-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MTt9lQj0TuEDrDpAGmKP7WvzZsULtq5yGQCOvGlG9NuYIPcW5mP08NDLhZPLeOje PbvnRqGajDBu2Q9MJw/bkg== 0000950134-98-007790.txt : 19980929 0000950134-98-007790.hdr.sgml : 19980929 ACCESSION NUMBER: 0000950134-98-007790 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19980928 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGAL CINEMAS INC CENTRAL INDEX KEY: 0000905035 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 621412720 STATE OF INCORPORATION: TN FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-64399 FILM NUMBER: 98715749 BUSINESS ADDRESS: STREET 1: 7132 COMMERCIAL PARK DR CITY: KNOXVILLE STATE: TN ZIP: 37918 BUSINESS PHONE: 4239221123 MAIL ADDRESS: STREET 1: 7132 COMMERCIAL PARK DR CITY: KNOXVILLE STATE: TN ZIP: 37918 S-4 1 FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1998 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ REGAL CINEMAS, INC. (Exact Name of Registrant as Specified in Its Charter) TENNESSEE 7830 62-1412720 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Incorporation or Organization) Classification Code Number) No.)
MICHAEL L. CAMPBELL PRESIDENT AND CHIEF EXECUTIVE OFFICER REGAL CINEMAS, INC. 7132 COMMERCIAL PARK DRIVE 7132 COMMERCIAL PARK DRIVE KNOXVILLE, TENNESSEE 37918 KNOXVILLE, TENNESSEE 37918 (423) 922-1123 (423) 922-1123 (Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and Number, Telephone Number, Including Area Code, of Registrants' Principal Including Area Code, of Agent For Service) Executive Office)
With a copy to: JEREMY W. DICKENS WEIL, GOTSHAL & MANGES LLP 100 CRESCENT COURT, SUITE 1300 DALLAS, TEXAS 75201 (214) 746-7700 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is a compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______ If this form is a post-effective amendment filed pursuant to the Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______ ------------------------------ CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE(1) REGISTRATION FEE(2) - ------------------------------------------------------------------------------------------------------------------- 9 1/2% Senior Subordinated Notes due 2008............. $400,000,000 100% $400,000,000 $118,000 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee. (2) Calculated in accordance with Rule 457(f) under the Securities Act of 1933, as amended. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 1998 PROSPECTUS OFFER TO EXCHANGE ALL OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 FOR 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 OF REGAL CINEMAS, INC. Regal Cinemas, Inc., a Tennessee corporation (the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the letter of transmittal accompanying this Prospectus (the "Letter of Transmittal," which together with this Prospectus constitute the "Exchange Offer"), to exchange $1,000 principal amount of 9 1/2% Senior Subordinated Notes due 2008 (the "Notes") issued by the Company for each $1,000 principal amount of 9 1/2% Senior Subordinated Notes due 2008 (the "Old Notes") issued by the Company (the "Original Offering"), of which an aggregate principal amount of $400.0 million is outstanding. The form and terms of the Notes are identical to the form and terms of the Old Notes, except that the Notes have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and will not bear any legends restricting their transfer. The Notes will evidence the same debt as the Old Notes and will be issued pursuant to, and entitled to the benefits of, the Indenture (as defined herein) governing the Old Notes. The Exchange Offer is being made in order to satisfy a contractual obligation of the Company. See "The Exchange Offer" and "Description of the Notes." The Notes and the Old Notes are sometimes collectively referred to herein as the "Notes". --------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES. --------------------- Interest on the Notes is payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 1998. The Notes will mature on June 1, 2008. Except as described below, the Company may not redeem the Notes prior to June 1, 2003. On and after such date, the Company may redeem the Notes, in whole or in part, at any time at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. In addition, at any time and from time to time prior to June 1, 2001, the Company may, subject to certain requirements, redeem up to 35% of the aggregate principal amount of the Notes with the net cash proceeds received from one or more Equity Offerings (as defined herein), at a redemption price equal to 109.50% of the principal amount to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption, provided that at least $260.0 million aggregate principal amount of Notes remains outstanding immediately after each such redemption. The Notes will not be subject to any sinking fund requirement. Upon the occurrence of a Change of Control (as defined herein), the Company will be required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of the Notes." The Notes will be unsecured and rank junior in right of payment to all Senior Indebtedness (as defined herein) of the Company. The Notes will rank pari passu in right of payment with all existing and future senior subordinated indebtedness (as defined herein) of the Company and will rank senior in right of payment to all Subordinated Indebtedness (as defined herein) of the Company. The Indenture under which the Notes will be issued (the "Indenture") permits the Company to incur additional indebtedness, including Senior Indebtedness, subject to certain limitations. See "Description of the Notes." As of July 2, 1998, on a pro forma basis after giving effect to the Act III Combination (as defined herein) as though it had occurred at such date, the aggregate principal amount of the Company's Senior Indebtedness was approximately $751.4 million (excluding unused commitments), and the Company had no senior subordinated indebtedness outstanding other than the Old Notes. In addition, on the same pro forma basis, the Company had $400.0 million in Subordinated Indebtedness. See "Description of the Notes -- General" and "-- Ranking and Subordination," and "Description of Certain Indebtedness." --------------------- THE COMPANY WILL ACCEPT FOR EXCHANGE ANY AND ALL OLD NOTES VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED (AS SO EXTENDED, SUCH TIME AND DATE BEING THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE "THE EXCHANGE OFFER." Each broker-dealer that receives Notes for its own account in exchange for Old Notes pursuant to the Exchange Offer, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed, for a period of 180 days after the Expiration Date, to make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." No public market existed for the Old Notes before the Exchange Offer. The Company currently does not intend to list the Notes on any securities exchange or to seek approval for quotation through any automated quotation system, and no active public market for the Notes is currently anticipated. The Company will pay all the expenses incident to the Exchange Offer. The Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange pursuant to the Exchange Offer. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1998. 3 AVAILABLE INFORMATION Upon completion of the Exchange Offer, the Company will be subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will file reports and other information with the Securities and Exchange Commission (the "Commission"). Such reports and other information may be inspected and copied at the public reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60611, and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can also be obtained at prescribed rates by writing to the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. This Prospectus does not contain all the information set forth in the Registration Statement filed with the Commission on Form S-4 with respect to the Notes (the "Registration Statement") and the exhibits and schedules thereto, certain portions of which have been omitted pursuant to the rules and regulations of the Commission. Statements made in this Prospectus as to the contents of any contract, agreement or other document are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is hereby made to such exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Copies of the Registration Statement and the exhibits thereto are on file with the Commission and may be examined without charge at the public reference facilities of the Commission described above. Copies of such materials can also be obtained at prescribed rates by writing to the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The reports, proxy statements and other information filed by the Company with the Commission may also be obtained from the web site that the Commission maintains at http://www.sec.gov. The Company is required by the Indenture to furnish the holders of the Notes with copies of the annual reports and of the information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act, as long as any Notes are outstanding. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED FINANCIAL POSITION, BUSINESS AND FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY, ITS SUBSIDIARIES OR PERSONS ACTING ON THEIR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. i 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless the context requires otherwise, references in this Prospectus to the "Company" mean Regal Cinemas, Inc. and its subsidiaries. Unless otherwise indicated, the financial information and other statistical information (including information regarding the number of theatres and/or screens operated or under development or construction by the Company) and the financial statements and notes thereto of the Company included elsewhere in this Prospectus have been restated to include the results of operations of Litchfield Theatres, Ltd. ("Litchfield Theatres"), Neighborhood Entertainment, Inc. ("Neighborhood"), Georgia State Theatres, Inc. ("Georgia State Theatres") and Cobb Theatres, L.L.C. ("Cobb Theatres"), which were acquired by the Company on June 15, 1994, April 17, 1995, May 30, 1996 and July 31, 1997, respectively, and which were accounted for under the pooling of interests method. The Company's results of operations for or as of the end of any year refer to its fiscal year ended or ending on the Thursday closest to December 31. Certain information contained in this Prospectus is provided as of July 2, 1998, the end of the second quarter of the Company's 1998 fiscal year. Certain information contained in this Prospectus is provided as of June 30, 1998, the end of the second quarter of Act III Cinemas, Inc.'s ("Act III") 1998 fiscal year. THE COMPANY OVERVIEW After giving pro forma effect to the Act III Combination, the Company is the largest motion picture exhibitor in the United States based upon the number of screens in operation. At July 2, 1998, on the same pro forma basis, the Company operated 392 theatres, with an aggregate of 3,310 screens in 29 states. The Company operates primarily multiplex theatres and has an average of 8.4 screens per location, which management believes is among the highest in the industry and which compares favorably to an average of approximately 6.2 screens per location for the five largest North American motion picture exhibitors at May 1, 1997. Since its inception in November 1989, the Company has achieved substantial growth in revenues and EBITDA (as defined herein). For the twelve months ended July 2, 1998, the Company, without giving effect to the Act III Combination, had revenues, operating income and EBITDA of $545.0 million, $17.3 million and $128.0 million, respectively. Act III's consolidated revenues, operating income and EBITDA for the twelve months ended June 30, 1998, were $264.6 million, $11.2 million and $68.6 million, respectively. As a result of the Company's focus on revenue enhancements, operating efficiencies and strict cost controls, the Company has increased its EBITDA margins each year, achieving what management believes are among the highest EBITDA margins in the motion picture exhibition industry. For the five year period ended January 1, 1998, the Company, without giving effect to the Act III Combination, had compound annual growth rates in revenues, operating income and EBITDA of 23.4%, 39.6% and 38.3%, respectively, and the Company's EBITDA margins increased from 15.5% to 23.2%. The Company develops, acquires and operates multiplex theatres primarily in mid-sized metropolitan markets and suburban growth areas of larger metropolitan markets, predominantly in the eastern and northwestern United States. The Company seeks to locate theatres in markets that it believes are underscreened or served by older theatre facilities. The Company also seeks to locate each theatre where it will be the sole or leading exhibitor within a particular geographic film licensing zone. Management believes that at July 2, 1998, approximately 75% of the Company's screens were located in film licensing zones in which the Company was the sole exhibitor. Since its inception and after giving pro forma effect to the Act III Combination, the Company has grown by acquiring a net of 322 theatres with 2,353 screens, constructing 70 theatres with 879 screens and adding 78 screens to existing theatres. This strategy has served to establish and enhance the Company's presence in selected geographic markets. The Company anticipates that its future growth will result largely from the development of new theatres, the addition of new screens to existing theatres and strategic acquisitions of other theatre circuits. At July 2, 1998, after giving pro forma effect to the Act III Combination, the Company 1 5 had 48 new theatres with 727 screens under construction and 47 new screens under construction at nine existing theatres. In addition, on the same pro forma basis, the Company had entered into leases in connection with its plans to develop an additional 54 theatres with 838 screens. The Company has historically achieved substantial returns on invested capital for newly built theatres. The Company's theatres built during fiscal years 1992 through 1996 yielded a return on invested capital of 29.6% (calculated as 1997 theatre cash flow divided by cumulative capital expenditures for such theatres). On August 26, 1998, the Company acquired Act III, the ninth largest motion picture exhibitor in the United States based on number of screens in operation. As of June 30, 1998, Act III operated 131 theatres, with an aggregate of 843 screens, strategically located in concentrated areas throughout the Pacific Northwest, Texas and Nevada. The Company has acquired ten other theatre circuits during the last four years, including Cobb Theatres, Georgia State Theatres and Litchfield Theatres. These acquisitions have enabled the Company to become the leading operator in certain of its markets and to improve its market concentration in the eastern and northwestern United States. Through the integration of these acquisitions, the Company has achieved (or, in the case of the recently completed Act III Combination, expects to achieve) economies of scale by consolidating purchasing, operating and other administrative functions. The Company continues to consider strategic acquisitions of complementary theatres or theatre companies. In addition, the Company may enter into joint ventures, which could serve as a platform for both domestic and international expansion. BUSINESS STRATEGY Operating Strategy Management believes that the following are the key elements of the Company's operating strategy: Multiplex Theatres. Management believes that the Company's multiplex theatres promote increased attendance and maximize operating efficiencies through reduced labor costs and improved utilization of theatre capacity. The Company's multiplex theatres enable it to offer a diverse selection of films, stagger movie starting times, increase management's flexibility in determining the number of weeks that a film will run and the size of the auditorium in which it is shown, and more efficiently serve patrons from common concessions and other support facilities. The Company further believes that the development of multiplex theatres allows it to achieve an optimal relationship between the number of screens (generally 14 to 18) and the size of the auditoriums (100 to 500 seats). The Company's multiplex theatres are designed to increase the profitability of the theatres by maximizing the revenue per square foot generated by the facility and reducing the cost per square foot of constructing and operating the theatres. Cost Control. The Company's cost control programs have resulted in an increase in its EBITDA margins, which management believes are among the highest in the motion picture exhibition industry. Management's focus on cost control extends from a theatre's initial development to its daily operation. Management believes that it is able to reduce construction and operating costs by designing prototype theatres adaptable to a variety of locations and by actively supervising all aspects of construction. In addition, through the use of detailed management reports, the Company closely monitors labor scheduling, concession yields and other significant operating expenses. A significant component of theatre management's compensation is based on controlling operating expenses at the theatre level. Revenue Enhancements. The Company strives to enhance revenue growth through: (i) the addition of specialty cafes within certain theatre lobbies serving non-traditional concessions; (ii) the sale of screen slide and rolling stock advertising time prior to scheduled movies; (iii) the marketing and advertising of certain theatres in its circuit; (iv) the addition of state-of-the-art video arcades; and (v) the rental of theatres to organizations during non-peak hours. Patron Satisfaction/Quality Control. The Company emphasizes patron satisfaction by providing convenient locations, comfortable seating, spacious neon-enhanced lobby and concession areas and a wide variety of film selections. The Company's theatre complexes feature clean, modern auditoriums with high quality projection and digital stereo surround-sound systems. As of July 2, 1998, 78% of the Company's theatres were equipped with digital surround-sound systems. The Company is adding stadium seating to certain of its 2 6 existing theatres and expects that all of its new theatres will feature stadium seating. The Company believes that all of these features serve to enhance its patrons' movie-going experience and help build patron loyalty. In addition, the Company promotes patron loyalty through specialized marketing programs for its theatres and feature films. To maintain quality and consistency within the Company's theatres, the Company conducts regular inspections of each theatre and operates a "mystery shopper" program. Integration of Acquisitions. The Company has acquired 11 theatre circuits during the last four years. Management believes that acquisitions provide the opportunity for the Company to increase revenue growth while realizing joint operating efficiencies through the integration of operations. In this regard, the Company believes it has achieved (or, in the case of the recently completed Act III Combination, believes it will achieve) cost savings through the consolidation of its purchasing function, the centralization of certain other operating functions and the uniform application of the most successful cost control strategies of the Company and its acquisition targets. Centralized Corporate Decision Making/Decentralized Operations. The Company centralizes many of its functions through its corporate office, including film licensing, concessions purchasing and new theatre construction and design. The Company also devotes significant resources to training its theatre managers. These managers are responsible for most aspects of a theatre's day-to-day operations and implement cost controls at the theatre level, including the close monitoring of payroll, concession and advertising expenses. Marketing. The Company actively markets its theatres through grand opening promotions, including "VIP" preopening parties, newspaper and radio advertising, television commercials in certain markets and promotional activities, such as live music, spotlights and skydivers, which frequently generate media coverage. The Company also utilizes special marketing programs for specific films and concession items. The Company seeks to develop patron loyalty through a number of marketing programs such as a free summer children's film series, cross-promotion ticket redemptions and promotions within local communities. Performance-Based Compensation Packages. The Company maintains an incentive program for its corporate personnel, district managers and theatre managers that links employees' compensation to profitability. The Company believes that its incentive program, which consists of cash bonuses and stock options, aligns the employees' interests with those of the Company's shareholders. Growth Strategy Management believes that the following characteristics are the key elements of the Company's growth strategy: Develop New Multiplex Theatres in Existing and Target Markets. The Company develops multiplex theatres with generally 14 to 18 screens, in both its existing markets and in other mid-sized metropolitan markets and suburban growth areas of larger metropolitan markets in the United States. Management seeks to locate its theatres in areas that are underscreened or that are served by aging theatre facilities. The Company seeks to identify new geographical markets that present opportunities for expansion and growth and, when identified, targets these geographical markets for future development. At July 2, 1998, after giving pro forma effect to the Act III Combination, the Company had 48 new theatres with 727 screens under construction. In addition, on the same pro forma basis, the Company has entered into leases in connection with its plans to develop an additional 54 theatres with 838 screens. The Company's theatres built during fiscal years 1992 through 1996 yielded a return on invested capital of 29.6% (calculated as 1997 theatre cash flow divided by cumulative capital expenditures for such theatres). Add New Screens and Upgrade Existing Theatres. To enhance profitability and to maintain competitiveness at existing theatres, the Company continues to add additional screens and upgrade its existing theatres, including by adding stadium seating to certain existing theatres. The Company believes that through the addition of screens and the upgrade of its facilities it can leverage the favorable real estate location of certain of its theatres and thereby improve its operating margins at those theatres. By upgrading certain existing theatres the Company is able to create barriers to entry in the markets served by those theatres. At July 2, 1998, after giving pro forma effect to the Act III Combination, the Company had 47 new screens under construction at nine existing theatre facilities and anticipates that it will add a total of 115 to 135 screens to 3 7 certain of its existing theatres by the end of 1999. The addition of screens to existing theatres is designed not to disrupt operations at the theatres. Acquire Theatres. While management believes that a significant portion of its future growth will come through the development of new theatres, the Company will continue to consider strategic acquisitions of complementary theatres or theatre companies. In addition, the Company may enter into joint ventures, which could serve as a platform for both domestic and international expansion. On August 26, 1998, the Company acquired Act III, the ninth largest motion picture exhibitor in the United States based on number of screens in operation. The Company currently has no other plans or agreements for any specific acquisitions or joint ventures. Develop Complementary Theatre Concepts. To complement the Company's theatre development, it has opened six FunScapes(TM) entertainment complexes and currently has two additional FunScapes(TM) under construction. The Company may seek to develop additional FunScapes(TM) at strategic locations. The Company has also signed an agreement to include IMAX(R) 3-D theatres in ten of its new multiplex theatres over the next five years, the first of which is expected to open in Chicago in November 1998. Management believes that the Company's theatres with IMAX(R) 3-D will draw higher traffic levels than its other theatres by attracting patrons during non-peak hours and expanding its customer base in certain markets. THE TRANSACTIONS RECAPITALIZATION AND REFINANCINGS On May 27, 1998, an affiliate of Kohlberg Kravis Roberts & Co. L.P. ("KKR") and an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") merged with and into the Company (the "Regal Merger"), with the Company continuing as the surviving corporation of the merger. The consummation of the Regal Merger resulted in a recapitalization (the "Recapitalization") of the Company. In the Recapitalization, the Company's existing holders of common stock ("Common Stock") received cash for their shares of Common Stock, and KKR, Hicks Muse, DLJ Merchant Banking Partners II, L.P. and affiliated funds ("DLJ") and certain members of the Company's management acquired the Company. In addition, in connection with the Recapitalization, the Company cancelled options and repurchased warrants held by certain directors, management and employees of the Company (the "Option/Warrant Redemption"). The aggregate purchase price paid to effect the Regal Merger and the Option/Warrant Redemption was approximately $1.2 billion. The net proceeds of the Original Offering, initial borrowings of $375.0 million under the Company's current senior credit facility (as amended in connection with the Act III Combination, the "Senior Credit Facilities") and $776.9 million in proceeds from the investment by KKR, Hicks Muse, DLJ and management in the Company (the "Equity Investment") were used: (i) to fund the cash payments required to effect the Regal Merger and the Option/Warrant Redemption; (ii) to repay and retire the Company's then existing senior credit facilities (the "Old Credit Facilities"); (iii) to repurchase all $125.0 million aggregate principal amount of the Company's 8 1/2% Senior Subordinated Notes due October 1, 2007 (the "Old Regal Notes"); and (iv) to pay related fees and expenses. Under the Senior Credit Facilities, the Company is permitted to borrow up to $1,212.5 million in the aggregate, consisting of $500.0 million under a revolving credit facility (the "Revolving Credit Facility") and $712.5 million, in the aggregate, under three separate term loan facilities. After the consummation of the Act III Combination, the Company had approximately $461.1 million available for borrowing under the Senior Credit Facilities. Prior to the Regal Merger, KKR held approximately 89% of Act III's outstanding equity. Pursuant to the Regal Merger, KKR, Hicks Muse and DLJ received $287.3 million, $437.3 million and $50.0 million, respectively, of the Company's equity securities, consisting of a combination of Common Stock and the Company's Series A Convertible Preferred Stock ("Preferred Stock"). In order to equalize KKR's and Hicks Muse's equity interests in both the Company and Act III, upon the closing of the Recapitalization, Hicks Muse exchanged $75.0 million of its equity interest in the Company for $75.0 million of KKR's equity in Act III and Hicks Muse made an additional equity investment of approximately $62.7 million in Act III. The 4 8 proceeds of the Hicks Muse $62.7 million equity investment were used to repay outstanding indebtedness under Act III's credit facilities. On the seventh calendar day following the closing of the Regal Merger, all outstanding shares of Preferred Stock were converted into shares of Common Stock. The Original Offering, the initial borrowings under the Senior Credit Facilities and the Equity Investment are referred to in this Prospectus, collectively, as the "Financing." The Financing, the Regal Merger, the Recapitalization and the transactions contemplated thereby, including but not limited to, the application of the proceeds of the Financing, are referred to in this Prospectus as the "Transactions." THE ACT III COMBINATION On August 26, 1998, the Company acquired Act III (the "Act III Merger"). In the Act III Merger, Act III became a wholly-owned subsidiary of the Company and each share of Act III's outstanding common stock was converted into the right to receive one share of the Company's Common Stock. In connection with the Act III Merger, the Company amended its Senior Credit Facilities and borrowed $383.3 million thereunder to repay Act III's borrowings and accrued interest under Act III's credit facilities (the "Act III Bank Debt") and two senior subordinated promissory notes in the aggregate principal amount of $75.0 million each (the "Act III Notes"), which were owned by KKR and Hicks Muse. The repayment of the Act III Bank Debt and the Act III Notes are referred to in this Prospectus, together, as the "Act III Refinancing." The Act III Merger and the Act III Refinancing are referred to in this Prospectus, together, as the "Act III Combination." As a result of the Transactions and the Act III Combination, KKR and Hicks Muse each own approximately 46.3% of the Company's Common Stock, with DLJ, management and other minority investors owning the remainder. The Recapitalization and the Financing were not conditioned on the consummation of the Act III Combination, and there existed no contractual arrangement (written, verbal or otherwise) or obligation to enter into or complete the Act III Combination. USE OF PROCEEDS The Company will not receive any proceeds from the exchange of the Notes for the Old Notes pursuant to the Exchange Offer. The net proceeds of the Original Offering, initial borrowings of $375.0 million under the Senior Credit Facilities and the proceeds from the Equity Investment were used: (i) to fund the cash payments required to effect the Regal Merger and the Option/Warrant Redemption; (ii) to repay and retire the Old Credit Facilities; (iii) to repurchase the Old Regal Notes; and (iv) to pay related fees and expenses. See "Use of Proceeds." 5 9 THE EXCHANGE OFFER THE EXCHANGE OFFER......... The Company hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the Letter of Transmittal, to exchange $1,000 principal amount of Notes issued by the Company for each $1,000 principal amount of Old Notes issued by the Company, of which an aggregate principal amount of $400.0 million is outstanding. The form and terms of the Notes are identical to the form and terms of the Old Notes, except that the Notes have been registered under the Securities Act and will not bear any legends restricting their transfer. The Notes will evidence the same debt as the Old Notes and will be issued pursuant to, and entitled to the benefits of, the Indenture governing the Old Notes. The Exchange Offer is being made in order to satisfy a contractual obligation of the Company. See "The Exchange Offer" and "Description of the Notes." Based on an interpretation by the Commission's staff set forth in no-action letters issued to third parties unrelated to the Company, the Company believes that, with the exceptions set forth below, the Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any person receiving such Notes, whether or not such person is the registered holder (other than any such holder or such other person which is (i) an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer that purchased such Old Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (iii) a person participating in the distribution of the Notes) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the Notes are acquired in the ordinary course of business of the holder or such other person and neither the holder nor such other person has an arrangement or understanding with any person to participate in the distribution of such Notes. Holders of Old Notes accepting the Exchange Offer will represent to the Company in the Letter of Transmittal that such conditions have been met. Any holder who tenders in the Exchange Offer for the purpose of participating in a distribution of the Notes cannot rely on this interpretation by the Commission's staff and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. See "The Exchange Offer -- Purpose and Effect." Each broker-dealer that receives Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Notes. See "Plan of Distribution." EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New York City time, , 1998 or such later date and time to which it is extended by the Company. WITHDRAWAL................. The tender of Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder thereof 6 10 as promptly as practicable after the expiration or termination of the Exchange Offer. INTEREST ON THE NOTES AND THE OLD NOTES.............. Interest on each Note will accrue from the date of issuance of the Old Note for which the Note is exchanged or from the date of the last periodic payment of interest on such Old Note, whichever is later. No additional interest will be paid on Old Notes tendered and accepted for exchange. CONDITIONS TO THE EXCHANGE OFFER.................... The Exchange Offer is subject to certain conditions, some of which may be waived by the Company. See "The Exchange Offer -- Conditions to the Exchange Offer." PROCEDURES FOR TENDERING OLD NOTES.................. Each holder of the Old Notes wishing to accept the Exchange Offer must complete, sign and date the Letter of Transmittal, or a copy thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver the Letter of Transmittal, or the copy, together with the Old Notes and any other required documentation, to the Exchange Agent (as defined herein) at the address set forth herein. Persons holding the Old Notes through the Depository Trust Company ("DTC") and wishing to accept the Exchange Offer must do so pursuant to the DTC's Automated Tender Offer Program ("ATOP"), by which each tendering participant will agree to be bound by the Letter of Transmittal. By executing or agreeing to be bound by the Letter of Transmittal, each holder will represent to the Company that, among other things, (i) the Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Notes, whether or not such person is the registered holder of the Old Notes, (ii) neither the holder nor any such other person is engaging in or intends to engage in a distribution of such Notes, (iii) neither the holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Notes and (iv) neither the holder nor any such other person is an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of the Company. If the Company determines that it is not permitted to effect the Exchange Offer as contemplated hereby because of any applicable law or change in Commission policy, or if any holder of Transfer Restricted Securities (as defined herein) notifies the Company prior to the 20th day following consummation of the Exchange Offer (a) that it is prohibited by law or Commission policy from participating in the Exchange Offer, (b) that it may not resell the Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and that this Prospectus is not appropriate or available for such resales or (c) that it is a broker-dealer and owns Old Notes acquired directly from the Company or an affiliate of the Company, the Company is required to file a "shelf" registration statement for a continuous offering pursuant to Rule 415 under the Securities Act in respect of the Old Notes. The Company will accept for exchange any and all Old Notes which are properly tendered (and not withdrawn) in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Notes issued pursuant to the Exchange Offer will be delivered promptly 7 11 following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." EXCHANGE AGENT............. IBJ Schroder Bank & Trust Company is serving as Exchange Agent (the "Exchange Agent") in connection with the Exchange Offer. FEDERAL INCOME TAX CONSIDERATIONS........... The exchange pursuant to the Exchange Offer should not be a taxable event for federal income tax purposes. See "Certain Federal Income Tax Considerations." EFFECT OF NOT TENDERING.... Old Notes that are not tendered or that are tendered but not accepted will, following the completion of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof. Except as described above, the Company will have no further obligation to provide for the registration under the Securities Act of such Old Notes. THE NOTES ISSUER..................... Regal Cinemas, Inc. SECURITIES OFFERED......... $400.0 million principal amount of 9 1/2% Senior Subordinated Notes due 2008. MATURITY................... June 1, 2008. INTEREST................... Payable semi-annually in arrears, on June 1 and December 1 of each year, commencing December 1, 1998. OPTIONAL REDEMPTION........ The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after June 1, 2003, initially at 104.75% of their principal amount, plus accrued and unpaid interest, declining ratably to 100% of their principal amount, plus accrued and unpaid interest, on or after June 1, 2006. In addition, at any time prior to June 1, 2001, the Company may redeem up to 35% of the aggregate principal amount of the Notes with the proceeds of one or more Equity Offerings, at 109.50% of their principal amount, plus accrued and unpaid interest; provided that after any such redemption at least $260.0 million aggregate principal amount of the Notes remains outstanding. See "Description of the Notes -- Optional Redemption." RANKING.................... The Notes will be unsecured and rank junior in right of payment to all Senior Indebtedness of the Company. The Notes will rank pari passu in right of payment with all existing and future senior subordinated indebtedness of the Company and will rank senior in right of payment to all Subordinated Indebtedness of the Company. The Indenture permits the Company to incur additional indebtedness, including Senior Indebtedness, subject to certain limitations. See "Description of the Notes." As of July 2, 1998, on a pro forma basis after giving effect to the Act III Combination as though it had occurred at such date, the aggregate principal amount of the Company's Senior Indebtedness was approximately $751.4 million (excluding unused commitments), and the Company had no senior subordinated indebtedness outstanding other than the Old Notes. In addition, on the same pro forma basis, the Company had $400.0 million in Subordinated Indebtedness. See "Description of the Notes -- General" and "-- Ranking and Subordination," and "Description of Certain Indebtedness." 8 12 CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, the Company will be required to make an offer to purchase the Notes at a purchase price equal to 101% of their principal amount on the date of purchase, plus accrued and unpaid interest. See "Description of the Notes -- Change of Control." CERTAIN COVENANTS.......... The Indenture contains certain covenants that, among other things, limit the ability of the Company and its Restricted Subsidiaries (as defined herein) to incur indebtedness, pay dividends, repurchase capital stock, engage in transactions with stockholders and affiliates and engage in mergers and consolidations. However, these limitations are subject to a number of important qualifications and exceptions. If the Notes attain Investment Grade Status (as defined herein) substantially all of such covenants shall cease to apply. See "Description of the Notes -- Certain Covenants." USE OF PROCEEDS............ There will be no cash proceeds to the Company from the Exchange Offer. The net proceeds of the Original Offering, together with proceeds from the Equity Investment and initial borrowings under the Senior Credit Facilities, were used: (i) to fund the cash payments required to effect the Regal Merger and the Option/Warrant Redemption; (ii) to repay and retire outstanding indebtedness under the Old Credit Facilities; (iii) to repurchase the Old Regal Notes; and (iv) to pay related fees and expenses. See "Use of Proceeds." RISK FACTORS Prospective investors in the Notes should carefully consider all of the information set forth in this Prospectus, and in particular, should evaluate the specific factors set forth under "Risk Factors" for certain risks involved with an investment in the Notes. 9 13 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA The summary historical consolidated financial data set forth below were derived from the consolidated financial statements of the Company. The summary historical consolidated statement of income data of the Company for the fiscal years ended December 30, 1993, December 29, 1994, December 28, 1995, January 2, 1997 and January 1, 1998 and the balance sheet data as of the dates noted, were derived from the audited consolidated financial statements of the Company. The summary historical consolidated financial data set forth below as of July 2, 1998 and for the respective six month periods ended July 3, 1997 and July 2, 1998 were derived from the unaudited consolidated financial statements of the Company which, in the opinion of management, include all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the Company's consolidated results of operations and financial condition for such periods. The operating results for the respective six month periods ended July 3, 1997 and July 2, 1998 are not necessarily indicative of results to be expected for the full fiscal year. The summary historical consolidated financial data set forth below should be read in conjunction with, and are qualified in their entirety by, the "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and notes thereto included elsewhere in this Prospectus.
FISCAL YEAR ENDED SIX MONTHS ENDED -------------------------------------------------------------------- ----------------- DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, JULY 3, JULY 2, 1993 1994 1995 1997 1998 1997 1998 ------------ ------------ ------------ ---------- ---------- ------- ------- (IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA) CONSOLIDATED STATEMENT OF INCOME DATA: Revenue: Admissions......................... $ 149.4 $ 185.2 $ 213.4 $ 266.0 $ 325.1 $ 150.5 $ 190.9 Concession sales................... 61.4 74.7 87.3 110.2 137.2 63.0 82.0 Other.............................. 3.6 5.1 8.3 13.0 16.8 8.7 15.2 ------- ------- ------- ------- ------- ------- ------- Total revenue.................. 214.4 265.0 309.0 389.2 479.1 222.2 288.1 Costs and Expenses: Operating expenses: Film rental and advertising...... 82.8 101.0 115.4 145.2 178.2 81.3 104.0 Cost of concessions and other.... 8.8 9.9 11.4 15.1 16.6 10.2 13.0 Rent expense..................... 28.0 32.5 34.5 41.4 53.7 26.0 34.9 Other expense.................... 49.0 60.4 71.2 86.4 102.8 49.1 65.3 General and administrative......... 12.7 14.1 14.8 16.6 16.6 9.5 8.0 ------- ------- ------- ------- ------- ------- ------- Total costs and expenses......... 181.3 217.9 247.3 304.7 367.9 176.1 225.2 ------- ------- ------- ------- ------- ------- ------- Sub-Total........................ 33.1 47.1 61.7 84.5 111.2 46.1 62.9 Depreciation and amortization...... 11.0 13.6 19.4 24.7 30.5 14.5 19.9 SFAS 121(1)........................ -- -- -- -- 5.0 -- -- Merger expenses.................... -- 5.1 1.2 1.6 7.8 -- -- Recapitalization expenses.......... -- -- -- -- -- -- 62.0 ------- ------- ------- ------- ------- ------- ------- Operating income (loss).......... 22.1 28.4 41.1 58.2 67.9 31.6 (19.0) Interest expense, net.............. 6.5 7.2 10.3 12.2 13.2 6.0 12.9 Other (income) expense, net........ 1.8 -- .7 (.7) .4 .3 .2 ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes and loss (gain) on extraordinary item............. 13.8 21.2 30.1 46.7 54.3 25.3 (32.1) Provision for (benefit from) income taxes............................ 5.1 8.5 12.2 20.8 19.1 9.8 (3.9) ------- ------- ------- ------- ------- ------- ------- Income (loss) before loss (gain) on extraordinary item.......... 8.7 12.7 17.9 25.9 35.2 15.5 (28.2) Loss (gain) on extraordinary item............................. (.2) 1.8 .4 .8 10.0 -- 11.9 ------- ------- ------- ------- ------- ------- ------- Net income (loss).................... $ 8.9 $ 10.9 $ 17.5 $ 25.1 $ 25.2 $ 15.5 $ (40.1) ======= ======= ======= ======= ======= ======= ======= OPERATING AND OTHER FINANCIAL DATA: Cash flow provided by (used in) operating activities............... $ 29.8 $ 36.5 $ 40.0 $ 67.5 $ 64.0 $ 36.8 $ (1.9) Cash flow used in investing activities......................... $ 20.8 $ 106.4 $ 112.6 $ 131.1 $ 202.3 $ 91.2 $ 99.1 Cash flow provided by financing activities......................... $ 7.3 $ 63.5 $ 69.8 $ 72.2 $ 139.6 $ 51.7 $ 110.1 EBITDA(2)............................ $ 33.1 $ 47.1 $ 61.7 $ 84.5 $ 111.2 $ 46.1 $ 62.9 EBITDAR(2)........................... $ 61.1 $ 79.6 $ 96.2 $ 125.9 $ 164.9 $ 72.1 $ 97.8 EBITDA margin(3)..................... 15.5% 17.8% 20.0% 21.7% 23.2% 20.7% 21.8% EBITDAR margin(3).................... 28.5% 30.0% 31.1% 32.4% 34.4% 32.4% 33.9% Ratio of EBITDA to interest expense(4)......................... 4.7x 6.3x 5.8x 6.6x 8.0x 7.6x 4.7x Ratio of EBITDAR to interest and rent expense(4)......................... 1.7x 2.0x 2.1x 2.3x 2.4x 2.2x 2.0x Capital expenditures and acquisitions....................... $ 23.6 $ 108.6 $ 113.9 $ 143.7 $ 203.2 $ 90.1 $ 91.1 Ratio of earnings to fixed charges(5)......................... 2.9x 3.5x 3.4x 4.0x 4.0x 4.2x -- Deficiency of earnings to cover fixed charges(5)......................... -- -- -- -- -- -- $ 33.5
10 14
FISCAL YEAR ENDED SIX MONTHS ENDED -------------------------------------------------------------------- ----------------- DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, JULY 3, JULY 2, 1993 1994 1995 1997 1998 1997 1998 ------------ ------------ ------------ ---------- ---------- ------- ------- (IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA) OPERATING DATA(6): Theatre locations.................... 160 195 206 223 256 234 261 Screens.............................. 1,110 1,397 1,616 1,899 2,306 2,060 2,467 Average screens per location......... 6.9 7.2 7.8 8.5 9.0 8.8 9.5 Attendance (in thousands)............ 41,624 49,690 55,091 65,530 76,331 35,946 42,686 Average ticket price................. $ 3.59 $ 3.73 $ 3.87 $ 4.06 $ 4.26 $ 4.19 $ 4.47 Average concessions per patron....... $ 1.47 $ 1.50 $ 1.58 $ 1.68 $ 1.80 $ 1.75 $ 1.92
AS OF JULY 2, 1998 ------------ BALANCE SHEET DATA: Cash and cash equivalents................................. $ 27.5 Total assets.............................................. 784.4 Long-term obligations (including current maturities)...... 776.3 Stockholders' equity (deficit)............................ (76.1)
- --------------- (1) Reflects non-cash charges for the impairment of long-lived assets in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," which the Company adopted in 1995. (2) EBITDA represents net income before interest expense, income taxes, depreciation and amortization, other income (expense), extraordinary items and non-recurring charges. EBITDAR represents EBITDA before rent expense. This definition of EBITDA is consistent with that included in the debt indenture. While EBITDA and EBITDAR are not intended to represent cash flow from operations as defined by generally accepted accounting principles ("GAAP") and should not be considered as indicators of operating performance or alternatives to cash flow (as measured by GAAP) as a measure of liquidity, they are included herein to provide additional information with respect to the ability of the Company to meet its future debt service, capital expenditure, rental and working capital requirements. (3) Defined as EBITDA and EBITDAR as a percentage of total revenue. (4) "Interest expense" means interest expense recorded during the related period excluding interest income and amortization of deferred financing fees. (5) For purposes of this calculation, "earnings" consist of net income (loss) before income taxes and fixed charges, excluding any capitalized interest, and "fixed charges" consist of interest expense, capitalized interest, amortization of deferred financing costs and the component of rental expense believed by the Company to be representative of the interest factor thereon. (6) Operating theatres and screens represent the number of theatres and screens operated at the end of the period. 11 15 SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The following summary pro forma consolidated financial data for the fiscal year ended January 1, 1998, for the six month period ended July 2, 1998 were derived from the unaudited and audited consolidated financial statements of the Company and Act III, which are included elsewhere in this Prospectus, and have been prepared to give effect to the Transactions and the Act III Combination, as though such transactions had occurred as of January 3, 1997, for the statements of income. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The pro forma statement of income data do not purport to present what the Company's results of operations would actually have been had the Transactions and the Act III Combination, in fact, occurred January 3, 1997, or to project the Company's results of operations for any future period. The pro forma balance sheet data do not purport to present what the Company's financial position actually would have been had the Act III Combination, in fact, occurred as of July 2, 1998, or to project the Company's financial position at any future date. The summary pro forma consolidated financial data set forth below should be read in conjunction with, and are qualified in their entirety by, "The Transactions," "Capitalization," "Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and Act III and the respective notes thereto included elsewhere in this Prospectus.
