Obligations, the Commitments, and the other rights and
     obligations of the Holdout Lender hereunder and under the other Loan
     Documents, the Holdout Lender shall remain obligated to make the Holdout
     Lender's Pro Rata Share of Advances and to purchased a participation in
     each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk
     Participation Liability of such Letter of Credit.

     15.3 No Waivers; Cumulative Remedies. No failure by Agent or any Lender to
exercise any right, remedy, or option under this Agreement or any other Loan
Document, or delay by Agent or any Lender in exercising the same, will operate
as a waiver thereof. No waiver by Agent or any Lender will be effective unless
it is in writing, and then only to the extent specifically stated. No waiver by
Agent or any Lender on any occasion shall affect or diminish Agent's and each
Lender's rights thereafter to require strict performance by Borrower of any
provision of this Agreement. Agent's and each Lender's rights under this
Agreement and the other Loan Documents will be cumulative and not exclusive of
any other right or remedy that Agent or any Lender may have.

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16.  AGENT; THE LENDER GROUP.

     16.1 Appointment and Authorization of Agent. Each Lender hereby designates
and appoints Foothill as its representative under this Agreement and the other
Loan Documents and each Lender hereby irrevocably authorizes Agent to take such
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to Agent by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Agent agrees to
act as such on the express conditions contained in this Section 16. The
provisions of this Section 16 are solely for the benefit of Agent, and the
Lenders, and Borrower shall have no rights as a third party beneficiary of any
of the provisions contained herein. Any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Agent; it being expressly understood and
agreed that the use of the word "Agent" is for convenience only, that Foothill
is merely the representative of the Lenders, and only has the contractual duties
set forth herein. Except as expressly otherwise provided in this Agreement,
Agent shall have and may use its sole discretion with respect to exercising or
refraining from exercising any discretionary rights or taking or refraining from
taking any actions that Agent expressly is entitled to take or assert under or
pursuant to this Agreement and the other Loan Documents. Without limiting the
generality of the foregoing, or of any other provision of the Loan Documents
that provides rights or powers to Agent, Lenders agree that Agent shall have the
right to exercise the following powers as long as this Agreement remains in
effect: (a) maintain, in accordance with its customary business practices,
ledgers and records reflecting the status of the Obligations, the Collateral,
the Collections, and related matters, (b) execute or file any and all financing
or similar statements or notices, amendments, renewals, supplements, documents,
instruments, proofs of claim, notices and other written agreements with respect
to the Loan Documents, (c) make Advances, for itself or on behalf of Lenders as
provided in the Loan Documents, (d) exclusively receive, apply, and distribute
the Collections as provided in the Loan Documents, (e) open and maintain such
bank accounts and cash management arrangements as Agent deems necessary and
appropriate in accordance with the Loan Documents for the foregoing purposes
with respect to the Collateral and the Collections, (f) perform, exercise, and
enforce any and all other rights and remedies of the Lender Group with respect
to Borrower, the Obligations, the Collateral, the Collections, or otherwise
related to any of same as provided in the Loan Documents, and (g) incur and pay
such Lender Group Expenses as Agent may deem necessary or appropriate for the
performance and fulfillment of its functions and powers pursuant to the Loan
Documents.

     16.2 Delegation of Duties. Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made without gross negligence or willful misconduct.

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     16.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by Borrower or any Subsidiary or
Affiliate of Borrower, or any officer or director thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by Agent
under or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the Books or properties of Borrower or the books or
records or properties of any of Borrower's Subsidiaries or Affiliates.

     16.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent, or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to Borrower
or counsel to any Lender), independent accountants and other experts selected by
Agent. Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Loan Document unless Agent shall first receive
such advice or concurrence of the Lenders as it deems appropriate and until such
instructions are received, Agent shall act, or refrain from acting, as it deems
advisable. If Agent so requests, it shall first be indemnified to its reasonable
satisfaction by Lenders against any and all liability and expense that may be
incurred by it by reason of taking or continuing to take any such action. Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement or any other Loan Document in accordance with a request or
consent of the Lenders and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Lenders.

     16.5 Notice of Default or Event of Default. Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest, fees, and
expenses required to be paid to Agent for the account of the Lenders, except
with respect to the existence of Overadvances as to which the Agent has actual
knowledge and to Events of Default of which Agent has actual knowledge, unless
Agent shall have received written notice from a Lender or Borrower referring to
this Agreement, describing such Default or Event of Default, and stating that
such notice is a "notice of default." Agent promptly will notify the Lenders of
its receipt of any such notice or of any Event of Default of which Agent has
actual knowledge. If any Lender obtains actual knowledge of any Event of
Default, such Lender promptly shall notify the other Lenders and Agent of such
Event of Default. Each Lender shall be solely responsible for giving any notices
to its Participants, if any. Subject to Section 16.4, Agent shall take such
action with respect to such Default or Event of Default as may be requested by
the Required Lenders in accordance with Section 9; provided, however, that
unless and until Agent has received any such request, Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable.

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     16.6 Credit Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by Agent hereinafter taken, including any review of the affairs of Borrower
and its Subsidiaries or Affiliates, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to Agent that it has, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower and any other Person (other than the Lender Group)
party to a Loan Document, and all applicable bank regulatory laws relating to
the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to Borrower. Each Lender also represents
that it will, independently and without reliance upon any Agent-Related Person
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower and any other Person (other than the Lender Group)
party to a Loan Document. Except for notices, reports, and other documents
expressly herein required to be furnished to the Lenders by Agent, Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of Borrower and any other
Person party to a Loan Document that may come into the possession of any of the
Agent-Related Persons.

     16.7 Costs and Expenses; Indemnification. Agent may incur and pay Lender
Group Expenses to the extent Agent reasonably deems necessary or appropriate for
the performance and fulfillment of its functions, powers, and obligations
pursuant to the Loan Documents, including court costs, reasonable attorneys fees
and expenses, costs of collection by outside collection agencies and auctioneer
fees and costs of security guards or insurance premiums paid to maintain the
Collateral, whether or not Borrower is obligated to reimburse Agent or Lenders
for such expenses pursuant to the Loan Agreement or otherwise. Agent is
authorized and directed to deduct and retain sufficient amounts from Collections
received by Agent to reimburse Agent for such out-of-pocket costs and expenses
prior to the distribution of any amounts to Lenders. In the event Agent is not
reimbursed for such costs and expenses from Collections received by Agent, each
Lender hereby agrees that it is and shall be obligated to pay to or reimburse
Agent for the amount of such Lender's Pro Rata Share thereof. Whether or not the
transactions contemplated hereby are consummated, the Lenders shall indemnify
upon demand the Agent-Related Persons (to the extent not reimbursed by or on
behalf of Borrower and without limiting the obligation of Borrower to do so),
according to their Pro Rata Shares, from and against any and all Indemnified
Liabilities; provided, however, that no Lender shall be liable for the payment
to any Agent-Related Person of any portion of such Indemnified Liabilities
resulting solely from such Person's gross negligence or willful misconduct nor
shall any Lender be liable for the obligations of any Defaulting Lender in
failing to make an Advance or other extension of credit hereunder. Without

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limitation of the foregoing, each Lender shall reimburse Agent upon demand for
such Lender's ratable share of any costs or out-of-pocket expenses (including
attorneys fees and expenses) incurred by Agent in connection with the
preparation, execution, delivery, administration, modification, amendment, or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that Agent is not reimbursed for such expenses by or on behalf of
Borrower. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of Agent.

     16.8 Agent in Individual Capacity. Foothill and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in, and generally engage in any kind of banking, trust,
financial advisory, underwriting, or other business with Borrower and its
Subsidiaries and Affiliates and any other Person (other than the Lender Group)
party to any Loan Documents as though Foothill were not Agent hereunder, and, in
each case, without notice to or consent of the other members of the Lender
Group. The other members of the Lender Group acknowledge that, pursuant to such
activities, Foothill or its Affiliates may receive information regarding
Borrower or its Affiliates and any other Person (other than the Lender Group)
party to any Loan Documents that is subject to confidentiality obligations in
favor of Borrower or such other Person and that prohibit the disclosure of such
information to the Lenders, and the Lenders acknowledge that, in such
circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver Agent will use its reasonable best efforts to obtain),
Agent shall not be under any obligation to provide such information to them. The
terms "Lender" and "Lenders" include Foothill in its individual capacity.

     16.9 Successor Agent. Agent may resign as Agent upon 45 days notice to the
Lenders. If Agent resigns under this Agreement, the Required Lenders shall
appoint a successor Agent for the Lenders. If no successor Agent is appointed
prior to the effective date of the resignation of Agent, Agent may appoint,
after consulting with the Lenders, a successor Agent. If Agent has materially
breached or failed to perform any material provision of this Agreement or of
applicable law, the Required Lenders may agree in writing to remove and replace
Agent with a successor Agent from among the Lenders. In any such event, upon the
acceptance of its appointment as successor Agent hereunder, such successor Agent
shall succeed to all the rights, powers, and duties of the retiring Agent and
the term "Agent" shall mean such successor Agent and the retiring Agent's
appointment, powers, and duties as Agent shall be terminated. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 16 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement. If no successor Agent has accepted
appointment as Agent by the date which is 45 days following a retiring Agent's
notice of resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective and the Lenders shall perform all of the duties of
Agent hereunder until such time, if any, as the Lenders appoint a successor
Agent as provided for above.