YEAR SIX MONTHS ENDED ENDED JANUARY 1, JULY 2, 1998 1998 ----------- ----------- (IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA) CONSOLIDATED STATEMENT OF INCOME DATA: Revenue: Admissions.............................................. $ 498.0 $ 279.5 Concession sales........................................ 215.4 124.1 Other................................................... 19.0 16.2 ------- ------- Total revenue....................................... 732.4 419.8 Costs and Expenses: Operating expenses: Film rental and advertising........................... 271.4 149.9 Cost of concessions and other......................... 29.0 19.0 Rent expense.......................................... 69.4 44.4 Other expense......................................... 165.4 97.8 General and administrative.............................. 19.7 9.0 ------- ------- Total costs and expenses............................ 554.9 320.1 ------- ------- Sub-Total........................................... 177.5 99.7 Depreciation and amortization........................... 66.9 40.9 SFAS 121(1)............................................. 5.0 -- Merger expenses......................................... 7.8 -- Recapitalization expenses............................... 25.9 62.0 ------- ------- Operating income (loss)............................. 71.9 (3.2) Interest expense, net................................... 101.4 52.9 Other (income) expense.................................. (1.4) 0.3 ------- ------- Income (loss) before income taxes and loss on extraordinary item.................................. (28.1) (56.4) Provision for (benefit from) income taxes............... (4.0) (11.2) ------- ------- Income (loss) before extraordinary item................. $ (24.1) $ (45.2) ======= =======
12 16
YEAR SIX MONTHS ENDED ENDED JANUARY 1, JULY 2, 1998 1998 ----------- ----------- (IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA) OPERATING AND OTHER FINANCIAL DATA: EBITDA(2)................................................. $ 177.5 $ 99.7 EBITDAR(2)................................................ $ 246.9 $144.1 EBITDA margin(3).......................................... 24.2% 23.7% EBITDAR margin(3)......................................... 33.7% 34.3% Ratio of EBITDA to interest expense(4).................... 1.7x 1.8x Ratio of EBITDAR to interest and rent expense(4).......... 1.4x 1.5x Deficiency of earnings to cover fixed charges(5).......... $ 32.8 $ 57.6 OPERATING DATA (6): Theatre locations......................................... 388 392 Screens................................................... 3,132 3,310 Average screens per location.............................. 8.1 8.4 Attendance (in thousands)................................. 118,583 63,529 Average ticket price...................................... $ 4.20 $ 4.40 Average concessions per patron............................ $ 1.82 $ 1.95
- --------------- (1) Reflects non-cash charges for the impairment of long-lived assets in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," which the Company adopted in 1995. (2) EBITDA represents net income before interest expense, income taxes, depreciation and amortization, other income (expense), extraordinary items and non-recurring charges. This definition of EBITDA is consistent with that included in the debt indenture. EBITDAR represents EBITDA before rent expense. While EBITDA and EBITDAR are not intended to represent cash flow from operations as defined by GAAP and should not be considered as indicators of operating performance or alternatives to cash flow (as measured by GAAP) as a measure of liquidity, they are included herein to provide additional information with respect to the ability of the Company to meet its future debt service, capital expenditure, rental and working capital requirements. (3) Defined as EBITDA and EBITDAR as a percentage of total revenue. (4) "Interest expense" means interest expense recorded during the related period excluding interest income and amortization of deferred financing fees. (5) For purposes of this calculation, "earnings" consist of net income (loss) before income taxes and fixed charges, excluding any capitalized interest, and "fixed charges," consist of interest expense, capitalized interest, amortization of deferred financing costs and the component of rental expense believed by the Company to be representative of the interest factor thereon. (6) Operating theatres and screens represent the number of theatres and screens operated at the end of the period. 13 17 RISK FACTORS Prospective investors should carefully consider the risk factors set forth below, as well as the other information set forth in this Prospectus, before making an investment in the Notes. This Prospectus contains statements regarding possible and/or expected future events, which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in these forward-looking statements. Factors that might cause such differences include, but are not limited to, the risk factors set forth below. CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES Holders of Old Notes who do not exchange their Old Notes for the Notes pursuant to the Exchange Offer will continue to be subject to the provisions in the Indenture regarding transfer and exchange of the Old Notes and the restrictions on transfer of such Old Notes as set forth in the legend thereon as a consequence of the issuance of the Old Notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold, unless registered under the Securities Act and applicable state securities laws. The Company does not currently anticipate that it will register Old Notes under the Securities Act. See "The Exchange Offer -- Purpose and Effect." Based on interpretations by the staff of the Commission, as set forth in no-action letters issued to third parties, the Company believes that the Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold or otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Notes are acquired in the ordinary course of such holders' business and such holders, other than broker-dealers, have no arrangement or understanding with any person to participate in the distribution of such Notes. However, the Commission has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of such Notes and has no arrangement or understanding to participate in a distribution of the Notes. If any holder is an affiliate of the Company or is engaged in or intends to engage in or has any arrangement or understanding with respect to the distribution of the Notes to be acquired pursuant to the Exchange Offer, such holder (i) may not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Notes for its own account in exchange for Old Notes pursuant to the Exchange Offer must acknowledge that such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer for 180 days following the date of this Prospectus in connection with resales of the Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. In addition, to comply with the securities laws of certain jurisdictions, if applicable, the Notes may not be offered or sold unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and is complied with. The Company has agreed, subject to certain limitations, to cooperate with holders of the Old Notes to register or qualify the Notes for offer or sale under the securities laws of such jurisdiction as any holder reasonably requests. Unless a holder so requests, the Company does not currently intend to register or qualify the sale of the Notes in any such jurisdictions. See "The Exchange Offer." DEPENDENCE ON MOTION PICTURE PRODUCTION AND PERFORMANCE; RELATIONSHIP WITH FILM DISTRIBUTORS The ability of the Company to operate successfully depends upon a number of factors, the most important of which are the availability and appeal of motion pictures, the Company's ability to license motion pictures 14 18 and the performance of such motion pictures in the Company's markets. The Company predominantly licenses first-run motion pictures. Poor performance of, or disruption in the production of or access to, motion pictures by the major studios and/or independent producers could have a material adverse effect on the Company's business and results of operations. Because film distributors historically have released those films that they anticipate will be the most successful during the summer and holiday seasons, poor performance of such films or disruption in the release of films during such periods could adversely affect the Company's results for those particular periods or for any fiscal year. The Company's business also depends to a significant degree on maintaining good relations with the major film distributors that license films to the Company's theatres. A deterioration in the Company's relationship with any of the nine major film distributors could adversely affect the Company's access to commercially successful films and therefore, could have a material adverse effect on the Company's business and results of operations. See "Business -- Film Licensing." EXPANSION PLANS The Company's growth strategy involves constructing new theatres and adding new screens to certain of its existing theatres. The Company seeks to locate its theatres in markets that it believes are underscreened or that are served by older theatre facilities. At July 2, 1998, after giving pro forma effect to the Act III Combination, the Company had 48 new theatres with 727 screens under construction and 47 new screens under construction at nine existing theatres. The Company intends to develop approximately 575 to 625 screens during the balance of 1998 and approximately 750 to 850 screens during 1999. The Company expects that the capital expenditures in connection with new theatre construction or renovations to existing theatres will aggregate approximately $220.0 million for the remainder of 1998 and approximately $200.0 million during 1999. The Company expects to fund these capital expenditures from cash flow from operations, asset sale proceeds and borrowings under the Senior Credit Facilities. There can be no assurance, however, that the Company will generate sufficient cash flow from operations or proceeds from asset sales or that the Company's future borrowing capacity under the Senior Credit Facilities will be sufficient to enable it to make these anticipated capital expenditures. In addition, the Company intends to continue its expansion plans over the next several years. Any future theatre development may require financing in addition to cash generated from operations, asset sale proceeds and borrowings under the Senior Credit Facilities. There can be no assurance that such additional financing will be available to the Company on terms considered reasonable by management, or at all. The Company's ability to open theatres and complete screen expansions on a timely and profitable basis is subject to various contingencies, some of which are beyond the Company's control. There is significant competition in the United States for site locations from both theatre companies and other businesses. There can be no assurance that the Company will be able to obtain attractive theatre sites, negotiate acceptable lease terms, build theatres and complete screen expansions on a timely and cost-effective basis, hire, train and retain skilled managers and personnel and obtain adequate capital resources. There can be no assurance that the Company will achieve its planned expansion or that new theatres will achieve targeted levels of profitability. ACQUISITION RISKS The Company's growth strategy also may involve the acquisition of additional theatres and/or theatre companies. There is substantial competition for attractive acquisition candidates. There can be no assurance that the Company will be able to successfully acquire suitable acquisition candidates or integrate acquired operations into its existing operations. There can also be no assurance that future acquisitions will not have an adverse effect upon the Company's operating results, particularly in the quarters immediately following the completion of an acquisition while the operations of an acquired business are being integrated. Moreover, the Company's acquisition strategy involves, to a substantial degree, strategies to increase net revenue while at the same time reducing operating expenses. Although the Company's management believes that its strategies are reasonable, there can be no assurance that the Company will be able to implement its plans without delay or that, when implemented, its efforts will result in the increased profitability, cost savings or other benefits expected by the Company's management. In addition, the integration of acquired companies, including 15 19 Act III, will require substantial attention from the Company's senior management, which may limit the amount of time available to be devoted to the Company's day-to-day operations or to the execution of its growth strategy. Additionally, expansion of the Company's theatre circuit involves the risk that the Company might not effectively manage such growth and that significant additional debt may be incurred in connection with such acquisitions, which could have a material adverse effect on the Company's financial position and results of operations. COMPETITION The motion picture exhibition industry is fragmented and highly competitive, particularly in film licensing, attracting patrons and finding new theatre sites. Theatres operated by national and regional circuits and by smaller independent exhibitors compete with the Company's theatres. Many of the Company's competitors have been in existence significantly longer than the Company and may be better established in certain of the markets where the Company's theatres are located or where the Company may choose to open new theatres. Many of the Company's competitors have sought to increase the number of their theatres and screens in operation. Such increases may cause certain local markets or portions thereof to become over screened, resulting in a negative impact on the earnings of the theatres involved and thus on the Company's theatres in those markets. Filmgoers are generally not brand conscious and choose a theatre based on the films showing there. The Company believes that the principal competitive factors in the motion picture exhibition industry include: licensing terms; the seating capacity, location and reputation of an exhibitor's theatres; the quality of projection and sound equipment at the theatres; and the exhibitor's ability and willingness to promote the films. Failure to compete favorably with respect to any of these factors could have a material adverse effect on the Company's business and results of operations. In those areas where real estate is readily available, there are few barriers preventing competing companies from opening theatres near one of the Company's existing theatres, which may have a material adverse effect on the Company's theatre. In addition, competitors have built or are planning to build theatres in certain areas in which the Company operates, which may result in excess capacity in such areas and adversely affect attendance and pricing at the Company's theatres in such areas. In addition, alternative motion picture exhibition delivery systems, including cable television, video cassettes, satellite and pay-per-view services, exist for the exhibition of filmed entertainment in periods subsequent to the theatrical release. The expansion of such delivery systems (such as video on demand) could have a material adverse effect upon the Company's business and results of operations. The Company also competes for the public's leisure time and disposable income with all forms of entertainment, including sporting events, concerts, live theatre and restaurants. See "Business -- Competition." DEPENDENCE ON SENIOR MANAGEMENT The Company's success depends upon the continued contributions of its senior management, including Michael L. Campbell, Chairman, President and Chief Executive Officer of the Company. The Company currently has employment agreements with Mr. Campbell and other senior executives, but the Company maintains key-man life insurance only with respect to Mr. Campbell. The loss of the services of one or more of the Company's senior management could have a material adverse effect upon its business and development. See "Management -- Executive Compensation -- Campbell, Dunn and Frazer Employment Agreements." FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS The Company's revenues have been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most marketable motion pictures have been released during the summer and the Thanksgiving through year-end holiday season. The unexpected emergence of a hit film during other periods can alter the traditional trend. The timing of such releases can have a significant effect on the Company's results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter. The seasonality of motion picture exhibition, however, has become less pronounced in recent 16 20 years as studios have begun to release major motion pictures somewhat more evenly throughout the year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." SUBSTANTIAL INDEBTEDNESS, LEASE COMMITMENTS AND LEVERAGE The Company has substantial indebtedness. As of July 2, 1998, on a pro forma basis after giving effect to the Act III Combination, the Company had approximately $1.19 billion of indebtedness outstanding, with approximately $461.1 million available for future borrowings under the Senior Credit Facilities, subject to certain conditions. On a pro forma basis after giving effect to the Act III Combination, the Company would have a deficiency of earnings to cover fixed charges of $32.8 million for the year ended January 1, 1998. In addition, the Company may incur additional indebtedness in the future, including for the purpose of funding future construction and acquisitions as part of its growth strategy, subject to certain limitations contained in the Indenture and the Senior Credit Facilities. See "Capitalization," "Description of the Notes" and "Description of Certain Indebtedness -- Senior Credit Facilities." The Company's high degree of leverage could have several important consequences to the holders of the Notes, including, but not limited to, the following: (i) the Company will have significant cash requirements to service debt, reducing funds available for operations and future business opportunities and increasing the Company's vulnerability to adverse general economic and industry conditions and competition; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes, may be limited; (iii) the Company's leveraged position and the covenants contained in the Indenture and the Senior Credit Facilities could limit the Company's ability to compete, as well as its ability to expand, including through acquisitions, and to make capital improvements; and (iv) the Company's ability to refinance the Notes in order to pay the principal of the Notes at maturity or upon a Change of Control may be adversely affected. In addition, certain indebtedness under the Company's Senior Credit Facilities bear interest at floating rates and as a result, the Company's operating results are sensitive to fluctuations in interest rates. There can be no assurance that the Company's future cash flow will be sufficient to meet the Company's obligations and commitments, and any insufficiency in this regard could have a material adverse effect on the Company's business. During the twelve months ended January 1, 1998, the Company's interest expense was approximately $14.0 million, which would increase to $103.5 million on a pro forma basis for such period assuming that the Transactions and the Act III Combination occurred on January 3, 1997. Accordingly, the Transactions and the Act III Combination will increase the Company's interest expense. For 1998, after giving pro forma effect to the Act III Combination, the minimum amount required to be paid under the Company's non-cancelable operating leases is $73.6 million. See "Unaudited Pro Forma Consolidated Financial Data." ABILITY TO SERVICE DEBT The Company's ability to make scheduled payments of the principal of, or to pay interest on, or to refinance its indebtedness (including the Senior Credit Facilities and the Notes) will depend on the future performance of the Company and its subsidiaries, which to a certain extent will be subject to economic, financial, competitive and other factors beyond the Company's control. Based upon the Company's current operations and anticipated growth, management believes that future cash flow from operations, together with the Company's available borrowings under the Senior Credit Facilities, will be adequate to meet the Company's respective anticipated requirements for capital expenditures, interest payments and scheduled principal payments. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." There can be no assurance, however, that the Company's business will continue to generate sufficient cash flow from operations in the future to service its indebtedness and make necessary capital expenditures. In that event, the Company may be required to refinance all or a portion of its indebtedness, including the Notes, to sell assets or to obtain additional financing. There can be no assurance that any such refinancing would be possible, that any assets could be sold (or, if sold, of the timing of such sales and the amount of proceeds realized therefrom) or that additional financing could be obtained on terms acceptable to management, if at all. 17 21 SUBORDINATION OF NOTES The Notes will be general unsecured obligations of the Company subordinated in right of payment to all existing and future Senior Indebtedness of the Company, including indebtedness under the Senior Credit Facilities. In addition, the Notes will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. As of July 2, 1998, on a pro forma basis after giving effect to the Transactions and the Act III Combination, the Company had approximately $751.4 million of Senior Indebtedness outstanding (excluding unused commitments of $461.1 million under the Senior Credit Facilities), and the Company's subsidiaries would have had capital lease obligations and indebtedness to third parties of approximately $40.0 million (excluding guarantees of Senior Indebtedness of the Company). In addition, all of the Company's indebtedness (other than the Notes) has a final maturity date that is prior to the final maturity date of the Notes. Subject to certain limitations, the Indenture permits the Company to incur additional indebtedness, including Senior Indebtedness, and permits its subsidiaries to incur indebtedness. The Company may not pay principal of, premium, if any, or interest on the Notes or purchase, redeem or otherwise retire the Notes, if any principal, premium, if any, or interest on any Senior Indebtedness is not paid when due (whether at final maturity, upon scheduled installment, acceleration or otherwise) unless such payment default has been cured or waived or such Senior Indebtedness has been repaid in full. In addition, under certain circumstances, if any non-payment default exists with respect to certain Senior Indebtedness (including under the Senior Credit Facilities), the Company may not make any payments on the Notes for a specified period of time, unless such default is cured or waived or such Senior Indebtedness has been repaid in full. If the Company fails to make any payment on the Notes when due or within any applicable grace period, whether or not on account of the payment blockage provisions referred to above, such failure would constitute an event of default under the Indenture and would generally entitle the holders of the Notes to accelerate the maturity thereof. As a result of the subordination provisions contained in the Indenture, in the event of a liquidation or insolvency of the Company, the assets of the Company will be available to pay obligations on the Notes only after all Senior Indebtedness and indebtedness and other liabilities of the Company's existing subsidiaries (or any future subsidiary) have been paid in full, and therefore there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. See "Description of the Notes -- Ranking and Subordination" and "Description of Certain Indebtedness -- Senior Credit Facilities." RESTRICTIVE DEBT COVENANTS The Indenture and the Senior Credit Facilities contain certain covenants that restrict, among other things, the Company's ability to incur additional indebtedness, pay dividends or make certain other restricted payments, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey, or otherwise dispose of all or substantially all of the assets of the Company. In addition, the Senior Credit Facilities contain certain other and more restrictive covenants including restrictions on prepaying indebtedness, such as the Notes, and also require the Company to maintain specified financial ratios. The financial tests required to be met under the Senior Credit Facilities can be affected by events beyond its control and there can be no assurance that the Company will meet those tests. A breach of any of these covenants could result in a default under the Senior Credit Facilities, which would allow the lenders thereunder to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If the Company were unable to pay those amounts, the lenders thereunder could proceed against the collateral granted to them to secure that indebtedness. Substantially all the assets of the Company, including the stock of certain of its subsidiaries, are pledged as collateral to secure the Company's obligations under the Senior Credit Facilities. If the indebtedness under the Senior Credit Facilities were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full that indebtedness and the other indebtedness of the Company, including the Notes. In addition, if a default occurs with respect to Senior Indebtedness, such as the Senior Credit Facilities, the subordination provisions of such Senior Indebtedness would likely restrict payments to holders of Notes. See "Description of the Notes -- Certain Covenants" and "Description of Certain Indebtedness -- Senior Credit Facilities." 18 22 LIMITATIONS OF COVENANTS Although the Indenture limits the incurrence of indebtedness by the Company and its subsidiaries, such limitation is subject to a number of significant qualifications. Moreover, the Indenture does not impose any limitation on the incurrence by the Company and its subsidiaries of liabilities that are not considered "Indebtedness" under the Indenture. If the Notes attain Investment Grade Status, substantially all the covenants in the Indenture, including those covenants limiting the Company's and its subsidiaries' ability to incur indebtedness, pay dividends or make other distributions or engage in transactions with affiliates, will cease to apply. REPURCHASE OF THE NOTES UPON CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company will be required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the purchase price for all of the Notes that the Company might be required to purchase. In the event that the Company were required to purchase Notes pursuant to a Change of Control Offer (as defined herein), the Company expects that it would require third party financing; however, there can be no assurance that the Company would be able to obtain such financing on terms acceptable to management, if at all. In addition, the Senior Credit Facilities restrict the Company's ability to repurchase the Notes, including pursuant to a Change of Control Offer. A Change of Control will result in an event of default under the Senior Credit Facilities and may cause the acceleration of other Senior Indebtedness, if any, in which case the subordination and other provisions of the Notes would require payment in full of the Senior Credit Facilities and any such Senior Indebtedness before repurchase of the Notes. See "Description of Certain Indebtedness -- Senior Credit Facilities," "Description of the Notes -- Change of Control" and "-- Ranking and Subordination." ABSENCE OF A PUBLIC MARKET FOR THE NOTES The Notes are being offered to the holders of the Old Notes. The Notes constitute a new class of securities with no established trading market. To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for the remaining untendered Old Notes could be adversely affected. There is no existing trading market for the Notes, and there can be no assurance regarding the future development of a market for the Notes, or the ability of holders of the Notes to sell their Notes or the price at which such holders may be able to sell their Notes. If such a market were to develop, the Notes could trade at prices that may be higher or lower than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the Company's operating results and the market for similar securities. Each of Morgan Stanley & Co. Incorporated, Donaldson Lufkin & Jenrette Securities Corporation and Goldman, Sachs & Co. (collectively, the "Market Makers") has advised the Company that it currently intends to make a market in the Notes. The Market Makers are not obligated to do so, however, and any market-making with respect to the Notes may be discontinued at any time without notice. Therefore, there can be no assurance as to the liquidity of any trading market for the Notes or that an active public market for the Notes will develop. The Company does not intend to apply for listing or quotation of the Notes on any securities exchange or stock market. Historically, the market for noninvestment grade debt has been subject to disruptions that have caused substantial volatility in the prices of such securities. There can be no assurance that the market for the Notes will not be subject to similar disruptions. Any such disruptions may have an adverse effect on holders of the Notes. 19 23 EFFECTIVE CONTROL BY HICKS MUSE AND KKR Hicks Muse and KKR currently hold approximately 46.3% and 46.3%, respectively, of the Company's outstanding Common Stock. Therefore, if they vote together, Hicks Muse and KKR have the power to control all matters submitted to the stockholders of the Company, elect a majority of the directors of the Company and exercise control over the business, policies and affairs of the Company. The interests of Hicks Muse and KKR may differ from each other and from the holders of the Notes. Concurrently with the consummation of the Regal Merger, the Company entered into a stockholders agreement with KKR and Hicks Muse (the "KKR/Hicks Muse Stockholders Agreement"), effectively requires the Company to obtain the approval of the board designees of each of Hicks Muse and KKR before the Board of Directors may take any action. The KKR/Hicks Muse Stockholders Agreement, however, does not contain any "deadlock" resolution mechanisms. RISKS ASSOCIATED WITH FRAUDULENT CONVEYANCE LIABILITY A substantial portion of the proceeds of the Original Offering were used to refinance indebtedness of the Company. Accordingly, the obligations of the Company under the Notes may be subject to review under relevant federal and state fraudulent conveyance statutes ("fraudulent conveyance statutes") in a bankruptcy, reorganization or rehabilitation case or similar proceeding or a lawsuit by or on behalf of unpaid creditors of the Company. If a court were to find under relevant fraudulent conveyance statutes that, at the time the Notes were issued, (a) the Company issued the Notes with the intent of hindering, delaying or defrauding current or future creditors or (b)(i) the Company received less than reasonably equivalent value or fair consideration for issuing the Notes (including, to the extent the proceeds from the Notes are used to refinance any indebtedness of the Company or any of its subsidiaries, by virtue of an invalidation as a fraudulent conveyance of the incurrence of such indebtedness) and (ii)(A) was insolvent or was rendered insolvent by reason of such issuance and/or such related transactions, (B) was engaged, or about to engage, in a business or transaction for which its assets constituted unreasonably small capital, (C) intended to incur, or believed that it would incur, obligations beyond its ability to pay as such obligations matured (as all of the foregoing terms are defined in or interpreted under such fraudulent conveyance statutes) or (D) was a defendant in an action for money damages, or had a judgment for money damages docketed against it (if, in either case, after final judgment, the judgment was unsatisfied), such court could subordinate the Notes to presently existing and future indebtedness of the Company and take other action detrimental to the holders of the Notes, including, under certain circumstances, invalidating the Notes. The measure of insolvency for purposes of the foregoing considerations will vary depending upon the federal or state law that is being applied in any such proceeding. Generally, however, the Company would be considered insolvent if, at the time it incurs the obligations constituting the Notes, either (i) the fair market value (or fair saleable value) of its assets is less than the amount required to pay the probable liability on its total existing indebtedness and liabilities (including contingent liabilities) as they become absolute and mature or (ii) it is incurring obligations beyond its ability to pay as such obligations mature. The Board of Directors and management of the Company believe that at the time of issuance of the Notes the Company (i) will be (a) neither insolvent nor rendered insolvent thereby, (b) in possession of sufficient capital to meet their obligations as the same mature or become due and to operate their businesses effectively and (c) incurring obligations within their ability to pay as the same mature or become due and (ii) will have sufficient assets to satisfy any probable money judgment against them in any pending action. In reaching the foregoing conclusions, such Board of Directors and management have relied upon their analysis of internal cash flow projections and estimated values of assets and liabilities of the Company. There can be no assurance, however, that such analyses will prove to be correct or that a court passing on such questions would reach the same conclusions. 20 24 THE TRANSACTIONS RECAPITALIZATION AND REFINANCINGS On May 27, 1998, an affiliate of KKR and an affiliate of Hicks Muse merged with and into the Company, with the Company continuing as the surviving corporation of the merger. The consummation of the Regal Merger resulted in a recapitalization of the Company. In the Recapitalization, the Company's existing holders of Common Stock received cash for their shares of Common Stock, and KKR, Hicks Muse, DLJ and certain members of the Company's management acquired the Company. In addition, in connection with the Recapitalization, the Company cancelled options and repurchased warrants held by certain directors, management and employees of the Company. The aggregate purchase price paid to effect the Regal Merger and the Option/Warrant Redemption was approximately $1.2 billion. The net proceeds of the Original Offering, initial borrowings of $375.0 million under the Senior Credit Facilities and $776.9 million in proceeds from the Equity Investment were used: (i) to fund the cash payments required to effect the Regal Merger and the Option/Warrant Redemption; (ii) to repay and retire the Old Credit Facilities; (iii) to repurchase the Old Regal Notes; and (iv) to pay related fees and expenses. Under the Senior Credit Facilities, the Company is permitted to borrow up to $1,212.5 million in the aggregate, consisting of $500.0 million under the Revolving Credit Facility and $712.5 million, in the aggregate, under three separate term loan facilities. After the consummation of the Act III Combination, the Company had approximately $461.1 million available for borrowing under the Senior Credit Facilities. Prior to the Regal Merger, KKR held approximately 89% of Act III's outstanding equity. Pursuant to the Regal Merger, KKR, Hicks Muse and DLJ received $287.3 million, $437.3 million and $50.0 million, respectively, of the Company's equity securities, consisting of a combination of Common Stock and Preferred Stock. In order to equalize KKR's and Hicks Muse's equity interests in both the Company and Act III, upon the closing of the Recapitalization, Hicks Muse exchanged $75.0 million of its equity interest in the Company for $75.0 million of KKR's equity in Act III and Hicks Muse made an additional equity investment of approximately $62.7 million in Act III. The proceeds of the Hicks Muse $62.7 million equity investment were used to repay outstanding indebtedness under Act III's credit facilities. On the seventh calendar day following the closing of the Regal Merger, all outstanding shares of Preferred Stock were converted into shares of Common Stock. THE ACT III COMBINATION On August 26, 1998, the Company acquired Act III. In the Act III Merger, Act III became a wholly-owned subsidiary of the Company and each share of Act III's outstanding common stock was converted into the right to receive one share of the Company's Common Stock. In connection with the Act III Merger, the Company amended its Senior Credit Facilities and borrowed $383.3 million thereunder to repay the Act III Bank Debt and the Act III Notes, which were owned by KKR and Hicks Muse. As a result of the Transactions and the Act III Combination, KKR and Hicks Muse each own approximately 46.3% of the Company's Common Stock, with DLJ, management and other minority holders owning the remainder. The Recapitalization and the Financing were not conditioned on the Act III Combination, and there existed no contractual arrangement (written, verbal or otherwise) or obligation to enter into or complete the Act III Combination. 21 25 USE OF PROCEEDS The Company will not receive any proceeds from the exchange of the Notes for the Old Notes pursuant to the Exchange Offer. The net proceeds of the Original Offering, initial borrowings of $375.0 million under the Senior Credit Facilities and the proceeds from the Equity Investment were used: (i) to fund the cash payments required to effect the Regal Merger and the Option/Warrant Redemption; (ii) to repay and retire the Old Credit Facilities; (iii) to repurchase the Old Regal Notes; and (iv) to pay related fees and expenses. CAPITALIZATION The following table sets forth the actual capitalization of the Company at July 2, 1998 and the pro forma capitalization of the Company as adjusted to give effect as of that date to the Act III Combination. This table should be read in conjunction the "Selected Historical Consolidated Financial Data," the "Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and Act III and the respective notes thereto appearing elsewhere in this Prospectus.
AS OF JULY 2, 1998 ------------------- ACTUAL PRO FORMA ------ --------- (IN MILLIONS) Debt (including current maturities): Senior Credit Facilities(1)............................... $375.0 $ 751.4 Notes..................................................... 400.0 400.0 Other indebtedness(2)..................................... 1.3 38.8 ------ -------- Total Debt........................................ 776.3 1,190.2 Stockholders' Equity (Deficit).............................. (76.1) 235.3 ------ -------- Total Capitalization.............................. $700.2 $1,425.5 ====== ========
- --------------- (1) After giving pro forma effect to the Act III Combination, the Company had $461.1 million of available borrowing capacity under the Senior Credit Facilities. See "Description of Certain Indebtedness -- Senior Credit Facilities." (2) Other indebtedness consists primarily of capitalized lease obligations and includes current maturities of long-term debt. 22 26 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The following unaudited pro forma consolidated financial statements (the "Unaudited Pro Forma Consolidated Financial Data") of the Company are based on the unaudited and audited consolidated financial statements of the Company and Act III, which are included elsewhere in this Prospectus, and have been prepared to give effect to the Act III Combination, as though such transactions had occurred as of July 2, 1998, for the balance sheet, and to the Transactions and the Act III Combination, as though such transactions had occurred as of January 3, 1997, for the statements of income. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The pro forma statements of income do not purport to present what the Company's results of operations would actually have been had the Transactions and the Act III Combination, in fact, occurred on January 3, 1997, or to project the Company's results of operations for any future period. The pro forma balance sheet data does not purport to present what the Company's financial position actually would have been had the Act III Combination, in fact, occurred as of July 2, 1998, or to project the Company's financial position at any future date. The Unaudited Pro Forma Consolidated Financial Data set forth below should be read in conjunction with, and are qualified in their entirety by, "The Transactions," "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and Act III and the respective notes thereto included elsewhere in this Prospectus. The Recapitalization was treated as a non-taxable stock purchase for federal and state income tax purposes and as a recapitalization for financial accounting purposes. The Act III Combination will be accounted for as a purchase applying the provisions of Accounting Principles Board Opinion No. 16 ("APB 16"). 23 27 REGAL CINEMAS, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JULY 2, 1998 (IN MILLIONS) [CAPTION]
REGAL ACT III PRO FORMA CONSOLIDATED HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ---------- ---------- -------------- ------------ ASSETS Current assets: Cash and cash equivalents......................... $ 27.5 $ 1.9 $ 3.5(1) $ 32.9 Accounts receivable............................... 1.1 1.4 2.5 Prepaids and other current assets................. 10.4 3.3 13.7 Refundable income taxes........................... 7.7 7.7 ------ ------ ------- -------- Total current assets......................... 46.7 6.6 3.5 56.8 Property and equipment, net.......................... 638.2 357.1 995.3 Goodwill, net........................................ 55.5 3.0 (3.0)(2) 55.5 Excess purchase cost over net book value of assets acquired.......................................... 366.4(2) 366.4 Other assets......................................... 44.0 39.3 (14.3)(2) 69.0 ------ ------ ------- -------- Total assets................................. $784.4 $406.0 $ 352.6 $1,543.0 ====== ====== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt.............. $ .3 $ 4.3 $ 4.6 Accounts payable.................................. 38.6 21.1 59.7 Accrued expenses.................................. 35.5 9.6 $ (7.1)(2)(3) 38.0 ------ ------ ------- -------- Total current liabilities.................... 74.4 35.0 (7.1) 102.3 Long-term debt: Credit facility................................... 375.0 220.4 156.0(3) 751.4 Subordinated Notes................................ 400.0 150.0 (150.0)(3) 400.0 Other long-term debt and capital lease obligations..................................... .9 33.3 34.2 Other liabilities.................................... 10.2 9.6 19.8 ------ ------ ------- -------- Total liabilities............................ 860.5 448.3 (1.1) 1,307.7 Stockholders' equity (deficit)....................... (76.1) (42.3) 353.7(4) 235.3 ------ ------ ------- -------- Total liabilities and stockholders' equity... $784.4 $406.0 $ 352.6 $1,543.0 ====== ====== ======= ========
See Accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet. 24 28 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JULY 2, 1998 (IN MILLIONS) (1) Adjustment reflects the net cash remaining after the Act III Refinancing and the payment of fees and expenses resulting from the Act III Combination. (2) The Act III Combination will be accounted for as a purchase, applying the provisions of APB 16. The purchase cost will be allocated to the acquired assets and liabilities of Act III based on their relative fair values as of the closing date, based on valuations and studies which are not yet complete. Accordingly, the excess of purchase cost over historical book value of the net assets acquired has not yet been allocated to the individual assets and liabilities of Act III. However, the Company believes that a portion of the excess will be allocated to property plant and equipment and identifiable intangible assets and the remainder to goodwill. The pro forma purchase cost and determination of the excess of cost over book value of net assets acquired are as follows: Fair value of Regal stock and options issued in the Act III Merger.................................................... $ 311.4 Estimated fees and expenses................................. 1.0 --------- Total purchase cost............................... 312.4 --------- Pro forma book value of net assets acquired: Historical book value of net assets of Act III............ (42.3) Eliminate existing goodwill of Act III.................... (3.0) Eliminate deferred financing fees on debt repaid in the Act III Refinancing.................................... (14.3) Accrued income taxes (tax benefit of write-off of deferred financing fees) (accrued expenses)..................... 5.6 --------- Pro forma book value of net assets acquired............... (54.0) --------- Excess of cost over book value of net assets acquired....... $ 366.4 =========
(3) Adjustments reflect: (i) the borrowings of $376.4 million under the Senior Credit Facilities, net of the repayment of $220.4 million of the Act III Bank Debt; (ii) the repayment of the Act III Notes of $150.0 million; and (iii) payment of accrued interest of $1.5 million. (4) Adjustment reflects the net effect of the items noted below: Equity issued to acquire Act III............................ $ 311.4 Eliminate Act III historical equity......................... 42.3 --------- Net equity adjustment....................................... $ 353.7 =========
25 29 REGAL CINEMAS, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JULY 2, 1998 (IN MILLIONS)
THE TRANSACTIONS ACT III COMBINATION ----------------------- ------------------------ REGAL PRO FORMA ACT III PRO FORMA CONSOLIDATED HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- ---------- ----------- ------------ Revenue: Admissions........................ $190.9 $190.9 $ 88.6 $279.5 Concession sales.................. 82.0 82.0 42.1 124.1 Other............................. 15.2 15.2 1.0 16.2 ------ ------ ------ ------ Total revenue.............. 288.1 288.1 131.7 419.8 Costs and Expenses: Operating expenses: Film rental and advertising..... 104.0 104.0 45.9 149.9 Cost of concessions and other... 13.0 13.0 6.0 19.0 Rent expense.................... 34.9 34.9 9.5 44.4 Other expense................... 65.3 65.3 32.5 97.8 General and administrative........ 8.0 8.0 3.5 $(2.5) (4) 9.0 ------ ------ ------ ----- ------ Total costs and expenses... 225.2 225.2 97.4 (2.5) 320.1 ------ ------ ------ ----- ------ Sub-Total.................. 62.9 62.9 34.3 2.5 99.7 Depreciation and amortization..... 19.9 19.9 15.8 5.2(5) 40.9 Recapitalization expenses......... 62.0(1) 62.0 62.0 ------ ------ ------ ----- ------ Operating income (loss).... (19.0) (19.0) 18.5 (2.7) (3.2) Interest expense.................. 13.3 $ 22.6(2) 35.9 20.1 (2.0)(6) 54.0 Interest income................... (0.5) (0.5) (.6) (1.1) Other, net........................ .3 .3 .3 ------ ------ ------ ------ ----- ------ Income (loss) before income taxes and loss on extraordinary item............ (32.1) (22.6) (54.7) (1.0) (.7) (56.4) Provision for (benefit from) income taxes.................... (3.9) (8.8)(3) (12.7) (.3) 1.8(3) (11.2) ------ ------ ------ ------ ----- ------ Income (loss) before extraordinary loss.............................. $(28.2) $(13.8) $(42.0) $ (.7) $(2.5) $(45.2) ====== ====== ====== ====== ===== ======
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income. 26 30 REGAL CINEMAS, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED JANUARY 1, 1998 (IN MILLIONS)
THE TRANSACTIONS ACT III COMBINATION ----------------------- --------------------------- REGAL PRO FORMA ACT III PRO FORMA CONSOLIDATED HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ------------- ----------- --------- ---------- -------------- ------------ Revenue: Admissions........................ $325.1 $325.1 $172.9 $498.0 Concession sales.................. 137.2 137.2 78.2 215.4 Other............................. 16.8 16.8 2.2 19.0 ------ ------ ------ ------ Total revenue.............. 479.1 479.1 253.3 732.4 Costs and Expenses: Operating expenses: Film rental and advertising..... 178.2 178.2 93.2 271.4 Cost of concessions and other... 16.6 16.6 12.4 29.0 Rent expense.................... 53.7 53.7 15.7 69.4 Other expense................... 102.8 102.8 62.6 165.4 General and administrative........ 16.6 16.6 8.1 $ (5.0)(4) 19.7 ------ ------ ------ ------ ------ Total costs and expenses... 367.9 367.9 192.0 (5.0) 554.9 ------ ------ ------ ------ ------ Sub-Total.................. 111.2 111.2 61.3 5.0 177.5 Depreciation and amortization..... 30.5 30.5 25.9 10.5(5) 66.9 SFAS 121.......................... 5.0 5.0 5.0 Merger expenses................... 7.8 7.8 7.8 Recapitalization expenses......... 25.9(7) 25.9 ------ ------ ------ ------ ------ Operating income (loss).... 67.9 67.9 9.5 (5.5) 71.9 Interest expense.................. 14.0 $ 57.7(2) 71.7 28.1 3.7(6) 103.5 Interest income................... (.8) (0.8) (1.3) (2.1) Other (income) expense, net....... .4 0.4 (1.8) -- (1.4) ------ ------ ------ ------ ------ ------ Income (loss) before income taxes and loss on extraordinary item............ 54.3 (57.7) (3.4) (15.5) (9.2) (28.1) Provision for (benefit from) income taxes.................... 19.1 (22.5)(3) (3.4) (1.1) .5(3) (4.0) ------ ------ ------ ------ ------ ------ Income (loss) before extraordinary item............................ $ 35.2 $(35.2) $ -- $(14.4) $ (9.7) $(24.1) ====== ====== ====== ====== ====== ======
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income. 27 31 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS) (1) The Regal historical income statement for the six months ended July 2, 1998 includes non-recurring expenses directly related to the Transactions. Such expenses relate principally to compensation expense incurred as the result of the Option/Warrant Redemption and professional fees. (2) Adjusts interest expense to reflect interest expense and amortization of deferred financing fees resulting from the Transactions on: (i) $375.0 million of borrowings under the Senior Credit Facilities; (ii) the $400.0 million from the Original Offering; and (iii) $1.3 million of capital lease obligations of the Company as follows:
SIX MONTHS ENDED YEAR ENDED JULY 2, 1998 JANUARY 1, 1998 ---------------- --------------- Interest expense before amortization of deferred financing fees.................................... $ 33.9 $ 67.8 Amortization of deferred financing fees.............. 2.0 3.9 Historical interest expense.......................... (13.3) (14.0) ------ ------ Net adjustment............................... $ 22.6 $ 57.7 ====== ======
The estimated weighted average interest rate of the Company's borrowings and capital lease obligations is 8.7%. (3) Reflects the tax effect of deductible adjustments at the Company's effective income tax rate of 39%. (4) Reflects reduced personnel costs realized as the result of the Act III Combination. (5) The pro forma adjustment to depreciation and amortization expense results from the amortization of the excess purchase cost over book value of net assets acquired in the Act III Combination. The excess purchase cost over the book value of assets acquired has not been fully allocated to individual assets or liabilities acquired. However, the Company believes a portion will be allocated to property plant and equipment and identifiable intangibles and the remainder, representing goodwill, will be amortized over 40 years. Accordingly, a composite life of 35 years has been used. (6) Adjusts interest expense to reflect interest expense resulting from the Act III Combination on (i) additional borrowings under the Senior Credit Facilities of approximately $375.0 million at 7.9%; and (ii) non-recourse debt and capital lease obligations of Act III which were not repaid in the Act III Refinancing as follows:
SIX MONTHS ENDED YEAR ENDED JULY 2, 1998 JANUARY 1, 1998 ---------------- --------------- Interest expense...................................... $ 18.1 $ 31.8 Historical interest expense........................... (20.1) (28.1) ------ ------ Net adjustment.............................. $ (2.0) $ 3.7 ====== ======
A .125% change in the interest rate on total indebtedness would change annual pro forma interest expense by $1.5 million. (7) The Act III historical income statement for the year ended December 31, 1997 includes non-recurring expenses resulting from the December 3, 1997 recapitalization transaction in which KKR acquired approximately 89% of Act III. Such expenses include the settlement of options and professional fees. 28 32 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The selected historical consolidated financial data set forth below were derived from the consolidated financial statements of the Company. The selected historical consolidated financial data of the Company as of and for the years ended December 28, 1995, January 2, 1997 and January 1, 1998 were derived from the consolidated financial statements and the notes thereto of the Company, which have been audited by Coopers & Lybrand L.L.P., independent auditors, whose report, with respect to each of the years ended December 28, 1995, January 2, 1997 and January 1, 1998 and at January 2, 1997 and January 1, 1998, has been included herein. The selected historical consolidated financial data set forth below were derived from the audited consolidated financial statements of the Company as of and for each of the six months ended July 3, 1997 and July 2, 1998 were derived from the unaudited consolidated financial statements of the Company which, in the opinion of management, include all adjustments (consisting only of normally recurring adjustments) necessary for fair presentation of the Company's consolidated results of operations and financial condition for such periods. The operating results for the respective six month periods ended July 3, 1997 and July 2, 1998 are not necessarily indicative of results to be expected for the full fiscal year. The selected historical consolidated financial data set forth below should be read in conjunction with, and are qualified in their entirety by, the "Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and notes thereto included elsewhere in this Prospectus.