     16.10 Lender in Individual Capacity. Any Lender and its respective
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting or

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other business with Borrower and its Subsidiaries and Affiliates and any other
Person (other than the Lender Group) party to any Loan Documents as though such
Lender were not a Lender hereunder without notice to or consent of the other
members of the Lender Group. The other members of the Lender Group acknowledge
that, pursuant to such activities, such Lender and its respective Affiliates may
receive information regarding Borrower or its Affiliates and any other Person
(other than the Lender Group) party to any Loan Documents that is subject to
confidentiality obligations in favor of Borrower or such other Person and that
prohibit the disclosure of such information to the Lenders, and the Lenders
acknowledge that, in such circumstances (and in the absence of a waiver of such
confidentiality obligations, which waiver such Lender will use its reasonable
best efforts to obtain), such Lender shall not be under any obligation to
provide such information to them. With respect to the Swing Loans and Agent
Advances, Swing Lender shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not
the sub-agent of Agent.

     16.11 Withholding Taxes.

          (a)  If any Lender is a "foreign corporation, partnership or trust"
     within the meaning of the IRC and such Lender claims exemption from, or a
     reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC,
     such Lender agrees with and in favor of Agent and Borrower, to deliver to
     Agent and Borrower promptly upon becoming a Lender:

               (i)   if such Lender claims an exemption from withholding tax
          pursuant to its portfolio interest exception, (A) a statement of the
          Lender, signed under penalty of perjury, that it is not a (I) a "bank"
          as described in Section 881(c)(3)(A) of the IRC, (II) a 10%
          shareholder (within the meaning of Section 881(c)(3)(B) of the IRC),
          or (III) a controlled foreign corporation described in Section
          881(c)(3)(C) of the IRC, and (B) a properly completed IRS Form W-8BEN,
          before the first payment of any interest under this Agreement and at
          any other time reasonably requested by Agent or Borrower;

               (ii)  if such Lender claims an exemption from, or a reduction of,
          withholding tax under a United States tax treaty, properly completed
          IRS Form W-8BEN before the first payment of any interest under this
          Agreement and at any other time reasonably requested by Agent or
          Borrower;

               (iii) if such Lender claims that interest paid under this
          Agreement is exempt from United States withholding tax because it is
          effectively connected with a United States trade or business of such
          Lender, two properly completed and executed copies of IRS Form W-8ECI
          before the first payment of any interest is due under this Agreement
          and at any other time reasonably requested by Agent or Borrower;

               (iv)  such other form or forms as may be required under the IRC
          or other laws of the United States as a condition to exemption from,
          or reduction of, United States withholding tax.

     Such Lender agrees promptly to notify Agent and Borrower of any change in
     circumstances which would modify or render invalid any claimed exemption or
     reduction.

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          (b)  If any Lender claims exemption from, or reduction of, withholding
     tax under a United States tax treaty by providing IRS Form W-8BEN and such
     Lender sells, assigns, grants a participation in, or otherwise transfers
     all or part of the Obligations of Borrower to such Lender, such Lender
     agrees to notify Agent of the percentage amount in which it is no longer
     the beneficial owner of Obligations of Borrower to such Lender. To the
     extent of such percentage amount, Agent will treat such Lender's IRS Form
     W-8BEN as no longer valid.

          (c)  If any Lender is entitled to a reduction in the applicable
     withholding tax, Agent may withhold from any interest payment to such
     Lender an amount equivalent to the applicable withholding tax after taking
     into account such reduction. If the forms or other documentation required
     by subsection (a) of this Section are not delivered to Agent, then Agent
     may withhold from any interest payment to such Lender not providing such
     forms or other documentation an amount equivalent to the applicable
     withholding tax.

          (d)  If the IRS or any other Governmental Authority of the United
     States or other jurisdiction asserts a claim that Agent did not properly
     withhold tax from amounts paid to or for the account of any Lender (because
     the appropriate form was not delivered, was not properly executed, or
     because such Lender failed to notify Agent of a change in circumstances
     which rendered the exemption from, or reduction of, withholding tax
     ineffective, or for any other reason) such Lender shall indemnify and hold
     Agent harmless for all amounts paid, directly or indirectly, by Agent as
     tax or otherwise, including penalties and interest, and including any taxes
     imposed by any jurisdiction on the amounts payable to Agent under this
     Section, together with all costs and expenses (including attorneys fees and
     expenses). The obligation of the Lenders under this subsection shall
     survive the payment of all Obligations and the resignation or replacement
     of Agent.

          (e)  All payments made by Borrower hereunder or under any note will be
     made without setoff, counterclaim, or other defense, except as required by
     applicable law and other than for Taxes (as defined below). All such
     payments will be made free and clear of, and without deduction or
     withholding for, any present or future taxes, levies, imposts, duties,
     fees, assessments or other charges of whatever nature now or hereafter
     imposed by any jurisdiction (other than the United States) or by any
     political subdivision or taxing authority thereof or therein (other than of
     the United States) with respect to such payments (but excluding, any tax
     imposed by any jurisdiction or by any political subdivision or taxing
     authority thereof or therein (i) measured by or based on the net income or
     net profits of a Lender, or (ii) to the extent that such tax results from a
     change in the circumstances of the Lender, including a change in the
     residence, place of organization, or principal place of business of the
     Lender, or a change in the branch or lending office of the Lender
     participating in the transactions set forth herein) and all interest,
     penalties or similar liabilities with respect thereto (all such
     non-excluded taxes, levies, imposts, duties, fees, assessments or other
     charges being referred to collectively as "Taxes"). If any Taxes are so
     levied or imposed, Borrower agrees to pay the full amount of such Taxes,
     and such additional amounts as may be necessary so that every payment of
     all amounts due under this Agreement or under any note, including any
     amount paid pursuant to this Section 16.11(e) after withholding or
     deduction for or on account of any Taxes, will not be less than the amount
     provided for herein; provided, however, that Borrower shall not be required
     to increase any such amounts payable to Agent or any Lender (i) that is not
     organized under the laws of the United States, if such Person fails to
     comply with the other requirements of this Section 16.11, or (ii) if

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<PAGE>

     the increase in such amount payable results from Agent's or such Lender's
     own willful misconduct or gross negligence. Borrower will furnish to Agent
     as promptly as possible after the date the payment of any Taxes is due
     pursuant to applicable law certified copies of tax receipts evidencing such
     payment by Borrower.

     16.12 Collateral Matters.

          (a)  The Lenders hereby irrevocably authorize Agent, at its option and
     in its sole discretion, to release any Lien on any Collateral (i)upon the
     termination of the Commitments and payment and satisfaction in full by
     Borrower of all Obligations, (ii)constituting property being sold or
     disposed of if a release is required or desirable in connection therewith
     and if Borrower certifies to Agent that the sale or disposition is
     permitted under Section 7.4 of this Agreement or the other Loan Documents
     (and Agent may rely conclusively on any such certificate, without further
     inquiry), (iii) constituting property in which Borrower owned no interest
     at the time the security interest was granted or at any time thereafter,
     (iv) constituting property leased to Borrower under a lease that has
     expired or is terminated in a transaction permitted under this Agreement or
     (v) consisting of the Cliffstar Note, upon satisfaction of all terms and
     conditions for release of the Cliffstar Note contained in this Agreement
     and the other Loan Documents. Except as provided above, Agent will not
     execute and deliver a release of any Lien on any Collateral without the
     prior written authorization of (y) if the release is of any substantial
     portion of the Collateral, all of the Lenders, or (z) otherwise, the
     Required Lenders. Upon request by Agent or Borrower at any time, the
     Lenders will confirm in writing Agent's authority to release any such Liens
     on particular types or items of Collateral pursuant to this Section 16.12;
     provided, however, that (1) Agent shall not be required to execute any
     document necessary to evidence such release on terms that, in Agent's
     opinion, would expose Agent to liability or create any obligation or entail
     any consequence other than the release of such Lien without recourse,
     representation, or warranty, and (2) such release shall not in any manner
     discharge, affect, or impair the Obligations or any Liens (other than those
     expressly being released) upon (or obligations of Borrower in respect of)
     all interests retained by Borrower, including, the proceeds of any sale,
     all of which shall continue to constitute part of the Collateral.

          (b)  Agent shall have no obligation whatsoever to any of the Lenders
     to assure that the Collateral exists or is owned by Borrower or is cared
     for, protected, or insured or has been encumbered, or that the Agent's
     Liens have been properly or sufficiently or lawfully created, perfected,
     protected, or enforced or are entitled to any particular priority, or to
     exercise at all or in any particular manner or under any duty of care,
     disclosure or fidelity, or to continue exercising, any of the rights,
     authorities and powers granted or available to Agent pursuant to any of the
     Loan Documents, it being understood and agreed that in respect of the
     Collateral, or any act, omission, or event related thereto, subject to the
     terms and conditions contained herein, Agent may act in any manner it may
     deem appropriate, in its sole discretion given Agent's own interest in the
     Collateral in its capacity as one of the Lenders and that Agent shall have
     no other duty or liability whatsoever to any Lender as to any of the
     foregoing, except as otherwise provided herein.