SIX MONTHS FISCAL YEAR ENDED ENDED -------------------------------------------------------------------- ------------------- DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, JULY 3, JULY 2, 1993 1994 1995 1997 1998 1997 1998 ------------ ------------ ------------ ---------- ---------- -------- -------- (IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA) STATEMENT OF INCOME DATA: Revenue: Admissions....................... $ 149.4 $ 185.2 $ 213.4 $ 266.0 $ 325.1 $150.5 $190.9 Concession sales................. 61.4 74.7 87.3 110.2 137.2 63.0 82.0 Other............................ 3.6 5.1 8.3 13.0 16.8 8.7 15.2 ------- ------- ------- ------- ------- ------ ------ Total revenue................ 214.4 265.0 309.0 389.2 479.1 222.2 288.1 Costs and Expenses: Operating expenses: Film rental and advertising.... 82.8 101.0 115.4 145.2 178.2 81.3 104.0 Cost of concessions and other........................ 8.8 9.9 11.4 15.1 16.6 10.2 13.0 Rent expense................... 28.0 32.5 34.5 41.4 53.7 26.0 34.9 Other expense.................. 49.0 60.4 71.2 86.4 102.8 49.1 65.3 General and administrative....... 12.7 14.1 14.8 16.6 16.6 9.5 8.0 ------- ------- ------- ------- ------- ------ ------ Total costs and expenses..... 181.3 217.9 247.3 304.7 367.9 176.1 225.2 ------- ------- ------- ------- ------- ------ ------ Sub-Total.................... 33.1 47.1 61.7 84.5 111.2 46.1 62.9 Depreciation and amortization.... 11.0 13.6 19.4 24.7 30.5 14.5 19.9 SFAS 121(1)...................... -- -- -- -- 5.0 -- -- Merger expenses.................. -- 5.1 1.2 1.6 7.8 -- -- Recapitalization expenses........ -- -- -- -- -- -- 62.0 ------- ------- ------- ------- ------- ------ ------ Operating income (loss)...... 22.1 28.4 41.1 58.2 67.9 31.6 (19.0) Interest expense, net............ 6.5 7.2 10.3 12.2 13.2 6.0 12.9 Other (income) expense, net...... 1.8 -- .7 (.7) .4 .3 .2 ------- ------- ------- ------- ------- ------ ------ Income (loss) before income taxes and loss (gain) on extraordinary item........... 13.8 21.2 30.1 46.7 54.3 25.3 (32.1) Provision for (benefit from) income taxes................... 5.1 8.5 12.2 20.8 19.1 9.8 (3.9) ------- ------- ------- ------- ------- ------ ------ Income (loss) before loss (gain) on extraordinary item......................... 8.7 12.7 17.9 25.9 35.2 15.5 (28.2) Loss (gain) on extraordinary item........................... (.2) 1.8 .4 .8 10.0 -- 11.9 ------- ------- ------- ------- ------- ------ ------ Net income (loss).................. $ 8.9 $ 10.9 $ 17.5 $ 25.1 $ 25.2 $ 15.5 $(40.1) ======= ======= ======= ======= ======= ====== ======
29 33
SIX MONTHS FISCAL YEAR ENDED ENDED -------------------------------------------------------------------- ------------------- DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, JULY 3, JULY 2, 1993 1994 1995 1997 1998 1997 1998 ------------ ------------ ------------ ---------- ---------- -------- -------- (IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA) OPERATING AND OTHER FINANCIAL DATA: Cash flow provided by (used in) operating activities............. $ 29.8 $ 36.5 $ 40.0 $ 67.5 $ 64.0 $ 36.8 $ (1.9) Cash flow used in investing activities....................... $ 20.8 $ 106.4 $ 112.6 $ 131.1 $ 202.3 $ 91.2 $ 99.1 Cash flow provided by financing activities....................... $ 7.3 $ 63.5 $ 69.8 $ 72.2 $ 139.6 $ 51.7 $110.1 EBITDA(2).......................... $ 33.1 $ 47.1 $ 61.7 $ 84.5 $ 111.2 $ 46.1 $ 62.9 EBITDAR(2)......................... $ 61.1 $ 79.6 $ 96.2 $ 125.9 $ 164.9 $ 72.1 $ 97.8 EBITDA margin(3)................... 15.5% 17.8% 20.0% 21.7% 23.2% 20.7% 21.8% EBITDAR margin(3).................. 28.5% 30.0% 31.1% 32.4% 34.4% 32.4% 33.9% Ratio of EBITDA to interest expense(4)....................... 4.7x 6.3x 5.8x 6.6x 8.0x 7.6x 4.7x Ratio of EBITDAR to interest and rent expense(4).................. 1.7x 2.0x 2.1x 2.3x 2.4x 2.2x 2.0x Capital expenditures and acquisitions..................... $ 23.6 $ 108.6 $ 113.9 $ 143.7 $ 203.2 $ 90.1 $ 91.1 Ratio of earnings to fixed charges(5)....................... 2.9x 3.5x 3.4x 4.0x 4.0x 4.2x -- Deficiency of earnings to cover fixed charges(5)................. -- -- -- -- -- -- $ 33.5 OPERATING DATA(6): Theatre locations.................. 160 195 206 223 256 234 261 Screens............................ 1,110 1,397 1,616 1,899 2,306 2,060 2,467 Average screens per location....... 6.9 7.2 7.8 8.5 9.0 8.8 9.5 Attendance (in thousands).......... 41,624 49,690 55,091 65,530 76,331 35,946 42,686 Average ticket price............... $ 3.59 $ 3.73 $ 3.87 $ 4.06 $ 4.26 $ 4.19 $ 4.47 Average concessions per patron..... $ 1.47 $ 1.50 $ 1.58 $ 1.68 $ 1.80 $ 1.75 $ 1.92 BALANCE SHEET DATA: Cash and cash equivalents.......... $ 16.3 $ 9.9 $ 7.0 $ 17.1 $ 18.4 $ 14.4 $ 27.5 Total assets....................... $ 162.1 $ 252.6 $ 349.0 $ 488.8 $ 660.6 $559.5 $784.4 Long-term obligations (including current maturities).............. $ 73.5 $ 117.5 $ 188.5 $ 144.6 $ 288.6 $195.5 $776.3 Stockholders' equity (deficit)..... $ 26.6 $ 88.1 $ 109.0 $ 279.3 $ 306.6 $295.6 $(76.1)
- --------------- (1) Reflects non-cash charges for the impairment of long-lived assets in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," which the Company adopted in 1995. (2) EBITDA represents net income before interest expense, income taxes, depreciation and amortization, other income (expense), extraordinary items and non-recurring charges. This definition of EBITDA is consistent with that included in the debt indenture. EBITDAR represents EBITDA before rent expense. While EBITDA and EBITDAR are not intended to represent cash flow from operations as defined by GAAP and should not be considered as indicators of operating performance or alternatives to cash flow (as measured by GAAP) as a measure of liquidity, they are included herein to provide additional information with respect to the ability of the Company to meet its future debt service, capital expenditure, rental and working capital requirements. (3) Defined as EBITDA and EBITDAR as a percentage of total revenue. (4) "Interest expense" means interest expense recorded during the related period excluding interest income and amortization of deferred financing fees. (5) For purposes of this calculation, "earnings" consist of net income (loss) before income taxes and fixed charges, excluding any capitalized interest, and "fixed charges" consist of interest expense, capitalized interest, amortization of deferred financing costs and the component of rental expense believed by the Company to be representative of the interest factor thereon. (6) Operating theatres and screens represent the number of theatres and screens operated at the end of the period. 30 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following analysis of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements of the Company and Act III and the respective notes thereto included elsewhere in this Prospectus. The Company consummated the acquisitions of Neighborhood, Georgia State and Cobb Theatres on April 17, 1995, May 30, 1996, and July 31, 1997, respectively. These three acquisitions have been accounted for as poolings of interests. During May 1997, Neighborhood and Georgia State were merged with and into the Company. On August 26, 1998, the Company consummated the acquisition of Act III. See "Unaudited Pro Forma Consolidated Financial Data" and the audited and unaudited consolidated financial statements, and notes thereto, of the Company and Act III included elsewhere in this Prospectus. BACKGROUND OF REGAL The Company has achieved significant growth in theatres and screens since its formation in November 1989. Since inception through July 2, 1998 and after giving pro forma effect to the Act III Combination, the Company has acquired 322 theatres with 2,353 screens, developed 70 new theatres with 879 screens and added 78 new screens to existing theatres. Theatres developed by the Company typically generate positive theatre level cash flow within the first three months following commencement of operation and reach a mature level of attendance within one to three years following commencement of operation. Theatre closings have had no significant effect on the operations of the Company. RESULTS OF OPERATIONS The Company's revenues are generated primarily from box office receipts and concession sales. Additional revenues are generated by electronic video games located adjacent to the lobbies of certain of the Company's theatres and by on-screen advertisements and revenues from the Company's six entertainment centers which are adjacent to theatre complexes. Direct theatre costs consist of film rental costs, cost of concessions and theatre operating expenses. Film rental costs are related to the popularity of a film and the length of time since the film's release and generally decline as a percentage of admission revenues the longer a film has been released. Because certain concession items, such as fountain drinks and popcorn, are purchased in bulk and not pre-packaged for individual servings, the Company is able to improve its margins by negotiating volume discounts. Theatre operating expenses consist primarily of theatre labor and occupancy costs. At July 2, 1998, approximately 45.2% of the Company's employees were paid at the federal minimum wage and, accordingly, the minimum wage largely determines the Company's labor costs for those employees. Future increases in minimum wage requirements or legislation requiring additional employer funding of health care, among other things, may increase theatre operating expenses as a percentage of total revenues. 31 35 The following table sets forth for the fiscal periods indicated the percentage of total revenues represented by certain items reflected in the Company's consolidated statements of income:
PERCENTAGE OF TOTAL REVENUES ------------------------------------------------------------ FOR THE SIX FOR THE FISCAL YEAR ENDED MONTHS ENDED -------------------------------------- ------------------- DECEMBER 28, JANUARY 2, JANUARY 1, JULY 3, JULY 2, 1995 1997 1998 1997 1998 ------------ ---------- ---------- -------- -------- Revenue: Admissions................................ 69.1% 68.4% 67.9% 67.7% 66.2% Concession sales.......................... 28.2 28.3 28.6 28.4 28.5 Other operating revenue................... 2.7 3.3 3.5 3.9 5.3 ----- ----- ----- ----- ----- Total revenue..................... 100.0 100.0 100.0 100.0 100.0 Operating expenses: Film rental and advertising............... 37.3 37.3 37.1 36.6 36.1 Cost of concessions and other............. 3.7 3.9 3.5 4.6 4.5 Theatre operating expenses................ 34.2 32.8 32.7 33.8 34.8 General and administrative expenses....... 4.8 4.3 3.5 4.3 2.8 Depreciation and amortization............. 6.3 6.3 6.4 6.5 6.9 Merger expenses........................... .4 .4 1.6 -- -- Recapitalization expenses................. -- -- -- -- 21.5 SFAS 121.................................. -- -- 1.0 -- -- ----- ----- ----- ----- ----- Total operating expenses.......... 86.7 85.0 85.8 85.8 106.6 ----- ----- ----- ----- ----- Operating income (loss)..................... 13.3 15.0 14.2 14.2 (6.6) Other (income) expense: Interest expense.......................... 3.5 3.3 2.9 2.7 4.6 Interest income........................... (.1) (.2) (.2) -- (0.2) Other..................................... .2 .2 .1 .1 .1 ----- ----- ----- ----- ----- Income (loss) before taxes and extraordinary loss...................................... 9.7 12.1 11.4 11.4 (11.1) Provision for (benefit from) income taxes... 3.9 5.4 4.0 4.4 (1.3) ----- ----- ----- ----- ----- Income (loss) before extraordinary loss..... 5.8 6.7 7.4 7.0 (9.8) Extraordinary loss: Loss on extinguishment of debt............ .1 .2 2.1 -- 4.1 ----- ----- ----- ----- ----- Net income (loss)........................... 5.7% 6.5% 5.3% 7.0% (13.9)% ===== ===== ===== ===== =====
SIX MONTHS ENDED JULY 2, 1998 AND JULY 3, 1997 Total Revenues. Total revenues for the six months ended July 2, 1998 increased by 29.7% to $288.1 million from $222.2 million in the comparable 1997 period. This increase was due to an 18.8% increase in attendance attributable primarily to the net addition of 407 screens in the last 12 months. Of the $65.9 million net increase in revenues for the period, a $16.3 million increase was attributed to theatres previously operated by the Company, a $11.2 million increase was attributed to theatres acquired by the Company and a $38.4 million increase was attributed to new theatres constructed by the Company. Average ticket prices increased 6.9% during the period, reflecting an increase in ticket prices and a greater proportion of larger market theatres in the 1998 period than in the same period in 1997. Average concession sales per customer increased 9.7% for the period, reflecting both an increase in consumption and, to a lesser degree, an increase in concession prices. Direct Theatre Costs. Direct theatre costs increased by 30.4% to $217.2 million for the six months ended July 2, 1998 from $166.6 million in the comparable 1997 period. Direct theatre costs as a percentage of total revenues increased to 75.4% in the 1998 period from 75.0% in the 1997 period. The increase of direct theatre 32 36 costs as a percentage of total revenues was primarily attributable to higher theatre operating expenses as a percentage of total revenues. General and Administrative Expenses. General and administrative expenses decreased by 16.1% to $8.0 million for the six months ended July 2, 1998 from $9.5 million in the comparable 1997 period. As a percentage of total revenues, general and administrative expenses decreased to 2.8% in the 1998 period from 4.3% in the 1997 period. Depreciation and Amortization. Depreciation and amortization expense increased for the six months ended July 2, 1998 by 37.7% to $19.9 million from $14.5 million in the comparable 1997 period. This increase was primarily the result of theatre property additions associated with the Company's expansion efforts. Operating Income. Operating income (loss) for the six months ended July 2, 1998 decreased to $(19.0) million, or (6.6)% of total revenues, from $31.6 million, or 14.2% of total revenues, in the comparable 1997 period. Before nonrecurring expenses associated with the Recapitalization, operating income for the six month period ended July 2, 1998 was $43.1 million or 14.9% of total revenues. Interest Expense. Interest expense increased for the six months ended July 2, 1998 by 119.3% to $13.3 million from $6.1 million in the comparable 1997 period. The increase was primarily due to higher average borrowings outstanding associated with the Recapitalization of the Company. Income Taxes. The provision for (benefit from) income taxes for the six months ended July 2, 1998 was $(3.9) million as compared to $9.8 million in the 1997 period. The effective tax rate was (12.2)% in the 1998 period as compared to 38.7% in the 1997 period as the 1998 period reflected certain Recapitalization expenses which were not deductible for tax purposes. Net Income (Loss). The net income (loss) for the six months ended July 2, 1998 was $(40.1) million as compared to $15.5 million in the 1997 period. Net income before nonrecurring and extraordinary items was $18.2 million or 6.3% of total revenues in the six months ended July 2, 1998 as compared to $15.5 million or 7.0% of total revenues in the 1997 period. FISCAL YEARS ENDED JANUARY 1, 1998 AND JANUARY 2, 1997 Total Revenues. Total revenues increased in 1997 by 23.1% to $479.1 million from $389.2 million in 1996. This increase was due to a 16.5% increase in attendance attributable primarily to the net addition of 407 screens in 1997. Of the $89.9 million increase for 1997, $30.3 million was attributed to theatres previously operated by the Company, $23.5 million was attributed to theatres acquired by the Company, and $36.1 million was attributed to new theatres constructed by the Company. Average ticket prices increased 4.9% during the period, reflecting an increase in ticket prices and a greater proportion of larger market theatres in 1997 than in the same period in 1996. Average concession sales per customer increased 7.1% for the period, reflecting both an increase in consumption and, to a lesser extent, an increase in concession prices. Direct Theatre Costs. Direct theatre costs in 1997 increased by 21.9% to $351.3 million from $288.1 million in 1996. Direct theatre costs as a percentage of total revenues decreased to 73.3% in 1997 from 74.0% in 1996. The decrease in direct theatre costs as a percentage of total revenues was primarily attributable to lower concession costs as a percentage of total revenues. General and Administrative Expenses. General and administrative expenses increased in 1997 by .2% to $16.6 million from $16.5 million in 1996, representing administrative costs associated with the 1997 theatre openings and projects under construction. As a percentage of total revenues, general and administrative expenses decreased to 3.5% in 1997 from 4.3% in 1996. Depreciation and Amortization. Depreciation and amortization expense increased in 1997 by 23.6% to $30.5 million from $24.7 million in 1996. This increase was primarily the result of theatre property additions associated with the Company's expansion efforts. Operating Income. Operating income for 1997 increased by 16.1% to $67.8 million, or 14.2% of total revenues, from $58.2 million, or 15.0% of total revenues, in 1996. Before the $12.7 million and $1.6 million of 33 37 nonrecurring merger expenses and SFAS 121 impairment charges for 1997 and 1996, respectively, operating income was 16.8% and 15.4% of total revenues. Interest Expense. Interest expense increased in 1997 by 8.7% to $14.0 million from $12.8 million in 1996. The increase was primarily due to higher average borrowings outstanding. Income Taxes. The provision for income taxes decreased in 1997 by 8.2% to $19.1 million from $20.8 million in 1996. The effective tax rate was 35.2% in 1997 as compared to 44.7% in 1996 as each period reflected certain merger expenses which were not deductible for tax purposes and 1997 reflected a $2.3 million benefit associated with a deferred tax asset valuation allowance adjustment related to Cobb Theatres. Net Income. Net income in 1997 increased by 1.4% to $25.2 million from $25.1 million in 1996. Before nonrecurring merger expenses and extraordinary items, net income was $41.4 million and $27.0 million for 1997 and 1996, respectively, reflecting a 53.2% increase. FISCAL YEARS ENDED JANUARY 2, 1997 AND DECEMBER 28, 1995 Total Revenues. Total revenues increased in 1996 by 25.9% to $389.2 million from $309.0 million in 1995. This increase was due to a 19.0% increase in attendance attributable primarily to the net addition of 277 screens in 1996. Of the $80.1 million increase for 1996, $38.5 million was attributed to theatres previously operated by the Company, $25.2 million was attributed to theatres acquired by the Company, and $16.4 million was attributed to new theatres constructed by the Company. Average ticket prices increased 4.9% during the period, reflecting an increase in ticket prices and a greater proportion of larger market theatres in 1996 than in the same period in 1995. Average concession sales per customer increased 6.3% for the period, reflecting both an increase in consumption and, to a lesser extent, an increase in concession prices. Direct Theatre Costs. Direct theatre costs in 1996 increased by 23.9% to $288.1 million from $232.5 million in 1995. Direct theatre costs as a percentage of total revenues decreased to 74.0% in 1996 from 75.2% in 1995. The decrease of direct theatre costs as a percentage of total revenues was primarily attributable to better monitoring and control of costs at the Company's theatres, and, to a lesser extent, to a decrease in occupancy expense as a percentage of total revenues, reflecting a higher mix of owned versus leased properties. General and Administrative Expenses. General and administrative expenses increased in 1996 by 11.7% to $16.6 million from $14.8 million in 1995, representing administrative costs associated with the 1996 theatre openings and projects under construction. As a percentage of total revenues, general and administrative expenses decreased to 4.3% in 1996 from 4.8% in 1995. Depreciation and Amortization. Depreciation and amortization expense increased in 1996 by 27.6% to $24.7 million from $19.4 million in 1995. This increase was primarily the result of theatre property additions associated with the Company's expansion efforts. Operating Income. Operating income for 1996 increased by 41.6% to $58.2 million, or 15.0% of total revenues, from $41.1 million, or 13.3% of total revenues, in 1995. Before the $1.6 million and $1.2 million of nonrecurring merger expenses for 1996 and 1995, respectively, operating income was 15.4% and 13.7% of total revenues. Interest Expense. Interest expense increased in 1996 by 20.4% to $12.8 million from $10.7 million in 1995. The increase was primarily due to higher average borrowings outstanding. Income Taxes. The provision for income taxes increased in 1996 by 70.7% to $20.8 million from $12.2 million in 1995. The effective tax rate was 44.7% in 1996 as compared to 40.5% in 1995 due to the nondeductibility of certain merger costs incurred in 1996. Net Income. Net income in 1996 increased by 43.2% to $25.1 million from $17.5 million in 1995. Before nonrecurring merger expenses and extraordinary items, net income was $27.0 million and $19.0 million for 1996 and 1995, respectively, reflecting a 42.1% increase. 34 38 LIQUIDITY AND CAPITAL RESOURCES Substantially all of the Company's revenues are derived from cash box office receipts and concession sales. Film rental fees are ordinarily paid to distributors 15 to 45 days following receipt of admission revenues. The Company thus has an operating cash "float" which partially finances its operations, reducing the Company's needs for external sources of working capital. The Company's capital requirements have arisen principally in connection with acquisitions of existing theatres, new theatre openings and the addition of screens to existing theatres and have historically been financed with equity (including equity issued in connection with acquisitions and public offerings), debt and internally generated cash. Concurrently with the consummation of the Regal Merger, the Company entered into the Senior Credit Facilities, which permits borrowings of up to $1,212.5 million and which consist of a Term A Loan (as defined herein) in the amount of $240.0 million, a Term B Loan (as defined herein) in the amount of $337.5 million, a Term C Loan (as defined herein) in the amount of $135.0 million and the Revolving Credit Facility, which permits the Company to borrow up to $500.0 million on a revolving basis. After giving effect to the Transactions and pro forma effect to the Act III Combination, the Company had $461.1 million of capacity available under the Revolving Credit Facility on the closing date of the Regal Merger. Under the Senior Credit Facilities, the Company is required to comply with certain financial and other covenants. The loans under the Senior Credit Facilities bear interest at either a base rate (referred to as "Base Rate Loans") or adjusted LIBOR rate (referred to as "LIBOR Rate Loans") plus, in each case, an applicable margin determined depending upon the Company's Total Leverage Ratio (as defined in the Senior Credit Facilities). See "Description of Certain Indebtedness -- Senior Credit Facilities." During 1995 and 1996, the Company effected four acquisitions (including two acquisitions accounted for as poolings of interests). The aggregate consideration paid in connection with such acquisitions was $283.0 million in cash, the issuance of 3,169,522 shares of Common Stock and the assumption of approximately $13.0 million of debt. On June 10, 1996, the Company completed a public offering of 4,312,500 shares of the Company's Common Stock at $30.83 per share. The total proceeds to the Company from the offering were approximately $126.5 million, net of the underwriting discount and other expenses of $6.5 million and were used to repay amounts outstanding under the Company's then existing revolving credit facility. On May 9, 1997, the Company completed the purchase of assets consisting of an existing five theatres with 32 screens, four theatres with 52 screens under development, and a seven screen addition to an existing theatre from Magic Cinemas LLC, an independent theatre company with operations in New Jersey and Pennsylvania. The consideration paid was approximately $24.5 million in cash. On July 31, 1997, the Company consummated the acquisition of the business conducted by Cobb Theatres ("Cobb Theatres Acquisition"). The aggregate consideration paid by the Company was 2,837,594 shares of its Common Stock. The acquisition has been accounted for as a pooling of interests. The Company recognized certain one time charges totaling approximately $5.4 million (net of tax) in its quarter ended October 2, 1997, relating to merger expenses and severance payments. In connection with the Cobb Theatres Acquisition, the Company assumed approximately $110.0 million of liabilities, including $85.0 million of outstanding Senior Secured Notes (the "Cobb Notes"). The Company has repurchased all but $70,000 principal amount of the Cobb Notes. The Company initially financed the purchase price of the Cobb Notes with borrowings under a short-term credit facility (the "Bank Tender Facility"). The Company recognized an extraordinary charge totaling approximately $10.0 million (net of tax) in its quarter ended October 2, 1997, relating to the purchase of the Cobb Notes. On September 24, 1997, the Company consummated the offering of $125.0 million aggregate principal amount of 8 1/2% Senior Subordinated Notes due October 1, 2007. A portion of the proceeds from such offering were used to repay amounts borrowed under the Bank Tender Facility. The balance of the proceeds were used to repay amounts outstanding under the Company's former bank revolving credit facility. On November 14, 1997, the Company completed the purchase of assets consisting of an existing 10 theatres with 78 screens from Capitol Industries, Inc. (known as RC Theatres), an independent theatre 35 39 company with operations in Virginia. The consideration paid was approximately $24.0 million in cash. At January 2, 1997, the Company anticipated that it would spend $125.0 million to $150.0 million to develop and renovate theatres during 1997, of which the Company had approximately $58.1 million in contractual commitments for expenditures. The actual capital expenditures for fiscal 1997 were $178.1 million. On May 27, 1998, an affiliate of KKR and an affiliate of Hicks Muse merged with and into the Company, with the Company continuing as the surviving corporation of the merger. The consummation of the Regal Merger resulted in a recapitalization of the Company. In the Recapitalization, the Company's existing holders of Common Stock received cash for their shares of Common Stock, and KKR, Hicks Muse, DLJ and certain members of the Company's management acquired the Company. In addition, in connection with the Recapitalization, the Company cancelled options and repurchased warrants held by certain directors, management and employees of the Company. The aggregate purchase price paid to effect the Regal Merger and the Option/Warrant Redemption was approximately $1.2 billion. In connection with the Recapitalization, the Company made an offer to purchase (the "Tender Offer") all $125.0 million aggregate principal amount of the Old Regal Notes. In conjunction with the Tender Offer, the Company also solicited consents to eliminate substantially all of the covenants contained in the indenture relating to the Old Regal Notes. The purchase price paid by the Company for the Old Regal Notes was approximately $139.5 million, including a premium of approximately $14.5 million. The net proceeds of the Original Offering, initial borrowings of $375.0 million under the Senior Credit Facilities and $776.9 million in proceeds from the Equity Investment were used: (i) to fund the cash payments required to effect the Regal Merger and the Option/Warrant Redemption; (ii) to repay and retire the Old Credit Facilities; (iii) to repurchase the Old Regal Notes; and (iv) to pay related fees and expenses. Under the Senior Credit Facilities, the Company is permitted to borrow up to $1,212.5 million in the aggregate, consisting of $500.0 million under the Revolving Credit Facility and $712.5 million, in the aggregate, under three separate term loan facilities. After the consummation of the Act III Combination, the Company had approximately $461.1 million available for borrowing under the Senior Credit Facilities. On August 26, 1998, the Company acquired Act III. In the Act III Merger, Act III became a wholly-owned subsidiary of the Company and each share of Act III's outstanding common stock was converted into the right to receive one share of the Company's Common Stock. In connection with the Act III Merger, the Company amended its Senior Credit Facilities and borrowed $383.3 million thereunder to repay the Act III Bank Debt and the Act III Notes, which were owned by KKR and Hicks Muse. Interest payments on the Notes and interest payments and amortization with respect to the Senior Credit Facilities represent significant liquidity requirements for the Company. The Notes and the loans funded in connection with the Recapitalization require annual interest payments totaling approximately $67.8 million. In addition, for 1998, the minimum amount required to be paid under the Company's non-cancelable operating leases is $73.6 million. At July 2, 1998, after giving pro forma effect to the Act III Combination, the Company had 48 new theatres with 727 screens and 47 screens at nine existing locations under construction. The Company intends to develop approximately 575 to 625 screens during the balance of 1998 and approximately 750 to 850 screens during 1999. The Company expects that the capital expenditures in connection with its development plan will aggregate approximately $220.0 million for the balance of 1998 and approximately $200.0 million during 1999. As of July 2, 1998, after giving pro forma effect to the Act III Combination, the Company had approximately $327.5 million in contractual commitments for capital expenditures. The Company believes that its capital needs for completion of theatre construction and development will be satisfied by available credit under the Senior Credit Facilities, internally generated cash flow and available cash. Based on the current level of operations and anticipated future growth (both internally generated as well as through acquisitions), the Company anticipates that its cash flow from operations, together with borrowings under the Senior Credit Facilities should be sufficient to meet its anticipated requirements for working capital, capital expenditure, interest payments and scheduled principal payments. The Company's future operating performance and ability to service or refinance the Notes and to extend or refinance the Senior Credit 36 40 Facilities will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. The Notes and the Senior Credit Facilities impose certain restrictions on the Company's ability to make capital expenditures and limit the Company's ability to incur additional indebtedness. Such restrictions could limit the Company's ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business or acquisition opportunities. The covenants contained in the Senior Credit Facilities and/or the Indenture also, among other things, limit the ability of the Company to dispose of assets, repay indebtedness or amend other debt instruments, pay distributions, enter into sale and leaseback transactions, make loans or advances and make acquisitions. See "Description of the Notes" and "Description of Certain Indebtedness -- Senior Credit Facilities." INFLATION The Company does not believe that inflation has had a material impact on its financial position or results of operations. SEASONALITY The Company's revenues have been seasonal, coinciding with the timing of releases of motion pictures by the major distributors. Generally, the most marketable motion pictures have been released during the summer and the Thanksgiving through year-end holiday season. The unexpected emergence of a hit film during other periods can alter the traditional trend. The timing of such releases can have a significant effect on the Company's results of operations, and the results of one quarter are not necessarily indicative of results for the next quarter. The seasonality of motion picture exhibition, however, has become less pronounced in recent years as studios have begun to release major motion pictures somewhat more evenly throughout the year. YEAR 2000 Until recently computer programs were written to store only two digits of date-related information in order to more efficiently handle and store data. Thus the programs were unable to properly distinguish between the year 1900 and the year 2000. This is frequently referred to as the "Year 2000 Problem." In 1997, the Company initiated a company-wide Year 2000 project to address this problem. Utilizing both internal and external resources, the Company is in the process of defining, assessing and converting, or replacing, various programs and hardware to make them Year 2000 compatible. The Year 2000 Problem goes beyond the Company's internal computer systems and requires coordination with clients, vendors, government entities and other third parties to assure that their systems and related interface are compliant. The Company's total Year 2000 remediation cost is not expected to exceed $100,000. The Company believes that with minor modifications, the Year 2000 problem will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed in a timely fashion, the Year 2000 problem could have a material impact on the operations and financial results of the Company. The costs of the project and the manner in which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. NEW ACCOUNTING PRONOUNCEMENTS During fiscal 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income, and Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures About Segment of an Enterprise and Related Information. SFAS 130 requires disclosure of comprehensive income and its components in a company's financial 37 41 statements and is effective for fiscal years beginning after December 15, 1997. SFAS 131 requires new disclosures of segment information in a company's financial statements and is effective for fiscal years beginning after December 15, 1997. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows. On June 15, 1998, the Financial Accounting Standards Board issued FAS No. 133, Accounting for Derivative and Financial Instruments and Hedging Activities. FAS 133 establishes a new model for accounting for derivatives and hedging activities based on these fundamental principles: (i) derivatives represent assets and liabilities that should be recognized at fair value on the balance sheet; (ii) derivative gains and losses do not represent liabilities or assets and, therefore, should not be reported on the balance sheet as deferred credits or deferred debits and (iii) special hedge accounting should be provided only for transactions that meet certain specified criteria, which include a requirement that the change in the fair value of the derivative be highly effective in offsetting the change in the fair value or cash flows of the hedged item. This Statement is effective for fiscal years beginning after June 15, 1999 and is not expected to have a material effect on the Company's financial position or results of operations. 38 42 BUSINESS THE COMPANY After giving pro forma effect to the Act III Combination, the Company is the largest motion picture exhibitor in the United States based upon the number of screens in operation. At July 2, 1998, on the same pro forma basis, the Company operated 392 theatres, with an aggregate of 3,310 screens in 29 states. The Company operates primarily multiplex theatres and has an average of 8.4 screens per location, which management believes is among the highest in the industry and which compares favorably to an average of approximately 6.2 screens per location for the five largest North American motion picture exhibitors at May 1, 1997. Since its inception in November 1989, the Company has achieved substantial growth in revenues and EBITDA. For the twelve months ended July 2, 1998, the Company, without giving effect to the Act III Combination, had revenues, operating income and EBITDA of $545.0 million, $17.3 million and $128.0 million, respectively. Act III's consolidated revenues, operating income and EBITDA for the twelve months ended June 30, 1998, were $264.6 million, $11.2 million and $68.6 million, respectively. As a result of the Company's focus on revenue enhancements, operating efficiencies and strict cost controls, the Company has increased its EBITDA margins each year, achieving what management believes are among the highest EBITDA margins in the motion picture exhibition industry. For the five year period ended January 1, 1998, the Company, without giving effect to the Act III Combination, had compound annual growth rates in revenues, operating income and EBITDA of 23.4%, 39.6% and 38.3%, respectively, and the Company's EBITDA margins increased from 15.5% to 23.2%. The Company develops, acquires and operates multiplex theatres primarily in mid-sized metropolitan markets and suburban growth areas of larger metropolitan markets, predominantly in the eastern and northwestern United States. The Company seeks to locate theatres in markets that it believes are underscreened or served by older theatre facilities. The Company also seeks to locate each theatre where it will be the sole or leading exhibitor within a particular geographic film licensing zone. Management believes that at July 2, 1998, approximately 75% of the Company's screens were located in film licensing zones in which the Company was the sole exhibitor. Since its inception and after giving pro forma effect to the Act III Combination, the Company has grown by acquiring a net of 322 theatres with 2,353 screens, constructing 70 theatres with 879 screens and adding 78 screens to existing theatres. This strategy has served to establish and enhance the Company's presence in selected geographic markets. The Company anticipates that its future growth will result largely from the development of new theatres, the addition of new screens to existing theatres and strategic acquisitions of other theatre circuits. At July 2, 1998, after giving pro forma effect to the Act III Combination, the Company had 48 new theatres with 727 screens under construction and 47 new screens under construction at nine existing theatres. In addition, on the same pro forma basis, the Company had entered into leases in connection with its plans to develop an additional 54 theatres with 838 screens. The Company has historically achieved substantial returns on invested capital for newly built theatres. The Company's theatres built during fiscal years 1992 through 1996 yielded a return on invested capital of 29.6% (calculated as 1997 theatre cash flow divided by cumulative capital expenditures for such theatres). On August 26, 1998, the Company acquired Act III, the ninth largest motion picture exhibitor in the United States based on number of screens in operation. As of June 30, 1998, Act III operated 131 theatres, with an aggregate of 843 screens, strategically located in concentrated areas throughout the Pacific Northwest, Texas and Nevada. The Company has acquired ten other theatre circuits during the last four years, including Cobb Theatres, Georgia State Theatres and Litchfield Theatres. These acquisitions have enabled the Company to become the leading operator in certain of its markets and to improve its market concentration in the eastern and northwestern United States. Through the integration of these acquisitions, the Company has achieved (or, in the case of the recently completed Act III Combination, expects to achieve) economies of scale by consolidating purchasing, operating and other administrative functions. The Company continues to consider strategic acquisitions of complementary theatres or theatre companies. In addition, the Company may enter into joint ventures, which could serve as a platform for both domestic and international expansion. 39 43 BUSINESS STRATEGY Operating Strategy Management believes that the following are the key elements of the Company's operating strategy: Multiplex Theatres. Management believes that the Company's multiplex theatres promote increased attendance and maximize operating efficiencies through reduced labor costs and improved utilization of theatre capacity. The Company's multiplex theatres enable it to offer a diverse selection of films, stagger movie starting times, increase management's flexibility in determining the number of weeks that a film will run and the size of the auditorium in which it is shown, and more efficiently serve patrons from common concessions and other support facilities. The Company further believes that the development of multiplex theatres allows it to achieve an optimal relationship between the number of screens (generally 14 to 18) and the size of the auditoriums (100 to 500 seats). The Company's multiplex theatres are designed to increase the profitability of the theatres by maximizing the revenue per square foot generated by the facility and reducing the cost per square foot of constructing and operating the theatres. Cost Control. The Company's cost control programs have resulted in an increase in its EBITDA margins, which management believes are among the highest in the motion picture exhibition industry. Management's focus on cost control extends from a theatre's initial development to its daily operation. Management believes that it is able to reduce construction and operating costs by designing prototype theatres adaptable to a variety of locations and by actively supervising all aspects of construction. In addition, through the use of detailed management reports, the Company closely monitors labor scheduling, concession yields and other significant operating expenses. A significant component of theatre management's compensation is based on controlling operating expenses at the theatre level. Revenue Enhancements. The Company strives to enhance revenue growth through: (i) the addition of specialty cafes within certain theatre lobbies serving non-traditional concessions; (ii) the sale of screen slide and rolling stock advertising time prior to scheduled movies; (iii) the marketing and advertising of certain theatres in its circuit; (iv) the addition of state-of-the-art video arcades; and (v) the rental of theatres to organizations during non-peak hours. Patron Satisfaction/Quality Control. The Company emphasizes patron satisfaction by providing convenient locations, comfortable seating, spacious neon-enhanced lobby and concession areas and a wide variety of film selections. The Company's theatre complexes feature clean, modern auditoriums with high quality projection and digital stereo surround-sound systems. As of July 2, 1998, 78% of the Company's theatres were equipped with digital surround-sound systems. The Company is adding stadium seating to certain of its existing theatres and expects that all of its new theatres will feature stadium seating. The Company believes that all of these features serve to enhance its patrons' movie-going experience and help build patron loyalty. In addition, the Company promotes patron loyalty through specialized marketing programs for its theatres and feature films. To maintain quality and consistency within the Company's theatres, the Company conducts regular inspections of each theatre and operates a "mystery shopper" program. Integration of Acquisitions. The Company has acquired 11 theatre circuits during the last four years. Management believes that acquisitions provide the opportunity for the Company to increase revenue growth while realizing joint operating efficiencies through the integration of operations. In this regard, the Company believes it has achieved (or, in the case of the recently completed Act III Combination, believes it will achieve) cost savings through the consolidation of its purchasing function, the centralization of certain other operating functions and the uniform application of the most successful cost control strategies of the Company and its acquisition targets. Centralized Corporate Decision Making/Decentralized Operations. The Company centralizes many of its functions through its corporate office, including film licensing, concessions purchasing and new theatre construction and design. The Company also devotes significant resources to training its theatre managers. These managers are responsible for most aspects of a theatre's day-to-day operations and implement cost controls at the theatre level, including the close monitoring of payroll, concession and advertising expenses. 40 44 Marketing. The Company actively markets its theatres through grand opening promotions, including "VIP" preopening parties, newspaper and radio advertising, television commercials in certain markets and promotional activities, such as live music, spotlights and skydivers, which frequently generate media coverage. The Company also utilizes special marketing programs for specific films and concession items. The Company seeks to develop patron loyalty through a number of marketing programs such as a free summer children's film series, cross-promotion ticket redemptions and promotions within local communities. Performance-Based Compensation Packages. The Company maintains an incentive program for its corporate personnel, district managers and theatre managers that links employees' compensation to profitability. The Company believes that its incentive program, which consists of cash bonuses and stock options, aligns the employees' interests with those of the Company's shareholders. Growth Strategy Management believes that the following characteristics are the key elements of the Company's growth strategy: Develop New Multiplex Theatres in Existing and Target Markets. The Company develops multiplex theatres with generally 14 to 18 screens, in both its existing markets and in other mid-sized metropolitan markets and suburban growth areas of larger metropolitan markets in the United States. Management seeks to locate its theatres in areas that are underscreened or that are served by aging theatre facilities. The Company seeks to identify new geographical markets that present opportunities for expansion and growth and, when identified, targets these geographical markets for future development. At July 2, 1998, after giving pro forma effect to the Act III Combination, the Company had 48 new theatres with 727 screens under construction. In addition, on the same pro forma basis, the Company has entered into leases in connection with its plans to develop an additional 54 theatres with 838 screens. The Company's theatres built during fiscal years 1992 through 1996 yielded a return on invested capital of 29.6% (calculated as 1997 theatre cash flow divided by cumulative capital expenditures for such theatres). Add New Screens and Upgrade Existing Theatres. To enhance profitability and to maintain competitiveness at existing theatres, the Company continues to add additional screens and upgrade its existing theatres, including by adding stadium seating to certain existing theatres. The Company believes that through the addition of screens and the upgrade of its facilities it can leverage the favorable real estate location of certain of its theatres and thereby improve its operating margins at those theatres. By upgrading certain existing theatres the Company is able to create barriers to entry in the markets served by those theatres. At July 2, 1998, after giving pro forma effect to the Act III Combination, the Company had 47 new screens under construction at nine existing theatre facilities and anticipates that it will add a total of 115 to 135 screens to certain of its existing theatres by the end of 1999. The addition of screens to existing theatres is designed not to disrupt operations at the theatres. Acquire Theatres. While management believes that a significant portion of its future growth will come through the development of new theatres, the Company will continue to consider strategic acquisitions of complementary theatres or theatre companies. In addition, the Company may enter into joint ventures, which could serve as a platform for both domestic and international expansion. On August 26, 1998, the Company acquired Act III, the ninth largest motion picture exhibitor in the United States based on number of screens in operation. The Company currently has no other plans or agreements for any specific acquisitions or joint ventures. Develop Complementary Theatre Concepts. To complement the Company's theatre development, it has opened six FunScapes(TM) entertainment complexes and currently has two additional FunScapes(TM) under construction. The Company may seek to develop additional FunScapes(TM) at strategic locations. The Company has also signed an agreement to include IMAX(R) 3-D theatres in ten of its new multiplex theatres over the next five years, the first of which is expected to open in Chicago in November 1998. Management believes that the Company's theatres with IMAX(R) 3-D will draw higher traffic levels than its other theatres by attracting patrons during non-peak hours and expanding its customer base in certain markets. 41 45 INDUSTRY OVERVIEW The domestic motion picture exhibition industry is currently comprised of approximately 360 exhibitors, 122 of which operate ten or more total screens. At May 1, 1997, the five largest exhibitors operated approximately 37% of the total screens in operation with no one exhibitor operating more than 10% of the total screens. From 1986 through 1997, the net number of screens in operation in the United States increased from approximately 22,000 to approximately 31,000, and admissions revenues increased from approximately $3.8 billion to approximately $6.4 billion. The motion picture exhibition industry continues to grow despite the emergence of competing film distribution channels. Since 1991, the industry has experienced significant growth with attendance increasing at a 3.3% compound annual rate. This growth is principally attributed to an increase in the supply of first-run, big budget films, increased investment in advertising and promotion by studios, the investment by leading exhibitors in appealing, modern multiplex theatres to replace aging locations and the moderate price of movies relative to other out-of-home entertainment options. In an effort to realize greater operating efficiencies, operators of multi-theatre circuits have emphasized the development of larger multiplex complexes. Typically, multiplexes have six or more screens per theatre, although in some instances multiplexes may have as many as 30 screens in a single theatre. The multi-screen format provides numerous benefits for theatre operators, including allowing facilities (concession stands and restrooms) and operating costs (lease rentals, utilities and personnel) to be spread over a larger base of screens and patrons. Multiplexes have varying seating capacities (typically from 100 to 500 seats) that allow for multiple show times of the same film and a variety of films with differing audience appeal to be shown, and provide the flexibility to shift films to larger or smaller auditoriums depending on their popularity. To limit crowd congestion and maximize the efficiency of floor and concession staff, the starting times of films at multiplexes are staggered. Certain trends in the theatre exhibition industry favor larger, better capitalized companies, creating an environment for new construction and consolidation. Foremost among these trends is larger exhibitors actively seeking and building multiplexes or megaplexes. Moreover, many smaller theatre owners who operate older cinemas without state-of-the-art stadium seating and projection and sound equipment may not have the capital required to maintain or upgrade their circuits. The growth of the number of screens, strong domestic consumer demand, and growing foreign theatrical and domestic and foreign ancillary revenue opportunities have led to an increase in the volume of major film releases. The greater number of screens has allowed films to be produced for and marketed to specific audience segments (e.g., horror films for teenagers) without using capacity required for mainstream product. The greater number of screens has also prompted distributors to increase promotion of new films. Not only are there more films in the market at any given time, but the multiplex format allows for much larger simultaneous national theatrical release. In prior years a studio might have released 1,000 prints of a major film, initially releasing the film only in major markets, and gradually releasing it in smaller cities and towns nationwide. Today studios might release over 4,000 prints of a major film and can open it nationally in one weekend. These national openings have made up-front promotion of films critical to attract audiences and stimulate word-of-mouth advertising. Motion pictures are generally made available through various distribution methods at various dates after the theatrical release date. The release dates of motion pictures in these other "distribution windows" begin four to six months after the theatrical release date with video cassette rentals, followed generally by off-air or cable television programming including pay-per-view services, pay television, other basic cable and broadcast network syndicated programming. These new distribution windows have given producers the ability to generate a greater portion of a film's revenues through channels other than theatrical release. This increased revenue potential after a film's initial domestic release has enabled major studios and certain independent producers to increase film production and theatrical advertising. The additional non-theatrical revenue has also permitted producers to incur higher individual film production and marketing costs. The total cost of producing and distributing a picture averaged approximately $53.4 million in 1997 compared with approximately $17.5 million in 1986, while the average cost to advertise and promote a picture averaged approximately $19.2 million in 1997 as compared with $5.4 million in 1986. These higher costs have further enhanced the importance of a large theatrical release. Distributors strive for a successful opening run at the theatre to establish a film and substantiate the film's revenue potential both internationally and through other 42 46 release windows. The value of home video and pay cable distribution agreements frequently depends on the success of a film's theatrical release. Furthermore, the studios' revenue-sharing percentage and ability to control who views the product within each of the distribution windows generally declines as one moves farther from the theatrical release window. As theatrical distribution remains the cornerstone of a film's financial success, it is the primary distribution window for the public's evaluation of films and motion picture promotion. Management expects that the overall supply of films will continue to increase, although there can be no assurance that any such increase will occur. There has also been an increase in the number of major studios and reissues of films as well as an increased popularity of films made by independent producers. Since January 1994, the number of large budget films and the level of marketing support provided by the production companies has risen, as evidenced by the increase in average production costs and average advertising costs per film of approximately 55.8% and 38.7%, respectively. THEATRE OPERATIONS After giving pro forma effect to the Act III Combination, the Company is the largest motion picture exhibitor in the United States based upon the number of screens in operation. The Company develops, acquires and operates primarily multiplex theatres in mid-size metropolitan markets and suburban growth areas of larger metropolitan markets predominately in the eastern and northwestern United States. For the twelve month period ended July 2, 1998, without giving pro forma effect to the Act III Combination, the Company generated 62.5% of its revenues from theatres in five states. The following table sets forth, for the same period and on the same pro forma basis, the number of theatres and screens owned and operated by the Company, providing certain operating data for the five states where the Company has its largest presence.
NUMBER NUMBER PERCENT OF OF OF TOTAL STATE THEATRES SCREENS THEATRE REVENUE* ----- -------- ------- ---------------- Florida........................................... 70 748 29.4% Virginia.......................................... 39 268 12.1 Ohio.............................................. 35 299 10.6 Georgia........................................... 16 158 6.1 Alabama........................................... 13 126 4.3 Other............................................. 88 868 37.5 --- ----- ----- Total................................... 261 2,467 100.0% === ===== =====
- --------------- * For the twelve month period ended July 2, 1998. For the twelve month period ended June 30, 1998, Act III generated 98.5% of its revenues from theatres in five states. The following table sets forth, for the same period, the number of theatres and screens owned and operated by Act III, providing certain operating data for the five states where Act III has its largest presence.