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<PAGE>

     16.13 Restrictions on Actions by Lenders; Sharing of Payments.

          (a)  Each of the Lenders agrees that it shall not, without the express
     consent of Agent, and that it shall, to the extent it is lawfully entitled
     to do so, upon the request of Agent, set off against the Obligations, any
     amounts owing by such Lender to Borrower or any deposit accounts of
     Borrower now or hereafter maintained with such Lender. Each of the Lenders
     further agrees that it shall not, unless specifically requested to do so by
     Agent, take or cause to be taken any action, including, the commencement of
     any legal or equitable proceedings, to foreclose any Lien on, or otherwise
     enforce any security interest in, any of the Collateral the purpose of
     which is, or could be, to give such Lender any preference or priority
     against the other Lenders with respect to the Collateral.

          (b)  If, at any time or times any Lender shall receive (i) by payment,
     foreclosure, setoff, or otherwise, any proceeds of Collateral or any
     payments with respect to the Obligations arising under, or relating to,
     this Agreement or the other Loan Documents, except for any such proceeds or
     payments received by such Lender from Agent pursuant to the terms of this
     Agreement, or (ii)payments from Agent in excess of such Lender's ratable
     portion of all such distributions by Agent, such Lender promptly shall (1)
     turn the same over to Agent, in kind, and with such endorsements as may be
     required to negotiate the same to Agent, or in immediately available funds,
     as applicable, for the account of all of the Lenders and for application to
     the Obligations in accordance with the applicable provisions of this
     Agreement, or (2) purchase, without recourse or warranty, an undivided
     interest and participation in the Obligations owed to the other Lenders so
     that such excess payment received shall be applied ratably as among the
     Lenders in accordance with their Pro Rata Shares; provided, however, that
     if all or part of such excess payment received by the purchasing party is
     thereafter recovered from it, those purchases of participations shall be
     rescinded in whole or in part, as applicable, and the applicable portion of
     the purchase price paid therefor shall be returned to such purchasing
     party, but without interest except to the extent that such purchasing party
     is required to pay interest in connection with the recovery of the excess
     payment.

     16.14 Agency for Perfection. Agent hereby appoints each other Lender as its
agent (and each Lender hereby accepts such appointment) for the purpose of
perfecting the Agent's Liens in assets which, in accordance with Article 9 of
the Code can be perfected only by possession. Should any Lender obtain
possession of any such Collateral, such Lender shall notify Agent thereof, and,
promptly upon Agent's request therefor shall deliver such Collateral to Agent or
in accordance with Agent's instructions.

     16.15 Payments by Agent to the Lenders. All payments to be made by Agent to
the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds pursuant to such wire transfer instructions as each
party may designate for itself by written notice to Agent. Concurrently with
each such payment, Agent shall identify whether such payment (or any portion
thereof) represents principal, premium, or interest of the Obligations.

     16.16 Concerning the Collateral and Related Loan Documents. Each member of
the Lender Group authorizes and directs Agent to enter into this Agreement and
the other Loan Documents relating to the Collateral, for the benefit of the
Lender Group. Each member of the Lender Group agrees that any action taken by
Agent in accordance with the terms of this

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<PAGE>

Agreement or the other Loan Documents relating to the Collateral and the
exercise by Agent of its powers set forth therein or herein, together with such
other powers that are reasonably incidental thereto, shall be binding upon all
of the Lenders.

     16.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information. By becoming a party to this Agreement,
each Lender:

          (a)  is deemed to have requested that Agent furnish such Lender,
     promptly after it becomes available, a copy of each field audit or
     examination report (each a "Report" and collectively, "Reports") prepared
     by Agent, and Agent shall so furnish each Lender with such Reports,

          (b)  expressly agrees and acknowledges that Agent does not (i) make
     any representation or warranty as to the accuracy of any Report, and (ii)
     shall not be liable for any information contained in any Report,

          (c)  expressly agrees and acknowledges that the Reports are not
     comprehensive audits or examinations, that Agent or other party performing
     any audit or examination will inspect only specific information regarding
     Borrower and will rely significantly upon the Books, as well as on
     representations of Borrower's personnel,