NUMBER NUMBER PERCENT OF OF OF TOTAL STATE THEATRES SCREENS THEATRE REVENUE* ----- -------- ------- ---------------- Oregon............................................ 48 245 29.9% Washington........................................ 41 252 34.1 Texas............................................. 25 211 21.4 Alaska............................................ 8 49 6.6 Nevada............................................ 4 54 6.5 Other............................................. 5 32 1.5 --- --- ----- Total................................... 131 843 100.0% === === =====
- --------------- * For the twelve month period ended June 30, 1998. 43 47 Multiplex theatres enable the Company to offer a wide selection of films attractive to a diverse group of patrons residing within the drawing area of a particular theatre complex. Varied auditorium seating capacities within the same theatre enable the Company to exhibit films on a more cost effective basis for a longer period of time by shifting films to smaller auditoriums to meet changing attendance levels. In addition, operating efficiencies are realized through the economies of having common box office, concession, projection, lobby and rest room facilities, which enable the Company to spread certain costs, such as payroll, advertising and rent, over a higher revenue base. Staggered movie starting times also reduce staffing requirements, reduce lobby congestion and contribute to more desirable parking and traffic flow patterns. The Company has designed prototype theatres, adaptable to a variety of locations, which management believes result in construction and operating cost savings. The Company's multiplex theatre complexes, which typically contain auditoriums ranging from 100 to 500 seats each, feature wall-to-wall screens, digital stereo surround-sound, multi-station concessions, computerized ticketing systems, plush stadium seating with cup holders, neon-enhanced interiors and exteriors and video game areas adjacent to the theatre lobby. The Company's real estate department includes leasing and site selection, construction supervision and property management. By utilizing a network of contingent real estate brokers, the Company is able to service a wide geographic region without incurring incremental staffing costs. The Company also closely monitors the construction of its theatres to ensure that they will open on time and remain on budget. The property management department ensures that ongoing occupancy costs are reviewed for accuracy and compliance with the terms of the lease. In addition to leasing and site selection, the Company's central corporate office coordinates film buying, concession purchasing, advertising and financial and accounting activities. The Company's theatre operations are under the supervision of its Chief Operating Officer and are divided into three geographic divisions, each of which is headed by a Vice President supervising several district theatre supervisors. The district theatre supervisors are responsible for implementing Company operating policies and supervising the managers of the individual theatres, who are responsible for most of the day-to-day operations of the Company's theatres. The Company seeks theatre managers with experience in the motion picture exhibition industry and requires all new managers to complete a training program at designated training theatres. The program is designed to encompass all phases of theatre operations, including the Company's philosophy, management strategy, policies, procedures and operating standards. Management closely monitors the Company's operations and cash flow through daily reports generated from computerized box office terminals located in each theatre. These reports permit the Company to maintain an accurate and immediate count of admissions by film title and show times and provide management with the information necessary to effectively and efficiently manage the Company's theatre operations. Additionally, daily payroll data is input at in-theatre terminals which allows the regular monitoring of payroll expenses. In addition, the Company has a quality assurance program to maintain clean, comfortable and modern facilities. Management believes that operating a theatre circuit consisting primarily of modern multiplex theatres also enhances the Company's ability to license commercially successful films from distributors. To maintain quality and consistency within the Company's theatre circuit, the district supervisors regularly inspect each theatre and the Company operates a "mystery shopper" program, which involves unannounced visits by unidentified customers who report on the quality of service, film presentation and cleanliness at individual theatres. The Company has an incentive compensation program for theatre level management which rewards managers for controlling theatre level operating expenses while complying with the Company's operating standards. In addition to revenues from box office admissions, the Company receives revenues from concession sales and video games located adjacent to the theatre lobby. Concession sales constituted 28.6% of total revenues for fiscal 1997. The Company emphasizes prominent and appealing concession stations designed for rapid and efficient service. Although popcorn, candy and soft drinks remain the best selling concession items, the Company's theatres offer a wide range of concession choices. The Company continually seeks to increase concession sales through optimizing product mix, introducing special promotions from time to time and training employees to cross sell products. In addition to traditional concession stations, select existing theatres 44 48 and theatres currently under development feature specialty concession cafes serving items such as cappuccino, fruit juices, cookies and muffins, soft pretzels and yogurt. Management negotiates directly with manufacturers for many of its concession items to ensure adequate supplies and to obtain competitive prices. The Company relies upon advertisements including movie schedules published in newspapers to inform its patrons of film selections and show times. Newspaper advertisements are typically displayed in a single grouping for all of the Company's theatres located in the newspapers's circulation area. Multimedia advertising campaigns for major film releases are organized and financed primarily by the film distributors. The Company actively markets its theatres through grand opening promotions, including "VIP" preopening parties, newspaper and radio advertising, television commercials in certain markets and promotional activities such as live music, spotlights and skydivers, which frequently generate media coverage. The Company also utilizes special marketing programs for specific films and concession items. The Company seeks to develop patron loyalty through a number of marketing programs such as free summer children's film series, cross-promotion ticket redemptions and promotions within local communities. As of July 2, 1998, the Company operated 27 theatres with an aggregate of 178 screens, which exhibit second-run movies and charge lower admission prices (typically $1.00 to $2.00). These movies are the same high quality features shown at all of the Company's theatres. The terminology second-run is an industry term for the showing of movies after the film has been shown for varying periods of time at other theatres. The Company believes that the increased attendance resulting from lower admission prices and the lower film rental costs of second-run movies compensate for the lower admission prices and slightly higher operating costs as a percentage of admission revenues at the Company's discount theatres. The design, construction and equipment in the Company's discount theatres are of the same high quality as its first-run theatres. The Company's discount theatres generate theatre level cash flows similar to the Company's first-run theatres. FILM LICENSING The Company licenses films from distributors on a film-by-film and theatre-by-theatre basis. The Company negotiates directly with film distributors. Prior to negotiating for a film license, the Company evaluates the prospects for upcoming films. Criteria considered for each film include cast, director, plot, performance of similar films, estimated film rental costs and expected Motion Picture Association of America rating. Successful licensing depends greatly upon the exhibitor's knowledge of trends and historical film preferences of the residents in markets served by each theatre, as well as on the availability of commercially successful motion pictures. Films are licensed from film distributors owned by major film production companies and from independent film distributors that generally distribute films for smaller production companies. Film distributors typically establish geographic film licensing zones and allocate each available film to one theatre within that zone. Film zones generally encompass a radius of three to five miles in metropolitan and suburban markets, depending primarily upon population density. As of July 2, 1998, the Company believes that approximately 75% of its screens were located in film licensing zones in which such theatres were the sole exhibitors, permitting the Company to exhibit many of the most commercially successful films in these zones. In film zones where the Company is the sole exhibitor, the Company obtains film licenses by selecting a film from among those offered and negotiating directly with the distributor. In film zones where there is competition, a distributor will either require the exhibitors in the zone to bid for a film or will allocate its films among the exhibitors in the zone. When films are licensed under the allocation process, a distributor will select an exhibitor, who then negotiates film rental terms directly with the distributor. Over the past several years, distributors have generally used the allocation rather than bidding process to license their films. When films are licensed through a bidding process, exhibitors compete for licenses based upon economic terms. The Company currently does not bid for films in any of its markets, although it may be required to do so in the future. Although the Company predominantly licenses first-run films, if a film has substantial remaining potential following its first-run, the Company may license it for a second-run. Film distributors establish second-run availability on a national or market-by-market basis after the release from first-run theatres. 45 49 Film licenses entered into in either a negotiated or bidding process typically specify rental fees based on the higher of a gross receipts formula or a theatre admissions revenue formula. Under a gross receipts formula, the distributor receives a specified percentage of box office receipts, with the percentage declining over the term of the film run. First-run film rental fees may begin at up to 70% of admission revenues and gradually decline to as low as 30% over a period of four weeks or more. Second-run film rental fees typically begin at 35% of admission revenues and often decline to 30% after the first week. Under a theatre admissions revenue formula, the distributor receives a specified percentage of the excess of admission revenues over a negotiated allowance for theatre expenses. In addition, the Company is occasionally required to pay non-refundable guarantees of film rental fees or to make refundable advance payments of film rental fees or both in order to obtain a license for a film. Rental fees actually paid by the Company generally are adjusted subsequent to the exhibition of a film in a process known as settlement. The commercial success of a film relative to original distributor expectations is the primary factor taken into account in the settlement process; secondarily, the past performance of other films in a specific theatre is a factor. To date, the settlement process has not resulted in material adjustments in the film rental fees accrued by the Company. The Company's business is dependent upon the availability of marketable motion pictures, its relationships with distributors and its ability to obtain commercially successful films. Many distributors provide quality first-run movies to the motion picture exhibition industry; however, according to industry reports, eight distributors accounted for approximately 94% of industry admission revenues during 1997, and 46 of the top 50 grossing films. No single distributor dominates the market. Disruption in the production of motion pictures by the major studios and/or independent producers, the lack of commercial success of motion pictures or the Company's inability to otherwise obtain motion pictures for exhibition would have a material adverse effect upon the Company's business. The Company licenses films from each of the major distributors and believes that its relationships with distributors are good. From year to year, the revenues attributable to individual distributors will vary widely depending upon the number and quality of films each distributes. The Company believes that in 1997 no single distributor accounted for more than 21% of the films licensed by the Company, or films producing more than 21% of the Company's admission revenues. COMPLEMENTARY CONCEPTS FunScapes(TM). To complement the Company's theatre development, the Company developed and operates its FunScapes(TM) entertainment complexes in certain locations which are designed to increase both the drawing radius for patrons and patron spending by offering a wider array of entertainment options at a single destination. The Company currently operates FunScapes(TM) in Chesapeake, Virginia; Rochester, New York; Syracuse, New York; Brandywine, Delaware; and Fort Lauderdale, Florida. Each complex includes a 13 to 16 screen theatre and a 50,000 to 70,000 square foot family entertainment center, which generally features a 36-hole, tropical-themed miniature golf course, a children's soft play and exercise area, laser tag, video batting cages, a video golf course, virtual reality games, a high-tech video arcade and party rooms. A food court connects the theatres to the entertainment center and features nationally recognized brand name pizza, taco, sandwich and dessert restaurants. Each theatre and entertainment center totals approximately 95,000 to 140,000 square feet and management believes the facility is a comprehensive entertainment destination. The Company currently has two additional FunScapes(TM) under construction and may seek to develop additional FunScapes(TM) at strategic locations. The $6.0 million to $10.0 million estimated cost of construction of an entertainment center is comparable to the cost of constructing the adjacent theatre complex. IMAX(R) 3-D Theatres. The Company recently signed an agreement to include IMAX(R) 3-D theatres in ten new multiplex theatre projects over the next five years, the first is expected to open in Chicago in November 1998. Management believes that the Company's theatres with IMAX(R) 3-D, which will contain highly automated projection systems and specialized sound systems, will draw higher traffic levels than theatres without them, allow the Company to attract patrons during non-peak hours and expand its customer base in certain markets. 46 50 COMPETITION The motion picture exhibition industry is fragmented and highly competitive, particularly in film licensing, attracting patrons and finding new theatre sites. Theatres operated by national and regional circuits and by smaller independent exhibitors compete with the Company's theatres. The Company believes that the principal competitive factors in the motion picture exhibition industry include: licensing terms; the seating capacity, location and reputation of an exhibitor's theatres; the quality of projection and sound equipment at the theatres; and the exhibitor's ability and willingness to promote the films. In those areas where real estate is readily available, there are few barriers preventing competing companies from opening theatres near one of the Company's existing theatres, which may have a material adverse effect on the Company's theatre. In addition, competitors have built or are planning to build theatres in certain areas in which the Company operates, which may result in excess capacity in such areas and adversely affect attendance and pricing at the Company's theatres in such areas. In addition, alternative motion picture exhibition delivery systems, including cable television, video cassettes, satellite and pay-per-view services, exist for the exhibition of filmed entertainment in periods subsequent to the theatrical release. The expansion of such delivery systems (such as video on demand) could have a material adverse effect upon the Company's business and results of operations. The Company also competes for the public's leisure time and disposable income with all forms of entertainment, including sporting events, concerts, live theatre and restaurants. MANAGEMENT INFORMATION SYSTEMS The Company has a significant commitment to its management information systems, some of which have been developed internally. The point of sale terminals within each theater provide comprehensive information to the corporate office by 8:00 a.m. each morning. These daily management reports address all aspects of theater operations, including concession sales, fraud detection and film booking. Payroll information is gathered daily from theaters through the use of automated time keeping systems, enabling a daily comparison of actual to budgeted labor for each theater. The Company's systems allow it to properly schedule and manage its hourly workforce. A corporate help desk is also available to monitor and resolve any processing problems that might arise in the theatres. PROPERTIES As of July 2, 1998, after giving pro forma effect to the Act III Combination, the Company operated 247 of its 392 theatres pursuant to lease agreements, owned the land and buildings for 101 theatres and operated 44 locations pursuant to ground leases. Of the 392 theatres operated by the Company as of July 2, 1998, 322 were acquired as existing theatres and 70 have been developed by the Company. The majority of the Company's leased theatres are subject to lease agreements with original terms of 20 years or more and, in most cases, renewal options for up to an additional ten years. The renewal options generally provide for increased rent. These leases provide for minimum annual rentals. Under certain conditions, further rental payments may be based on a percentage of revenues above specified amounts. A significant majority of the leases are net leases, which require the Company to pay the cost of insurance, taxes and a portion of the lessor's operating costs. The Company's corporate office is located in approximately 50,000 square feet of space in Knoxville, Tennessee, which the Company acquired in 1994. The Company believes that these facilities are adequate for its operations. EMPLOYEES As of July 2, 1998, after giving pro forma effect to the Act III Combination, the Company employed 12,819 persons, of which 1,463 were full-time and 11,356 were part-time employees. Of the Company's employees, as of the same date and on the same pro forma basis, 285 were corporate personnel, 1,539 were theatre management personnel and the remainder were hourly theatre personnel. Film projectionists at 16 of 47 51 the Company's theatres in the Seattle, Washington; Las Vegas, Nevada; and the Cleveland and Youngstown, Ohio markets are represented by the International Alliance of Theatrical Stage Employees and Moving Picture Machine Operators of the United States and Canada pursuant to collective bargaining agreements. These collective bargaining agreements expire over various periods through March 2000. The Company's expansion into new markets may increase the number of employees represented by unions. The Company considers its employee relations to be good. REGULATION The distribution of motion pictures is in large part regulated by federal and state antitrust laws and has been the subject of numerous antitrust cases. The Company has never been a party to any of such cases, but the manner in which it can license films is subject to consent decrees resulting from these cases. Consent decrees bind certain major film distributors and require the films of such distributors to be offered and licensed to exhibitors, including the Company, on a theatre-by-theatre basis. Consequently, exhibitors cannot assure themselves of a supply of films by entering into long-term arrangements with major distributors, but must negotiate for licenses on a film-by-film and theatre-by-theatre basis. The Company believes that it is in substantial compliance with all current applicable regulations relating to accommodations for the disabled. The Company intends to comply with future regulations in this regard, and the Company does not currently anticipate that compliance will require the Company to expend substantial funds. The Company's theatre operations are also subject to federal, state and local laws governing such matters as wages, working conditions, citizenship, and health and sanitation requirements and licensing. At July 2, 1998, approximately 45.2% of the Company's employees were paid at the federal minimum wage and, accordingly, the minimum wage largely determines the Company's labor costs for those employees. LEGAL PROCEEDINGS From time to time the Company is involved in routine litigation and proceedings in the ordinary course of business. The Company does not have any litigation that management believes is likely to have a material adverse effect upon the Company. 48 52 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following persons are the directors and executive officers of the Company. Certain information relating to the directors and executive officers, which has been furnished to the Company by the individuals named, is set forth below.
NAME AGE POSITION ---- --- -------- Michael L. Campbell.............. 44 Chairman, President, Chief Executive Officer and Director Gregory W. Dunn.................. 39 Executive Vice President and Chief Operating Officer Lewis Frazer III................. 34 Executive Vice President, Chief Financial Officer and Secretary R. Keith Thompson................ 36 Senior Vice President Real Estate and Construction D. Mark Monroe................... 36 Vice President and Treasurer Susan Seagraves.................. 41 Vice President, Corporate Controller and Assistant Secretary David Deniger.................... 53 Director Thomas O. Hicks.................. 52 Director Henry R. Kravis.................. 54 Director Michael J. Levitt................ 39 Director John R. Muse..................... 47 Director Alexander Navab, Jr.............. 32 Director Clifton S. Robbins............... 40 Director George R. Roberts................ 55 Director
Michael L. Campbell founded the Company in November 1989 and has served as Chairman of the Board, President and Chief Executive Officer since inception. Prior thereto, Mr. Campbell was the Chief Executive Officer of Premiere Cinemas Corporation ("Premiere"), which he co-founded in 1982, and served in such capacity until Premiere was sold in October 1989. Mr. Campbell serves on the Executive Committee of the Board of Directors of the National Association of Theatre Owners. Gregory W. Dunn has served as Executive Vice President and Chief Operating Officer since 1995. From 1991 to 1995, Mr. Dunn was Vice President Marketing and Concessions. From 1989 to 1991, Mr. Dunn was the Purchasing and Operations Manager for Goodrich Quality Theaters, a Grand Rapids, Michigan based theatre chain. From 1986 to 1989, he was a film buyer for Tri-State Theatre Service, Inc. Lewis Frazer III is a certified public accountant and has served as Executive Vice President and Chief Financial Officer since February 1993 and as Secretary since May 1997. From May 1992 to February 1993, Mr. Frazer served as Controller. Mr. Frazer serves as a member of the CFO Committee of the National Association of Theatre Owners. Prior to joining the Company, he served from 1990 to 1992 as Corporate Controller for Kel-San, Inc., an affiliate of Institutional Jobbers. From June 1986 to July 1990, Mr. Frazer was an auditor with Coopers & Lybrand L.L.P. R. Keith Thompson has served as Senior Vice President Real Estate and Construction since February 1993. Prior thereto, he served as Vice President Finance since joining the Company in 1991. From June 1984 to July 1991, Mr. Thompson was a Vice President of Corporate Lending at PNC Commercial Corporation. D. Mark Monroe is a certified public accountant and has served as Vice President and Treasurer since November 1997. From September 1995 to October 1997, Mr. Monroe served as the Director of Accounting 49 53 Projects. From 1992 to 1995, Mr. Monroe was a manager with Pershing, Yoakley and Associates, a regional accounting and consulting firm. From 1986 to 1991, Mr. Monroe was with Ernst & Young LLP. Susan Seagraves has served as Vice President and Corporate Controller since January 1994 when she joined the Company and as Assistant Secretary since May 1997. Ms. Seagraves is a certified public accountant, a certified management accountant and a fellow of health care management. From 1990 through 1993, Ms. Seagraves was an adjunct faculty member of Tusculum College and Bristol University. David Deniger became a director of the Company upon the closing of the Regal Merger. Mr. Deniger is a Managing Director and principal of Hicks Muse. Mr. Deniger is also General Partner, President and CEO of Olympus Real Estate Corporation. Prior to forming Olympus Real Estate Corporation with Hicks Muse, Mr. Deniger was a founder and served as President and Chief Executive Officer of GE Capital Realty Group, Inc. ("GECRG"), a wholly owned subsidiary of General Electric Capital Corporation organized to underwrite, acquire and manage real estate equity investments made by GE Capital and its co-investors. Prior to forming GECRG, Mr. Deniger was President and CEO of FGB Realty Advisors, a wholly owned subsidiary of MacAndrews & Forbes Financial Service Group. Mr. Deniger also serves as Chairman of the Board of the Arnold Palmer Golf Management Company and Park Plaza International. Thomas O. Hicks became a director of the Company upon the closing of the Regal Merger. Mr. Hicks has been Chairman and Chief Executive Officer of Hicks Muse since co-founding the firm in 1989. Prior to forming Hicks Muse, Mr. Hicks co-founded Hicks & Haas Incorporated in 1983 and served as its Co-Chairman and Co-Chief Executive Officer through 1989. Mr. Hicks also serves as a director of Berg Electronics Corp., Capstar Broadcasting Corporation, Chancellor Media Corporation, Cooperative Computing, Inc., CorpGroup Limited, Group MVS, S.A. de C.V., Home Interiors & Gifts, Inc., International Home Foods, Inc., LIN Television Corporation, Olympus Real Estate Corporation, Sybron International Corporation and Viasystems Group, Inc. Henry R. Kravis became a director of the Company upon the closing of the Regal Merger. He is a managing member of KKR & Co. L.L.C., the limited liability company which serves as the general partner of KKR. He is also a director of Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds Collection, Ltd., Bruno's, Inc., Evenflo & Spalding Holdings Corporation, The Gillette Company, IDEX Corporation, KinderCare Learning Centers, Inc., KSL Recreation Group, Inc., Newsquest Capital plc, Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Randall's Food Markets, Inc., Reltec Corporation, Safeway, Inc., Sotheby's Holdings Inc., Union Texas Petroleum Holdings, Inc. and World Color Press, Inc. Michael J. Levitt became a director of the Company upon the closing of the Regal Merger. Mr. Levitt is a Managing Director and principal of Hicks Muse. Before joining Hicks Muse, Mr. Levitt was a Managing Director and Deputy Head of Investment Banking with Smith Barney Inc. from 1993 through 1995. From 1986 through 1993, Mr. Levitt was with Morgan Stanley & Co. Incorporated, most recently as a Managing Director responsible for the New York based Financial Entrepreneurs Group. Mr. Levitt also serves as a director of Capstar Broadcasting Corporation, Chancellor Media Corporation, Group MVS, S.A. de C.V., International Home Foods, Inc., LIN Television Corporation and Sunrise Television Corp. John R. Muse became a director of the Company upon the closing of the Regal Merger. Mr. Muse is Chief Operating Officer and co-founder of Hicks Muse. Prior to the formation of Hicks Muse in 1989, Mr. Muse headed the investment/merchant banking activities of Prudential Securities for the southwestern region of the United States from 1984 to 1989. Prior to joining Prudential Securities, Mr. Muse served as Senior Vice President and a director of Schneider, Bernet & Hickman, Inc. in Dallas from 1979 to 1983 and was responsible for the company's investment banking activities. Mr. Muse is a director of Arena Brands, Inc., Arnold Palmer Golf Management Co., Glass's Group, International Home Foods, Inc., LIN Television Corporation, Olympus Real Estate Corporation, Suiza Foods Corporation and Sunrise Television Corp. Alexander Navab, Jr. became a director of the Company upon the closing of the Regal Merger. He has been an executive of KKR and a limited partner of KKR Associates since 1993. From 1991 to 1993, 50 54 Mr. Navab was an associate at James D. Wolfensohn, Inc. He is also a director of Borden, Inc., KSL Recreation Group, Inc., Newsquest Capital plc, Reltec Corporation and World Color Press, Inc. Clifton S. Robbins became a director of the Company upon the closing of the Regal Merger. He was a General Partner of KKR from January 1, 1995 until January 1, 1996 when he became a member of the limited liability company which serves as the general partner of KKR. Prior thereto, he was an executive thereof. Mr. Robbins is a director of AEP Industries, Inc., Borden, Inc., IDEX Corporation, KinderCare Learning Center, Inc. and Newsquest Capital plc. George R. Roberts became a director of the Company upon the closing of the Regal Merger. He is a managing member of KKR & Co. L.L.C., the limited liability company which serves as the general partner of KKR. He is also a director of Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds Collection, Ltd., Bruno's, Inc., Evenflo & Spalding Holdings Corporation, IDEX Corporation, KinderCare Learning Centers, Inc., KSL Recreation Group, Inc., Owens-Illinois, Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Randall's Food Markets, Inc., Reltec Corporation, Safeway Inc., Union Texas Petroleum Holdings, Inc. and World Color Press, Inc. COMPOSITION OF THE BOARD OF DIRECTORS The Board of Directors of the Company consists of nine members, including four directors designated by KKR and four directors designated by Hicks Muse. Directors of the Company are elected annually by the stockholders to serve during the ensuing year or until their respective successors are duly elected and qualified. See "Certain Transactions -- KKR/Hicks Muse Stockholders Agreement." COMPENSATION OF DIRECTORS Each director of the Company who is not also an officer or employee of the Company receives a fee of $40,000 per year. Directors of the Company are entitled to reimbursement of their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the Board of Directors of the Company or committees thereof. LIMITATION ON DIRECTOR'S LIABILITY Article 8 of the Amended and Restated Charter (the "Charter") of the Company and its Amended and Restated Bylaws provide that the Company shall indemnify against liability, and advance expenses to, any present or former director or officer of the Company to the fullest extent allowed by the Tennessee Business Corporation Act, as amended from time to time, or any subsequent law, rule or regulation adopted in lieu thereof. Additionally, the Charter provides that no director of the Company shall be personally liable to the Company or any of its shareholders for monetary damages for breach of any fiduciary duty except for liability arising from (i) any breach of a director's duty of loyalty to the Company or its shareholders, (ii) acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) any unlawful distributions or (iv) receiving any improper personal benefit. The Company has entered into indemnification agreements with certain of the Company's directors and executive officers. The effect of these provisions is to eliminate the rights of the Company and its shareholders (through shareholders' derivative suits on behalf of the Company) to recover monetary damages against a director for breach of his or her fiduciary duty as a director (including breaches resulting from grossly negligent behavior), except in the situations described above. Directors' and officers' liability insurance has also been obtained by the Company, the effect of which is to indemnify certain directors and officers of the Company against certain damages and expenses because of certain claims made against them caused by their negligent act, error or omission. 51 55 EXECUTIVE COMPENSATION The following table provides information as to annual, long-term or other compensation during the last three fiscal years for the Company's Chief Executive Officer and each of the Company's other executive officers whose salary and bonus exceeded $100,000 during fiscal 1997 (collectively the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------------------- --------------- SECURITIES UNDERLYING FISCAL YEAR SALARY($) BONUS($)(1) OPTIONS/SARS(#) ----------- --------- ----------- --------------- Michael L. Campbell......................... 1997 $241,500 $671,941 190,000 Chairman, President and Chief 1996 209,463 716,988 150,000 Executive Officer 1995 179,236 441,252 112,500 Gregory W. Dunn............................. 1997 $125,000 $135,000 60,000 Executive Vice President and Chief 1996 115,358 130,000 52,500 Operating Officer 1995 87,536 75,000 61,875 Lewis Frazer III............................ 1997 $120,000 $120,000 60,000 Executive Vice President, Chief 1996 108,413 124,950 45,000 Financial Officer and Secretary 1995 84,804 70,000 56,250 R. Keith Thompson........................... 1997 $110,000 $ 70,000 40,000 Senior Vice President Real Estate 1996 95,568 60,000 30,000 and Construction 1995 77,033 50,000 22,500 Robert A. Engel............................. 1997 $ 95,000 $ 50,000 -- Senior Vice President Film and 1996 85,540 55,000 30,000 Advertising 1995 77,033 45,000 22,500
- --------------- (1) For fiscal years 1997 and 1996, reflects cash bonus earned in fiscal 1997 and 1996, respectively, and paid the following fiscal year. For fiscal year 1995, reflects bonuses earned in the fiscal year indicated and paid in the following fiscal year one-half in cash and one-half in restricted stock purchased in the name of the executive officer. Shares of restricted stock vested on January 2, 1997, one year after the grant date. Restricted stock was awarded as follows: Mr. Campbell -- 10,227 shares for fiscal 1995; Mr. Dunn -- 1,738 shares for fiscal 1995; Mr. Frazer -- 1,623 shares for fiscal 1995; Mr. Thompson -- 1,159 shares for fiscal 1995; and Mr. Engel -- 1,042 shares for fiscal 1995. Such shares for fiscal 1995 represent the total aggregate holdings of restricted stock by the Named Executive Officers for fiscal 1995 and had a fair market value of approximately $192,574, $32,727, $30,561, $21,824 and $19,621, for Messrs. Campbell, Dunn, Frazer, Thompson and Engel, respectively, based on a price of $18.83, the closing price of the Common Stock on The Nasdaq Stock Market on December 28, 1995 (as adjusted for a three-for-two stock split in September 1996). Dividends are paid on all restricted shares to the same extent as on any other shares of Common Stock. 52 56 The following table summarizes certain information regarding stock options issued to the Named Executive Officers during fiscal 1997. No stock appreciation rights have been granted by the Company. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------ PERCENT OF NUMBER OF TOTAL POTENTIAL REALIZABLE SECURITIES OPTIONS ANNUAL RATES OF UNDERLYING GRANTED TO STOCK APPRECIATION OPTIONS EMPLOYEES EXERCISE OPTION TERM(2) GRANTED IN FISCAL PRICE EXPIRATION ----------------------- NAME (#)(1) 1997 ($/SHARE) DATE 5%($) 10%($) ---- ---------- ---------- --------- ---------- ---------- ---------- Michael L. Campbell........ 150,000 14.90% $31.875 08/08/07 $3,006,885 $7,620,069 40,000 3.97 22.75 11/07/07 572,290 1,450,303 Gregory W. Dunn............ 50,000 4.97 31.875 08/08/07 1,002,295 2,540,023 10,000 .99 22.75 11/07/07 143,072 362,575 Lewis Frazer III........... 50,000 4.97 31.875 08/08/07 1,002,295 2,540,023 10,000 .99 22.75 11/07/07 143,072 362,575 R. Keith Thompson.......... 30,000 2.98 31.875 08/08/07 601,377 1,524,013 10,000 .99 22.75 11/07/07 143,072 362,575 Robert A. Engel............ -- -- -- -- -- --
- --------------- (1) All options were granted pursuant to the 1993 Employee Stock Incentive Plan (the "Plan"), have a term of ten years, and vest in one-third increments annually beginning August 8, 2000 and November 7, 2000, respectively. After the Recapitalization, the options issued pursuant to the Plan not redeemed in the Option/Warrant Redemption were converted into options for shares of the Company's Common Stock after the Merger. (2) Potential realizable value is calculated from a base stock price of $22.75 and $31.875, the exercise prices of the options granted. The following table summarizes certain information with respect to stock options exercised by the Named Executive Officers pursuant to the Company's stock option plans.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE OPTIONS HELD AT MONEY OPTIONS HELD AT SHARES JANUARY 1, 1998(#) JANUARY 1, 1998(1)($) ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- Michael L. Campbell... -- -- 222,357 674,857 $4,966,121 $6,724,840 Gregory W. Dunn....... -- -- 42,749 226,969 943,477 2,126,744 Lewis Frazer III...... -- -- 50,203 234,940 1,084,520 2,457,802 R. Keith Thompson..... 3,677 $69,530 23,954 126,110 530,282 1,164,124 Robert A. Engel....... -- -- 59,701 89,795 1,403,604 1,202,416
- --------------- (1) Reflects the market value of the underlying securities at exercise or at $27.875, the closing price on The Nasdaq Stock Market on December 31, 1997, less the exercise price. Campbell, Dunn and Frazer Employment Agreements The Company has entered into employment agreements with Messrs. Campbell, Dunn and Frazer pursuant to which they respectively serve as Chief Executive Officer, Chief Operating Officer and Chief Financial Officer of the Company. The terms of the employment agreements commenced upon the closing of the Regal Merger and continue for three years. The employment agreements provide for initial base salaries of $500,000, $325,000 and $275,000 per year for Messrs. Campbell, Dunn and Frazer, respectively. Messrs. Campbell, Dunn and Frazer are entitled to receive annual target bonuses of 140%, 100% and 100%, 53 57 respectively, of their base salaries based upon the achievement by the Company of certain EBITDA and other performance targets set by the board of directors of the Company. The employment agreements also provide that the Company will supply Messrs. Campbell, Dunn and Frazer with other customary benefits generally made available to other senior executives of the Company. Each of the employment agreements also contains a noncompetition and no-raid provision pursuant to which each of Messrs. Campbell, Dunn and Frazer has agreed, subject to certain exceptions, that during the term of his employment agreement and for one year thereafter, he will not compete with the Company or its theatre affiliates and will not solicit or hire certain employees of the Company. Each of the employment agreements also contains severance provisions providing for the termination of employment of Messrs. Campbell, Dunn and Frazer by the Company under certain circumstances in which Messrs. Campbell, Dunn and Frazer will be entitled to receive severance payments equal to the greater of (i) two times their respective annual base salaries and (ii) the balance of their respective base salaries over the then remaining employment term, in either case payable over 24 months (or if longer, the remaining balance of the employment term) and continuation of health, life, disability and other similar welfare plan benefits. 54 58 CERTAIN TRANSACTIONS The following is a summary description of the principal terms of the following agreements and is subject to and qualified in its entirety by reference to the full text of such agreements, which are filed as exhibits to the Registration Statement of which this Prospectus is a part. KKR/HICKS MUSE STOCKHOLDERS AGREEMENT Concurrently with the consummation of the Regal Merger, the Company entered into the KKR/Hicks Muse Stockholders Agreement with KKR and Hicks Muse. Among other things, the KKR/Hicks Muse Stockholders Agreement provides that each of Hicks Muse and KKR has the right to appoint an equal number of directors to the Board of Directors of the Company, subject to maintaining specified ownership thresholds. The number of directors appointed by KKR and Hicks Muse together shall constitute a majority of the Board of Directors. The KKR/Hicks Muse Stockholders Agreement further provides that Hicks Muse and KKR will amend the Company's bylaws to provide that no action may be validly taken at a meeting of the Board of Directors unless a majority of the Board of Directors, a majority of the directors designated by Hicks Muse and a majority of the directors designated by KKR have approved such action. The KKR/Hicks Muse Stockholders Agreement provides that neither Hicks Muse nor KKR may transfer its shares of Common Stock to a person other than its respective affiliates for a period of five years following the closing date of the Regal Merger. In addition, the KKR/Hicks Muse Stockholders Agreement provides KKR and Hicks Muse with certain registration rights and limits the ability of either KKR or Hicks Muse to separately acquire motion picture exhibition assets in excess of a specified amount without first offering the other the right to participate in such acquisition opportunity. DLJ STOCKHOLDERS AGREEMENT Concurrently with the consummation of the Regal Merger, the Company, Hicks Muse, KKR and DLJ entered into a stockholders agreement (the "DLJ Stockholders Agreement"). Under the DLJ Stockholders Agreement, DLJ has the right to participate pro rata in certain sales of Common Stock by KKR and Hicks Muse, and KKR and Hicks Muse have the right to require DLJ to participate pro rata in certain sales by KKR and Hicks Muse. The DLJ Stockholders Agreement also grants DLJ stockholders certain registration and pre-emptive rights. CERTAIN FEES Each of KKR and Hicks Muse received a fee for negotiating the Recapitalization and arranging the financing therefor, plus the reimbursement of their respective expenses in connection therewith, and from time to time, each of KKR and Hicks Muse may receive customary investment banking fees for services rendered to the Company in connection with divestitures, acquisitions and certain other transactions. In addition, KKR and Hicks Muse have agreed to render management, consulting and financial services to the Company for an aggregate annual fee of $1.0 million. 55 59 PRINCIPAL STOCKHOLDERS The following table and the accompanying footnotes set forth, as of September 28, 1998, the beneficial ownership of the Common Stock of the Company by (i) each person who is known to the Company to own beneficially more than 5% of the Common Stock, (ii) each director and Named Executive Officer of the Company and (iii) all directors and executive officers as a group. Unless noted otherwise, the address for each executive officer is in care of the Company at 7132 Commercial Park Drive, Knoxville, Tennessee 37918.
NUMBER OF PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) OF CLASS(1) ------------------------------------ ----------- ----------- 5% STOCKHOLDERS:(1) Hicks Muse Parties(2)....................................... 100,000,000 46.3 200 Crescent Court Suite 1600 Dallas, Texas 75201 KKR 1996 GP L.L.C.(3)....................................... 100,000,000 46.3 c/o Kohlberg Kravis Roberts & Co. L.P. 9 West 57th Street Suite 4200 New York, New York 10019 OFFICERS AND DIRECTORS: David Deniger............................................... -- Thomas O. Hicks............................................. -- Henry R. Kravis............................................. -- Michael J. Levitt........................................... -- John R. Muse................................................ -- Alexander Navab, Jr......................................... -- Clifton S. Robbins.......................................... -- George R. Roberts........................................... -- Michael L. Campbell......................................... 2,368,350 1.1 Gregory W. Dunn............................................. 498,654 * Lewis Frazer III............................................ 566,463 * Robert A. Engel, Jr......................................... -- R. Keith Thompson........................................... 272,769 * All directors and executive officers as a group (15 persons).................................................. 3,794,083 1.7
- --------------- * Represents less than 1.0% of class. (1) The amounts and percentage of Common Stock beneficially owned are reported on the basis of regulations of the Commission governing the determination of beneficial ownership of securities. Under the rules of the Commission, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which he has no economic interest. (2) Includes shares owned of record by Regal Equity Partners, L.P. ("Regal Partners"), a limited partnership whose sole general partner is TOH/Ranger, LLC ("Ranger LLC"). Mr. Hicks is the sole member and director of Ranger LLC and, accordingly, may be deemed to be the beneficial owner of the Common Stock held directly or indirectly by Regal Partners. John R. Muse, Charles W. Tate, Jack D. Furst, Lawrence D. Stuart, Jr. and Michael J. Levitt are officers of Ranger LLC and as such may be deemed to share with Mr. Hicks the power to vote or dispose of the Common Stock held by Regal 56 60 Partners. Each of Messrs. Hicks, Muse, Tate, Furst, Stuart and Levitt disclaims beneficial ownership of the Common Stock not respectively owned of record by him. (3) KKR 1996 GP L.L.C. is the sole general partner of KKR Associates 1996 L.P. KKR Associates 1996 L.P., a limited partnership, is the sole general partner of KKR 1996 Fund L.P., a limited partnership formed at the direction of KKR, and possesses sole voting and investment power with respect to such shares. KKR 1996 GP L.L.C. is a limited liability company, the members of which are Henry R. Kravis, George R. Roberts, Robert I. MacDowell, Paul E. Raether, Michael W. Michelson, Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Clifton S. Robbins, Scott M. Stuart and Edward A. Gilhuly. Messrs. Kravis, Roberts and Robbins are members of the Executive Committee of KKR 1996 GP L.L.C. Messrs. Kravis, Roberts and Robbins will also be directors of the Company after the Closing Date. Mr. Alexander Navab, Jr. is a limited partner of KKR Associates 1996 L.P. and will also be a director of the Company. Each of such individuals may be deemed to share beneficial ownership of the shares shown as beneficially owned by KKR 1996 GP L.L.C. Each of such individuals disclaims beneficial ownership of such shares. 57 61 DESCRIPTION OF CERTAIN INDEBTEDNESS SENIOR CREDIT FACILITIES Concurrently with the consummation of the Regal Merger, the Company entered into the Senior Credit Facilities. In connection with the Act III Combination, the Company amended the Senior Credit Facilities to increase its borrowing capacity thereunder. The following is a summary description of the principal terms of the Senior Credit Facilities and is subject to and qualified in its entirety by reference to the Senior Credit Facilities, a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. Capitalized terms used in this section but not otherwise defined in this Prospectus shall have the meanings ascribed to them in the Senior Credit Facilities. General. The Senior Credit Facilities are provided by a syndicate of banks and other financial institutions (the "Lenders") for which The Bank of Nova Scotia ("Scotiabank") acts as administrative agent (the "Administrative Agent"), BancAmerica Robertson Stephens ("BARS") acts as the syndication agent (the "Syndication Agent"), The Chase Manhattan Bank ("Chase") acts as documentation agent, and Scotiabank, BARS and Chase acts as the arrangers. The Senior Credit Facilities provide for borrowings of up to $500.0 million (such amount declining as described below) under the Revolving Credit Facility and for borrowings of up to an aggregate of $712.5 million under three term loan facilities (the "Term Facilities"). The proceeds of the Loans (as defined herein) are available for acquisitions and for general corporate purposes, including for working capital needs. The Senior Credit Facilities may be amended at any time, including to increase the amount thereof, in accordance with the terms thereof. Revolving Credit Facility. The Revolving Credit Facility provides for borrowings of up to $500.0 million (the "Revolving Loans"). On the fourth, fifth and sixth anniversaries of the closing date of the Regal Merger, the commitment amount under the Revolving Credit Facility will be permanently reduced to $460.0 million, $400.0 million and $300.0 million, respectively (or, if the amount of the Revolving Credit Facility is increased, to amounts corresponding proportionately to such increase). In addition, an aggregate of $460.0 million of the Revolving Loans are available in the form of Letters of Credit and Swing Line Loans. The Revolving Credit Facility is available on a revolving basis ending on the seventh anniversary of the closing date of the Regal Merger. Term Facilities. Under the Senior Credit Facilities, there are three Term loan facilities as follows: (i) a seven-year Term loan facility (the "Term A Facility"); (ii) an eight-year Term loan facility (the "Term B Facility"); and (iii) a nine-year Term loan facility (the "Term C Facility"). The Term A Facility was made available in a borrowing on the closing date of the Regal Merger and an additional borrowing in connection with the Act III Combination to the Company pursuant to which Term loans ("Term A Loans") were made. The maximum amount available for borrowing under the Term A Facility was $240.0 million. Once repaid, Term A Loans may not be reborrowed. Term A Loans amortize in annual installments totaling 1% for years one through six and 94% for year seven. The final maturity for all Term A Loans is the seventh anniversary of the closing date of the Regal Merger. The Term B Facility was made available in a borrowing on the closing date of the Regal Merger and an additional borrowing in connection with the Act III Combination to the Company pursuant to which Term loans ("Term B Loans") were made. The maximum amount available for borrowing under the Term B Facility was $337.5 million. Once repaid, Term B Loans may not be reborrowed. Term B Loans amortize in annual installments totaling 1% for years one through seven and 93% for year eight. The final maturity for all Term B Loans is the eighth anniversary of the closing date of the Regal Merger. The Term C Facility was made available in a single borrowing on the closing date of the Regal Merger to the Company pursuant to which Term loans ("Term C Loans" and together with the Revolving Loans, the Term A Loans and the Term B Loans, the "Loans") were made. The maximum amount available for borrowing under the Term C Facility was $135.0 million. Once repaid, Term C Loans may not be reborrowed. Term C Loans amortize in annual installments totaling 1% for years one through eight and 92% for year nine. The final maturity for all Term C Loans is the ninth anniversary of the closing date of the Regal Merger. 58 62 Interest. The Loans bear interest at the Administrative Agent's alternate base rate or reserve adjusted LIBOR rate plus, in each case, the applicable margins set forth below, determined in accordance with the Company's Total Leverage Ratio.
REVOLVING LOANS AND TERM A LOANS TOTAL ---------------------- LEVERAGE RATIO LIBOR RATE BASE RATE - -------------- ---------- --------- > or = 5.5:1 2.250% 1.000% > or = 5.0:1 < 5.5:1 2.000% .750% > or = 4.5:1 < 5.0:1 1.625% .375% > or = 4.0:1 < 4.5:1 1.375% .125% > or = 3.5:1 < 4.0:1 1.125% .000% > or = 3.0:1 < 3.5:1 .875% .000% < 3.0:1 .625% .000%
TERM B LOANS TERM C LOANS TOTAL ---------------------- ---------------------- LEVERAGE RATIO LIBOR RATE BASE RATE LIBOR RATE BASE RATE - -------------- ---------- --------- ---------- --------- > or = 5.5:1 2.500% 1.250% 2.750% 1.500% > or = 4.5:1 < 5.5:1 2.250% 1.000% 2.500% 1.250% < 4.5:1 2.000% .750% 2.250% 1.000%
Interest periods for LIBOR Rate Loans shall be, at the Company's option, one, two, three or six months or, if available, nine or twelve months, and shall be payable on the last business day of the applicable interest period therefor (or, if earlier, on each third-month date following the commencement of such interest period). Interest on Base Rate Loans shall be payable quarterly in arrears. Optional and Mandatory Prepayments. Outstanding Loans are voluntarily payable without penalty; provided, however, that LIBOR rate breakage costs, if any, shall be for the account of the Company. Mandatory prepayments will be required from 100% of net cash proceeds from the sale of assets other than in the course of ordinary business (subject to certain exceptions) to the extent such proceeds are not reinvested in the business of the Company and its subsidiaries within 18 months after receipt. Mandatory prepayments shall be applied pro rata among the Term Facilities and shall be applied to scheduled amortization payments in a manner to be agreed upon by the Administrative Agent, the Syndication Agent and the Company. Fees. Commencing on the closing date of the Regal Merger, a non-refundable fee (the "Commitment Fee") is accruing on the daily average unused portion of the commitment amount of the Revolving Credit Facility (whether or not then available), payable quarterly in arrears and on the final maturity date of the Revolving Credit Facility (whether by stated maturity or otherwise). The Commitment Fee will be determined and adjusted, in a range from .425% to .200% per annum, in increments based upon the Total Leverage Ratio of the Company. Security. The Senior Credit Facilities are secured by a first-priority pledge of (i) the common stock of all existing and future direct domestic subsidiaries of the Company and (ii) 65% of the common stock of all direct material foreign subsidiaries of the Company, with certain exceptions which may be agreed upon. Guarantees. The Company's payment obligations under the Senior Credit Facilities are guaranteed on a senior basis by all direct and indirect U.S. subsidiaries of the Company, with certain exceptions which may be agreed upon. Covenants. The Senior Credit Facilities contain financial covenants pursuant to which the Company must maintain a minimum fixed charge coverage ratio and a maximum senior leverage ratio. In addition, the Senior Credit Facilities contain covenants pertaining to the management and operation of the Company and its subsidiaries. The Senior Credit Facilities also subject the Company and its subsidiaries to restrictions on the incurrence of additional debt and contingent obligations, the making of dividends or similar distributions, the sale of assets or similar transfers other than in the ordinary course of business, the making of certain acquisitions and investments, the consummation of mergers and consolidations, and entering into certain transactions with affiliates. 59 63 Events of Default. The Senior Credit Facilities contain customary events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults to certain other indebtedness, certain events of bankruptcy and insolvency, ERISA events, judgment defaults, actual or asserted invalidity of any security interest and change of control. THE EXCHANGE OFFER PURPOSE AND EFFECT The Old Notes were sold by the Company on May 27, 1998 in the Original Offering. In connection with that placement, the Company entered into the Registration Rights Agreement, which requires that the Company file the Registration Statement under the Securities Act with respect to the Notes and, upon the effectiveness of that Registration Statement, offer to the holders of the Old Notes the opportunity to exchange their Old Notes for a like principal amount of Notes, which will be issued without a restrictive legend and which generally may be reoffered and resold by the holder without registration under the Securities Act. Following the completion of the Exchange Offer (except as set forth in the paragraph immediately below), holders of Old Notes not tendered will not have any further registration rights and those Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the Old Notes could be adversely affected upon consummation of the Exchange Offer. In order to participate in the Exchange Offer, a holder must represent to the Company, among other things, that (i) the Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving the Notes, (ii) neither the holder nor any such other person is engaging in or intends to engage in a distribution of the Notes, (iii) neither the holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of the Notes and (iv) neither the holder nor any such other person is an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of the Company. Pursuant to the Registration Rights Agreement if (i) the Company determines that it is not permitted to effect the Exchange Offer as contemplated hereby because of any applicable law or Commission policy, or (ii) any holder of Transfer Restricted Securities notifies the Company prior to the 20th day following consummation of the Exchange Offer (a) that it is prohibited by law or Commission policy from participating in the Exchange Offer, (b) that it may not resell the Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and that this Prospectus is not appropriate or available for such resales, or (c) that it is a broker-dealer and owns Old Notes acquired directly from the Company or an affiliate of the Company, the Company is required to file a "shelf" registration statement for a continuous offering pursuant to Rule 415 under the Securities Act in respect of the Old Notes. For purposes of the foregoing, "Transfer Restricted Securities" means each Old Note until (i) the date on which such Old Note has been exchanged for a Note in the Exchange Offer, (ii) the date on which such Old Note has been electively registered under the Securities Act and disposed of in accordance with such "shelf" registration statement, (iii) the date on which such Old Note is sold pursuant to Rule 144 under circumstances in which any legend borne by such Old Note relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed or such Old Note is eligible to be sold pursuant to paragraph (k) of Rule 144, or (iv) such Old Note shall cease to be outstanding. Other than as set forth in this paragraph, no holder will have the right to participate in the "shelf" registration statement nor otherwise require that the Company register such holder's shares of Old Notes under the Securities Act. See "-- Procedures for Tendering." Based on an interpretation by the Commission's staff set forth in no-action letters issued to third parties unrelated to the Company, the Company believes that, with the exceptions set forth below, the Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by any person receiving such Notes, whether or not such person is the registered holder (other than any such holder or such other person which is (i) an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer that purchased such Old Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (iii) a person participating in the distribution of the Notes) without compliance with the registration and prospectus 60 64 delivery provisions of the Securities Act, provided that the Notes are acquired in the ordinary course of business of the holder or such other person and neither the holder nor such other person has an arrangement or understanding with any person to participate in the distribution of such Notes. Holders of Old Notes accepting the Exchange Offer will represent to the Company in the Letter of Transmittal that such conditions have been met. Any holder who tenders in the Exchange Offer for the purpose of participating in a distribution of the Notes cannot rely on this interpretation by the Commission's staff and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. Each broker-dealer that receives Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Notes. See "Plan of Distribution." Each broker-dealer that receives Notes for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Old Notes as a result of market-making activities or other trading activities and will deliver a prospectus in connection with any resale of such Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer for 180 days following the date of this Prospectus in connection with resales of Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Letter of Transmittal states that by acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Except as aforesaid, this Prospectus may not be used for an offer to resell, resale or other retransfer of Notes. The Exchange Offer is not being made to, nor will the Company accept tenders for exchange from, holders of Old Notes in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. CONSEQUENCES OF FAILURE TO EXCHANGE Following the completion of the Exchange Offer (except as set forth in the second paragraph under "-- Purpose and Effect" above), holders of Old Notes not tendered will not have any further registration rights and those Old Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for a holder's Old Notes could be adversely affected upon completion of the Exchange Offer if the holder does not participate in the Exchange Offer. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in integral multiples of $1,000 in principal amount. The form and terms of the Notes are substantially the same as the form and terms of the Old Notes except that the Notes have been registered under the Securities Act and will not bear legends restricting their transfer. The Notes will evidence the same debt as the Old Notes and will be issued pursuant to, and entitled to the benefits of, the Indenture pursuant to which the Old Notes were issued. As of September 25, 1998, Old Notes representing $400.0 million aggregate principal amount were outstanding and there was one registered holder, a nominee of DTC. This Prospectus, together with the Letter of Transmittal, is being sent to such registered holder and to others believed to have beneficial interests in the Old Notes. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder. 61 65 The Company shall be deemed to have accepted validly tendered Old Notes when, as, and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Notes from the Company. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent and each registered holder of any extension by oral or written notice prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer or, if any of the conditions set forth under "-- Conditions to Exchange Offer" shall not have been satisfied, to terminate the Exchange Offer, by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner. PROCEDURES FOR TENDERING Only a holder of Old Notes may tender the Old Notes in the Exchange Offer. Except as set forth under "-- Book-Entry Transfer," to tender in the Exchange Offer a holder must complete, sign, and date the Letter of Transmittal, or a copy thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver the Letter of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In addition, (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal prior to the Expiration Date, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if that procedure is available, into the Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date or (iii) the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Letter of Transmittal and other required documents must be received by the Exchange Agent at the address set forth under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. The tender by a holder that is not withdrawn before the Expiration Date will constitute an agreement between that holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company, or other nominee and who wishes to tender should contact the registered holder promptly and 62 66 instruct the registered holder to tender on the beneficial owner's behalf. If the beneficial owner wishes to tender on the owner's own behalf, the owner must, prior to completing and executing the Letter of Transmittal and delivering the owner's Old Notes, either make appropriate arrangements to register ownership of the Old Notes in the beneficial owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instruction" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantee must be by any eligible guarantor institution that is a member of or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed therein, the Old Notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as that registered holder's name appears on the Old Notes. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal unless waived by the Company. All questions as to the validity, form, eligibility (including time of receipt), acceptance, and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Old Notes, neither the Company, the Exchange Agent, nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. In addition, the Company reserves the right in its sole discretion to purchase or make offers for any Old Notes that remain outstanding after the Expiration Date or, as set forth under "-- Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Old Notes in the open market, in privately negotiated transactions, or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. By tendering, each holder will represent to the Company that, among other things, (i) the Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Notes, whether or not such person is the registered holder, (ii) neither the holder nor any such other person is engaging in or intends to engage in a distribution of such Notes, (iii) neither the holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Notes and (iv) neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. 63 67 In all cases, issuance of Notes for Old Notes that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility, a properly completed and duly executed Letter of Transmittal (or, with respect to the DTC and its participants, electronic instructions in which the tendering holder acknowledges its receipt of and agreement to be bound by the Letter of Transmittal), and all other required documents. If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder thereof (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such nonexchanged Old Notes will be credited to an account maintained with such Book-Entry Transfer Facility) as promptly as practicable after the expiration or termination of the Exchange Offer. Each broker-dealer that receives Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Notes. See "Plan of Distribution." BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of Old Notes being tendered by causing the Book-Entry Transfer Facility to transfer such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof, with any required signature guarantees and any other required documents, must, in any case other than as set forth in the following paragraph, be transmitted to and received by the Exchange Agent at the address set forth under "-- Exchange Agent" on or prior to 5:00 p.m., New York City time, on the Expiration Date or the guaranteed delivery procedures described below must be complied with. ATOP is the only method of processing exchange offers through DTC. To accept the Exchange Offer through ATOP, participants in DTC must send electronic instructions to DTC through DTC's communication system in lieu of sending a signed, hard copy Letter of Transmittal. DTC is obligated to communicate those electronic instructions to the Exchange Agent. To tender Old Notes through ATOP, the electronic instructions sent to DTC and transmitted by DTC to the Exchange Agent must contain the character by which the participant acknowledges its receipt of and agrees to be bound by the Letter of Transmittal. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Notes desires to tender such Old Notes and the Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Old Notes and the amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent and (iii) the certificates for all physically tendered Old Notes, in proper form for 64 68 transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal, are received by the Exchange Agent within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. For a withdrawal of a tender of Old Notes to be effective, a written or (for DTC participants) electronic ATOP transmission notice of withdrawal must be received by the Exchange Agent at its address set forth under "-- Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number or numbers and principal amount of such Old Notes), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee register the transfer of such Old Notes into the name of the person withdrawing the tender, and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form, and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender, or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures under "-- Procedures for Tendering" at any time on or prior to the Expiration Date. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provision of the Exchange Offer, the Company shall not be required to accept for exchange, or to issue Notes in exchange for, any Old Notes and may terminate or amend the Exchange Offer if at any time before the acceptance of such Old Notes for exchange or the exchange of the Notes for such Old Notes, the Company determines that the Exchange Offer violates applicable law, any applicable interpretation of the staff of the Commission or any order of any governmental agency or court of competent jurisdiction. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to any such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. In addition, the Company will not accept for exchange any Old Notes tendered, and no Notes will be issued in exchange for any such Old Notes, if at such time any stop order shall be threatened or in effect with respect to the Registration Statement of which this Prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939, as amended. In any such event the Company is required to make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment. 65 69 EXCHANGE AGENT All executed Letters of Transmittal should be directed to the Exchange Agent. IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for the Exchange Offer. Questions, requests for assistance and requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent addressed as follows: IBJ SCHRODER BANK & TRUST COMPANY By Registered or Certified Mail: By Hand or Overnight Delivery before 4:30 p.m.: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company P.O. Box 84 One State Street Bowling Green Station New York, New York 10004 New York, New York 10274-0084 Attn: Securities Processing Window, Attn: Reorganization Dept. SC-1
By Facsimile (for Eligible Institutions): (212) 858-2611 For Information or Confirmation by Telephone: (212) 858-2103 (Originals of all documents sent by facsimile should be sent promptly by registered or certified mail, by hand or by overnight delivery service.) FEES AND EXPENSES The Company will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The principal solicitation is being made by mail; however, additional solicitations may be made in person or by telephone by officers and employees of the Company. The estimated cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be $1.0 million, which includes fees and expenses of the Exchange Agent, accounting, legal, printing, and related fees and expenses. TRANSFER TAXES Holders who tender their Old Notes for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the payment of any applicable transfer tax thereon. 66 70 DESCRIPTION OF THE NOTES GENERAL The Notes are to be issued under the Indenture between the Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"), a copy of which is available upon request to the Company. The Old Notes were also issued pursuant to the Indenture. The following summary of certain provisions of the Indenture and the Notes does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture (including the definitions of certain terms therein and those terms made a part thereof by the Trust Indenture Act of 1939, as amended) and the Notes, copies of which are filed as exhibits to the Registration Statement of which this Prospectus is a part. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Indenture. For definitions of certain terms used in this section, see "-- Certain Definitions" below. For purposes of this summary, the term "Company" refers only to Regal Cinemas, Inc. and not to any of its Subsidiaries. Principal of, premium, if any, and interest on the Notes will be payable, and the Notes may be exchanged or transferred, at the office or agency of the Company in the Borough of Manhattan, The City of New York (which initially shall be the corporate trust office of the Trustee in New York, New York) and at the office of the Luxembourg Paying Agent, except that, at the option of the Company, payment of interest may be made by check mailed to the address of each holder as such address appears in the Note Register. The Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Currently, the Trustee acts as a Paying Agent and the Registrar for the Notes. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar, which currently is the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the Notes. Subject to the covenants described below under "Certain Covenants" and applicable law, the Company may issue additional Notes under the Indenture. The Notes offered hereby and any additional Notes subsequently issued would be treated as a single class for all purposes under the Indenture. PRINCIPAL, MATURITY AND INTEREST The Notes will be unsecured, senior subordinated obligations of the Company, initially limited to $400.0 million aggregate principal amount, and will mature on June 1, 2008. Interest on the Notes will accrue at a rate of 9 1/2% per annum and will be payable in cash semi-annually on each June 1 and December 1, commencing December 1, 1998 to the holders of record of Notes at the close of business on the May 15 and November 15, respectively, immediately preceding such interest payment date. Interest on the Notes will accrue from the most recent interest payment date to which interest has been paid or, if no interest has been paid, from May 27, 1998. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. OPTIONAL REDEMPTION The Notes may be redeemed at any time on or after June 1, 2003, in whole or in part, at the option of the Company, at the redemption prices (expressed as a percentage of the principal amount thereof on the applicable redemption date) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning on June 1 of each of the years set forth below:
REDEMPTION YEAR PRICE ---- ---------- 2003........................................................ 104.750% 2004........................................................ 103.167 2005........................................................ 101.583 2006 and thereafter......................................... 100.000
67 71 In addition, prior to June 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Equity Offerings to redeem up to 35% of the principal amount of the Notes at a redemption price equal to 109.50% of the principal amount thereof plus accrued and unpaid interest to the redemption date; provided, however, that after any such redemption, at least $260.0 million of the aggregate principal amount of the Notes remain outstanding immediately after giving effect to such redemption. Any such redemption will be required to occur on or prior to the date that is 90 days after the receipt by the Company of the proceeds of an Equity Offering. The Company shall effect such redemption on a pro rata basis. SELECTION AND NOTICE If less than all of the Notes are to be redeemed at any time, selection of Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, in the absence of such requirements or if the Notes are not so listed, on a pro rata basis, by lot or by such other method as the Trustee shall deem fair and appropriate, provided that no such Notes of $1,000 principal amount or less shall be redeemed in part. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address and will be published in Luxembourg. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the redemption date, interest ceases to accrue on Notes or portions thereof called for redemption. CHANGE OF CONTROL The Indenture provides that, upon the occurrence of a Change of Control, each holder will have the right to require that the Company purchase all or a portion of such holder's Notes in cash pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. The Indenture provides that, prior to the giving of the notice referred to below, but in any event within 30 days following the date on which the Company becomes aware that a Change of Control has occurred, if the purchase of the Notes would violate or constitute a default under any other Indebtedness of the Company, then the Company shall, to the extent needed to permit such purchase of Notes, either (i) repay all such Indebtedness and terminate all commitments outstanding thereunder or (ii) obtain the requisite consents, if any, under such Indebtedness to permit the purchase of the Notes as provided below. The Company will first comply with the covenant in the preceding sentence before it will be required to make the Change of Control Offer or purchase the Notes pursuant to the provisions described below. Within 30 days following the date on which the Company becomes aware that a Change of Control has occurred, the Company must send, by first-class mail postage prepaid, a notice to each holder of Notes (and publish notice in Luxembourg), which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender such Notes to the U.S. Paying Agent and the Registrar (or the Luxembourg Paying Agent and Transfer Agent) for the Notes at the address specified in the notice prior to the close of business on the business day prior to the Change of Control Payment Date. The Company will not be required to make a Change of Control Offer pursuant to this covenant if a third party makes a Change of Control Offer in compliance with this covenant and repurchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act, to the extent applicable in connection with the purchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture, the Company 68 72 will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof. The Change of Control covenant will not apply in the event of (a) changes in a majority of the board of directors of the Company and (b) certain transactions with Permitted Holders (including Hicks Muse, KKR, their respective officers and directors and their respective Affiliates). In addition, the Change of Control covenant is not intended to afford holders of Notes protection in the event of certain highly leveraged transactions, reorganizations, restructurings, mergers and other similar transactions that might adversely affect the holders of Notes, but would not constitute a Change of Control. The Company could, in the future, enter into certain transactions including certain recapitalizations of the Company, that would not constitute a Change of Control with respect to the Change of Control repurchase feature of the Notes, but would increase the amount of Indebtedness outstanding at such time. However, the Indenture contains limitations on the ability of the Company to incur additional Indebtedness and to engage in certain mergers, consolidations and sales of assets, whether or not a Change of Control is involved, subject, in each case, to limitations and qualifications. See "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" and "-- Certain Covenants -- Merger, Consolidation and Sale of Assets" below. With respect to the sale of "all or substantially all" the assets of the Company, which would constitute a Change of Control for purposes of the Indenture, the meaning of the phrase "all or substantially all" varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under relevant law and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the assets of the Company and, therefore, it may be unclear whether a Change of Control has occurred and whether the Notes should be subject to a Change of Control Offer. The occurrence of certain of the events that would constitute a Change of Control would constitute a default under the Senior Credit Facilities. Future Senior Indebtedness of the Company and its Subsidiaries may also contain prohibitions of certain events that would constitute a Change of Control or require such Senior Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of their right to require the Company to repurchase the Notes could cause a default under such Senior Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. Even if sufficient funds were otherwise available, the terms of the Senior Credit Facilities may prohibit the Company's prepayment of Notes prior to their scheduled maturity. Consequently, if the Company is not able to prepay the Indebtedness under the Senior Credit Facilities and any other Senior Indebtedness containing similar restrictions or obtain the requisite consents, as described above, the Company will be unable to fulfill its repurchase obligations if holders of Notes exercise their repurchase rights following a Change of Control, thereby resulting in a default under the Indenture. None of the provisions in the Indenture relating to a purchase of Notes upon a Change of Control is waivable by the board of directors of the Company. Without the consent of each holder of Notes affected thereby, after the mailing of the notice of a Change of Control Offer, no amendment to the Indenture may, directly or indirectly, affect the Company's obligation to purchase the outstanding Notes or amend, modify or change the obligation of the Company to consummate a Change of Control Offer or waive any default in the performance thereof or modify any of the provisions of the definitions with respect to any such offer. RANKING AND SUBORDINATION The payment of the principal of, premium (if any), and interest on the Notes, any liquidated damages ("Additional Amounts") under the Registration Rights Agreement and all other Obligations with respect to the Notes, is subordinated in right of payment, to the extent set forth in the Indenture, to the payment in full in cash of all existing and future Senior Indebtedness of the Company; provided, however, payment from the money or the proceeds of U.S. Government Obligations held in any defeasance trust described under "-- Satisfaction and Discharge of Indenture; Defeasance" below is not subordinate to any Senior Indebtedness or 69 73 subject to the restrictions described herein. The Notes will also be effectively subordinated to all existing and future liabilities (including the guarantees of the Company's obligations under the Senior Credit Facilities, trade payables and tort claims) of the subsidiaries of the Company. As of July 2, 1998 on a pro forma basis after giving effect to the Act III Combination, the Company would have had $1,185.6 million of Indebtedness outstanding, of which $751.4 million would have been Senior Indebtedness, and the Company's subsidiaries would have had capital lease obligations and indebtedness to third parties of approximately $40.0 million (excluding guarantees of certain Senior Indebtedness of the Company). Although the Indenture contains limitations on the amount of additional Indebtedness that the Company and its subsidiaries may incur, under certain circumstances the amount of such additional Indebtedness could be substantial and, in any case, all or a portion of such Indebtedness may be Senior Indebtedness and may be secured. See "-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock." Only Indebtedness of the Company that is Senior Indebtedness will rank senior to the Notes in accordance with the provisions of the Indenture. The Notes will in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company. The Company has agreed in the Indenture that it will not incur, directly or indirectly, any Indebtedness that is subordinate or junior in ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is contractually subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness merely because it is unsecured, nor is any Indebtedness deemed to be subordinate or junior to other Indebtedness merely because it matures after such other Indebtedness. Secured Indebtedness is not deemed to be Senior Indebtedness merely because it is secured. The Company may not pay principal of, premium (if any) or interest on or other Obligations with respect to, the Notes or make any deposit pursuant to the provisions described under "-- Satisfaction and Discharge of Indenture; Defeasance" below and may not otherwise redeem, purchase or retire any Notes (collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid when due or (ii) any other default on Senior Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived and/or any such acceleration has been rescinded or such Senior Indebtedness has been paid; provided, however, that the Company may pay the Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of the Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Notes (except that holders of the Notes may receive (i) Qualified Capital Stock issued by the Company to pay interest on the Notes or issued in exchange for the Notes, (ii) securities substantially identical to the Notes issued by the Company in payment of interest accrued thereon or (iii) securities issued by the Company which are subordinated to Senior Indebtedness at least to the same extent as the Notes and having a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Notes) for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (ii) because the default giving rise to such Blockage Notice has been cured or waived or is no longer continuing or (iii) because such Designated Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence, but subject to the provisions of the first sentence of this paragraph and the provisions of the immediately succeeding paragraph, the Company may resume payments on the Notes after the end of such Payment Blockage Period. Not more than one Blockage Notice may be given, and not more than one payment Blockage Period may occur, in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. However, if any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness (other than the agent under 70 74 the Senior Credit Facilities), the agent under the Senior Credit Facilities may give another Blockage Notice within such period. In no event, however, may the total number of days during which any Payment Blockage Period or Payment Blockage Periods is in effect exceed 179 days in the aggregate during any 360-consecutive-day period. No nonpayment default that existed or was continuing on the date of delivery of any Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 consecutive days. The failure of the Company to pay principal when due or to pay interest on the Notes for more than 30 days after the scheduled payment therefor as a result of the occurrence of a Payment Blockage Period shall nevertheless constitute an Event of Default under the Indenture. Upon any payment or distribution of the assets of the Company upon a total or partial liquidation or dissolution or reorganization or bankruptcy of or similar proceeding relating to the Company or its property, an assignment for the benefit of creditors or any marshalling of the Company's assets and liabilities, the holders of Senior Indebtedness will be entitled to receive payment in full in cash of the Senior Indebtedness before the holders of the Notes are entitled to receive any payment or distribution, and until the Senior Indebtedness is paid in full in cash, any payment or distribution to which holders of the Notes would be entitled but for the subordination provisions of the Indenture will be made to holders of the Senior Indebtedness as their interests may appear (except that holders of the Notes may receive (i) Qualified Capital Stock issued by the Company to pay interest on the Notes or issued in exchange for the Notes, (ii) securities substantially identical to the Notes issued by the Company in payment of interest accrued thereon or (iii) securities issued by the Company which are subordinated to Senior Indebtedness at least to the same extent as the Notes and having a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Notes). If a distribution is made to the Trustee or to holders of the Notes that, due to the subordination provisions of the Indenture, should not have been made to them, the Trustee or such holders are required to hold it in trust for the holders of Senior Indebtedness and pay it over to them as their interests may appear. If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the Representative (if any) of any issue of Designated Senior Indebtedness which is then outstanding; provided, however, that the Company and the Trustee shall be obligated to notify such a Representative (other than with respect to the Senior Credit Facilities) only if such Representative has delivered or caused to be delivered an address for the service of such a notice to the Company and the Trustee (and the Company and the Trustee shall be obligated only to deliver the notice to the address so specified). If a notice is required pursuant to the immediately preceding sentence, the Company may not pay the Notes (except payment (i) in Qualified Capital Stock issued by the Company to pay interest on the Notes or issued in exchange for the Notes, (ii) in securities substantially identical to the Notes issued by the Company in payment of interest accrued thereon or (iii) in securities issued by the Company which are subordinated to the Senior Indebtedness at least to the same extent as the Notes and have a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Notes), until five Business Days after the respective Representative of the Designated Senior Indebtedness receives notice (at the address specified in the preceding sentence) of such acceleration and, thereafter, may pay the Notes only if the subordination provisions of the Indenture otherwise permit payment at that time. By reason of such subordination provisions contained in the Indenture, in the event of liquidation or insolvency, creditors of the Company who are holders of Senior Indebtedness may recover more, ratably, than the holders of the Notes, and creditors of the Company who are not holders of Senior Indebtedness (including holders of the Notes) may recover less, ratably, than holders of Senior Indebtedness. In addition, subject to the "Merger, Consolidation and Sale of Assets" covenant, the Indenture does not prohibit the sale, transfer or other disposition of assets of the Company to its Subsidiaries. In the event of any such transfer or contribution, holders of the Notes will be effectively subordinated to the claims of creditors of such Restricted Subsidiaries with respect to such assets. FALL-AWAY EVENT The Company's and its Restricted Subsidiaries' obligations to comply with the provisions of the Indenture described below under the captions "-- Certain Covenants -- Limitation on Incurrence of Addi- 71 75 tional Indebtedness and Issuance of Capital Stock," "-- Limitation on Layering," "-- Limitation on Restricted Payments," "Merger, Consolidation and Sale of Assets" and "-- Limitations on Transactions with Affiliates" will terminate if and when the Notes are Investment Grade Status (a "Fall-away Event"); provided, however, that the Company's and its Restricted Subsidiaries' obligations to comply with such provisions shall be reinstated as to future events if the Notes cease to be of Investment Grade Status, subject to the terms, conditions and obligations set forth in the Indenture. As a result, upon the occurrence of a Fall-away Event the Notes will be entitled to substantially no covenant protection. CERTAIN COVENANTS The Indenture provides that all of the following restrictive covenants will be applicable to the Company unless and until a Fall-away Event occurs. In such event, the Company will be released from its obligations to comply with the restrictive covenants described below as well as the related events of default under the Notes and the Indenture. Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock. The Indenture provides that (a) the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (other than Permitted Indebtedness) and the Company will not issue any Disqualified Capital Stock and its Restricted Subsidiaries will not issue any Preferred Stock (except Preferred Stock issued to the Company or a Restricted Subsidiary of the Company so long as it is so held); provided, however, that the Company and its Restricted Subsidiaries may incur Indebtedness or issue shares of such Capital Stock if, in either case, the Company's Leverage Ratio at the time of incurrence of such Indebtedness or the issuance of such Capital Stock, as the case may be, after giving pro forma effect to such incurrence or issuance as of such date and to the use of proceeds therefrom is less than 7:1. (b) The Company will not incur or suffer to exist, or permit any of its Restricted Subsidiaries to incur or suffer to exist, any Obligations with respect to an Unrestricted Subsidiary that would violate the provisions set forth in the definition of Unrestricted Subsidiary. (c) For purposes of determining compliance with this covenant, in the event that an item of Permitted Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of the clauses of the definition of Permitted Indebtedness or pursuant to the first paragraph hereof except as otherwise set forth in clause (v) of the definition of Permitted Indebtedness. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. Limitation on Layering. The Indenture provides that the Company will not incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is contractually subordinated in right of payment to all Senior Subordinated Indebtedness (including the Notes). Limitation on Restricted Payments. The Indenture provides that (a) the Company will not, and will not cause or permit any of its Restricted Subsidiaries, to, directly or indirectly, make any Restricted Payment if at the time of such Restricted Payment and immediately after giving effect thereto: (i) a Default or Event of Default shall have occurred and be continuing; or (ii) the Company is not able to incur $1.00 of additional Indebtedness under the first paragraph of the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant; or (iii) the aggregate amount of Restricted Payments made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as 72 76 determined by the board of directors of the Company in good faith) exceeds the sum of (a) (x) 100% of Consolidated EBITDA of the Company accrued subsequent to the Issue Date to the most recent date for which financial information is available to the Company (taken as one accounting period), less (y) 1.75 times Consolidated Interest Expense for the same period, plus (b) 100% of the aggregate net proceeds, including the fair market value of property other than cash as determined by the board of directors of the Company in good faith, received subsequent to the Issue Date by the Company from any Person (other than a Restricted Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date of Qualified Capital Stock of the Company (excluding (i) any net proceeds from issuances and sales financed directly or indirectly using funds borrowed from the Company or any Restricted Subsidiary of the Company, until and to the extent such borrowing is repaid, but including the proceeds from the issuance and sale of any securities convertible into or exchangeable for Qualified Capital Stock to the extent such securities are so converted or exchanged and including any additional proceeds received by the Company upon such conversion or exchange, (ii) any net proceeds received from issuances and sales that are used to consummate a transaction described in clause (2) of paragraph (b) below and (iii) any net cash proceeds received from the issuance and sale of Designated Preferred Stock), plus (c) without duplication of any amount included in clause (iii)(b) above, 100% of the aggregate net proceeds, including the fair market value of property other than cash (valued as provided in clause (iii)(b) above), received by the Company as a capital contribution subsequent to the Issue Date, plus (d) the greater of (i) $100 million and (ii) 15% of the Total Assets of the Company and its consolidated Subsidiaries as determined in accordance with GAAP as of the date of the most recently prepared internal balance sheet of the Company. (b) Notwithstanding the foregoing, these provisions will not prohibit: (1) the payment of any dividend or the making of any distribution within 60 days after the date of its declaration if such dividend or distribution would have been permitted on the date of declaration; (2) (A) the purchase, redemption or other acquisition or retirement of any Capital Stock of the Company or any warrants, options or other rights to acquire shares of any class of such Capital Stock ("Retired Capital Stock") either (x) solely in exchange for shares of Qualified Capital Stock or other warrants, options or rights to acquire Qualified Capital Stock or (y) through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of shares of Qualified Capital Stock or warrants, options or other rights to acquire Qualified Capital Stock or (z) in the case of Disqualified Capital Stock, solely in exchange for, or through the application of the net proceeds of a substantially concurrent sale for cash (other than to a Restricted Subsidiary of the Company) of, Disqualified Capital Stock (in each case "Refunding Capital Stock") and (B) the declaration and payment of dividends on Refunding Capital Stock in an aggregate amount per year no greater than the aggregate amount of dividends per annum that could have been paid on such Retired Capital Stock pursuant to this covenant (other than this clause (b)(2)(B)) immediately prior to such retirement; provided, however, that at the time of the declaration of any such dividends, no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (3) payments made pursuant to any merger, consolidation or sale of assets effected in accordance with the "Merger, Consolidation and Sale of Assets" covenant; provided, however, that no such payment may be made pursuant to this clause (3) unless, after giving pro forma effect to such transaction (and the incurrence of any Indebtedness in connection therewith and the use of the proceeds thereof), the Company would be able to incur $1.00 of additional Indebtedness under the first paragraph of the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant; (4)(A) the declaration and payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Capital Stock) issued after the Issue Date or (B) the declaration and payment of dividends on Refunding Capital Stock in excess of the dividends declarable and payable thereon pursuant to clause (2)(B) above; provided, however, in either case, after giving effect to such issuance or declaration on a pro forma basis, the Company and its Restricted Subsidiaries would be able to incur $1.00 of Indebtedness under the first paragraph of the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant; (5) repurchases of warrants, options or rights to acquire Capital Stock deemed to occur upon exercise of warrants, options or rights to acquire Capital Stock if such warrants, options or rights represent a portion of the exercise price of such warrants, options or rights; (6) the declaration and payment of dividends to holders of any class or series of Disqualified Capital 73 77 Stock or the declaration and payment of dividends to holders of Preferred Stock of Restricted Subsidiaries, in each case, issued in accordance with the covenant entitled "-- Incurrence of Additional Indebtedness and Issuance of Capital Stock"; (7) commencing on the six month anniversary of the Issue Date, a Restricted Payment to pay for the repurchase, retirement or other acquisition or retirement for value of Equity Interests of the Company in existence on the Issue Date and which are not held by KKR, Hicks Muse or any of their respective affiliates on the Issue Date (including any Capital Stock issued in respect of such Capital Stock as a result of a stock split, recapitalization, merger, combination, consolidation or otherwise, but excluding any Equity Interests issued pursuant to any management equity plan or stock option plan or similar agreement); provided that notwithstanding the foregoing, the Company and its Restricted Subsidiaries shall be permitted to make Restricted Payments under this clause (7) only if after giving effect thereto, the Company would be permitted to incur at least $1.00 of additional Indebtedness under the first paragraph of the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant; and (8) dividends on the Company's Capital Stock (other than Disqualified Capital Stock) after the first underwritten Equity Offering in an annual amount not to exceed 6.0% of the gross proceeds (before deducting underwriting discounts and commissions and other fees and expenses of the offering) received from shares of Capital Stock (other than Disqualified Capital Stock) sold for the account of the issuer thereof (and not for the account of any stockholder) in such initial underwritten Equity Offering; provided, however, that in the case of clauses other than clauses (1) and (2)(A), no Event of Default shall have occurred or be continuing at the time of such payment or as a result thereof. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date, amounts expended pursuant to clauses (1), 2(B), (3), (4) and (8) shall be included in such calculation. To the extent the issuance of Capital Stock and the receipt of capital contributions are applied to permit the issuance of Indebtedness pursuant to clause (v) of the definition of Permitted Indebtedness, the issuance of such Capital Stock and the receipt of such capital contributions shall not be applied to permit payments under this covenant. Merger, Consolidation and Sale of Assets. The Indenture provides that the Company shall not, in a single transaction or a series of related transactions, consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company's assets determined on a consolidated basis for the Company to another Person or adopt a plan of liquidation unless (i) either (1) the Company is the Surviving Person or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person that acquires by conveyance, transfer or lease the properties and assets of the Company substantially as an entirety or in the case of a plan of liquidation, the Person to which assets of the Company have been transferred, shall be a corporation, partnership, limited liability company or trust organized and existing under the laws of the United States or any State thereof or the District of Columbia; (ii) such Surviving Person shall assume all of the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee; (iii) immediately after giving effect to such transaction and the use of the proceeds therefrom (on a pro forma basis, including giving effect to any Indebtedness incurred or anticipated to be incurred in connection with such transaction and the use of the proceeds therefrom), (1) no Default or Event of Default shall have occurred and be continuing and (2) either (x) such Surviving Person shall be able to incur $1.00 of additional Indebtedness under the first paragraph of the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant or (y) the Leverage Ratio for such Surviving Person would be less than the Leverage Ratio of the Company immediately prior to such transaction; and (iv) the Company has delivered to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer complies with the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of related transactions) of all or substantially all of the properties and assets of one or more Restricted Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties or assets of the Company, will be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets 74 78 to the Company and (2) the Company may merge with an Affiliate thereof organized solely for the purpose of reorganizing the Company in another jurisdiction in the U.S. to realize tax or other benefits. In the event of any transaction (other than a lease) described in and complying with the conditions listed in the immediately preceding paragraph in which the Company, as the case may be, is not the Surviving Person and the Surviving Person is to assume all the obligations of the Company under the Notes and the Indenture pursuant to a supplemental indenture, such Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of the Company, as the case may be, and the Company shall be discharged from its Obligations under the Indenture and the Notes. Limitations on Transactions with Affiliates. The Indenture provides that the Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions involving aggregate payments or consideration in excess of $5.0 million (including, without limitation, the purchase, sale, lease, contribution or exchange of any property or the rendering of any service) with or for the benefit of any of its or any of its Restricted Subsidiary's Affiliates (other than transactions between the Company and a Restricted Subsidiary of the Company or among Restricted Subsidiaries of the Company) (an "Affiliate Transaction"), other than Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction on an arms-length basis from a person that is not an Affiliate; provided, however, that for a transaction or series of related transactions involving value of $10.0 million or more, such determination will be made in good faith by a majority of members of the board of directors of the Company and by a majority of the disinterested members of the board of directors of the Company, if any. The foregoing restrictions will not apply to (1) reasonable and customary directors' fees, indemnification and similar arrangements and payments thereunder; (2) any obligations of the Company under any employment agreement, noncompetition or confidentiality agreement with any officer of the Company, as in effect on the Issue Date (provided that each amendment of any of the foregoing agreements shall be subject to the limitations of this covenant); (3) any Restricted Payment permitted to be made pursuant to the covenant described under "Limitation on Restricted Payments"; (4) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the board of directors of the Company; (5) loans or advances to employees in the ordinary course of business of the Company or any of its Restricted Subsidiaries consistent with past practices; (6) payments made in connection with the Transactions, including, without limitation, fees payable to and expenses of Hicks Muse and KKR; (7) payments by the Company or any of its Restricted Subsidiaries to KKR or Hicks Muse or their respective Affiliates made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which payments are approved by a majority of the Board of Directors of the Company in good faith; (8) transactions in which the Company or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to the Company or such Restricted Subsidiary from a financial point of view or that is on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction on an arms-length basis from a person that is not an Affiliate; (9) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any of its Restricted Subsidiaries of obligations under any future amendment to any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (9) to the extent that the terms (taken as a whole) of any such amendment or new agreement are not otherwise disadvantageous to the Holders in any material respect; (10) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of the Company or the management thereof, or are on terms (taken as a whole) at least as favorable as might reasonably have been obtained at such time from an unaffiliated party; (11) any agreement as in effect as of the Issue Date or any amendment thereto (so long as any such amendment, taken as a whole, is not disadvantageous to the Holders 75 79 in any material respect) or any transaction contemplated thereby and (12) any purchases of Capital Stock (other than Disqualified Capital Stock) of the Company by Affiliates thereof. Reports. The Indenture provides that so long as any of the Notes are outstanding, the Company will provide to the Trustee and the holders of Notes and file with the Commission, to the extent such submissions are accepted for filing by the Commission, copies of the annual reports and of the information, documents and other reports that the Company would have been required to file with the Commission pursuant to Sections 13 or 15(d) of the Exchange Act, regardless of whether the Company is then obligated to file such reports. All such reports sent to Holders will be available at the office of the Luxembourg Paying Agent. EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (i) the failure to pay interest on the Notes when the same becomes due and payable and the Default continues for a period of 30 days (whether or not such payment is prohibited by the provisions described under "-- Ranking and Subordination" above); (ii) the failure to pay principal of or premium, if any, on any Notes when such principal or premium, if any, becomes due and payable, at maturity, upon redemption or otherwise (whether or not such payment is prohibited by the provisions described under "-- Ranking and Subordination" above); (iii) a default in the observance or performance of any other covenant or agreement contained in the Notes or the Indenture, which default continues for a period of 60 days after the Company receives written notice thereof specifying the default from the Trustee or holders of at least 30% in aggregate principal amount of outstanding Notes; (iv) the failure to pay at the final stated maturity (after giving effect to any extensions thereof) the principal amount of any Indebtedness of the Company or any Restricted Subsidiary of the Company, or the acceleration of the final stated maturity of any such Indebtedness, if the aggregate principal amount of such Indebtedness, together with the aggregate principal amount of any other such Indebtedness in default for failure to pay principal at the final stated maturity (giving effect to any extensions thereof) or which has been accelerated, aggregates $20 million or more at any time; (v) one or more judgments in an aggregate amount in excess of $20 million (which are not covered by insurance as to which the insurer has not disclaimed coverage) being rendered against the Company or any of its Significant Restricted Subsidiaries and such judgment or judgments remain undischarged or unstayed for a period of 60 days after such judgment or judgments become final and nonappealable; and (vi) certain events of bankruptcy, insolvency or reorganization affecting the Company or any of its Significant Restricted Subsidiaries. Upon the happening of any Event of Default specified in the Indenture (other than those of the type described in clause (vi) of the preceding paragraph), the Trustee may, and the Trustee upon the request of holders of 30% in principal amount of the outstanding Notes shall, or the holders of at least 30% in principal amount of outstanding Notes may, declare the principal of all the Notes, together with all accrued and unpaid interest and premium, if any, to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the Senior Credit Facilities, will become due and payable upon the first to occur of an acceleration under the Senior Credit Facilities or five Business Days after receipt by the Company and the agent under the Senior Credit Facilities of such Acceleration Notice (unless all Events of Default specified in such Acceleration Notice have been cured or waived). If an Event of Default with respect to bankruptcy proceedings relating to the Company or any Significant Restricted Subsidiaries occurs and is continuing, then such amount will ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of the Notes. At any time after a declaration of acceleration with respect to the Notes as described in the preceding paragraph, the holders of a majority in principal amount of the Notes then outstanding (by notice to the Trustee) may rescind and cancel such declaration and its consequences if (i) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction, (ii) all existing Defaults and Events of Default have been cured or waived except nonpayment of principal of or interest on the Notes that has become due solely by such declaration of acceleration, (iii) to the extent the payment of such interest is lawful, interest (at the same rate specified in the Notes) on overdue installments of interest and overdue payments of 76 80 principal which has become due otherwise than by such declaration of acceleration has been paid, (iv) the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its reasonable expenses, disbursements and advances and (v) in the event of the cure or waiver of a Default or Event of Default of the type described in clause (vi) of the first paragraph of "-- Events of Default" above, the Trustee has received an Officers' Certificate and Opinion of Counsel that such Default or Event of Default has been cured or waived. The holders of a majority in principal amount of the Notes may waive any existing Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes. In the event of any Event of Default specified in clause (iv) of the first paragraph of "-- Events of Default," such Event of Default and all consequences thereof (including without limitation any acceleration or resulting payment default) shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the holders of the Notes, if within 60 days after such Event of Default arose (x) the Indebtedness that is the basis for such Event of Default has been discharged, or (y) the holders of such Indebtedness have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default, or (z) if the default that is the basis for such Event of Default has been cured. The Company is required to deliver to the Trustee, within 120 days after the end of the Company's fiscal year, a certificate indicating whether the signing officers know of any Default or Event of Default that occurred during the previous year and whether the Company has complied with its obligations under the Indenture. In addition, the Company will be required to notify the Trustee of the occurrence and continuation of any Default or Event of Default promptly after the Company becomes aware of the same. Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default thereunder should occur and be continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders of the Notes unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Subject to such provision for security or indemnification and certain limitations contained in the Indenture, the holders of a majority in principal amount of the outstanding Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE The Company may terminate its obligations under the Indenture at any time by delivering all outstanding Notes to the Trustee for cancellation and paying all sums payable by it thereunder. The Company, at its option, (i) will be discharged from any and all obligations with respect to the Notes (except for certain obligations of the Company to register the transfer or exchange of such Notes, replace stolen, lost or mutilated Notes, maintain paying agencies and hold moneys for payment in trust) or (ii) need not comply with certain of the restrictive covenants with respect to the Indenture, if the Company deposits with the Trustee, in trust, U.S. legal tender or U.S. Government Obligations or a combination thereof that, through the payment of interest and premium thereon and principal in respect thereof in accordance with their terms, will be sufficient to pay all the principal of and interest and premium on the Notes on the dates such payments are due or through any date of redemption, if earlier than the dates such payments are due, in any case in accordance with the terms of such Notes, as well as the Trustee's fees and expenses. To exercise either such option, the Company is required to deliver to the Trustee (A) an Opinion of Counsel or a private letter ruling issued to the Company by the Internal Revenue Service (the "IRS") to the effect that the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of the deposit and related defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such option had not been exercised and, in the case of an Opinion of Counsel furnished in connection with a discharge pursuant to clause (i) above, accompanied by a private letter ruling issued to the Company by the IRS to such effect, (B) subject to certain qualifications, an Opinion of Counsel to the effect that funds so deposited will not be subject to avoidance under applicable bankruptcy law and (C) an Officers' Certificate and an Opinion of Counsel to the effect that the Company has complied with all conditions precedent to the defeasance. Notwithstanding the foregoing, the Opinion of Counsel required by clause (A) above need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation 77 81 (i) have become due and payable, (ii) will become due and payable on the maturity date within one year or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. MODIFICATION OF THE INDENTURE From time to time, the Company and the Trustee, together, without the consent of the holders of the Notes, may amend or supplement the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies. Other modifications and amendments of the Indenture may be made with the consent of the holders of a majority in principal amount of the then outstanding Notes, except that, without the consent of each holder of the Notes affected thereby, no amendment may, directly or indirectly: (i) reduce the amount of Notes whose holders must consent to an amendment; (ii) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Notes; (iii) reduce the principal of or change the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Notes payable in money other than that stated in the Notes and the Indenture; (v) make any change in provisions of the Indenture protecting the right of each holder of a Note to receive payment of principal of, premium on and interest on such Note on or after the due date thereof or to bring suit to enforce such payment or permitting holders of a majority in principal amount of the Notes to waive a Default or Event of Default; or (vi) after the Company's obligation to purchase the Notes arises under the Indenture, amend, modify or change the obligation of the Company to make or consummate a Change of Control Offer or waive any default in the performance thereof or modify any of the provisions or definitions with respect to any such offer. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No director, officer, employee, incorporator or stockholder of the Company, shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. The holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of such person's own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. GOVERNING LAW The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. 78 82 CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture. Reference is made to the Indenture for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person and not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Acquired Preferred Stock" means the Preferred Stock of any Person at such time as such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries and not issued by such Person in connection with, or in anticipation or contemplation of, such acquisition, merger or consolidation. "Affiliate" means, as to any Person, any other Person which, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Acquisition" means (i) any transaction pursuant to which any Person shall become a Restricted Subsidiary of the Company or shall be consolidated or merged with the Company or any Restricted Subsidiary of the Company or (ii) the acquisition by the Company or any Restricted Subsidiary of the Company of assets of any Person comprising a division, line of business or theatre site of such Person. "Business Day" means any day (other than a day which is a Saturday, Sunday or legal holiday in the state of New York) on which banks are open for business in New York, New York. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated) of capital stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Capitalized Lease Obligation" means, as to any Person, the obligation of such Person to pay rent or other amounts under a lease to which such Person is a party that is required to be classified and accounted for as a capital lease obligation under GAAP, and for purposes of this definition, the amount of such obligation at any date shall be the capitalized amount of such obligation at such date, determined in accordance with GAAP. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in compliance with the provisions of the Indenture), other than to Hicks Muse, KKR or any of their respective officers or directors or any Affiliates of any of the foregoing (the "Permitted Holders"); or (ii) the acquisition by any Person or Group (other than the Permitted Holders or any direct or indirect subsidiary of any Permitted Holder) of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Company. "Commodity Agreement" means any commodity futures contract, commodity option or other similar agreement or arrangement. "Consolidated EBITDA" means, for any period, the net income of the Company and its Restricted Subsidiaries for such period plus, to the extent such amount was deducted in calculating such net income (i) Consolidated Interest Expense, (ii) income taxes, (iii) depreciation expense, (iv) amortization expense, (v) all other non-cash items, extraordinary items, nonrecurring and unusual items and cumulative effects of changes in accounting principles reducing such net income, less all non-cash items, extraordinary items, 79 83 nonrecurring and unusual items and cumulative effects of changes in accounting principles increasing such net income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in conformity with GAAP; (vi) upfront expenses resulting from equity offerings, investments, mergers, recapitalizations, option buyouts, Dispositions, Asset Acquisitions and similar transactions to the extent such expenses reduce net income; (vii) restructuring charges reducing net income; and (viii) gains or losses on Dispositions; provided that, Consolidated EBITDA shall not include (x) the net income (or net loss) of any Person that is not a Restricted Subsidiary, except (I) with respect to net income, to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such Person during such period and (II) with respect to net losses, to the extent of the amount of investments made by the Company or any Restricted Subsidiary in such Person during such period; (y) solely for the purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (iii) of paragraph (a) of the "Limitation on Restricted Payments" covenant described above (and in such case, except to the extent includable pursuant to clause (x) above), the net income (or net loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by the Company or any of its Restricted Subsidiaries; and (z) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary (other than any agreement or instrument evidencing Indebtedness or Preferred Stock outstanding on the Issue Date or incurred or issued thereafter in compliance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant; provided that the terms of any such agreement restricting the declaration and payment of dividends or similar distributions apply only in the event of a default with respect to a financial covenant or a covenant relating to payment (beyond any applicable period of grace) contained in such agreement or instrument and provided such terms are determined by the Company to be customary in comparable financings and such restrictions are determined by the Company not to materially affect the Company's ability to make principal or interest payments on the Notes when due). "Consolidated Interest Expense" means, with respect to any Person for any period, without duplication, the sum of (i) the interest expense of such Person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Swap Agreements (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit, bankers' acceptance financing or similar facilities, and (e) all accrued interest and (ii) the interest component of Capitalized Lease Obligations paid or accrued by such Person and its Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP; excluding, however, any amount of such interest of any Restricted Subsidiary if the net income of such Restricted Subsidiary is excluded in the calculation of Consolidated EBITDA pursuant to clause (z) of the definition thereof (but only in the same proportion as the net income of such Restricted Subsidiary is excluded from the calculation of Consolidated EBITDA pursuant to clause (z) of the definition thereof), all as determined on a consolidated basis (without taking into account Unrestricted Subsidiaries) in conformity with GAAP. "Construction Indebtedness Amount" shall mean an amount equal to the lesser of (i) $100 million and (ii) the total Indebtedness of any Person and its Restricted Subsidiaries outstanding on the last day of any Reference Period incurred in connection with the construction or enhancement of motion picture theatres or screens that, on such day, are not open for business. "Contemplated Acquisition" means the business combination, by the Act III Merger or otherwise, of Act III and the Company. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement. "Debt Rating" shall mean the rating assigned to the Notes by Moody's or S&P, as the case may be. 80 84 "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Designated Preferred Stock" means preferred stock of the Company (other than Disqualified Capital Stock) that is issued for cash (other than to a Restricted Subsidiary) and is so designated as Designated Preferred Stock, pursuant to an Officers' Certificate executed by the principal executive officer and the principal financial officer of the Company, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in clause (iii) paragraph (a) of the "Certain Covenants -- Limitation on Restricted Payments" covenant. "Designated Senior Indebtedness" means (i) all obligations under the Senior Credit Facilities and (ii) any other Senior Indebtedness of the Company which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $25.0 million and is specifically designated by the Company in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disposition" means, with respect to any Person, any merger, consolidation or other business combination involving such Person (whether or not such Person is the Surviving Person) or the sale, assignment, or transfer, lease, conveyance or other disposition of all or substantially all of such Person's assets or Capital Stock. "Disqualified Capital Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof (except, in each case, upon the occurrence of a Change of Control if such Capital Stock requires that the Change of Control Offer with respect to the Notes be completed prior to any similar offer being made with respect to such Capital Stock), in whole or in part, on or prior to the final maturity date of the Notes; provided that only the portion of Capital Stock which so matures or is mandatorily redeemable or is so redeemable at the sole option of the holder thereof prior to the final maturity date of the Notes shall be deemed Disqualified Capital Stock. "Equity Offering" means a private sale or public offering of Capital Stock or preferred stock (other than Disqualified Capital Stock) of the Company. "GAAP" means generally accepted accounting principles in the United States of America, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or the Commission or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP as in effect on the date of the Indenture. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Indebtedness" means with respect to any Person, without duplication, any liability of such Person (i) for borrowed money, (ii) evidenced by bonds, debentures, notes or other similar instruments, (iii) constituting Capitalized Lease Obligations, (iv) incurred or assumed as the deferred purchase price of property or services, or pursuant to conditional sale obligations and title retention agreements (but excluding trade accounts payable arising in the ordinary course of business), (v) for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) for Indebtedness of others guaranteed by such Person, (vii) for Interest Swap Agreements, Commodity Agreements and Currency Agreements and (viii) for Indebtedness of any other Person of the type referred to in clauses (i) through (vii) which is secured by any Lien on any property or asset of such first referred to Person, the amount of such Indebtedness being deemed 81 85 to be the lesser of the value of such property or asset or the amount of the Indebtedness so secured. The amount of Indebtedness of any Person at any date shall be (i) the outstanding principal amount of all unconditional obligations described above, as such amount would be calculated in accordance with GAAP, (ii) the accreted value thereof, in the case of any Indebtedness issued with original issue discount and (iii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Independent Financial Advisor" means an accounting, appraisal, investment banking firm or consultant to Persons engaged in the motion picture exhibition and distribution business of nationally recognized standing that is, in the judgment of the Company's Board of Directors, qualified to perform the task for which it has been engaged. "Interest Swap Agreements" means any interest rate protection agreement, interest rate future, interest rate option, interest rate swap, interest rate cap or other interest rate hedge or arrangement. "Investment Grade Status" exists as of a date and thereafter if at such date either (i) the Debt Rating of Moody's is at least Baa3 (or the equivalent) or higher or (ii) the Debt Rating of S&P is at least BBB- (or the equivalent) or higher. "Issue Date" means the date of original issuance of the Notes. "Leverage Ratio" means, the ratio of (i) the aggregate outstanding amount of Indebtedness (excluding any Construction Indebtedness Amount and net of any cash and cash equivalents) of the Company and its Restricted Subsidiaries on a consolidated basis in accordance with GAAP plus the aggregate liquidation preference of all Disqualified Capital Stock of such Person and all Preferred Stock of Restricted Subsidiaries of such Person (other than any such Disqualified Capital Stock or Preferred Stock held by such Person or any of its Restricted Subsidiaries) on such date to (ii) the aggregate amount of Consolidated EBITDA for the most recent four full fiscal quarters (the "Four Quarter Period") for which financial statements of the Company have been filed with the Commission or delivered to the Trustee pursuant to the "Reports" covenant. The Four Quarter Period shall be hereinafter referred to as the "Reference Period." For purposes of this definition, the aggregate outstanding principal amount of Indebtedness or aggregate liquidation preference of Preferred Stock of the Person and its Restricted Subsidiaries for which such calculation is made shall be determined on a pro forma basis as if the Indebtedness or Preferred Stock giving rise to the need to perform such calculation had been incurred and the proceeds therefrom had been applied, and all other transactions in respect of which such Indebtedness or Preferred Stock is being incurred has occurred, on the last day of the Reference Period. In addition to the foregoing, for purposes of this definition, "Consolidated EBITDA" shall be calculated on a pro forma basis after giving effect to (i) the Transactions, (ii) the incurrence of the Indebtedness or Preferred Stock of such Person and its Restricted Subsidiaries (and the application of the proceeds therefrom) giving rise to the need to make such calculation and any incurrence (and the application of the proceeds therefrom) or repayment of other Indebtedness or Preferred Stock, other than the incurrence or repayment of Indebtedness pursuant to working capital facilities, at any time subsequent to the beginning of the Reference Period and on or prior to the date of determination, as if such incurrence (and the application of the proceeds thereof), or the repayment, as the case may be, occurred on the first day of the Reference Period, (iii) any Dispositions, Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Subsidiaries (including any Person that becomes a Restricted Subsidiary as a result of such Asset Acquisition) incurring, assuming or otherwise becoming liable for Indebtedness or Preferred Stock) or Theatre Completions at any time on or subsequent to the first day of the Reference Period and on or prior to the date of determination, as if such Disposition, Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness or Preferred Stock and also including any Consolidated EBITDA associated with such Asset Acquisition) or Theatre Completion occurred on the first day of the Reference Period, (iv) the effects of incremental contributions to Consolidated EBITDA the Company reasonably believes in good faith could have been achieved during the Reference Period as a result of such Asset Acquisition or Theatre Completion (regardless whether such incremental contributions could then be reflected in pro forma financial statements under GAAP, Regulation S-X promulgated by the Commission or 82 86 any other regulation or policy of the Commission); provided, however, that such incremental contributions were identified and quantified in good faith in an officer's certificate delivered to the Trustee at the time of any calculation of the Leverage Ratio and (v) any motion picture theatre that was permanently closed for business at any time on or subsequent to the first day of the Reference Period and on or prior to the date of determination as if such theatre was closed on the first day of the Reference Period. In calculating "Consolidated Interest Expense" for purposes of the calculation of "Consolidated EBITDA," (i) interest on Indebtedness determined on a fluctuating basis as of the date of determination (including Indebtedness actually incurred on the date of the transaction giving rise to the need to calculate the Leverage Ratio) and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness as in effect on the date of determination and (ii) notwithstanding (i) above, interest determined on a fluctuating basis, to the extent such interest is covered by Interest Swap Agreements that will remain in effect for at least 12 months, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. For purposes of calculating the Consolidated EBITDA associated with any Theatre Completion, the amount thereof for the Reference Period shall be the amount of Consolidated EBITDA expected by the Company in good faith to be derived by the Company from such Theatre Completion during the first 12-month period following the date on which the relevant theatre or screen opens for business. "Lien" means, with respect to any asset, any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Moody's" means Moody's Investors Service, Inc. or any successor to the rating agency business thereof. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing, or otherwise relating to, any Indebtedness. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Indebtedness" means, without duplication, (i) Indebtedness outstanding on the Issue Date; (ii) Indebtedness of the Company and any of its Restricted Subsidiaries incurred under the Senior Credit Facilities (including letter of credit obligations), provided that the aggregate principal amount at any time outstanding does not exceed $725.0 million, which amount shall be increased to $1.22 billion upon the consummation of the Contemplated Acquisition; (iii) Indebtedness evidenced by or arising under the Notes and the Indenture in respect of the Notes; (iv) Interest Swap Agreements, Commodity Agreements and Currency Agreements; provided, however, that such agreements are entered into for bona fide hedging purposes and not for speculative purposes; (v) additional Indebtedness of the Company or any of its Restricted Subsidiaries not otherwise permitted under the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant, in an aggregate principal amount, which when aggregated with the aggregate principal amount of all other Indebtedness then outstanding and incurred pursuant to this clause (v), does not at any one time outstanding exceed the sum of (x) $100.0 million and (y) 100% of the net cash proceeds received by the Company from the issue or sale after the Issue Date of Capital Stock (other than Disqualified Capital Stock) of the Company or net cash proceeds contributed to the capital of the Company (other than in respect of Disqualified Capital Stock) as determined in accordance with clauses (iii)(b) and (iii)(c) of paragraph (a) of the "Limitation on Restricted Payments" covenant to the extent such net cash proceeds have not been applied pursuant to such clause to make Restricted Payments or to effect other transactions pursuant to the second paragraph of the "Limitation on Restricted Payments" covenant (it being understood that any Indebtedness incurred under this clause (v) shall cease to be deemed incurred or outstanding for purposes of this clause (v) from and after the first date on which the Company could have incurred such Indebtedness under the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant without reliance upon this clause (v), and such Indebtedness shall thereupon be deemed to have been so incurred); (vi) Refinancing Indebtedness (other than in respect of Indebtedness incurred pursuant to clauses (ii), (v) and (xiii) of this definition); (vii) Indebtedness owed by the Company 83 87 to any Restricted Subsidiary of the Company (so long as it shall remain a Restricted Subsidiary of the Company) or by any Restricted Subsidiary (so long as it remains a Restricted Subsidiary of the Company) of the Company to the Company or any Restricted Subsidiary of the Company; (viii) guarantees by the Company or Restricted Subsidiaries of any Indebtedness permitted to be incurred pursuant to the Indenture; (ix) Indebtedness in respect of performance bonds, reimbursement obligations with respect to letters of credit, bankers' acceptances, completion guarantees and surety or appeal bonds provided by the Company or any of its Restricted Subsidiaries in the ordinary course of their business or Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims; (x) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in each case incurred in connection with the disposition of any business assets or Subsidiaries of the Company (other than guarantees of Indebtedness or other obligations incurred by any Person acquiring all or any portion of such business assets or Restricted Subsidiaries of the Company for the purpose of financing such acquisition) in a principal amount not to exceed the gross proceeds, including non-cash proceeds, actually received by the Company or any of its Restricted Subsidiaries in connection with such disposition; provided, however, that such Indebtedness is not reflected on the balance sheet of the Company or any Restricted Subsidiary (contingent obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause); (xi) Indebtedness (including but not limited to Capitalized Lease Obligations, mortgage financings or purchase money obligations) incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property or assets (whether through direct purchase of assets or the Capital Stock of any Person owning such assets) or incurred to refinance any such purchase price or cost of construction or improvement; (xii) Indebtedness or Disqualified Capital Stock of Persons that are acquired by the Company or any of its Restricted Subsidiaries or merged into a Restricted Subsidiary in accordance with the terms of the Indenture; provided, however, that such Indebtedness or Disqualified Capital Stock is not incurred in contemplation of such acquisition or merger; and provided further that after giving effect to such acquisition or merger, either (i) the Company would be permitted to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the first paragraph of the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant or (ii) the Leverage Ratio is less than immediately prior to such acquisition or merger; and (xiii) Indebtedness incurred in connection with any Real Estate Financing Transaction; provided, however, that the amount of Indebtedness outstanding under clause (ii) above and this clause (xiii) shall not exceed $725.0 million (which amount shall be increased to $1.22 billion upon consummation of the Contemplated Acquisition) at any time outstanding. "Person" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Real Estate Financing Transaction" means a financing or series of financings consisting principally of one or more mortgage financings, real estate sale or leaseback transactions or an asset-backed program based on real estate owned by the Company or any of its Subsidiaries (funded by the issuance of commercial paper, medium term notes or other forms of borrowing and including credit enhancement facilities), and which may consist of or include such other forms of financing consistent with the foregoing as the Board of Directors of the Company shall approve in good faith, in each case as such financing or financings may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any amendment extending the maturity of, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such financing or financings or any successor or replacement agreement and whether including the same or any other lender or group of lenders, and whether including or replacing as borrowers or guarantors one or more Subsidiaries of the Company. 84 88 "Refinancing Indebtedness" means any refinancing by the Company or its Restricted Subsidiaries of Indebtedness of the Company or any of its Restricted Subsidiaries incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant that does not (i) result in an increase in the aggregate principal amount of Indebtedness (such principal amount to include, for purposes of this definition, any premiums, fees, penalties or accrued interest paid with the proceeds of the Refinancing Indebtedness) of such Person or (ii) create Indebtedness with (A) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being refinanced or (B) a final maturity earlier than the final maturity of the Indebtedness being refinanced. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Senior Indebtedness; provided, however, that if, and for so long as, any issue of Senior Indebtedness lacks such a representative, then the Representative for such issue of Senior Indebtedness shall at all times constitute the holders of a majority in outstanding principal amount of such issue of Senior Indebtedness. "Restricted Payment" means (i) the declaration or payment of any dividend or the making of any other distribution (other than dividends or distributions payable in Qualified Capital Stock or in options, rights or warrants to acquire Qualified Capital Stock or dividends or distributions by a Restricted Subsidiary so long as in the case of any dividend or distribution payable on or in respect of any class or series of Capital Stock issued by a Subsidiary other than a Wholly Owned Subsidiary, the Company or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Capital Stock) on shares of the Company's Capital Stock, or (ii) the purchase, redemption, retirement or other acquisition for value of any Capital Stock of the Company, or any warrants, rights or options to acquire shares of Capital Stock of the Company, other than through the exchange of such Capital Stock or any warrants, rights or options to acquire shares of any class of such Capital Stock for Qualified Capital Stock or warrants, rights or options to acquire Qualified Capital Stock. "Restricted Subsidiary" means a Subsidiary of the Company other than an Unrestricted Subsidiary and includes all of the Subsidiaries of the Company existing as of the Issue Date. The board of directors of the Company may designate any Unrestricted Subsidiary or any person that is to become a Subsidiary as a Restricted Subsidiary if immediately after giving effect to such action (and treating any Acquired Indebtedness as having been incurred at the time of such action) the Company could have incurred at least $1.00 of additional indebtedness under the first paragraph pursuant to the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor to the rating agency business thereof. "Secured Indebtedness" means any Indebtedness of the Company or a Restricted Subsidiary secured by a Lien. "Senior Credit Facilities" means the credit facilities under that certain Credit Agreement dated as of the closing date of the Regal Merger (the "Closing Date"), among the Company and The Bank of Nova Scotia, as administrative agent and collateral agent, BancAmerica Robertson Stephens, as syndication agent, and the other financial institutions from time to time party thereto, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending or shortening the maturity of, refinancing, replacing or otherwise restructuring (including by way of adding Subsidiaries of the Company as additional borrowers or guarantors thereunder or increasing the amount of Indebtedness thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders (or other institutions). "Senior Indebtedness" means, whether outstanding on the Issue Date or thereafter issued, all Indebtedness of the Company, including interest (including interest accruing on or after the filing of, or which would have accrued but for the filing of, any petition in bankruptcy or for reorganization relating to the Company or any Restricted Subsidiary whether or not a claim for post-filing interest is allowed in such proceeding) and 85 89 premium, if any, thereon, and other monetary amounts (including fees, expenses, reimbursement obligations under letters of credit and indemnities) owing in respect thereof unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that the obligations in respect of such Indebtedness ranks pari passu with the Notes; provided, however, that Senior Indebtedness will not include (1) any obligation of the Company to any Restricted Subsidiary, (2) any liability for federal, state, foreign, local or other taxes owed or owing by the Company, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness, Guarantee or obligation of the Company that is expressly subordinate or junior in right of payment to any other Indebtedness, Guarantee or obligation of the Company, including any Senior Subordinated Indebtedness and the Existing Regal Notes or (5) obligations in respect of any Capital Stock. "Senior Subordinated Indebtedness" means the Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "Significant Restricted Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the Issue Date. "Subsidiary," with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, through one or more intermediaries, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, through one or more intermediaries, owned by such Person. Notwithstanding anything in the Indenture to the contrary, all references to the Company and its consolidated Subsidiaries or to financial information prepared on a consolidated basis in accordance with GAAP shall be deemed to include the Company and its Subsidiaries as to which financial statements are prepared on a combined basis in accordance with GAAP and to financial information prepared on such a combined basis. Notwithstanding anything in the Indenture to the contrary, an Unrestricted Subsidiary shall not be deemed to be a Restricted Subsidiary for purposes of the Indenture. "Surviving Person" means, with respect to any Person involved in or that makes any Disposition, the Person formed by or surviving such Disposition or the Person to which such Disposition is made. "Theatre Completion" means any motion picture theatre or screen or enhancement which was first opened for business during any applicable period. "Total Assets" means the total consolidated assets of the Company and its Restricted Subsidiaries, as shown on the most recent balance sheet of the Company. "Unrestricted Subsidiary" means a Subsidiary of the Company created after the Issue Date and so designated by a resolution adopted by the board of directors of the Company; provided, however, that (a) neither the Company nor any of its other Restricted Subsidiaries (1) provides any credit support for any Indebtedness or other Obligations of such Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (2) is directly or indirectly liable for any Indebtedness or other Obligations of such Subsidiary and (b) at the time of designation of such Subsidiary, such Subsidiary has no property or assets (other than de minimis assets resulting from the initial capitalization of such Subsidiary). The board of directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could incur $1.00 of additional Indebtedness under the first paragraph of the "Limitation on Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant and (y) no Default or Event of Default shall have occurred or be continuing. Any designation pursuant to this definition by the board of directors of the Company shall be evidenced to the Trustee by the filing with the Trustee of a certified copy of the resolution of the Company's 86 90 board of directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "U.S. Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the total of the product obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Subsidiary" means, with respect to any Subsidiary of any Person, the ownership of all of the outstanding Capital Stock of such Subsidiary (other than any director's qualifying shares or shares owned by foreign nationals to the extent mandated by applicable law) by such Person or one or more Wholly Owned Subsidiaries of such Person. 87 91 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of certain federal income tax considerations relevant to the exchange of Old Notes for Notes, but does not purport to be a complete analysis of all potential tax effects. The discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury regulations, Internal Revenue Service rulings and pronouncements, and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the Notes. The description does not consider the effect of any applicable foreign, state, local or other tax laws or estate or gift tax considerations. EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. EXCHANGE OF OLD NOTES FOR NOTES The exchange of Old Notes for Notes pursuant to the Exchange Offer should not constitute a significant modification of the terms of the Old Notes and, therefore, such exchange should not constitute an exchange for federal income tax purposes. Accordingly, such exchange should have no federal income tax consequences to holders of Old Notes. PLAN OF DISTRIBUTION Each broker-dealer that receives Notes for its own account in exchange for Old Notes pursuant to the Exchange Offer, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of the Notes received in exchange for Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Registration Statement is declared effective, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1998, all dealers effecting transactions in the Notes may be required to deliver a Prospectus. The Company will not receive any proceeds from any sale of Notes by broker-dealers. Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Notes. Any broker-dealer that resells the Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of the Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Registration Statement is declared effective, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal or otherwise. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Notes) other than commissions or concessions of any broker-dealers and will indemnify holders of the Old Notes (including any broker-dealers) against certain liabilities, including certain liabilities under the Securities Act. 88 92 LEGAL MATTERS The validity of the Notes will be passed upon for the Company by Weil, Gotshal & Manges LLP, Dallas, Texas and New York, New York. EXPERTS The consolidated financial statements of Regal Cinemas, Inc. at January 1, 1998 and January 2, 1997, and for each of the three years in the period ended January 1, 1998, included in this Prospectus have been audited by Coopers & Lybrand L.L.P., independent accountants, as stated in their report appearing herein in reliance upon the authority of said firm as experts in accounting and auditing. The report of Coopers & Lybrand L.L.P. with respect to the Company's consolidated financial statements makes reference to the fact that separate financial statements of Cobb Theatres, including the Consolidated Balance Sheet as of December 31, 1996, and the Consolidated Statements of Income and Cash Flows for the year ended December 31, 1996, were audited by Ernst & Young LLP, independent auditors, as stated in their report dated July 2, 1997. The report of Coopers & Lybrand L.L.P. with respect to the Company's consolidated financial statements, also makes reference to the fact that separate financial statements of Cobb Theatres including Consolidated Statements of Income, Members' Equity and Cash Flows for each of the two years in the period ended August 31, 1996, were audited by Ernst & Young LLP, independent auditors, as stated in their report dated October 23, 1996. The financial statements referred to above are included in reliance upon such reports given on the authority of such firms as experts in accounting and auditing. The consolidated financial statements of Act III Cinemas, Inc., as of and for the year ended December 31, 1997, included in this Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and elsewhere in the Prospectus, and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of Act III Cinemas, Inc. as of December 31, 1996 and for each of the two years in the period ended December 31, 1996, included in this Prospectus, have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in accounting and auditing. CHANGE IN ACCOUNTANTS On September 9, 1998, the Company dismissed its independent public accountants, PricewaterhouseCoopers LLP, and replaced them with Deloitte & Touche LLP. PricewaterhouseCoopers LLP's reports on the Company's consolidated financial statements at January 1, 1998, and January 2, 1997, and for each of the three years in the period ended January 1, 1998 did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audit of the Company's consolidated financial statements at January 1, 1998, and January 2, 1997, and for each of the three years in the period ended January 1, 1998 and the subsequent interim period, there were no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. 89 93 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS REGAL CINEMAS, INC.
PAGE ---- Report of Independent Accountants........................... F-2 Report of Ernst & Young LLP, Independent Auditors........... F-3 Consolidated Balance Sheets at January 2, 1997 and January 1, 1998................................................... F-5 Consolidated Statements of Income for the Years Ended December 28, 1995, January 2, 1997 and January 1, 1998.... F-6 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 28, 1995, January 2, 1997 and January 1, 1998........................................... F-7 Consolidated Statements of Cash Flows for the Years Ended December 28, 1995, January 2, 1997 and January 1, 1998.... F-8 Notes to Consolidated Financial Statements.................. F-9 Condensed Consolidated Balance Sheets at July 2, 1998 (Unaudited) and January 1, 1998........................... F-19 Condensed Consolidated Statements of Operations for the Six Months Ended July 2, 1998 and July 3, 1997 (Unaudited).... F-20 Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 2, 1998 and July 3, 1997 (Unaudited).... F-21 Notes to Condensed Consolidated Financial Statements........ F-22
F-1 94 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Regal Cinemas, Inc. We have audited the accompanying consolidated balance sheets of Regal Cinemas, Inc. and Subsidiaries (the "Company") as of January 2, 1997 and January 1, 1998, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended January 1, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the acquisition of Cobb Theatres, L.L.C. which has been accounted for as pooling of interests as described in Note 1 to the consolidated financial statements. We did not audit the financial statements of Cobb Theatres, L.L.C. for 1995 and 1996. Such statements reflect aggregate total assets constituting 23% in 1996 and aggregate total revenues constituting 34% and 31% in 1995 and 1996, respectively, of the related consolidated totals. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Cobb Theatres, L.L.C. is based solely on the report of other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Regal Cinemas, Inc. and Subsidiaries as of January 2, 1997 and January 1, 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 1, 1998, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Knoxville, Tennessee February 6, 1998 F-2 95 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Cobb Theatres, L.L.C. We have audited the consolidated balance sheet of Cobb Theatres, L.L.C. as of December 31, 1996 and the related consolidated statements of operations and cash flows for the year then ended (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cobb Theatres, L.L.C. at December 31, 1996 and the consolidated results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Birmingham, Alabama July 2, 1997 F-3 96 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Cobb Theatres, L.L.C. We have audited the consolidated balance sheets of Cobb Theatres, L.L.C. as of August 31, 1996 and 1995, and the related consolidated statements of operations, changes in members' equity and cash flows for the years then ended (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cobb Theatres, L.L.C. at August 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Birmingham, Alabama October 23, 1996 F-4 97 REGAL CINEMAS, INC. CONSOLIDATED BALANCE SHEETS ASSETS
JANUARY 2, JANUARY 1, 1997 1998 ----------- ----------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS) Current assets: Cash and equivalents...................................... $ 17,116 $ 18,398 Accounts receivable....................................... 2,892 4,791 Inventories............................................... 2,024 2,159 Prepaids and other current assets......................... 6,168 6,377 Refundable income taxes................................... 3,477 2,424 -------- --------- Total current assets.............................. 31,677 34,149 -------- --------- Property and equipment: Land...................................................... 41,793 53,955 Buildings and leasehold improvements...................... 260,184 366,323 Equipment................................................. 167,475 211,465 Construction in progress.................................. 43,539 46,529 -------- --------- 512,991 678,272 Accumulated depreciation and amortization................. (93,227) (112,927) -------- --------- Total property and equipment, net................. 419,764 565,345 Goodwill, net............................................... 28,804 52,619 Other assets................................................ 8,580 8,537 -------- --------- Total assets...................................... $488,825 $ 660,650 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt...................... $ 761 $ 306 Accounts payable.......................................... 36,101 38,982 Accrued expenses.......................................... 14,325 13,739 -------- --------- Total current liabilities......................... 51,187 53,027 -------- --------- Long-term debt, less current maturities..................... 143,865 288,277 Other liabilities........................................... 14,471 12,771 -------- --------- Total liabilities................................. 209,523 354,075 -------- --------- Commitments (Note 4) Shareholders' equity: Preferred stock, no par; 1,000,000 shares authorized, none issued................................................. -- -- Common stock, no par; 100,000,000 shares authorized; 35,977,325 issued and outstanding in 1996; 36,113,524 issued and outstanding in 1997......................... 221,613 223,707 Retained earnings........................................... 57,689 82,868 -------- --------- Total shareholders' equity........................ 279,302 306,575 -------- --------- Total liabilities and shareholders' equity........ $488,825 $ 660,650 ======== =========
The accompanying notes are an integral part of these consolidated financial statements. F-5 98 REGAL CINEMAS, INC. CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED ---------------------------------------- DECEMBER 28, JANUARY 2, JANUARY 1, 1995 1997 1998 ------------ ---------- ---------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Revenues: Admissions............................................. $213,388 $266,003 $325,118 Concessions............................................ 87,272 110,237 137,173 Other operating revenues............................... 8,362 12,953 16,806 -------- -------- -------- Total revenues................................. 309,022 389,193 479,097 Operating expenses: Film rental and advertising costs...................... 115,408 145,247 178,173 Cost of concessions and other.......................... 11,363 15,129 16,573 Theatre operating expenses............................. 105,688 127,706 156,588 General and administrative expenses.................... 14,848 16,581 16,609 Depreciation and amortization.......................... 19,359 24,695 30,535 Merger expenses........................................ 1,246 1,639 7,789 Loss on impairment of assets........................... -- -- 4,960 -------- -------- -------- Total operating expenses....................... 267,912 330,997 411,227 -------- -------- -------- Operating income......................................... 41,110 58,196 67,870 -------- -------- -------- Other income (expense): Interest expense....................................... (10,672) (12,844) (13,959) Interest income........................................ 368 619 816 Other.................................................. (653) 676 (407) -------- -------- -------- Income before income taxes and extraordinary item........ 30,153 46,647 54,320 Provision for income taxes............................... (12,200) (20,830) (19,121) -------- -------- -------- Income before extraordinary item......................... 17,953 25,817 35,199 Extraordinary item: Loss on extinguishment of debt, net of applicable taxes............................................... (448) (751) (10,020) -------- -------- -------- Net income............................................... 17,505 25,066 25,179 GST and Neighborhood dividends........................... (433) (229) -- -------- -------- -------- Net income applicable to common stock.................... $ 17,072 $ 24,837 $ 25,179 ======== ======== ======== Earnings per common share before effect of extraordinary item: Basic.................................................. $ 0.57 $ 0.76 $ 0.98 Diluted................................................ $ 0.56 $ 0.73 $ 0.95 Extraordinary item: Basic.................................................. $ (0.01) $ (0.02) $ (0.28) Diluted................................................ $ (0.01) $ (0.02) $ (0.27) Earnings per common share: Basic.................................................. $ 0.56 $ 0.74 $ 0.70 Diluted................................................ $ 0.55 $ 0.71 $ 0.68
The accompanying notes are an integral part of these consolidated financial statements. F-6 99 REGAL CINEMAS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON RETAINED STOCK EARNINGS TOTAL -------- -------- -------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS) Balances at December 29, 1994............................. $ 70,641 $17,414 $ 88,055 Payment of GST dividends and partnership distributions........................................ -- (490) (490) Issuance of 241,313 shares of common stock.............. 2,426 -- 2,426 Issuance of 194,142 shares upon exercise of stock options and restricted stock awards.................. 407 -- 407 Issuance of Neighborhood stock prior to merger.......... 150 -- 150 Income tax benefits related to exercised stock options.............................................. 817 -- 817 Stock option amortization............................... 150 -- 150 Net income.............................................. -- 17,505 17,505 -------- ------- -------- Balances at December 28, 1995............................. 74,591 34,429 109,020 Payment of GST dividends and partnership distributions........................................ -- (263) (263) Issuance of 5,015,741 shares of common stock, net of offering costs....................................... 140,651 -- 140,651 Issuance of 457,902 shares upon exercise of stock options and restricted stock awards.................. 1,177 -- 1,177 Income tax benefits related to exercised stock options.............................................. 5,017 -- 5,017 Conformation of Cobb Theatres fiscal year (see Note 2)................................................... -- (1,543) (1,543) Stock option amortization............................... 177 -- 177 Net income.............................................. -- 25,066 25,066 -------- ------- -------- Balances at January 2, 1997............................... 221,613 57,689 279,302 Issuance of 136,228 shares upon exercise of stock options and restricted stock awards.................. 723 -- 723 Income tax benefits related to exercised stock options.............................................. 1,306 -- 1,306 Stock option amortization............................... 65 -- 65 Net income.............................................. -- 25,179 25,179 -------- ------- -------- Balances at January 1, 1998............................... $223,707 $82,868 $306,575 ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-7 100 REGAL CINEMAS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED ---------------------------------------- DECEMBER 28, JANUARY 2, JANUARY 1, 1995 1997 1998 ------------ ---------- ---------- (IN THOUSANDS OF DOLLARS) Cash flows from operating activities: Net income........................................... $ 17,505 $ 25,066 $ 25,179 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................... 19,359 24,695 30,535 Noncash loss on extinguishment of debt............ 448 751 2,575 Loss on impairment of assets...................... -- -- 4,960 Deferred income taxes............................. 3,309 4,112 1,293 Changes in operating assets and liabilities: Accounts receivable............................. 125 (1,182) (1,899) Current taxes receivable........................ (1,037) 4,757 2,359 Inventories..................................... (215) (365) (135) Prepaids and other current assets............... (1,009) (236) (209) Accounts payable................................ 4,625 10,878 2,881 Accrued expenses and other liabilities.......... (3,137) (946) (3,579) --------- --------- --------- Net cash provided by operating activities.... 39,973 67,530 63,960 Cash flows from investing activities: Capital expenditures................................. (105,284) (124,068) (178,099) Investment in goodwill and other assets.............. (7,352) (7,077) (24,198) --------- --------- --------- Net cash used in investing activities................ (112,636) (131,145) (202,297) Cash flows from financing activities: GST and Neighborhood dividends paid.................. (332) (500) -- Net proceeds from issuance of stock.................. -- 126,763 -- Borrowings under long-term debt...................... 81,334 161,500 358,418 Payments on long-term debt........................... (10,248) (211,623) (214,460) Debt issuance costs.................................. (257) (5,127) (5,127) Partnership distribution............................. (57) (34) -- Exercise of warrants and options..................... 557 1,177 788 Redemption of preferred stock........................ (1,150) -- -- --------- --------- --------- Net cash provided by financing activities.... 69,847 72,156 139,619 Net increase (decrease) in cash and equivalents........ (2,816) 8,541 1,282 Cash and equivalents at beginning of period............ 9,851 8,575 17,116 --------- --------- --------- Cash and equivalents at end of period.................. $ 7,035 $ 17,116 $ 18,398 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-8 101 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND BASIS OF PRESENTATION Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries, Neighborhood Entertainment Inc. ("Neighborhood"), Georgia State Theatres, Inc. ("GST") and the entities through which Cobb Theatres, L.L.C. and Tricob Partnership, an entity controlled by the members of Cobb Theatres, L.L.C., conducted their business ("Cobb Theatres"), collectively referred to as the "Company" operate multi-screen motion picture theatres principally throughout the eastern United States. The Company formally operates on a fiscal year ending on the Thursday closest to December 31. Neighborhood and GST were merged with and into Regal during May 1997. On April 17, 1995, Regal issued 814,755 shares of its common stock for all of the outstanding common stock of Neighborhood. On May 30, 1996, Regal issued 1,410,213 shares of its common stock for all of the outstanding common stock of GST. On July 31, 1997, Regal issued 2,837,594 shares of its common stock for the Cobb Theatres acquisition. The mergers have been accounted for as poolings of interests and, accordingly, these consolidated financial statements have been restated for all periods to include the results of operations and financial positions of Neighborhood, GST and Cobb Theatres. Separate results of the combining entities for the fiscal years ended 1995, 1996 and 1997 are as follows:
1995 1996 1997 -------- -------- -------- (IN THOUSANDS) Revenues: Regal.................................................. $184,958 $265,127 $397,946 Neighborhood (through April 27 for 1995)............... 5,135 -- -- GST (through May 30 for 1996).......................... 13,321 4,709 -- Cobb Theatres, L.L.C. and Tricob Partnership (through July 31 for 1997).................................... 105,608 119,357 81,151 -------- -------- -------- $309,022 $389,193 $479,097 ======== ======== ======== Net income (loss): Regal.................................................. $ 19,061 $ 29,935 $ 27,940 Neighborhood (through April 27 for 1995)............... (1,824) -- -- GST (through May 30 for 1996).......................... 866 90 -- Cobb Theatres, L.L.C. and Tricob Partnership (through July 31 for 1997).................................... (598) (4,959) (2,761) -------- -------- -------- $ 17,505 $ 25,066 $ 25,179 ======== ======== ========
The net loss for Neighborhood for the four months ended April 27, 1995, and the net loss for Cobb Theatres for the seven months ended July 31, 1997, reflect approximately $1.2 million and $3.5 million, respectively, of expenses (net of applicable income taxes) associated with the mergers, principally legal and accounting fees, severance and benefit related costs and other costs of consolidation. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of Regal and its wholly-owned subsidiaries. Prior to the merger with Regal, Cobb Theatres formerly operated and reported on a fiscal year ending August 31. The accompanying consolidated financial statements reflect the financial position of Cobb Theatres as of December 31, 1996 and January 1, 1998, and its results of operations for the year ended August 31, 1995 and for the years ended December 31, 1996 and January 1, 1998. Cobb Theatres incurred a net loss of $1,543,000 for the period from September 1, 1995 through December 31, 1995. Such loss has been charged directly to retained earnings in the accompanying consolidated statement of changes in stockholders' equity. F-9 102 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements. PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost. Repairs and maintenance are charged to expense as incurred. Gains and losses from disposition of property and equipment are included in income and expense when realized. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the respective assets. The Company evaluates the carrying value of property and equipment and intangibles for impairment losses by analyzing the operating performance and future undiscounted cash flows for each theatre. The Company adjusts the net book value of the underlying assets if the sum of expected future cash flows is less than book value. CASH EQUIVALENTS -- The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. At January 2, 1997 and January 1, 1998, the Company held approximately $15,255,000 and $12,549,000, respectively, in temporary cash investments (valued at cost, which approximates market) in the form of certificates of deposit and variable rate investment accounts with major financial institutions. INCOME TAXES -- Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. INVENTORIES -- Inventories consist of concession products and theatre supplies and are stated on the basis of first-in, first-out (FIFO) cost, which is not in excess of net realizable value. DEBT ACQUISITION AND LEASE COSTS (INCLUDED IN OTHER ASSETS) -- Debt acquisition and lease costs are deferred and amortized over the terms of the related agreements. DEFERRED RENT (INCLUDED IN OTHER LIABILITIES) -- Rent expense is recognized on a straight-line basis after considering the effect of rent escalation provisions and rent holidays for newly opened theatres resulting in a level monthly rent expense for each lease over its term. DEFERRED REVENUE (INCLUDED IN OTHER LIABILITIES) -- Deferred revenue relates primarily to vendor rebates. Rebates are recognized as a reduction of costs of concessions as earned. INTEREST RATE SWAPS -- Interest rate swaps are entered into as a hedge against interest exposure of variable rate debt. The differences to be paid or received on swaps are included in interest expense. The fair value of the Company's interest rate swap agreements is based on dealer quotes. These values represent the amounts the Company would receive or pay to terminate the agreements taking into consideration current interest rates. 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. Unless indicated otherwise, the fair value of the Company's financial instruments approximates carrying value. 3. ACQUISITIONS In addition to the Neighborhood, GST and Cobb Theatres mergers described in Note 1, the Company completed the purchase of 23 theatres with 179 screens during 1996 and 1997. The theatres were purchased for consideration of 703,241 shares of Regal common stock valued at $14.1 million and approximately $62.5 million cash. F-10 103 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) These transactions have been accounted for using the purchase method of accounting and, accordingly, the purchase prices have been allocated at fair value to the separately identifiable assets (principally property, equipment, and leasehold improvements) of the respective theatre locations, with the remaining balance allocated to goodwill, which is being amortized on a straight line basis generally over twenty to thirty years. The results of operations of these theatre locations have been included in the financial statements for the periods subsequent to the acquisition date. The following unaudited pro forma results of operations for all periods presented assume the individual acquisitions occurred as of the beginning of the respective periods after giving effect to certain adjustments, including depreciation, increased interest expense on acquisition debt and related income tax effects. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the combination been in effect on the dates indicated, or which may occur in the future.
1995 1996 ----------- ----------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) 1996 ACQUISITION: Revenues.................................................. $329,824 $396,598 Operating income.......................................... 42,234 58,280 Income before extraordinary item.......................... 31,399 45,451 Net income applicable to common stock..................... 18,196 24,921 Earnings per common share: Basic.................................................. $ 0.60 $ 0.74 ======== ======== Diluted................................................ $ 0.58 $ 0.72 ======== ======== 1997 ACQUISITIONS: Revenues.................................................. $413,743 $499,223 Operating income.......................................... 62,533 70,108 Income before extraordinary item.......................... 28,463 36,564 Net income applicable to common stock..................... 27,483 26,544 Earnings per common share: Basic.................................................. $ 0.81 $ 0.74 ======== ======== Diluted................................................ $ 0.79 $ 0.71 ======== ========
4. LEASES Leases entered into by the Company, principally for theatres, are accounted for as operating leases. The Company, at its option, can renew a substantial portion of the leases at defined or then fair rental rates for various periods. Certain leases for Company theatres provide for contingent rentals based on revenues. Minimum rentals payable under all noncancelable operating leases with terms in excess of one year as of January 1, 1998, are summarized for the following fiscal years:
(IN THOUSANDS) 1998........................................................ $ 58,790 1999........................................................ 58,542 2000........................................................ 57,409 2001........................................................ 56,678 2002........................................................ 55,380 Thereafter.................................................. 642,069
F-11 104 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Rent expense under such operating leases was $34,459, $41,427 and $52,632 for fiscal years 1995, 1996 and 1997, respectively. 5. LONG-TERM DEBT Long-term debt at January 2, 1997 and January 1, 1998, consists of the following:
JANUARY 2, JANUARY 1, 1997 1998 ---------- ---------- (IN THOUSANDS) $125,000,000 Regal senior subordinated notes due October 1, 2007, with interest payable semiannually at 8.5%. Notes are redeemable, in whole or in part, at the option of the Company at any time on or after October 1, 2002, at the redemption prices (expressed as percentages of the principal amount thereof) set forth below together with accrued and unpaid interest to the redemption date, if redeemed during the 12 month period beginning on October 1 of the years indicated: REDEMPTION YEAR PRICE ---- ---------- 2002............... 104.250% 2003............... 102.033% 2004............... 101.417% 2005 and thereafter......... 100.000% .......... $ -- $125,000 $250,000,000 Regal senior reducing revolving credit facility which expires on June 30, 2003, with interest payable quarterly, at LIBOR (5.8% at January 1, 1998) plus .65%. Draw capability will expire on June 30, 1999. Repayment of the outstanding balance on the credit facility will begin September 30, 1999, and consist of 5% of the outstanding balance on a quarterly basis through June 30, 2001. Thereafter, payments will be 7.5% of the outstanding balance quarterly through June 30, 2003................... 51,000 162,000 $85,000,000 Cobb Theatres notes due March 1, 2003, with interest payable semiannually at 10 5/8%.................. 85,000 170 Notes payable to banks at rates ranging from prime plus 0.5% to 2.0%................................................... 6,908 -- Other....................................................... 1,718 1,413 -------- -------- 144,626 288,583 Less current maturities..................................... (761) (306) -------- -------- $143,865 $288,277 ======== ========
F-12 105 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's debt at January 1, 1998, is scheduled to mature as follows:
(IN THOUSANDS) 1998........................................................ $ 306 1999........................................................ 821 2000........................................................ -- 2001........................................................ -- 2002........................................................ -- Thereafter.................................................. 287,456 -------- Total............................................. $288,583 ========
On August 14, 1997, the Company commenced a tender offer for all of the Cobb Notes and a consent solicitation in order to effect certain changes in the Indenture. Upon completion of the tender offer, holders had tendered and given consents with respect to 96.86% of the outstanding principal amount of the Cobb Notes. In addition, the Company and the trustee executed a supplement to the Indenture, effecting the proposed amendments which included, among other things, the elimination of all financial covenants and the release of security for the Cobb Notes. On September 18, 1997, the Company paid, for each $1,000 principal amount, $1,136.97 for Cobb Notes tendered on or prior to August 28, 1997 and $1,126.97 for Cobb Notes tendered after August 28, 1997, plus, in each case, accrued and unpaid interest of $5.02. After completion of the tender offer, the Company purchased an additional $2,500,000 of the aggregate principal amount of the Cobb Notes. Regal financed the purchase price of the Cobb Notes with borrowings under a loan agreement with a bank. All such borrowings were repaid with a portion of the net proceeds of the offering of the $125,000,000 Regal Senior Subordinated Notes. Regal recognized an extraordinary charge totaling approximately $10.0 million (net of tax) in 1997, relating to the purchase of the Cobb Notes. The fair value of the senior subordinated notes was $126,250,000 at January 1, 1998. Upon consummation of the Neighborhood merger, Regal refinanced all existing debt of the acquired company, recognizing a loss on extinguishment of debt (net of applicable income taxes) of $448,000 in 1995. Additionally, Cobb Theatres refinanced existing debt, recognizing a loss on extinguishment of debt (net of applicable income taxes) of $751,000 in 1996. Such losses are reported as extraordinary items in the accompanying consolidated statements of income. In March 1995, Regal entered into a seven-year interest rate swap agreement for the management of interest rate exposure. At January 1, 1998, the agreement had effectively converted $20 million of LIBOR floating rate debt under the reducing revolving credit facility to a 7.32% fixed rate obligation. Regal continually monitors its position and the credit rating of the interest swap counterparty. The fair value of the interest swap agreement was $(955,000) at January 1, 1998. 6. COMMON AND PREFERRED STOCK COMMON STOCK -- Regal's common shares authorized, issued and outstanding throughout the financial statements and notes reflect the retroactive effect of stock issued in connection with the pooling transactions described in Note 1 and the authorization of additional shares and the effect of the two 3-for-2 stock splits authorized on December 13, 1995 and September 16, 1996, respectively. PREFERRED STOCK -- The Company currently has 1,000,000 shares of preferred stock authorized with none issued. The Company may issue the preferred shares from time to time in such series having such designated preferences and rights, qualifications and limitations as the Board of Directors may determine. F-13 106 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK OPTIONS -- The Company has three employee stock option plans under which 4,929,064 options are authorized and reserved. The options vest over three-to-five year periods and expire ten years after the respective grant dates. Activity within the plans is summarized as follows:
WEIGHTED OPTIONS AVERAGE EXERCISABLE AT SHARES EXERCISE PRICE YEAR END --------- -------------- -------------- Under option at December 29, 1994............. 1,993,081 $ 5.54 Options granted in 1995....................... 808,875 $14.16 Options exercised in 1995..................... (174,709) $ 2.09 Options canceled in 1995...................... (29,524) $ 2.37 --------- Under option at December 28, 1995............. 2,597,723 $ 8.49 32,927 ======= Options granted in 1996....................... 952,750 $25.06 Options exercised in 1996..................... (370,915) $ 2.86 --------- Under option at January 2, 1997............... 3,179,558 $14.11 56,330 ======= Options granted in 1997....................... 977,000 $28.18 Options exercised in 1997..................... (112,603) $ 5.44 Options canceled in 1997...................... (72,500) $22.96 --------- Under option at January 1, 1998............... 3,971,455 $17.72 576,604 ========= ====== =======
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------- ---------------------------- WEIGHTED- NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE EXERCISE PRICES AT 1/1/98 CONTRACTUAL LIFE EXERCISE PRICE AT 1/1/98 EXERCISE PRICE --------------- ----------- ---------------- -------------- ----------- -------------- $ 1.21.................. 14,625 4.25 $ 1.21 11,812 $1.21 $ 2.37.................. 212,233 4.52 $ 2.37 184,810 $2.37 $ 3.86.................. 323,366 5.52 $ 3.86 153,348 $3.86 $ 9.78-$10.08........... 755,106 6.62 $ 9.79 226,634 $9.79 $12.34-$17.06........... 795,375 7.57 $14.11 -- -- $22.00-$31.88........... 1,870,750 9.14 $26.71 -- -- --------- ------- 3,971,455 576,604 ========= =======
In addition, the Company has the 1993 Outside Directors' Stock Option Plan (the "1993 Directors' Plan"). Directors' stock options for the purchase of 20,250 shares at an exercise price of $12.33, 20,250 shares at an exercise price of $29.59 and 30,000 shares at an exercise price of $27.25 were granted during 1995, 1996 and 1997, respectively. The exercise price of all options granted under the 1993 Directors' Plan vest over 3 years and expire 10 years after the respective grant dates. Options exercisable at the end of 1995, 1996 and 1997, were 47,250, 70,875, and 67,500, respectively. Warrants to purchase 158,455 shares of common stock at an exercise price of $1.21 per share expire in 1998. The Company has reserved a sufficient number of shares of common stock for issuance pursuant to the authorized options and warrants. The Company makes awards of restricted stock under its employee stock plans as part of certain employees' incentive compensation. In general, the restrictions lapse in the year following grant. Restricted stock awards totaled 25,517 shares, 7,500 shares and 5,000 shares pursuant to 1995, 1996 and 1997 bonus awards, respectively. Regal has elected to continue following Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock option F-14 107 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) plans and its outside directors' plan rather than the alternative fair value accounting provided for under FASB Statement 123, "Accounting for Stock-Based Compensation" (Statement 123). Under APB 25, because the exercise price of the Company's employee and director stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the accompanying financial statements. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company has accounted for its stock options under the fair value method of that Statement. The fair value for the employee and directors options granted during fiscal years 1995, 1996 and 1997, was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rates ranging from 5.96% to 6.59% for 1995 grants, 6.06% to 6.95% for 1996 grants and 5.9% to 6.68% for 1997 grants; volatility factors of the expected market price of the Company's common stock of 32.8% for 1995, 32.8% for 1996 and 33.7% for 1997, and a weighted average expected life of 5 years for employee options and 7 years for outside director options. Additionally, the weighted average grant date fair value of options granted in fiscal years 1995, 1996 and 1997, was $5.67, $10.34 and $11.48 per share, respectively. The option valuation model used by the Company was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee and director options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair values of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The pro forma results do not purport to indicate the effects on reported net income for recognizing compensation expense which are expected to occur in future years. The Company's pro forma information for 1995, 1996 and 1997 option grants follows:
1995 1996 1997 ------- ------- ------- Pro forma net income................................. $17,276 $23,930 $22,883 Pro forma earnings per share: Basic.............................................. $ 0.55 $ 0.70 $ 0.63 Diluted............................................ $ 0.54 $ 0.68 $ 0.62
F-15 108 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES Deferred income taxes reflect the impact of temporary differences between amounts recorded for assets and liabilities for financial reporting purposes and amounts utilized for measurement in accordance with tax laws. The tax effects of the temporary differences giving rise to the Company's net deferred tax liability are as follows:
1996 1997 ------- ------- (IN THOUSANDS) Assets: Net operating loss carryforward........................... $ 4,431 $ 4,036 Alternative minimum tax credits........................... 893 627 Accrued expenses.......................................... 2,213 1,230 Tax operating lease....................................... 623 524 State income taxes........................................ 531 632 Other..................................................... -- 296 ------- ------- 8,691 7,345 ------- ------- Liabilities: Property and equipment.................................... 13,927 16,313 Other..................................................... 620 490 ------- ------- 14,547 16,803 ------- ------- Deferred tax liability...................................... (5,856) (9,458) Cobb Theatres valuation allowance for deferred tax asset.... (2,309) -- ------- ------- Net deferred tax............................................ $(8,165) $(9,458) ======= =======
The 1995, 1996 and 1997 provisions for income taxes before extraordinary items (see Note 5) consist of the following:
1995 1996 1997 ------- ------- ------- (IN THOUSANDS) Current............................................... $ 8,969 $16,718 $17,828 Deferred.............................................. 3,309 1,803 3,602 Increase (decrease) in deferred income tax valuation allowance........................................... (78) 2,309 (2,309) ------- ------- ------- $12,200 $20,830 $19,121 ======= ======= =======
A reconciliation of the Company's income tax provision to taxes computed by applying the statutory Federal rate of 35% to pretax financial reporting income before extraordinary items is as follows:
1995 1996 1997 ------- ------- ------- (IN THOUSANDS) Tax at statutory Federal rate......................... $10,837 $16,244 $19,012 state income taxes, net of Federal benefit............ 1,105 1,870 2,161 Increase (decrease) in deferred income tax valuation allowance........................................... (78) 2,309 (2,309) Nondeductible merger expenses and other............... 336 407 257 ------- ------- ------- $12,200 $20,830 $19,121 ======= ======= =======
F-16 109 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At January 1, 1998, Cobb Theatres had net operating loss carryforwards of approximately $10.6 million that may be offset against future taxable income. Substantially all of the carryforward expires in 2009 through 2011. The $2,309 increase in the valuation allowance in 1996, and corresponding decrease in 1997, primarily reflect the change in the assessment of the likelihood of utilization of Cobb net operating loss carryforwards prior to, and after the merger of Cobb with Regal. Neighborhood and Cobb Theatres had approximately $266,000 and $627,000, respectively, of alternative minimum tax credit carryforwards available to reduce their future income tax liabilities. Under current Federal income tax law, the alternative minimum tax credit carryforwards have no expiration date. 8. RELATED PARTY TRANSACTIONS Prior to May 1996, Regal obtained film licenses through an independent film booking agency owned by a director of the Company. Additionally, this director provides consulting services to the Company. The Company paid $626,000 and $655,000 in 1995 and 1996, respectively, for booking fees and consulting services. Regal paid $626,000, $952,000 and $1,200,057 in 1995, 1996 and 1997, respectively, for legal services provided by a law firm, a member of which serves as a director of the Company. Cobb Theatres leased office and warehouse facilities from a related party. The related rent expense amounted to approximately $266,000, $509,000 and $186,826 in 1995, 1996 and 1997, respectively. Cobb Theatres had an agreement with a corporation owned by a related party, to provide aircraft services. The fees for such services amounted to approximately $335,000, $432,000 and $257,250 for 1995, 1996 and 1997, respectively. 9. EARNINGS PER SHARE In February 1997, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which changes the calculations used for earnings per share ("EPS") and makes them comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The Statement is effective for financial statements issued for periods ending after December 15, 1997; earlier application was not permitted. All per share data has also been adjusted to give effect to the December 1995 and September 1996 common stock splits. The following reconciliation details the numerators and denominators used to calculate basic and diluted earnings per share for 1995, 1996 and 1997 (in 000's).