          (d)  agrees to keep all Reports and other material, non-public
     information regarding Borrower and its Subsidiaries and their operations,
     assets, and existing and contemplated business plans in a confidential
     manner; it being understood and agreed by Borrower that in any event such
     Lender may make disclosures (a) to counsel for and other advisors,
     accountants, and auditors to such Lender, (b) reasonably required by any
     bona fide potential or actual Assignee or Participant in connection with
     any contemplated or actual assignment or transfer by such Lender of an
     interest herein or any participation interest in such Lender's rights
     hereunder, (c) of information that has become public by disclosures made by
     Persons other than such Lender, its Affiliates, assignees, transferees, or
     Participants, or (d) as required or requested by any court, governmental or
     administrative agency, pursuant to any subpoena or other legal process, or
     by any law, statute, regulation, or court order; provided, however, that,
     unless prohibited by applicable law, statute, regulation, or court order,
     such Lender shall notify Borrower of any request by any court, governmental
     or administrative agency, or pursuant to any subpoena or other legal
     process for disclosure of any such non-public material information
     concurrent with, or where practicable, prior to the disclosure thereof, and

          (e)  without limiting the generality of any other indemnification
     provision contained in this Agreement, agrees: (i) to hold Agent and any
     other Lender preparing a Report harmless from any action the indemnifying
     Lender may take or conclusion the indemnifying Lender may reach or draw
     from any Report in connection with any loans or other credit accommodations
     that the indemnifying Lender has made or may make to Borrower, or the
     indemnifying Lender's participation in, or the indemnifying Lender's
     purchase of, a loan or loans of Borrower, and (ii) to pay and protect, and
     indemnify, defend and hold Agent, and any such other Lender preparing a
     Report harmless from and against, the claims, actions, proceedings,
     damages, costs, expenses, and other amounts (including, attorneys fees and
     costs) incurred by

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<PAGE>

     Agent and any such other Lender preparing a Report as the direct or
     indirect result of any third parties who might obtain all or part of any
     Report through the indemnifying Lender.

In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower to Agent that has not been contemporaneously
provided by Borrower to such Lender, and, upon receipt of such request, Agent
promptly shall provide a copy of same to such Lender, (y) to the extent that
Agent is entitled, under any provision of the Loan Documents, to request
additional reports or information from Borrower, any Lender may, from time to
time, reasonably request Agent to exercise such right as specified in such
Lender's notice to Agent, whereupon Agent promptly shall request of Borrower the
additional reports or information reasonably specified by such Lender, and, upon
receipt thereof from Borrower, Agent promptly shall provide a copy of same to
such Lender, and (z) any time that Agent renders to Borrower a statement
regarding the Loan Account, Agent shall send a copy of such statement to each
Lender.

     16.18 Several Obligations; No Liability. Notwithstanding that certain of
the Loan Documents now or hereafter may have been or will be executed only by or
in favor of Agent in its capacity as such, and not by or in favor of the
Lenders, any and all obligations on the part of Agent (if any) to make any
credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any interest
in, or subject any Lender to any liability for, or in respect of, the business,
assets, profits, losses, or liabilities of any other Lender. Each Lender shall
be solely responsible for notifying its Participants of any matters relating to
the Loan Documents to the extent any such notice may be required, and no Lender
shall have any obligation, duty, or liability to any Participant of any other
Lender. Except as provided in Section 16.7, no member of the Lender Group shall
have any liability for the acts or any other member of the Lender Group. No
Lender shall be responsible to Borrower or any other Person for any failure by
any other Lender to fulfill its obligations to make credit available hereunder,
nor to advance for it or on its behalf in connection with its Commitment, nor to
take any other action on its behalf hereunder or in connection with the
financing contemplated herein.

17.  GENERAL PROVISIONS.

     17.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrower, Agent, and each Lender whose signature is provided
for on the signature pages hereof.

     17.2 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.

     17.3 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed against the Lender Group or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to

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<PAGE>

accomplish fairly the purposes and intentions of all parties hereto.

     17.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

     17.5 Amendments in Writing. This Agreement only can be amended by a writing
signed by Agent (on behalf of the requisite Lenders) and Borrower.

     17.6 Counterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.

     17.7 Revival and Reinstatement of Obligations. If the incurrence or payment
of the Obligations by Borrower or the transfer to the Lender Group of any
property should for any reason subsequently be declared to be void or voidable
under any state or federal law relating to creditors' rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if the Lender Group is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that the Lender Group is required
or elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of the Lender Group related thereto, the liability of Borrower
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.

     17.8 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

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<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.

                                   NORTHLAND CRANBERRIES, INC.,
                                   a Wisconsin corporation, as Borrower

                                   By:  /s/
                                      ------------------------------------------
                                   Title:
                                         ---------------------------------------

                                   FOOTHILL CAPITAL CORPORATION,
                                   a California corporation, as Agent and as a
                                   Lender

                                   By:  /s/
                                      ------------------------------------------
                                   Title:
                                         ---------------------------------------

                                   ABLECO FINANCE LLC

                                   By:  /s/
                                      ------------------------------------------
                                   Title:
                                         ---------------------------------------

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<PAGE>

                               TABLE OF CONTENTS

1.   DEFINITIONS AND CONSTRUCTION .......................................   2

     1.1   Definitions ..................................................   2
     1.2   Accounting Terms .............................................  28
     1.3   Code .........................................................  28
     1.4   Construction .................................................  28
     1.5   Schedules and Exhibits .......................................  28

2.   LOAN AND TERMS OF PAYMENT ..........................................  28

     2.1   Revolver Advances ............................................  28
     2.2   Term Loans ...................................................  30
     2.3   Borrowing Procedures and Settlements .........................  31
     2.4   Payments .....................................................  37
     2.5   Overadvances .................................................  40
     2.6   Interest Rates and Letter of Credit Fee:
           Rates, Payments, and Calculations ............................  40
     2.7   Cash Management ..............................................  41
     2.8   Crediting Payments; Float Charge .............................  42
     2.9   Designated Account ...........................................  43
     2.10  Maintenance of Loan Account; Statements of Obligations .......  43
     2.11  Fees .........................................................  43
     2.13  Capital Requirements .........................................  47

3.   CONDITIONS; TERM OF AGREEMENT ......................................  47

     3.1   Conditions Precedent to the Initial Extension of Credit ......  47
     3.2   Conditions Subsequent to the Initial Extension of Credit .....  52
     3.3   Conditions Precedent to all Extensions of Credit .............  52
     3.4   Term .........................................................  53
     3.5   Effect of Termination ........................................  53
     3.6   Early Termination by Borrower ................................  53

4.   CREATION OF SECURITY INTEREST ......................................  54

     4.1   Grant of Security Interest ...................................  54
     4.2   Negotiable Collateral ........................................  54
     4.3   Collection of Accounts, General Intangibles, and
           Negotiable Collateral ........................................  54
     4.4   Delivery of Additional Documentation Required ................  55
     4.5   Power of Attorney ............................................  55
     4.6   Right to Inspect .............................................  55
     4.7   Control Agreements ...........................................  56

<PAGE>

5.   REPRESENTATIONS AND WARRANTIES .....................................  56

     5.1   No Encumbrances ..............................................  56
     5.2   Eligible Accounts ............................................  56
     5.3   Eligible Inventory ...........................................  57
     5.4   Equipment ....................................................  58
     5.5   Location of Inventory and Equipment ..........................  58
     5.6   Inventory Records ............................................  58
     5.7   Location of Chief Executive Office; FEIN .....................  58
     5.8   Due Organization and Qualification; Subsidiaries .............  58
     5.9   Due Authorization; No Conflict ...............................  59
     5.10  Litigation ...................................................  60
     5.11  No Material Adverse Change ...................................  60
     5.12  Fraudulent Transfer ..........................................  61
     5.13  Employee Benefits ............................................  61
     5.14  Environmental Condition ......................................  61
     5.15  Brokerage Fees ...............................................  61
     5.17  Leases .......................................................  61
     5.18  DDAs .........................................................  62
     5.20  Indebtedness .................................................  62

6.   AFFIRMATIVE COVENANTS ..............................................  63

     6.1   Accounting System ............................................  63
     6.2   Collateral Reporting .........................................  63
     6.3   Financial Statements, Reports, Certificates ..................  65
     6.4   Return .......................................................  67
     6.5   Maintenance of Properties ....................................  67
     6.6   Taxes ........................................................  67
     6.7   Insurance ....................................................  67
     6.9   Compliance with Laws .........................................  68
     6.10  Leases .......................................................  69
     6.11  Brokerage Commissions ........................................  69
     6.12  Existence ....................................................  69
     6.15  Disclosure Updates ...........................................  71

7.   NEGATIVE COVENANTS .................................................  71

     7.1   Indebtedness .................................................  71
     7.2   Liens ........................................................  72
     7.3   Restrictions on Fundamental Changes ..........................  72
     7.4   Disposal of Assets ...........................................  72