1995 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- Basic EPS net income applicable to common stock........................................ $17,072 30,428 $0.56 ===== Effect of dilutive securities.................. 883 ------- ------ Diluted EPS net income......................... $17,072 31,311 $0.55 ======= ====== =====
F-17 110 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- Basic EPS net income applicable to common stock........................................ $24,837 33,726 $0.74 ===== Effect of dilutive securities.................. 1,074 ------- ------ Diluted EPS net income......................... $24,837 34,800 $0.71 ======= ====== =====
1997 ----------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- Basic EPS net income applicable to common stock........................................ $25,179 36,113 $0.70 ===== Effect of dilutive securities.................. 1,072 ------- ------ Diluted EPS net income......................... $25,179 37,185 $0.68 ======= ====== =====
10. SUBSEQUENT EVENT Regal has entered into an Agreement and Plan of Merger as of January 19, 1998 (the "Merger Agreement"), among Screen Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of KKR 1996 Fund L.P. (the "KKR Fund"), Monarch Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of an affiliate of Hicks, Muse, Tate & Furst Incorporated (the "HMTF Fund" and together with the KKR Fund, the "Funds"), and the Company. Pursuant to and subject to the terms and conditions of the Merger Agreement, Screen Acquisition Corp. and Monarch Acquisition Corp. will be merged with and into the Company (the "Merger") and the Company will continue after the Merger as a corporation owned by the Funds (the "Surviving Corporation"). Each share of Company common stock will be converted into the right to receive $31.00 in cash from the Surviving Corporation. The Merger is subject to termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), approval by Company shareholders, the obtaining of necessary financing to consummate the Merger and certain other conditions. The waiting period under the HSR Act expired on March 1, 1998. F-18 111 REGAL CINEMAS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS) ASSETS
JULY 2, JANUARY 1, 1998 1998 ----------- ---------- (UNAUDITED) Current assets: Cash and equivalents...................................... $ 27,480 $ 18,398 Accounts receivable....................................... 1,080 4,791 Inventories............................................... 2,194 2,159 Prepaids and other current assets......................... 8,255 6,377 Refundable income taxes................................... 7,744 2,424 --------- --------- Total current assets.............................. 46,753 34,149 --------- --------- Property and equipment: Land...................................................... 54,330 53,955 Buildings and leasehold improvements...................... 415,345 366,323 Equipment................................................. 244,428 211,465 Construction in progress.................................. 55,310 46,529 --------- --------- 769,413 678,272 Accumulated depreciation and amortization................. (131,232) (112,927) --------- --------- Total property and equipment, net................. 638,181 565,345 Goodwill, net............................................... 55,475 52,619 Other assets................................................ 44,005 8,537 --------- --------- Total assets...................................... $ 784,414 $ 660,650 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Current maturities of long-term debt (Note 4)............. $ 306 $ 306 Accounts payable.......................................... 38,582 38,982 Accrued expenses.......................................... 35,517 13,739 --------- --------- Total current liabilities......................... 74,405 53,027 --------- --------- Long-term debt, less current maturities (Note 4)............ 775,963 288,277 Other liabilities........................................... 10,184 12,771 --------- --------- Total liabilities................................. 860,552 354,075 --------- --------- Commitments (Note 4) Shareholders' equity (deficit) (Note 1): Preferred stock, no par; 100,000,000 shares authorized, none issued............................................ -- -- Common stock, no par; 500,000,000 shares authorized; 155,494,566 and 223,903,849 shares issued and outstanding at July 2, 1998 and January 1, 1998........ (118,941) 223,707 Retained earnings........................................... 42,803 82,868 --------- --------- Total shareholders' equity (deficit).............. $ (76,138) $ 306,575 --------- --------- Total liabilities and shareholders' equity........ $ 784,414 $ 660,650 ========= =========
See accompanying notes to condensed consolidated financial statements. F-19 112 REGAL CINEMAS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS OF DOLLARS) (UNAUDITED)
SIX MONTHS ENDED ------------------- JULY 2, JULY 3, 1998 1997 -------- -------- Revenue: Admissions................................................ $190,918 $150,455 Concessions............................................... 82,041 62,996 Other operating revenue................................... 15,184 8,739 -------- -------- Total revenues.................................... 288,143 222,190 -------- -------- Operating expenses: Film rental and advertising costs......................... 103,987 81,298 Cost of concessions and other............................. 12,995 10,217 Theatre operating expenses................................ 100,177 75,112 General and administrative expenses....................... 8,011 9,544 Depreciation and amortization............................. 19,917 14,460 Recapitalization expenses (Note 1)........................ 62,047 -- -------- -------- Total operating expenses.......................... 307,134 190,631 -------- -------- Operating income (loss)..................................... (18,991) 31,559 Other income (expense): Interest expense.......................................... (13,327) (6,077) Interest income........................................... 467 173 Other..................................................... (236) (331) -------- -------- Income (loss) before income taxes and extraordinary loss.... (32,087) 25,324 Provision for (benefit from) income taxes (Note 5).......... (3,912) 9,799 -------- -------- Income (loss) before extraordinary loss).................... (28,175) 15,525 Extraordinary loss -- loss on retirement of debt, net of income tax benefit of $7,602 (Note 4).................. (11,890) -------- -------- Net income (loss)........................................... $(40,065) $ 15,525 ======== ========
See accompanying notes to condensed consolidated financial statements. F-20 113 REGAL CINEMAS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) (UNAUDITED)
SIX MONTHS ENDED ----------------------- JULY 2, JULY 3, 1998 1997 ----------- -------- Cash flows from operating activities: Net income (loss)(1)........................................ $ (40,065) $ 15,525 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Noncash loss on extinguishment of debt................. 3,026 -- Depreciation and amortization.......................... 19,917 14,460 Loss (gain) on sale of assets.......................... (23) 331 Deferred income taxes.................................. (9,664) 133 Changes in operating assets and liabilities: Accounts receivable.................................. 3,711 1,139 Inventories.......................................... (35) (534) Prepaids and other current assets.................... (7,198) (554) Accounts payable..................................... (400) 1,594 Accrued expenses and other liabilities............... 28,855 4,693 ----------- -------- Net cash provided (used) by operating activities(1)................................... (1,876) 36,787 Cash flows from investing activities: Capital expenditures, net................................. (91,119) (77,387) Investment in goodwill and other assets................... (8,030) (13,775) ----------- -------- Net cash used in investing activities............. (99,149) (91,162) Cash flows from financing activities: Long-term debt borrowings................................. 790,000 50,868 Payments made on long-term debt........................... (302,314) -- Deferred financing costs.................................. (34,931) -- Proceeds from issuance of common stock.................... 774,717 751 Purchase and retirement of common stock................... (1,117,407) -- Stock compensation expense................................ 42 60 ----------- -------- Net cash provided by financing activities......... 110,107 51,679 ----------- -------- Net increase (decrease) in cash and equivalents............. 9,082 (2,696) Cash and equivalents at beginning of period................. 18,398 17,116 ----------- -------- Cash and equivalents at end of period....................... $ 27,480 $ 14,420 =========== ========
- --------------- (1) Includes $46,451 of Recapitalization expenses, net of tax benefit. See accompanying notes to condensed consolidated financial statements. F-21 114 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. RECAPITALIZATION On May 27, 1998, an affiliate of Kohlberg Kravis Roberts & Co. L.P. ("KKR") and an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") merged with and into Regal Cinemas, Inc. (the "Merger"), with the Company continuing as the surviving corporation of the Merger. The Merger and related transactions have been recorded as a recapitalization (the "Recapitalization"). In the Recapitalization, the Company's existing shareholders, received cash for their shares of common stock. In addition, in connection with the Recapitalization, the Company canceled options and repurchased warrants held by certain former directors, management and employees of the Company (the "Option/Warrant Redemption"). The aggregate amount paid to effect the Merger and the Option/Warrant Redemption was approximately $1.2 billion. The net proceeds of the $400 million senior subordinated notes, initial borrowings of $375.0 million under the senior credit facility and the proceeds of $776.9 million from the investment by KKR, Hicks Muse, DLJ Merchant Banking Partners II, L.P. and affiliated funds ("DLJ") and management in the Company was used: (i) to fund the cash payments required to effect the Merger and the Option/Warrant Redemption; (ii) to repay and retire the Company's existing senior credit facilities; (iii) to repurchase the existing Regal 8.5% senior subordinated notes; (iv) to pay related fees and expenses; and (v) for general corporate purposes. Upon consummation of the Merger, KKR owned $287.3 million of the Company's equity securities, Hicks Muse owned $437.3 million of the Company's equity securities and DLJ owned $50.0 million of the Company's equity securities. Each investor received securities consisting of a combination of Common Stock and the Company's Series A Convertible Preferred Stock, no par value ("Convertible Preferred Stock"), which was converted into Common Stock on June 3, 1998. To equalize KKR's and Hicks Muse's investments in the Company at $362.3 million each, Hicks Muse exchanged $75.0 million of Convertible Preferred Stock, with KKR for $75.0 million of common stock of Act III Cinemas, Inc. ("Act III"). Upon completion of the Recapitalization and the conversion of the Convertible Preferred Stock, KKR, Hicks Muse and DLJ own approximately 46.6%, 46.6% and 6.4%, respectively, of the Company's Common Stock. During 1998, nonrecurring costs of approximately $62.0 million, including approximately $39.8 million of compensation costs, were incurred in connection with the Recapitalization. Financing costs of approximately $34.2 million were incurred and classified as deferred financing costs which will be amortized over the lives of the new debt facilities (see Note 4). Of the total Merger Recapitalization costs above, $19.5 million was paid to KKR and Hicks Muse. 2. THE COMPANY AND BASIS OF PRESENTATION Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries, collectively referred to as the "Company" operates multi-screen motion picture theatres principally throughout the eastern United States. The Company formally operates on a fiscal year ending on the Thursday closest to December 31. On July 31, 1997, Regal issued 2,837,594 shares of its common stock for all of the outstanding common stock of Cobb Theatres. The merger has been accounted for as a pooling of interests and, accordingly, these condensed consolidated financial statements have been restated for all periods to include the results of operations and financial positions of Cobb Theatres. F-22 115 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Separate results of the combining entities for the three and six-month periods ended July 3, 1997 are as follows:
SIX MONTHS ENDED JULY 3, 1997 -------------- (IN THOUSANDS) Revenues: Regal..................................................... $157,129 Cobb Theatres, L.L.C. and Tricob Partnership.............. 65,061 -------- $222,190 ======== Net (loss): Regal..................................................... $ 16,348 Cobb Theatres, L.L.C. and Tricob Partnership.............. (823) -------- $ 15,525 ========
3. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The condensed consolidated balance sheet as of July 2, 1998, the condensed consolidated statements of operations for the three months and six months ended July 2, 1998 and July 3, 1997 and the condensed consolidated statements of cash flows for the six months ended July 2, 1998 and July 3, 1997 have been prepared by the Company, without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The January 1, 1998 information has been derived from the audited January 1, 1998 balance sheet of Regal Cinemas, Inc. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Report filed on Form 10-K dated March 31, 1998. The results of operations for the three and six-month periods ended July 2, 1998 are not necessarily indicative of the operating results for the full year. F-23 116 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. LONG-TERM DEBT Long-term debt at July 2, 1998 and January 1, 1998, consists of the following:
JULY 2, JANUARY 1, 1998 1998 -------- ---------- (IN THOUSANDS) $400,000 Regal senior subordinated notes due June 1, 2008, with interest payable semiannually at 9.5%. Notes are redeemable, in whole or in part, at the option of the Company at any time on or after June 1, 2003, at the redemption prices (expressed as percentages of the principal amount thereof) set forth below together with accrued and unpaid interest to the redemption date, if redeemed during the 12 month period beginning on June 1 of the years indicated: YEAR REDEMPTION PRICE - ---- ---------------- 2003............................................ 104.750% 2004............................................ 103.167% 2005............................................ 101.583% 2006 and thereafter............................. 100.000% $400,000 -- Term Loans........................................................ 375,000 -- Revolving credit facility......................................... -- -- $125,000 Regal senior subordinated notes, due October 1, 2007 with interest payable semiannually at 8.5%........................... 125,000 $250,000 Regal senior reducing revolving credit facility.......... -- 162,000 Other............................................................. 1,269 1,583 -------- -------- 776,269 288,583 Less current maturities........................................... (306) (306) -------- -------- $775,963 $288,277 ======== ========
The Company's debt at July 2, 1998, is scheduled to mature as follows:
(IN THOUSANDS) -------------- 1998........................................................ $ 306 1999........................................................ 2,093 2000........................................................ 2,400 2001........................................................ 3,750 2002........................................................ 3,750 Thereafter.................................................. $763,970 -------- Total............................................. $776,269 ========
Under the Company's previous $250,000 senior reducing revolving credit facility (the "revolving credit facility"), interest was payable quarterly at LIBOR plus .65%. The margin added to LIBOR was determined based upon certain financial ratios of the Company. The revolving credit facility was repaid in conjunction with the Recapitalization. New Credit Facilities -- In connection with the Merger and Recapitalization, the Company entered into credit facilities provided by a syndicate of financial institutions. Such credit facilities (the "Credit Facilities") include a $350,000 Revolving Credit Facility (including the availability of Revolving Loans, Swing Line Loans, and Letters of Credit) and three term loan facilities: Term A ($120,000), Term B ($120,000), and F-24 117 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Term C ($135,000) (the "Term Loans"). The Company must pay an annual commitment fee ranging from 0.2% to 0.425%, depending on the Company's Total Leverage Ratio, as defined, of the unused portion of the Revolving Credit Facility. The Revolving Credit Facility expires in June 2005. No borrowings were outstanding under the Revolving Credit Facility at July 2, 1998. Borrowings under the Term A Loan or the Revolving Credit Facility can be made at the "Base Rate" plus a margin of 0% to 1%, or the "LIBO Rate," plus .625% to 2.25%, both depending on the Total Leverage Ratio. The Base Rate on revolving loans is the rate established by the Administrative Agent in New York as its base rate for dollars loaned in the United States. The LIBO Rate is based on the LIBOR rate for the corresponding length of loan. One percent of the outstanding balance on the Term A Loan is due annually though 2004 with the balance of the Term A Loan due in 2005. Borrowings under the Term B Loan can be made at the Base Rate plus a margin of 0.75% to 1.25% or the LIBO Rate plus 2.0% to 2.5%, both depending on the Total Leverage Ratio. One percent of the outstanding balance is due annually through 2005, with the balance of the loan due in 2006. Borrowings under the Term C Loan can be made at the Base Rate plus a margin of 1.0% to 1.5% or the LIBO Rate plus 2.25% to 2.75%, both depending on the Total Leverage Ratio. One percent of the outstanding balance is due annually through 2006, with the balance of the loan due in 2007. The Credit Facilities contain customary covenants and restrictions on the Company's ability to issue additional debt or engage in certain activities and include customary events of default. In addition, the Credit Facilities specify that the Company must meet or exceed defined interest coverage ratios and must not exceed defined leverage ratios. The Company was in compliance with such covenants at July 2, 1998. The Credit Facility is secured by a pledge of the stock of the Company's domestic subsidiaries. The Company's payment obligations under the Credit Facility is guaranteed by its direct and indirect U.S. subsidiaries. Tender Offer -- In connection with the Recapitalization, the Company commenced a tender offer for all of the Regal 8.5% senior subordinated notes ("Regal Notes") and a consent solicitation in order to effect certain changes in the Indenture. Upon completion of the tender offer, holders had tendered and given consents with respect to 100% of the outstanding principal amount of the Regal Notes. In addition, the Company and the trustee executed a supplement to the Indenture, effecting the proposed amendments which included, among other things, the elimination of all financial covenants for the Regal Notes. On May 27, 1998, the Company paid, for each $1,000 principal amount, $1,116.24 for Regal Notes tendered plus, in each case, accrued and unpaid interest of $13.22. Regal financed the purchase price of the Regal Notes with funds from the Recapitalization. Extraordinary Loss -- An extraordinary loss of $11.9 million, net of income taxes of $7.6 million, was recognized for the write-off of deferred financing costs and prepayment penalties incurred in connection with redeeming the Regal Notes as well as for the write-off of deferred financing costs related to the Company's previous credit facility. F-25 118 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. INCOME TAXES The effective income tax rate on income (loss) before extraordinary items for the six month periods ended July 2, 1998 and July 3, 1997 differs from the statutory federal income tax rate of 35% as follows:
SIX MONTHS ENDED ----------------- JULY 2, JULY 3, 1998 1997 ------- ------- Federal statutory tax rate.................................. 35.0% 35.0% Nondeductible recapitalization costs........................ (26.8)% -- State taxes, net of federal effect.......................... 4.0% 3.7% ----- ---- Effective rate.................................... 12.2% 38.7% ===== ====
6. CAPITAL STOCK Earnings per share information is not presented as the Company's shares do not trade in a public market. After the Recapitalization, the Company effected a stock split resulting in a price per share of $5.00, which $5.00 per share price is equivalent to the $31.00 per share consideration paid in the Merger. The January 1, 1998 shares outstanding have been adjusted to reflect such equivalent shares. 7. RECLASSIFICATIONS Certain reclassifications have been made to the 1997 financial statements to conform with the 1998 presentation. These reclassifications had no impact on previously reported results of operations or shareholders' deficit. F-26 119 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ACT III CINEMAS, INC.
PAGE ---- Report of Deloitte & Touche LLP Independent Auditors........ B-2 Report of PricewaterhouseCoopers LLP Independent Accountants............................................... B-3 Consolidated Balance Sheets at December 31, 1996 and 1997... B-4 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997.......................... B-6 Consolidated Statements of Shareholders' Deficit for the Years Ended December 31, 1995, 1996 and 1997.............. B-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997.......................... B-8 Notes to Consolidated Financial Statements.................. B-9 Consolidated Balance Sheets at December 31, 1997 and June 30, 1998 (Unaudited)...................................... B-19 Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1997 and 1998 (Unaudited)... B-20 Consolidated Statement of Shareholders' Deficit for the Six Months Ended June 30, 1998 (Unaudited).................... B-21 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1998 (Unaudited).................. B-22 Notes to Consolidated Financial Statements for the Six Months Ended June 30, 1997 and 1998 (Unaudited)........... B-23
B-1 120 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of Act III Cinemas, Inc.: We have audited the accompanying consolidated balance sheet of Act III Cinemas, Inc. and subsidiaries (the "Company") as of December 31, 1997, and the related consolidated statements of operations, shareholders' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Act III Cinemas, Inc. and subsidiaries as of December 31, 1997, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. Deloitte & Touche LLP Portland, Oregon March 25, 1998 B-2 121 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Act III Cinemas, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of shareholders' deficit and of cash flows present fairly, in all material respects, the financial position of Act III Cinemas, Inc. and its subsidiaries at December 31, 1996, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards 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 the opinion expressed above. We have not audited the consolidated financial statements of Act III Cinemas, Inc. and its subsidiaries for any period subsequent to December 31, 1996. /s/ PRICE WATERHOUSE LLP - ------------------------------------ PRICE WATERHOUSE LLP Portland, Oregon February 28, 1997 B-3 122 ACT III CINEMAS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1997 ASSETS
1996 1997 -------- -------- (AMOUNTS IN THOUSANDS) CURRENT ASSETS: Cash and cash equivalents................................. $ 8,720 $ 2,015 Restricted cash and cash equivalents...................... -- 95,094 Accounts receivable....................................... 1,324 1,948 Inventories............................................... 2,122 2,180 Prepaids and other current assets......................... 641 1,121 Income tax receivable..................................... -- 5,424 -------- -------- Total current assets.............................. 12,807 107,782 CONTRACTS RECEIVABLE (Note 3)............................... 2,007 658 PROPERTY AND EQUIPMENT, Net (Note 4)........................ 231,621 329,880 INTANGIBLE ASSETS: Favorable lease terms acquired, net of accumulated amortization of $19,789 and $22,108.................... 26,791 24,473 Excess of purchase price over the fair value of net tangible assets acquired, net of accumulated amortization of $3,751 and $4,241...................... 4,962 4,472 DEFERRED FINANCING COSTS AND OTHER ASSETS, Net.............. 3,239 15,346 -------- -------- TOTAL....................................................... $281,427 $482,611 ======== ========
(Continued) See notes to consolidated financial statements. B-4 123 ACT III CINEMAS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1997 LIABILITIES AND SHAREHOLDERS' DEFICIT
1996 1997 -------- --------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations (Note 5)................................... $ 1,978 $ 94,831 Accounts payable.......................................... 10,042 18,251 Accrued film rentals...................................... 10,063 12,098 Interest payable.......................................... 5,089 6,628 Taxes other than income taxes............................. 2,839 3,380 Other current liabilities................................. 6,650 6,311 Income taxes payable...................................... 1,610 312 -------- --------- Total current liabilities......................... 38,271 141,811 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Note 5)....... 254,130 431,972 DEFERRED INCOME TAXES (Note 8).............................. 9,173 12,632 OTHER NONCURRENT LIABILITIES................................ -- 432 -------- --------- Total liabilities................................. 301,574 586,847 COMMITMENTS AND CONTINGENCIES (Note 11)..................... -- -- MANDATORILY REDEEMABLE SECURITIES (Note 6).................. 13,132 -- SHAREHOLDERS' DEFICIT: Preferred stock, $.01 par value, 50,000 authorized; none issued and outstanding at December 31, 1997............ -- -- Common stock, $.001 par value, 150,000 shares authorized, 49,047 and 47,852 shares issued and outstanding (Note 7)..................................................... 1 -- Additional paid-in capital................................ 4,979 607 Loans to shareholders..................................... -- (501) Accumulated deficit....................................... (38,259) (104,342) -------- --------- Total shareholders' deficit....................... (33,279) (104,236) -------- --------- TOTAL....................................................... $281,427 $ 482,611 ======== =========
(Concluded) See notes to consolidated financial statements. B-5 124 ACT III CINEMAS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997 -------- -------- -------- (AMOUNTS IN THOUSANDS) REVENUES: Admissions............................................... $133,522 $152,257 $172,940 Concessions.............................................. 60,554 69,184 78,190 Other.................................................... 2,115 2,108 2,150 -------- -------- -------- Total revenues................................... 196,191 223,549 253,280 -------- -------- -------- EXPENSES: Costs of operations: Film rental........................................... 70,232 81,015 93,243 Cost of concessions................................... 9,292 10,589 12,432 Other theatre operating expenses...................... 55,486 65,935 78,294 General and administrative expenses (Notes 7 and 10)..... 6,341 7,169 8,095 Depreciation and amortization............................ 12,705 19,862 21,821 Amortization of intangibles and other assets............. 9,457 5,955 4,083 Recapitalization expenses (Note 2)....................... -- -- 25,851 -------- -------- -------- Total expenses................................... 163,513 190,525 243,819 -------- -------- -------- INCOME FROM OPERATIONS..................................... 32,678 33,024 9,461 -------- -------- -------- OTHER INCOME (EXPENSE): Interest income.......................................... 1,395 838 1,281 Interest expense (Note 5)................................ (25,281) (23,475) (28,119) Other.................................................... 153 188 1,826 -------- -------- -------- (23,733) (22,449) (25,012) -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS... 8,945 10,575 (15,551) PROVISION FOR (BENEFIT FROM) INCOME TAXES (Note 8)......... 3,759 4,690 (1,142) -------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY LOSS.................... 5,186 5,885 (14,409) EXTRAORDINARY LOSS -- Loss on early retirement of debt, net of income tax benefit of $1,391 (Note 9)................. -- -- 7,700 -------- -------- -------- NET INCOME (LOSS).......................................... 5,186 5,885 (22,109) ACCRETION OF MANDATORILY REDEEMABLE SECURITIES (Note 6).... 24 19 13 DIVIDENDS ON MANDATORILY REDEEMABLE SECURITIES (Note 6).... 1,492 1,717 1,425 -------- -------- -------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK............... $ 3,670 $ 4,149 $(23,547) ======== ======== ========
See notes to consolidated financial statements. B-6 125 ACT III CINEMAS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
COMMON STOCK ADDITIONAL LOANS TO ---------------- PAID-IN SHARE- ACCUMULATED SHARES AMOUNT CAPITAL HOLDERS DEFICIT TOTAL ------- ------ ---------- -------- ----------- --------- (AMOUNTS IN THOUSANDS) BALANCE, DECEMBER 31, 1994..... 49,314 $ 1 $ 4,779 $ -- $ (45,578) $ (40,798) Accretion of mandatorily redeemable securities........ -- -- -- -- (24) (24) Dividends on mandatorily redeemable securities........ -- -- -- -- (1,492) (1,492) Net income..................... -- -- -- -- 5,186 5,186 Redemption of common stock..... (267) -- (300) -- -- (300) ------- --- --------- ----- --------- --------- BALANCE, DECEMBER 31, 1995..... 49,047 1 4,479 -- (41,908) (37,428) Accretion of mandatorily redeemable securities........ -- -- -- -- (19) (19) Dividends on mandatorily redeemable securities........ -- -- -- -- (1,717) (1,717) Net income..................... -- -- -- -- 5,885 5,885 ------- --- --------- ----- --------- --------- BALANCE, DECEMBER 31, 1996..... 49,047 1 4,479 -- (37,759) (33,279) Accretion of mandatorily redeemable securities........ -- -- -- -- (13) (13) Dividends on mandatorily redeemable securities........ -- -- -- -- (1,425) (1,425) Conversion of mandatorily redeemable securities........ 10,698 -- 14,570 -- -- 14,570 Stock compensation............. -- -- 1,500 -- -- 1,500 Issuance of common stock, net of issuance costs of $3,520....................... 42,531 -- 209,135 -- -- 209,135 Purchase and retirement of common stock................. (54,545) (1) (229,684) -- (43,036) (272,721) Issuance of common stock....... 21 -- 106 -- -- 106 Issuance of common stock in exchange for notes........... 100 -- 501 (501) -- -- Net loss....................... -- -- -- -- (22,109) (22,109) ------- --- --------- ----- --------- --------- BALANCE, DECEMBER 31, 1997..... 47,852 $-- $ 607 $(501) $(104,342) $(104,236) ======= === ========= ===== ========= =========
See notes to consolidated financial statements. B-7 126 ACT III CINEMAS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
1995 1996 1997 --------- -------- -------- (AMOUNTS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $ 5,186 $ 5,885 $(22,109) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 22,162 25,817 25,904 Amortization of debt discount.......................... 1,038 937 823 Loss on sale of assets................................. 22 -- 289 Gain on installment sale............................... -- -- (2,301) Deferred income taxes.................................. 674 1,502 3,459 Stock compensation..................................... -- -- 1,500 Other.................................................. -- -- 432 Extraordinary loss -- loss on early retirement of debt................................................. -- -- 7,700 Change in current assets and liabilities: Accounts receivable.................................. 371 (458) (624) Inventories.......................................... (502) (268) (58) Prepaids and other current assets.................... (63) (196) (480) Accounts payable..................................... 69 5,618 8,209 Accrued film rentals................................. 850 1,131 2,035 Interest payable..................................... 832 60 1,539 Taxes other than income taxes........................ 452 (318) 541 Other current liabilities............................ 103 1,402 (339) Income taxes......................................... 1,675 (1,406) (5,331) --------- -------- -------- Net cash provided by operating activities......... 32,869 39,706 21,189 --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures...................................... (32,222) (73,608) (120,518) Increase in restricted cash and cash equivalents.......... -- -- (95,094) Proceeds from sale of assets.............................. 329 -- 149 Payments received on contracts receivable, net............ 380 8 3,650 --------- -------- -------- Net cash used in investing activities............. (31,513) (73,600) (211,813) --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Long-term debt borrowings................................. -- 25,000 476,336 Deferred financing costs.................................. -- -- (16,807) Proceeds from issuance of common stock.................... -- -- 209,241 Purchase and retirement of common stock................... (300) -- (272,721) Payments made on long-term debt........................... (9,485) (1,388) (212,130) --------- -------- -------- Cash provided by (used in) financing activities... (9,785) 23,612 183,919 --------- -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (8,429) (10,282) (6,705) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 27,431 19,002 8,720 --------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 19,002 $ 8,720 $ 2,015 ========= ======== ========
See notes to consolidated financial statements. B-8 127 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF OPERATIONS AND BASIS OF PRESENTATION -- Act III Cinemas, Inc. ("Cinemas" or the "Company") owns and operates movie theatres through its wholly-owned subsidiary, Act III Theatres, Inc. ("Theatres") in the states of Alaska, Idaho, Missouri, Nevada, Oregon, Texas and Washington. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles which require management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of 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. BASIS OF CONSOLIDATION -- The consolidated financial statements include the accounts of Cinemas, its wholly-owned subsidiary, Theatres, and all of the wholly-owned subsidiaries of Theatres. All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION AND FILM RENTAL COSTS -- Revenues are recognized when admissions and concession sales are collected at the theatres. Film rental costs are accrued based on the applicable box office receipts and the terms of the film licenses. The Company licenses approximately 90% of its films from seven film distributors. CASH AND CASH EQUIVALENTS include short-term investments with an original maturity of less than 90 days. The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of those instruments. RESTRICTED CASH AND CASH EQUIVALENTS consist of amounts held in trust for the payment of the 11 7/8% Senior Subordinated Notes outstanding at December 31, 1997. Such notes were repaid on February 1, 1998. ACCOUNTS RECEIVABLE AND ADVERTISING EXPENSES -- Accounts receivable consist primarily of amounts which will be deducted from final film payments under the terms of co-op advertising arrangements with film distributors. The Company records its share of advertising expense under the co-op arrangements at the time the advertisements are first run. Advertising expense aggregated $4,410, $5,080, and $6,918 for the years ended December 31, 1995, 1996, and 1997, respectively, and is included in other theatre operating expenses in the accompanying consolidated statements of operations. The co-op advertising receivables aggregated $1,286 and $1,514 at December 31, 1996 and 1997, respectively. INVENTORIES consist of concession and theatre supplies and are stated at the lower of cost or market. The Company uses the first-in, first-out (FIFO) method to determine cost. PREPAIDS AND OTHER CURRENT ASSETS consist primarily of theatre leasehold improvements paid by the Company, which will be reimbursed by the lessor, and prepaid interest expense. PROPERTY AND EQUIPMENT are stated at cost. The Company uses the straight-line method to compute depreciation and amortization over the estimated useful lives of the assets as follows: Buildings and improvements.................................. 20 to 31.5 years Fixtures and equipment...................................... 5 to 7 years Leasehold improvements...................................... 4 to 20 years
Leasehold improvements are amortized using the lesser of the useful life of the improvement or the remaining lease term. B-9 128 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTANGIBLES -- The Company uses the straight-line method to compute amortization of favorable lease terms acquired over the related lease term and the excess of purchase price over fair value of net tangible assets acquired over a 20 year period. IMPAIRMENT OF LONG-LIVED ASSETS -- The Company believes the above useful lives for property and equipment and intangibles are appropriate based on the factors influencing acquisition decisions. These factors include theatre location, profitability and general industry outlook. The Company reviews its property and equipment and intangible assets for asset impairment whenever changes in circumstances indicate that the carrying amount of such assets may not be recoverable. To perform that review, the Company estimates the sum of expected future undiscounted cash flows from the related theatre operations. If the estimated net cash flows are less than the carrying amount of property and equipment and intangibles, the Company would recognize an impairment loss in an amount necessary to write the property and equipment and intangibles down to fair value as determined by the expected discounted future cash flows. DEFERRED FINANCING COSTS AND OTHER ASSETS consist primarily of deferred financing fees which are being amortized over the lives of the related debt facilities using the straight-line method, which approximates the effective interest method. PREOPENING COSTS are expensed as incurred. OTHER CURRENT LIABILITIES include deferred revenues from advance ticket and gift certificate sales of $2,117 and $1,730 at December 31, 1996 and 1997, respectively, and also include payroll related liabilities and accrued percentage rents. INCOME TAXES -- The Company utilizes the liability method to account for income taxes such that deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of the enacted tax laws and tax rates. Deferred income tax expense or benefit is based on the changes in the financial statement basis versus the tax basis in the Company's assets or liabilities from period to period. STATEMENT OF CASH FLOWS -- The Company made the following cash payments:
1995 1996 1997 ------- ------- ------- Interest............................. $23,411 $23,342 $24,477 Income taxes......................... 1,979 4,364 1,767
Interest capitalized totaled zero, $864, and $2,240 for each of the years ended December 31, 1995, 1996, and 1997, respectively. As reported in the consolidated statements of shareholders' deficit, the Company's mandatorily redeemable securities accrued dividends and accretion in all periods, which have been excluded from the accompanying consolidated statements of cash flows. STOCK-BASED COMPENSATION -- SFAS No. 123, Accounting for Stock-Based Compensation, allows companies to choose whether to account for stock-based compensation on a fair value method or to continue accounting for such compensation under the method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"). The Company has chosen to continue to account for stock compensation using APB 25 (see Note 7). SFAS NO. 130, REPORTING COMPREHENSIVE INCOME, requires that all items required to be recognized as a component of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. The new standard is effective for the Company's year ending December 31, 1998. Adoption of SFAS No. 130 will not impact previously reported net income (loss) or affect the comparability of financial statements. B-10 129 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RECLASSIFICATIONS -- Certain reclassifications have been made to the 1995 and 1996 financial statements to conform with the 1997 presentation. These reclassifications had no impact on previously reported results of operations or common shareholders' deficit. 2. RECAPITALIZATION On October 17, 1997, the Company and Act III Acquisition Corp. ("Acquisition Corp.") entered into an Agreement and Plan of Merger (the "Merger Agreement"). Acquisition Corp. was owned by KKR 1996 Fund L.P. and KKR Partners II L.P., entities operated at the direction of Kohlberg Kravis Roberts & Co., a private investment firm ("KKR"). Pursuant to the Merger Agreement, on December 3, 1997, Acquisition Corp. was merged with and into the Company (the "Merger"), with the Company continuing as the surviving corporation. At December 31, 1997, affiliates of KKR owned approximately 42,531 shares, or approximately 89% of the Company's common stock outstanding after the Merger. In order to fund the transactions contemplated by the Merger (the "Recapitalization"), the Company issued $250,000 new bank debt, $150,000 Subordinated Notes due June 2008 to KKR 1996 L.P., and issued 42,531 shares of common stock to KKR affiliates for $212.7 million. In connection with the Merger, the Company repaid the $211,542 outstanding balance on the Company's previous $250,000 credit facility, deposited $95,094 in trust to retire $85,000 Senior Subordinated Notes, including interest of $5,047 and fees of $5,047; paid $13,590 to redeem certain outstanding stock options, and purchased and retired 54,545 shares of common stock for $272.7 million. During 1997, nonrecurring costs of approximately $25.8 million, including approximately $17.2 million of compensation costs, were incurred and expensed in connection with the Recapitalization. Financing costs of approximately $15.2 million were incurred and classified as deferred financing costs which will be amortized over the lives of the new debt facilities (see Note 5). In addition, the Company incurred approximately $3.5 million of costs associated with issuing common stock. Such costs were netted against the proceeds from the stock issuance. Of the total Merger and Recapitalization costs above, $6.0 million were paid to KKR. 3. CONTRACTS RECEIVABLE Contracts receivable consist primarily of the following items: In November 1991, the Company effectively sold six theatres to a then former senior executive officer under a sales contract in the gross amount of $4,034 in settlement of claims previously filed by the officer and the Company against each other. The Company recorded a deferred gain on the sale of $2,802 which was being recognized over the term of the contract under the installment method as cash was received. At December 31, 1996, the balance of the contract, net of the deferred gain of $2,301, was $1,036. During the year ended December 31, 1997, all amounts due under the contract were received. Accordingly, the deferred gain of $2,301 was recognized fully in 1997. In March 1992, the Company loaned $2,350 in cash to a Texas corporation in exchange for a noninterest-bearing note to settle a claim previously brought against Act III Theatres, L.P. ("Theatres L.P."), Cinemas' previous majority shareholder. The Texas corporation used such funds to equip and operate a theatre in Texas and is repaying the note in installments of up to $500 per year from the theatre's cash flow, as defined, until such time that the note is fully repaid. Management believes the theatre will provide sufficient cash flow to fully repay the note. The note is secured by the theatre. At December 31, 1996, the balance of this note, net of a $210 discount, was $910. At December 31, 1997, the balance of this note, net of a $117 discount, was $607. B-11 130 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT Property and equipment consist of:
1996 1997 -------- -------- Land........................................................ $ 39,389 $ 43,639 Buildings and improvements.................................. 156,007 212,708 Fixtures and equipment...................................... 89,981 144,884 Leasehold improvements...................................... 17,805 17,805 -------- -------- 303,182 419,036 Accumulated depreciation and amortization................... (71,561) (89,156) -------- -------- Property and equipment, net....................... $231,621 $329,880 ======== ========
At December 31, 1996 and 1997, property and equipment include $23,127 of buildings and improvements held under capital leases with related accumulated amortization of $10,198 and $11,378, respectively. 5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt consists of:
1996 1997 -------- -------- Term loans.................................................. $ -- $250,000 Subordinated note........................................... -- 150,000 Revolving line of credit.................................... 135,025 -- 11 7/8% Senior Subordinated Notes, due February 1, 2003..... 85,000 90,047 -------- -------- 220,025 490,047 Less debt discount.......................................... (1,442) -- Other nonrecourse debt, generally payable in monthly installments, plus interest at approximately 10%.......... 12,619 12,862 -------- -------- 231,202 502,909 Capital lease obligations, payable in monthly installments, plus interest at approximately 14%........................ 24,906 23,894 -------- -------- 256,108 526,803 Current portion............................................. (1,978) (94,831) -------- -------- Total long-term debt and capital lease obligations..................................... $254,130 $431,972 ======== ========
Under the Company's previous $250,000 credit facility (the "revolving line of credit"), interest was payable monthly at prime plus .25% or LIBOR plus 1.75% (at the Company's option). The margin added to prime or LIBOR was determined based upon certain financial ratios of the Company. The revolving line of credit was repaid in conjunction with the Recapitalization. CREDIT FACILITIES -- In connection with the Merger and Recapitalization, the Company entered into credit facilities provided by a syndicate of financial institutions. Such credit facilities (the "Credit Facilities") include a $300,000 Revolving Credit Facility (including the availability of Revolving Loans, Swing Line Loans, and Letters of Credit) and three term loan facilities: Term A ($80,000), Term B ($80,000), and Term C ($90,000) (the "Term Loans"). The Company must pay an annual commitment fee ranging from 0.2% to 0.425%, depending on the Company's Total Leverage Ratio, as defined, of the unused portion of the Revolving Credit Facility. The Revolving Credit Facility expires in December 2004. No borrowings were outstanding under the Revolving Credit Facility at December 31, 1997. B-12 131 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Borrowings under the Term A Loan or the Revolving Credit Facility can be made at the "Base Rate" plus a margin of 0% to 1%, or the "LIBO Rate," plus .625% to 2.25%, both depending on the Total Leverage Ratio. The Base Rate on revolving loans is the rate established by the Administrative Agent in New York as its base rate for dollars loaned in the United States. The LIBO Rate is based on the LIBOR rate for the corresponding length of loan. 1% of the outstanding balance on the Term A Loan is due annually through 2003, with the balance of the Term A Loan due in 2004. Borrowings under the Term B Loan can be made at the Base Rate plus a margin of 0.75% to 1.25% or the LIBO Rate plus 2.0% to 2.5%, both depending on the Total Leverage Ratio. 1% of the outstanding balance is due annually through 2004, with the balance of the loan due in 2005. Borrowings under the Term C Loan can be made at the Base Rate plus a margin of 1.0% to 1.5% or the LIBO Rate plus 2.25% to 2.75%, both depending on the Total Leverage Ratio. 1% of the outstanding balance is due annually through 2005, with the balance of the loan due in 2006. The Credit Facilities contain customary covenants and restrictions on the Company's ability to issue additional debt or engage in certain activities and include customary events of default. In addition, the Credit Facilities specify that the Company must meet or exceed defined interest coverage ratios and must not exceed defined leverage ratios. The Company was in compliance with such covenants at December 31, 1997. Long-term debt is secured by substantially all assets of the Company. SENIOR SUBORDINATED NOTES -- In connection with the Recapitalization, the Company issued $150,000 Senior Subordinated Notes (the "Subordinated Notes") to KKR 1996 Fund L.P., a related party. The notes bear interest at the treasury bill rate, as defined, plus 4% through May 1998, the treasury bill rate plus 5% through May 1999, the 10-year treasury note rate plus 5% through May 2000, the 10-year treasury note rate plus 6% through May 2001, and the 10-year treasury note rate plus 7% thereafter, in no event exceeding 12% for any period. Through May 2002, interest is payable semiannually on June 1 and December 1, at the Company's discretion. Any accrued but unpaid interest outstanding at November 30, 2002 must be repaid on December 1 of that year. Subsequent to December 1, 2002, interest is payable semiannually. The principal of the Subordinated Notes is due in May 1998 but may be automatically extended through May 1999 (the "Conversion Date"). On the Conversion Date, the Subordinated Notes, if unpaid, become due and payable on May 30, 2008. The Subordinated Notes are subordinated to all other indebtedness of the Company. The Subordinated Notes are classified as long-term at December 31, 1997 due to the automatic extension of the due date permitted under their terms. The 11 7/8% Senior Subordinated Notes (the "11 7/8% Notes"), due February 1, 2003, were repaid on February 1, 1998. On December 3, 1997, pursuant to the terms of the 11 7/8% Notes, the Company deposited funds in an irrevocable trust sufficient to redeem the $85,000 principal balance, accrued interest of $5,047, and prepayment penalties of $5,047 on the first available call date, February 1, 1998. Prior to their redemption, interest on the 11 7/8% Notes was due semiannually on February 1 and August 1 of each year. B-13 132 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As of December 31, 1997, scheduled maturities of long-term debt, including capital lease obligations, are summarized as follows:
CAPITAL LEASES YEAR ENDING LONG-TERM ------------------------------- TOTAL DECEMBER 31, DEBT PAYMENTS INTEREST PRINCIPAL PRINCIPAL - ------------ --------- -------- -------- --------- --------- 1998............................... $ 93,638 $ 4,360 $ 3,167 $ 1,193 $ 94,831 1999............................... 3,623 4,377 2,990 1,387 5,010 2000............................... 3,461 4,377 2,643 1,734 5,195 2001............................... 3,556 4,402 2,530 1,872 5,428 2002............................... 3,660 4,747 2,517 2,230 5,890 Thereafter......................... 394,971 20,400 4,922 15,478 410,449 -------- ------- ------- ------- -------- $502,909 $42,663 $18,769 $23,894 $526,803 ======== ======= ======= ======= ========
6. MANDATORILY REDEEMABLE SECURITIES Mandatorily redeemable securities consist of:
MANDATORILY REDEEMABLE SECURITIES ----------------------------------- CARRYING REDEMPTION SHARES VALUE VALUE ------- --------- ----------- Balance, December 31, 1994........................... 200 $ 9,880 $ 9,949 Accretion to redemption value........................ -- 24 -- Accretion of dividends............................... -- 1,492 1,492 ---- -------- -------- Balance, December 31, 1995........................... 200 11,396 11,441 Accretion to redemption value........................ -- 19 -- Accretion of dividends............................... -- 1,717 1,717 ---- -------- -------- Balance, December 31, 1996........................... 200 13,132 13,158 Accretion to redemption value........................ -- 13 -- Accretion of dividends............................... -- 1,425 1,425 Conversion of securities into common stock........... (200) (14,570) (14,583) ---- -------- -------- Balance, December 31, 1997........................... -- $ -- $ -- ==== ======== ========