<PAGE>

     7.5   Change Name ..................................................  72
     7.6   Guarantee ....................................................  72
     7.7   Nature of Business ...........................................  72
     7.8   Prepayments and Amendments ...................................  72
     7.10  Consignments .................................................  73
     7.11  Distributions ................................................  73
     7.12  Accounting Methods ...........................................  73
     7.13  Investments ..................................................  73
     7.14  Transactions with Affiliates .................................  73
     7.15  Suspension ...................................................  74
     7.16  [Intentionally Omitted] ......................................  74
     7.17  Use of Proceeds ..............................................  74
     7.18  Change in Location of Chief Executive Office;
           Inventory and Equipment with Bailees .........................  74
     7.19  Securities Accounts ..........................................  74
     7.20  Financial Covenants ..........................................  74

8.   EVENTS OF DEFAULT ..................................................  76

9.   THE LENDER GROUP'S RIGHTS AND REMEDIES .............................  78

     9.1   Rights and Remedies ..........................................  78
     9.2   Remedies Cumulative ..........................................  80

10.  TAXES AND EXPENSES .................................................  81

11.  WAIVERS; INDEMNIFICATION ...........................................  81

     11.1  Demand; Protest ..............................................  81
     11.2  The Lender Group's Liability for Collateral ..................  81
     11.3  Indemnification ..............................................  81

12.  NOTICES ............................................................  82

13.  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER .........................  84

14.  ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS .........................  85

     14.1  Assignments and Participations ...............................  85
     14.2  Successors ...................................................  87

15.  AMENDMENTS; WAIVERS. ...............................................  87

     15.1  Amendments and Waivers .......................................  87
     15.2  Replacement of Holdout Lender ................................  89
     15.3  No Waivers; Cumulative Remedies ..............................  89

<PAGE>

16.  AGENT; THE LENDER GROUP ............................................  90

     16.1  Appointment and Authorization of Agent .......................  90
     16.2  Delegation of Duties .........................................  91
     16.3  Liability of Agent ...........................................  91
     16.4  Reliance by Agent ............................................  91
     16.5  Notice of Default or Event of Default ........................  91
     16.6  Credit Decision ..............................................  92
     16.7  Costs and Expenses; Indemnification ..........................  92
     16.8  Agent in Individual Capacity .................................  93
     16.9  Successor Agent ..............................................  93
     16.10 Lender in Individual Capacity ................................  94
     16.11 Withholding Taxes ............................................  94
     16.12 Collateral Matters ...........................................  96
     16.13 Restrictions on Actions by Lenders; Sharing of Payments ......  97
     16.14 Agency for Perfection ........................................  98
     16.15 Payments by Agent to the Lenders .............................  98
     16.16 Concerning the Collateral and Related Loan Documents .........  98
     16.17 Field Audits and Examination Reports;
           Confidentiality; Disclaimers by Lenders; Other
           Reports and Information ......................................  98
     16.18 Several Obligations; No Liability ............................  99

17.  GENERAL PROVISIONS ................................................. 100

     17.1  Effectiveness ................................................ 100
     17.2  Section Headings ............................................. 100
     17.3  Interpretation ............................................... 100
     17.4  Severability of Provisions ................................... 100
     17.5  Amendments in Writing ........................................ 100
     17.6  Counterparts; Telefacsimile Execution ........................ 100
     17.7  Revival and Reinstatement of Obligations ..................... 101
     17.8  Integration .................................................. 101

<PAGE>

                             EXHIBITS AND SCHEDULES

Exhibit A-1                Form of Assignment and Acceptance
Exhibit B-1                Form of Borrowing Base Certificate
Exhibit C-1                Form of Compliance Certificate

Schedule C-1               Commitments
Schedule E-1               Eligible Inventory Locations
Schedule P-1               Permitted Liens
Schedule R-1               Real Property Collateral
Schedule 1.1               Liquidating Assets
Schedule 2.7(a)            Cash Management Banks
Schedule 3.1(l)            Cliffstar Payments
Schedule 3.1(u)            Tax Returns
Schedule 3.2(d)            Closing Date Material Changes
Schedule 4.1               Excluded Collateral
Schedule 5.5               Locations of Inventory and Equipment
Schedule 5.7               Chief Executive Office; FEIN
Schedule 5.8(b)            Capitalization of Borrower
Schedule 5.8(c)            Capitalization of Borrower's Subsidiaries
Schedule 5.10              Litigation
Schedule 5.13              ERISA
Schedule 5.14              Environmental Matters
Schedule 5.15              Brokerage Fees
Schedule 5.16              Intellectual Property
Schedule 5.17              Leases
Schedule 5.18              Demand Deposit Accounts
Schedule 5.20              Permitted Indebtedness
Schedule 5.21(a)           Disclosure Notices regarding PACA

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