MANDATORILY REDEEMABLE SECURITIES -- During 1990, Cinemas authorized and issued shares of its mandatorily redeemable senior subordinated convertible preferred stock ("Senior Subordinated Convertible Preferred Stock"), par value $.01 per share. The holders of the Senior Subordinated Convertible Preferred Stock were entitled to annual dividends, payable on September 30, at the rate of 15% per annum of the base amount of each share. The base amount was defined as $25,000 per share, adjusted by the amount of any dividends on such shares accrued to date and not previously paid or added to the base amount. Cinemas was required to redeem the Senior Subordinated Convertible Preferred Stock on February 8, 2000 at the base amount per share. Accretion to record the value of the Senior Subordinated Convertible Preferred Stock at its redemption value on its scheduled redemption date was calculated using the effective interest method. Each share of Senior Subordinated Convertible Preferred Stock was convertible into one share (prior to the stock split referred to below) of common stock at the holder's option. In connection with the Merger and Recapitalization, the holders of all 200 outstanding shares of Senior Subordinated Convertible Preferred Stock elected to convert their shares to common stock. B-14 133 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. SHAREHOLDERS' DEFICIT STOCK SPLIT -- Effective December 3, 1997, the Company declared a 53,488.9 to one stock split. Share data for all periods presented has been restated to reflect the effects of the split. STOCK OPTION AND INCENTIVE COMPENSATION PLANS -- Prior to the Merger, certain members of management of the Company and its subsidiaries were granted either nonqualified stock options or incentive stock options to purchase shares of common stock under the Management Stock Option Plan. All options issued under the Management Stock Option Plan became fully vested upon consummation of the Merger, and all participants either received cash, for the difference between the per share price inherent in the Merger and Recapitalization and the exercise price of their options, or retained their existing options. In addition, certain members of management were issued options under the newly formed 1997 Stock Option Plan for Key Employees of Act III Cinemas, Inc. (the "Plan"). Under the Plan, the Compensation Committee of the Board of Directors of the Company may award either nonqualified stock options or incentive stock options to purchase shares of common stock. The number of shares of common stock which may be issued pursuant to such options may not exceed 20% of common shares outstanding. The option price per share is determined by the Compensation Committee, provided that, in the case of incentive stock options, the purchase price per share shall not be less than 100% of the fair market value of the Company's common stock on the grant date. The following table summarizes the stock option activity under the stock option plans:
WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE ---------- -------- December 31, 1994........................................... 1,631,411 $0.09 Granted................................................... 1,872,112 0.34 ---------- ----- December 31, 1995........................................... 3,503,523 0.22 Granted................................................... 1,738,389 0.37 ---------- ----- December 31, 1996........................................... 5,241,912 0.27 Granted................................................... 6,419,923 4.92 Exercised................................................. (3,057,199) 0.20 ---------- ----- December 31, 1997........................................... 8,604,636 $3.77 ========== =====
Additional information regarding options outstanding as of December 31, 1997 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------- ----------------------- OUTSTANDING WEIGHTED AVG. WEIGHTED EXERCISABLE WEIGHTED AS OF REMAINING AVERAGE AS OF AVERAGE RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE EXERCISE PRICES 1997 LIFE (YRS) PRICE 1997 PRICE - --------------- ------------ ------------- -------- ------------ -------- $.34 to $.37 2,291,691 8.8 $0.37 2,291,691 $0.37 $5.00 6,312,945 9.9 5.00 -- 5.00 --------- --- ----- --------- ----- 8,604,636 9.6 $3.77 2,291,691 $0.37 ========= === ===== ========= =====
As discussed in Note 1, the Company has adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation cost has been recognized for stock options granted at the fair value on the date of grant. Had compensation cost for the Company's stock option plans been determined based on the estimated fair value of the options at the date of grant, the effect on 1995, 1996, and 1997 net income or loss of applying SFAS No. 123 would not have been material. B-15 134 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) For the years ended December 31, 1995, 1996, and 1997, the Company recognized $77, $630, and $15,171, respectively, of compensation expense related to these options, of which $14,325 of 1997 expense resulted from the full vesting of all options upon consummation of the Merger. The Company has a discretionary Management Incentive Compensation Plan whereby designated executives and key employees may be awarded an incentive amount based on 3.5% of earnings before income taxes and interest, as defined in the agreement. Compensation expense related to this plan was $782, $951, and $991 for the years ended December 31, 1995, 1996, and 1997, respectively. Compensation expense related to the stock option plans and the Management Incentive Compensation Plan is included in general and administrative expenses in the accompanying consolidated statements of operations, except for compensation expense relating to the Merger and Recapitalization, which is included in recapitalization expenses. 8. INCOME TAXES The income tax provision (benefit) associated with income (loss) before extraordinary items consists of the following:
1995 1996 1997 ------ ------ ------- Current: Federal............................................... $2,838 $2,945 $(4,601) State................................................. 247 243 -- ------ ------ ------- Total current................................. 3,085 3,188 (4,601) ------ ------ ------- Deferred: Federal............................................... 620 1,386 3,867 State................................................. 54 116 (408) ------ ------ ------- Total deferred................................ 674 1,502 3,459 ------ ------ ------- Total income tax provision (benefit).......... $3,759 $4,690 $(1,142) ====== ====== =======
The effective income tax rate on income before extraordinary items for the years ended December 31, 1995, 1996, and 1997 differs from the statutory federal income tax rate of 34% as follows:
1995 1996 1997 ---- ---- ----- Federal statutory tax rate.................................. 34.0% 34.0% 34.0% Nondeductible recapitalization costs........................ -- -- (25.5) Purchase accounting amortization adjustments................ 2.4 4.6 (1.0) State taxes, net of federal effect.......................... 3.1 2.8 0.5 Other....................................................... 2.5 2.9 (0.7) ---- ---- ----- Effective rate.................................... 42.0% 44.3% 7.3% ==== ==== =====
B-16 135 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DEFERRED INCOME TAXES -- The components of the net deferred tax liability are:
1996 1997 ------- ------- Deferred tax assets: Capital lease obligation.................................. $ 9,215 $ 9,212 Intangibles............................................... 206 45 Debt discount associated with warrants.................... 2,459 -- Net operating loss and tax credit carryforwards........... -- 3,097 Other..................................................... 503 245 ------- ------- Total deferred tax asset.......................... 12,383 12,599 ------- ------- Deferred tax liabilities: Property and equipment and accumulated depreciation....... 17,536 20,849 Intangibles and accumulated amortization.................. 4,020 4,382 ------- ------- Total deferred tax liability...................... 21,556 25,231 ------- ------- Net deferred tax liability........................ $ 9,173 $12,632 ======= =======
Net operating loss and tax credit carryforwards, if unused, will expire in 2012. 9. EXTRAORDINARY LOSS An extraordinary loss of $7,700, net of income taxes of $1,391, was recognized for the write-off of deferred financing costs and prepayment penalties incurred in connection with redeeming the 11 7/8% Notes as well as for the write-off of deferred financing costs related to the Company's previous credit facility. 10. RELATED-PARTY TRANSACTIONS Pursuant to a management agreement between the Company and its former indirect parent, Act III Communications Holdings L.P. ("Holdings, L.P."), beginning in 1993 and amended February 14, 1997, Holdings L.P. charged annual management fees of $600, $600, and $917 for the years ended December 31, 1995, 1996, and 1997, respectively. Holdings L.P. has also charged the Company additional amounts of $517, $677, and $1,027 for the years ended December 31, 1995, 1996, and 1997, respectively, for the allocation of salaries of certain Holdings L.P. employees, including Cinemas' Chief Executive Officer, rent and other charges. The annual base fee and additional charges, which were permitted by the principal creditor, are included in general and administrative expenses in the accompanying consolidated statement of operations. In connection with the Merger, the above agreements were terminated. Concurrent with the Merger, the Company entered into a management agreement with KKR which permits KKR to charge annual management fees of up to $750. The Company paid no management fees to KKR in 1997. 11. COMMITMENTS AND CONTINGENCIES COMMITMENTS -- The Company utilizes land, building, and equipment under various long-term rental and lease agreements which expire in varying years through approximately 2035. The majority of these leases represent operating leases wherein rental payments are recorded as rent expense when incurred. In addition to specified minimum lease payments, certain of these leases require rents based on specified theatre revenues. B-17 136 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1997, minimum annual rentals under long-term operating leases are: 1998........................................................ $ 14,794 1999........................................................ 14,926 2000........................................................ 14,846 2001........................................................ 12,559 2002........................................................ 12,080 Thereafter.................................................. 178,010 -------- Total............................................. $247,215 ========
Rent expense under these long-term operating leases aggregated $10,472, $12,964, and $15,725 and included $1,389, $3,161, and $3,987 of rents based on specific theatre revenues for the years ended December 31, 1995, 1996, and 1997, respectively. Operating lease rent expense is included in other theatre operating expenses and general and administrative expenses in the accompanying consolidated statement of operations. The Company had entered into commitments as of December 31, 1997 totaling approximately $59.7 million for the construction of new theaters. CONTINGENCIES -- From time to time, the Company is involved in legal proceedings arising in the ordinary course of its business operations, such as personal injury claims, employment matters and contractual disputes. Management believes that the Company's potential liability with respect to such proceedings is not material in the aggregate to the Company's consolidated financial position, results of operations, or liquidity. 12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows:
1996 1997 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Cash and cash equivalents..................... $ 8,720 $ 8,720 $ 2,015 $ 2,015 Restricted cash and cash equivalents.......... -- -- 95,094 95,094 Contracts receivable.......................... 2,294 2,294 658 658 Long-term debt, excluding capital lease obligations (Note 5)........................ 231,202 238,002 502,909 502,909 Mandatorily redeemable securities -- Not practicable to estimate (Note 6)............ 13,132 -- -- --
Excluding the $85,000 of 11 7/8% Notes, the carrying amount of the Company's long-term debt approximates its fair value, since the debt is primarily variable rate debt. The fair value of the 11 7/8% Notes was approximately $91,800 at December 31, 1996, based on quoted market prices. The carrying value of the 11 7/8% Notes at December 31, 1997 approximates fair value, based on their subsequent repayment. It was not practicable to determine the fair value of the mandatorily redeemable securities at December 31, 1996 due to the lack of a readily available market for these securities. * * * * * * B-18 137 ACT III CINEMAS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND JUNE 30, 1998 (UNAUDITED) ASSETS
DECEMBER 31 JUNE 30 1997 1998 ----------- --------- (AMOUNTS IN THOUSANDS,EXCEPT PER SHARE AMOUNTS) CURRENT ASSETS: Cash and cash equivalents................................. $ 2,015 $ 1,942 Restricted cash and cash equivalents...................... 95,094 -- Accounts receivable....................................... 1,948 1,403 Prepaid expenses and other receivables.................... 1,121 696 Inventories............................................... 2,180 2,576 Income tax receivable..................................... 5,424 -- --------- --------- Total current assets.............................. 107,782 6,617 CONTRACTS RECEIVABLE........................................ 658 359 PROPERTY AND EQUIPMENT, Net................................. 329,880 357,123 INTANGIBLES, Net............................................ 28,945 27,540 OTHER ASSETS, Net........................................... 15,346 14,385 --------- --------- TOTAL............................................. $ 482,611 $ 406,024 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt and capital lease obligations............................................ $ 94,831 $ 4,261 Accounts payable.......................................... 18,251 $ 9,630 Accrued film rentals...................................... 12,098 11,428 Taxes other than income taxes............................. 3,380 2,630 Interest payable.......................................... 6,628 1,538 Other current liabilities................................. 6,623 5,528 --------- --------- Total current liabilities......................... 141,811 35,015 DEFERRED INCOME TAXES....................................... 12,632 8,861 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS................ 431,972 403,734 OTHER NONCURRENT LIABILITIES................................ 432 692 --------- --------- Total liabilities................................. 586,847 448,302 COMMITMENTS AND CONTINGENCIES (Note 4)...................... -- -- COMMON SHAREHOLDERS' EQUITY (DEFICIT): Common stock, $.001 par value, 150,000 shares authorized, 47,852 shares outstanding.............................. -- -- Additional paid-in capital................................ 607 63,262 Loans to shareholders..................................... (501) (501) Accumulated deficit....................................... (104,342) (105,039) --------- --------- Total common shareholders' equity (deficit)....... (104,236) (42,278) --------- --------- TOTAL............................................. $ 482,611 $ 406,024 ========= =========
See notes to consolidated financial statements. B-19 138 ACT III CINEMAS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 1997 1998 1997 1998 -------- -------- -------- -------- (AMOUNTS IN THOUSANDS) REVENUES: Admissions......................................... $39,415 $43,899 $ 82,168 $ 88,619 Concessions........................................ 17,952 20,890 37,117 42,058 Other.............................................. 481.... 441 1,104 990 ------- ------- -------- -------- Total revenues............................. 57,848 65,230 120,389 131,667 ------- ------- -------- -------- EXPENSES: Costs of operations: Film rental..................................... 21,581 24,290 43,416 45,886 Cost of concessions............................. 3,187 3,062 6,440 6,029 Other theatre operating expenses................ 18,591 20,656 37,107 41,844 General and administrative expenses................ 2,166 1,457 4,255 3,561 Depreciation and amortization...................... 6,265 7,952 12,342 15,801 ------- ------- -------- -------- Total expenses............................. 51,790 57,417 103,560 113,121 ------- ------- -------- -------- INCOME FROM OPERATIONS............................... 6,058 7,813 16,829 18,546 ------- ------- -------- -------- OTHER EXPENSES: Interest expense, net.............................. 6,321 9,896 11,972 19,502 Loss on sale of assets............................. 174 -- 289 -- ------- ------- -------- -------- 6,495 9,896 12,261 19,502 ------- ------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES.................... (437) (2,083) 4,568 (956) PROVISION FOR (BENEFIT FROM) INCOME TAXES............ (228) (676) 1,659 (259) ------- ------- -------- -------- NET INCOME (LOSS).................................... (209) (1,407) 2,909 (697) ACCRETION OF MANDATORILY REDEEMABLE SECURITIES....... 4 -- 8 -- PREFERRED DIVIDENDS.................................. 475 -- 950 -- ------- ------- -------- -------- NET INCOME (LOSS) APPLICABLE TO COMMON STOCK......... $ (688) $(1,407) $ 1,951 $ (697) ======= ======= ======== ========
See notes to consolidated financial statements. B-20 139 ACT III CINEMAS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
COMMON STOCK ADDITIONAL --------------- PAID-IN LOANS TO ACCUMULATED SHARES AMOUNT CAPITAL SHAREHOLDERS DEFICIT TOTAL ------ ------ ---------- ------------ ----------- --------- (AMOUNTS IN THOUSANDS) BALANCE, DECEMBER 31, 1997......... 47,852 $ -- $ 607 $(501) $(104,342) $(104,236) Equity contribution................ -- -- 62,655 -- -- 62,655 Net income (loss).................. -- -- -- -- (697) (697) ------ ---- ------- ----- --------- --------- BALANCE, JUNE 30, 1998............. 47,852 $ -- $63,262 $(501) $(105,039) $ (42,278) ====== ==== ======= ===== ========= =========
See notes to consolidated financial statements. B-21 140 ACT III CINEMAS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
1997 1998 --------- --------- (AMOUNTS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $ 2,909 $ (697) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 12,754 15,801 Loss on sale of assets................................. 289 -- Deferred income taxes.................................. 657 3,771 Change in certain working capital items and other...... 3,135 (4,922) -------- -------- Net cash provided by operating activities......... 19,744 6,411 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment....................... (44,457) (40,678) Net change in contracts receivable........................ (275) 299 Proceeds from sale of assets.............................. 150 -- -------- -------- Net cash used in investing activities............. (44,582) (40,379) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments made on long-term debt........................... (957) (91,105) Borrowings on long-term debt.............................. 39,975 62,345 Deferred financing costs.................................. (1,575) -- Equity contributions...................................... -- 62,655 -------- -------- Cash provided by financing activities............. 37,443 33,895 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 12,605 (73) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 8,720 2,015 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 21,325 $ 1,942 ======== ======== NONCASH INVESTING AND FINANCING ACTIVITIES: Repayment of debt and accrued interest with restricted cash and cash equivalents.............................. $ -- $ 95,094 ======== ========
See notes to consolidated financial statements. B-22 141 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED) (AMOUNTS IN THOUSANDS) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the consolidated results of operations for the interim periods. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The interim consolidated financial information and notes thereto should be read in conjunction with the Company's consolidated financial statements as of and for the year ended December 31, 1997. The consolidated results of operations for the three and six months ended June 30, 1998 are not necessarily indicative of results to be expected for the year ending December 31, 1998. 2. EARNINGS PER SHARE Earnings per share information is not presented as the Company's shares do not trade in a public market. 3. PROPERTY AND EQUIPMENT Property and equipment consist of:
DECEMBER 31, JUNE 30, 1997 1998 ------------ --------- Land........................................................ $ 43,639 $ 44,958 Buildings and improvements.................................. 212,708 236,689 Fixtures and equipment...................................... 144,884 160,262 Leasehold improvements...................................... 17,805 17,805 -------- --------- 419,036 459,714 Accumulated depreciation and amortization................... (89,156) (102,591) -------- --------- Property and equipment, net............................... $329,880 $ 357,123 ======== =========
At December 31, 1997 and June 30, 1998, property and equipment include $23,127 of buildings and improvements held under capital leases with related accumulated amortization of $11,378 and $11,969, respectively. 4. COMMITMENTS AND CONTINGENCIES COMMITMENTS -- See Note 11 of the Notes to Consolidated Financial Statements in the Company's financial statements for the year ended December 31, 1997 for a description of commitments under operating leases and for the construction of new theatres. Rent expense for the three and six months ended June 30, 1997 and 1998 was $3,624, $7,283, $4,144 and $9,520, respectively. CONTINGENCIES -- From time to time, the Company is involved in legal proceedings arising in the ordinary course of its business operations, such as personal injury claims, employment matters and contractual disputes. Management believes that the Company's potential liability with respect to such proceedings is not material in the aggregate to the Company's consolidated financial position, results of operations, or liquidity. B-23 142 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. SUBSEQUENT EVENT On August 26, 1998, the Company was acquired by Regal Cinemas, Inc. ("Regal") ("the Acquisition"). As a result of the Acquisition, each share of the Company's common stock was converted into the right to receive one share of Regal common stock. In connection with the Acquisition, the Company's outstanding indebtedness under the credit facilities and the subordinated note were repaid. B-24 143 ------------------------------------------------------------ ------------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE SECURITIES TO WHICH IT RELATES, OR ANY OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Available Information...................... i Cautionary Statement Regarding Forward- i Looking Statements....................... Prospectus Summary......................... 1 Risk Factors............................... 14 The Transactions........................... 21 Use of Proceeds............................ 22 Capitalization............................. 22 Unaudited Pro Forma Consolidated Financial 23 Data..................................... Selected Historical Consolidated Financial 29 Data..................................... Management's Discussion and Analysis of 31 Financial Condition and Results of Operations............................... Business................................... 39 Management................................. 49 Certain Transactions....................... 55 Principal Stockholders..................... 56 Description of Certain Indebtedness........ 58 The Exchange Offer......................... 60 Description of the Notes................... 67 Certain Federal Income Tax 88 Considerations........................... Plan of Distribution....................... 88 Legal Matters.............................. 89 Experts.................................... 89 Change in Accountants...................... 89 Index to Consolidated Financial Statements F-1 of Regal Cinemas, Inc. .................. Index to Consolidated Financial Statements B-1 of Act III Cinemas, Inc. ................
------------------------ UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ OFFER TO EXCHANGE ALL OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 FOR 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 --------------------- PROSPECTUS --------------------- , 1998 ------------------------------------------------------------ ------------------------------------------------------------ 144 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Tennessee Business Corporation Act ("TBCA") provides that a corporation may indemnify any of its directors and officers against liability incurred in connection with a proceeding if (i) the director or officer acted in good faith, (ii) in the case of conduct in his or her official capacity with the corporation, the director or officer reasonably believed such conduct was in the corporation's best interests, (iii) in all other cases, the director or officer reasonably believed that his or her conduct was not opposed to the best interest of the corporation, and (iv) in connection with any criminal proceeding, the director or officer had no reasonable cause to believe that his or her conduct was unlawful. In actions brought by or in the right of the corporation, however, the TBCA provides that no indemnification may be made if the director or officer was adjudged to be liable to the corporation. In cases where the director or officer is wholly successful, on the merits or otherwise, in the defense of any proceeding instigated because of his or her status as an officer or director of a corporation, the TBCA mandates that the corporation indemnify the director or officer against reasonable expenses incurred in the proceeding. The TBCA also provides that in connection with any proceeding charging improper personal benefit to an officer or director, no indemnification may be made if such officer or director is adjudged liable on the basis that personal benefit was improperly received. Notwithstanding the foregoing, the TBCA provides that a court of competent jurisdiction, upon application, may order that an officer or director be indemnified if, in consideration of all relevant circumstances, the court determines that such individual is fairly and reasonably entitled to indemnification, whether or not the standard of conduct set forth above was met or was adjudged liable, provided that if such officer or director was adjudged liable, indemnification is limited to reasonable expenses. Article 8 of the Amended and Restated Charter (the "Charter") of the Company and its Amended and Restated Bylaws provide that the Company shall indemnify against liability, and advance expenses to, any present or former director or officer of the Company to the fullest extent allowed by the TBCA, as amended from time to time, or any subsequent law, rule or regulation adopted in lieu thereof. Additionally, the Charter provides that no director of the Company shall be personally liable to the Company or any of its shareholders for monetary damages for breach of any fiduciary duty except for liability arising from (i) any breach of a director's duty of loyalty to the Company or its shareholders, (ii) acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) any unlawful distributions or (iv) receiving any improper personal benefit. The Company has entered into indemnification agreements with certain of the Company's directors and executive officers. Directors' and officers' liability insurance has also been obtained by the Company, the effect of which is to indemnify certain directors and officers of the Company against certain damages and expenses because of certain claims made against them caused by their negligent act, error or omission. The above discussion of the Charter and Bylaws of the Company and the TBCA is not intended to be exhaustive and is qualified in its entirety by reference thereto. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person thereof in the successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-1 145 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits:
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 -- Agreement and Plan of Merger, dated as of January 19, 1998, by and among Regal Cinemas, Inc., Screen Acquisition Corp. and Monarch Acquisition Corp.(7) 2.2 -- Agreement and Plan of Merger, dated as of August 20, 1998, among Regal Cinemas, Inc., Knoxville Acquisition Corp. and Act III Cinemas, Inc.(5) 3.1 -- Restated Charter of the Registrant.(1) 3.2 -- Amended and Restated Bylaws of the Registrant.** 4.1 -- Specimen Common Stock certificate.(1) 4.2 -- Article 5 of the Registrant's Amended and Restated Charter (included in Exhibit 3.1). 4.3 -- Indenture dated May 27, 1998 between Regal Cinemas, Inc. and IBJ Schroder Bank & Trust Company.(4) 4.4 -- Form of Regal Cinemas, Inc. 9 1/2% Senior Subordinated Note due June 1, 2008 (contained in Indenture filed as Exhibit 4.3).(4) 5 -- Opinion of Weil, Gotshal & Manges LLP.** 10.1 -- Employment Agreement, dated as of May 27, 1998, between Regal Cinemas, Inc. and Michael L. Campbell.(4) 10.2 -- Employment Agreement, dated as of May 27, 1998, between Regal Cinemas, Inc. and Lewis Frazer III.(4) 10.3 -- Employment Agreement, dated as of May 27, 1998, between Regal Cinemas, Inc. and Gregory W. Dunn.(4) 10.4 -- Credit Agreement, dated as of May 27, 1998, between Regal Cinemas, Inc., its subsidiaries and the lenders named therein.(4) 10.4-1 -- First Amendment, dated as of August 21, 1998, between Regal Cinemas, Inc., its subsidiaries and the lenders named therein.** 10.5 -- Agreement and Plan of Merger dated June 11, 1997 among Regal Cinemas, Inc., Regal Acquisition Corporation, RAC Corporation, RAC Finance Corp., Cobb Theatres, L.L.C., R.C. Cobb, Inc., Cobb Theatres II, Inc., Cobb Finance Corp. and Tricob Partnership.(3) 10.6 -- Agreement and Waiver dated July 31, 1997, by and among Regal Cinemas, Inc., Regal Acquisition Corporation, RAC Corporation, RAC Finance Corp., Cobb Theatres, L.L.C., R.C. Cobb, Inc., Cobb Theatres II, Inc., Cobb Finance Corp. and Tricob Partnership.(2) 10.7 -- 1993 Employee Stock Incentive Plan.(1) 10.8 -- Regal Cinemas, Inc. Participant Stock Option Plan.(1) 10.9 -- Regal Cinemas, Inc. Employee Stock Option Plan.(1) 10.10 -- 1998 Stock Purchase and Option Plan for Key Employees of Regal Cinemas, Inc.(6) 10.11 -- Form of Management Stockholder's Agreement.(6) 10.12 -- Form of Non-Qualified Stock Option Agreement.(6) 10.13 -- Form of Sale Participation Agreement.(6) 10.14 -- Form of Registration Rights Agreement.(6) 10.15 -- Stockholders' Agreement, dated as of May 27, 1998, among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR Partners II, L.P. and Regal Equity Partners, L.P.* 10.16 -- Stockholders' and Registration Rights Agreement, dated as of May 27, 1998, among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR Partners II, L.P., Regal Equity Partners, L.P. and the DLJ signatories thereto.* 12 -- Statement regarding computation of ratio of earnings to fixed charges.*
II-2 146
EXHIBIT NO. DESCRIPTION ------- ----------- 16.1 -- Letter from PricewaterhouseCoopers LLP.(8) 16.2 -- Letter from PricewaterhouseCoopers LLP.(9) 21 -- Subsidiaries.* 23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion to be filed as Exhibit 5.1 to the Registration Statement). 23.2 -- Consent of Deloitte & Touche LLP.* 23.3 -- Consent of PricewaterhouseCoopers LLP (Portland, Oregon).* 23.4 -- Consent of PricewaterhouseCoopers LLP (Knoxville, Tennessee).* 23.5 -- Consent of Ernst & Young LLP.* 24 -- Powers of Attorney of directors and executive officers of the Registrant (included on the signature pages hereto). 25 -- Statement of Eligibility and Qualification of IBJ Schroder Bank & Trust Company, as trustee, under the Indenture listed as Exhibit 4.3 hereto on Form T-1.* 27 -- Financial Data Schedule (for SEC use only). 99.1 -- Form of Letter of Transmittal.* 99.2 -- Form of Notice of Guaranteed Delivery.*
- --------------- * Filed herewith. ** To be filed by amendment. (1) Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 33-62868. (2) Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 14, 1997. (3) Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on Form 10-Q for the quarter ended May 31, 1997. (4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 1998. (5) Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 1, 1998. (6) Incorporated by reference to the Registrant's Registration Statement on Form S-8, Registration No. 333-52943. (7) Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 20, 1998. (8) Incorporated by reference to the Registrant's Current Report on Form 8-K/A dated September 16, 1998. (9) Incorporated by reference to the Registrant's Current Report on Form 8-K/A dated September 23, 1998. ITEM 22. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the II-3 147 form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 148 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Knoxville, State of Tennessee, on September 28, 1998. REGAL CINEMAS, INC. By: /s/ MICHAEL L. CAMPBELL ------------------------------------- Michael L. Campbell President and Chief Executive Officer POWER OF ATTORNEY Know all those by these presents, that each person whose signature appears below constitutes and appoints each of Michael L. Campbell and Lewis Frazer III, or any of them, each acting alone, his true and lawful attorney-in-fact and agent, with full Power of Substitution and Resubstitution, for such person and in his name, place and stead, in any and all capacities, in connection with the Registration Statement on Form S-4 of Regal Cinemas, Inc. under the Securities Act of 1933, as amended, including, without limitation the generality of the foregoing, to sign the Registration Statement in the name and on behalf of Regal Cinemas, Inc., or on behalf of the undersigned as a director or officer of Regal Cinemas, Inc., and any and all amendments or supplements to the Registration Statement, including any and all stickers and post-effective amendments to the Registration Statement, and to sign any and all additional Registration Statements relating to the same offering of Securities as the Registration Statement that are filed pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and any applicable securities exchange or securities self-regulatory body, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes or substitute, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ MICHAEL L. CAMPBELL President, Chief Executive September 28, 1998 - ----------------------------------------------------- Officer and Director Michael L. Campbell (Principal Executive Officer) /s/ LEWIS FRAZER III Executive Vice President, September 28, 1998 - ----------------------------------------------------- Chief Financial Officer Lewis Frazer III and Secretary (Principal Financial and Accounting Officer) Director September , 1998 - ----------------------------------------------------- David Deniger
II-5 149
SIGNATURE TITLE DATE --------- ----- ---- Director September , 1998 - ----------------------------------------------------- Thomas O. Hicks Director September , 1998 - ----------------------------------------------------- Henry R. Kravis /s/ MICHAEL J. LEVITT Director September 28, 1998 - ----------------------------------------------------- Michael J. Levitt /s/ JOHN R. MUSE Director September 28, 1998 - ----------------------------------------------------- John R. Muse Director September , 1998 - ----------------------------------------------------- Alexander Navab, Jr. /s/ CLIFTON S. ROBBINS Director September 28, 1998 - ----------------------------------------------------- Clifton S. Robbins /s/ GEORGE R. ROBERTS Director September 28, 1998 - ----------------------------------------------------- George R. Roberts
II-6 150 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 -- Agreement and Plan of Merger, dated as of January 19, 1998, by and among Regal Cinemas, Inc., Screen Acquisition Corp. and Monarch Acquisition Corp.(7) 2.2 -- Agreement and Plan of Merger, dated as of August 20, 1998, among Regal Cinemas, Inc., Knoxville Acquisition Corp. and Act III Cinemas, Inc.(5) 3.1 -- Restated Charter of the Registrant.(1) 3.2 -- Amended and Restated Bylaws of the Registrant.** 4.1 -- Specimen Common Stock certificate.(1) 4.2 -- Article 5 of the Registrant's Amended and Restated Charter (included in Exhibit 3.1). 4.3 -- Indenture dated May 27, 1998 between Regal Cinemas, Inc. and IBJ Schroder Bank & Trust Company.(4) 4.4 -- Form of Regal Cinemas, Inc. 9 1/2% Senior Subordinated Note due June 1, 2008 (contained in Indenture filed as Exhibit 4.3).(4) 5 -- Opinion of Weil, Gotshal & Manges LLP.** 10.1 -- Employment Agreement, dated as of May 27, 1998, between Regal Cinemas, Inc. and Michael L. Campbell.(4) 10.2 -- Employment Agreement, dated as of May 27, 1998, between Regal Cinemas, Inc. and Lewis Frazer III.(4) 10.3 -- Employment Agreement, dated as of May 27, 1998, between Regal Cinemas, Inc. and Gregory W. Dunn.(4) 10.4 -- Credit Agreement, dated as of May 27, 1998, between Regal Cinemas, Inc., its subsidiaries and the lenders named therein.(4) 10.4-1 -- First Amendment, dated as of August 21, 1998, between Regal Cinemas, Inc., its subsidiaries and the lenders named therein.** 10.5 -- Agreement and Plan of Merger dated June 11, 1997 among Regal Cinemas, Inc., Regal Acquisition Corporation, RAC Corporation, RAC Finance Corp., Cobb Theatres, L.L.C., R.C. Cobb, Inc., Cobb Theatres II, Inc., Cobb Finance Corp. and Tricob Partnership.(3) 10.6 -- Agreement and Waiver dated July 31, 1997, by and among Regal Cinemas, Inc., Regal Acquisition Corporation, RAC Corporation, RAC Finance Corp., Cobb Theatres, L.L.C., R.C. Cobb, Inc., Cobb Theatres II, Inc., Cobb Finance Corp. and Tricob Partnership.(2) 10.7 -- 1993 Employee Stock Incentive Plan.(1) 10.8 -- Regal Cinemas, Inc. Participant Stock Option Plan.(1) 10.9 -- Regal Cinemas, Inc. Employee Stock Option Plan.(1) 10.10 -- 1998 Stock Purchase and Option Plan for Key Employees of Regal Cinemas, Inc.(6) 10.11 -- Form of Management Stockholder's Agreement.(6) 10.12 -- Form of Non-Qualified Stock Option Agreement.(6) 10.13 -- Form of Sale Participation Agreement.(6) 10.14 -- Form of Registration Rights Agreement.(6) 10.15 -- Stockholders' Agreement, dated as of May 27, 1998, among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR Partners II, L.P. and Regal Equity Partners, L.P.*
151
EXHIBIT NO. DESCRIPTION ------- ----------- 10.16 -- Stockholders' and Registration Rights Agreement, dated as of May 27, 1998, among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR Partners II, L.P., Regal Equity Partners, L.P. and the DLJ signatories thereto.* 12 -- Statement regarding computation of ratio of earnings to fixed charges.* 16.1 -- Letter from PricewaterhouseCoopers LLP.(8) 16.2 -- Letter from PricewaterhouseCoopers LLP.(9) 21 -- Subsidiaries.* 23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion to be filed as Exhibit 5.1 to the Registration Statement). 23.2 -- Consent of Deloitte & Touche LLP.* 23.3 -- Consent of PricewaterhouseCoopers LLP (Portland, Oregon).* 23.4 -- Consent of PricewaterhouseCoopers LLP (Knoxville, Tennessee).* 23.5 -- Consent of Ernst & Young LLP.* 24 -- Powers of Attorney of directors and executive officers of the Registrant (included on the signature pages hereto). 25 -- Statement of Eligibility and Qualification of IBJ Schroder Bank & Trust Company, as trustee, under the Indenture listed as Exhibit 4.3 hereto on Form T-1.* 27 -- Financial Data Schedule (for SEC use only). 99.1 -- Form of Letter of Transmittal.* 99.2 -- Form of Notice of Guaranteed Delivery.*
- --------------- * Filed herewith. ** To be filed by amendment. (1) Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 33-62868. (2) Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 14, 1997. (3) Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on Form 10-Q for the quarter ended May 31, 1997. (4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 1998. (5) Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 1, 1998. (6) Incorporated by reference to the Registrant's Registration Statement on Form S-8, Registration No. 333-52943. (7) Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 20, 1998. (8) Incorporated by reference to the Registrant's Current Report on Form 8-K/A dated September 16, 1998. (9) Incorporated by reference to the Registrant's Current Report on Form 8-K/A dated September 23, 1998. EX-10.15 2 STOCKHOLDERS AGREEMENT DATED MAY 27, 1998 1 EXHIBIT 10.15 STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT, dated as of May 27, 1998 (this "Agreement"), is entered into among Regal Cinemas, Inc., a Tennessee corporation (the "Company"), KKR 1996 Fund L.P., a Delaware limited partnership ("KKR Fund"), KKR Partners II, L.P., a Delaware limited partnership ("KKR Partners II" and, together with the KKR Fund, the "KKR Partnerships"), and Regal Equity Partners, L.P., a Delaware limited partnership and an affiliate of Hicks, Muse, Tate & Furst Incorporated (the "HM Partnership" and, together with the KKR Fund and KKR Partners II, the "KKR/HM Partnerships"; the HM Partnership, the KKR Fund and KKR Partners II, each a "Stockholder"). RECITALS: A. The Company, Screen Acquisition Corp. ("Holdco I") and Monarch Acquisition Corp. ("Holdco II" and, together with Holdco I, the "Holdcos") are parties to an Agreement and Plan of Merger dated as of January 19, 1998, as amended by the Amendment Agreement, dated as of May 8, 1998, among the Company, Holdco I and Holdco II (as so amended, the "Merger Agreement"); and B. Pursuant to the Merger Agreement, the Holdcos will be merged with and into the Company (the "Merger") and (i) each issued and outstanding share of common stock of the Company will be converted into the right to receive $31.00 in cash and (ii) each share of common stock of each Holdco will be converted into the right to receive (a) one share of Common Stock (as defined below) and (b) such number of shares of Preferred Stock (as defined below) as the Holdcos shall have set forth in a written notice delivered to the Secretary of the Company; and C. Immediately following the Merger and the transactions contemplated by the Investment Agreement dated as of May 27, 1989 among the KKR Fund, the HM Partnership and Act III Cinemas, Inc. (the "Act III Investment Agreement"), the KKR Partnerships and the HM Partnership will own approximately 46.6% and 46.6% of the outstanding equity securities of the Company, respectively; and D. The KKR Partnerships and the HM Partnership wish to provide for certain matters relating to their respective holdings of Stock (as defined below). NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 2 2 ARTICLE I. INTRODUCTORY MATTERS 1.1. Defined Terms. In addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein with initial capital letters: "Affiliate" shall have the meaning given to that term in Rule 405 promulgated under the Securities Act; provided that officers, directors or employees of the Company will not be deemed to be Affiliates of a shareholder of the Company for purposes hereof solely by reason of being officers, directors or employees of the Company. "Agreement" means this Agreement, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "Assumption Agreement" means a writing substantially in the form of Exhibit A hereto whereby a Permitted Transferee of shares of Stock becomes a party to, and agrees to be bound to the same extent as its transferor by, the terms of this Agreement. "Board" means the Board of Directors of the Company. "Business Day" means a day other than a Saturday, Sunday, federal or New York State holiday or other day on which commercial banks in New York City are authorized or required by law to close. "Closing Date" means May 27, 1998. "Common Stock" means the shares of common stock, no par value, of the Company after the consummation of the Merger. "DLJ Stockholders' Agreement" means the Stockholders' and Registration Rights Agreement dated as of May 27, 1998 by and among the Company, the KKR Partnerships, the HM Partnership and the other Persons named therein, as such Stockholders' and Registration Rights Agreement may be amended from time to time. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Excluded Transfer" has the meaning given that term in Section 2.5 of this Agreement. "HM Parties" has the meaning given that term in the Registration Rights Agreement. "HM Shares" has the meaning specified in Section 4.1(a) of this Agreement. 3 3 "HMTF" means Hicks, Muse, Tate & Furst Incorporated and its successors and assigns. "Independent Director" means any individual who at the time of his or her election to the Board, and during such person's term of office as a director, (i) is not an Affiliate, officer, director, partner or employee of the Company, KKR or HMTF and (ii) does not, in addition to such person's role as a director of the Company, also act on a regular basis as an individual or representative of an organization serving as a professional advisor, legal counsel or consultant to the Company, KKR or HMTF or any of their respective Affiliates. "KKR" means Kohlberg Kravis Roberts & Co. L.P. and its successors and assigns. "KKR/HM Registrable Securities" means the Registrable Securities (as defined in the Registration Rights Agreement) of the KKR/HM Partnerships or their respective Affiliates. "KKR Parties" has the meaning given that term in the Registration Rights Agreement. "KKR Shares" has the meaning specified in Section 4.1(a) of this Agreement. "Permitted Transferee" means any Person to whom shares of Stock are Transferred in a Transfer in accordance with Sections 2.2, 2.3 or 2.4 or otherwise not in violation of this Agreement who is required to, and does, enter into an Assumption Agreement, and includes any Person to whom a Permitted Transferee of any Stockholder (or a Permitted Transferee of a Permitted Transferee) further Transfers shares of Stock and who is required to, and does, enter into an Assumption Agreement. Each Permitted Transferee shall, from and after the time it becomes a party to this Agreement, be a "Stockholder" for purposes of this Agreement; provided that such Permitted Transferee's rights as a Stockholder may be limited to the extent provided in Section 2.6. "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever. "Preferred Stock" means the shares of Series A Convertible Preferred Stock, no par value, of the Company after the consummation of the Merger. "Public Offering" means the sale of shares of Common Stock to the public pursuant to an effective registration 4 4 statement (other than a registration statement on Form S-4 or S-8 or any similar or successor form) filled under the Securities Act. "QPO" means (i) prior to the seventh anniversary of the Closing Date, any underwritten Public Offering immediately after which (x) the public shareholders of the Company (i.e., shareholders of the Company who are not Affiliates of the Company) own at least 25% of the outstanding Common Stock and (y) at least 20% of the outstanding Common Stock shall have been offered and purchased for cash from the Company in one or more registered Public Offerings after the Closing Date and (ii) on or after the seventh anniversary of the Closing Date (or on or after the fifth anniversary of the Closing Date if a Transfer Demand Event has occurred), any underwritten Public Offering of Common Stock immediately after which (x) the public shareholders of the Company (i.e., shareholders of the Company who are not Affiliates of the Company) own at least 25% of the outstanding Common Stock and (y) at least 20% of the outstanding Common Stock shall have been offered and purchased for cash from the Company and/or any of the KKR/HM Partnerships in one or more registered Public Offerings after the Closing Date. "Registration Rights Agreement" means the Registration Rights Agreement dated as of May 27, 1998 by and among the Company, the KKR Partnerships and the HM Partnership, as such Registration Rights Agreement may be amended from time to time. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Stock" means the Common Stock and Preferred Stock, collectively, and all securities into which the Common Stock or Preferred Stock may be exchanged or converted by reclassification, merger or otherwise. "Transfer" means a transfer, sale, assignment, pledge, hypothecation or other disposition, whether directly or indirectly pursuant to the creation of a derivative security, the grant of an option or other right, the imposition of a restriction on disposition or voting or by operation of law. 1.2. Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. Unless the context otherwise requires: (a) "or" is disjunctive but not exclusive, (b) words in the singular include the plural, and in the plural include the 5 5 singular, and (c) the words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified. ARTICLE II. TRANSFERS 2.1. Limitations on Transfer. (a) No Stockholder or Permitted Transferee may Transfer any shares of Stock other than (i) prior to the fifth anniversary of the Closing Date, in accordance with Section 2.2 hereof and (ii) on or after the fifth anniversary of the Closing Date, (A) as provided in, and in accordance with the Registration Rights Agreement (subject to the limitations on exercising demand and piggyback rights set forth in Sections 3.1(a), (b) and (c) hereof), (B) any Excluded Transfer (other than an Excluded Transfer pursuant to a Public Offering) or (C) in accordance with Sections 2.3 (so long as such Section 2.3 is in effect) and 2.4 hereof. (b) In the event of any purported Transfer by a Stockholder or a Permitted Transferee of any shares of Stock in violation of the provisions of this Agreement, such purported Transfer will be void and of no effect and the Company will not give effect to such Transfer. (c) Each certificate representing shares of Stock held by a Stockholder or any Permitted Transferee will bear a legend on the face thereof substantially to the following effect (with such additions thereto or changes therein as the Company may be advised by counsel are required by law or necessary to give full effect to this Agreement, the "Legend"): "THE SHARES OF [COMMON STOCK] [PREFERRED STOCK] REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS AGREEMENT AMONG REGAL CINEMAS, INC., KKR 1996 FUND L.P., KKR PARTNERS II, L.P. AND REGAL EQUITY PARTNERS, L.P., A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. THE STOCKHOLDERS AGREEMENT CONTAINS CERTAIN PROVISIONS RELATING TO THE VOTING OF THE STOCK SUBJECT TO THE AGREEMENT. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS." "THE SHARES OF [COMMON STOCK] [PREFERRED STOCK] REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY 6 6 HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." The Legend will be removed by the Company by the delivery of substitute certificates without such Legend in the event of (i) a Transfer permitted by this Agreement and in which the Permitted Transferee is not required to enter into an Assumption Agreement or (ii) the termination of Article II pursuant to the terms hereof; provided, however, that the second paragraph of the Legend will only be removed if at such time it is no longer required for purposes of applicable securities laws. 2.2. Transfer to Affiliates. Any Stockholder may Transfer any or all of the shares of Stock held by it to any Affiliate of such Stockholder who duly executes and delivers an Assumption Agreement, provided that such Transfer shall not be effective unless and until the Company shall have been furnished with information reasonably satisfactory to it demonstrating that such Transfer is exempt from or not subject to the provisions of Section 5 of the Securities Act and any other applicable securities laws. 2.3. Right of First Offer. (a) If at any time on or after the fifth anniversary of the Closing Date any Stockholder desires to Transfer all or any portion of the Stock held by such Stockholder (other than pursuant to an Excluded Transfer), such Stockholder (a "Selling Holder") shall deliver to each other Stockholder (a "Non-Selling Holder") a written notice (the "First Offer Notice"), which shall set forth the number of shares of Stock (the "Offered Shares") proposed to be Transferred and the terms on which the Selling Holder irrevocably offers to Transfer such shares to the Non-Selling Holders. Each Non-Selling Holder shall have 30 days from the date the First Offer Notice is received to determine whether to purchase any of the Offered Shares for the purchase price and upon the terms specified in the First Offer Notice by giving written notice to the Selling Holder (a "Section 2.3 Notice") and stating therein the number of Offered Shares that such Non-Selling Holder wishes to purchase ("Section 2.3 Shares"). If a Non-Selling Holder determines not to purchase any of the Offered Shares for the purchase price and upon the terms specified in the First Offer Notice, then such Non-Selling Holder shall not have the right to participate in any Proposed Sale (as defined in Section 2.4) as a Tagging Stockholder (as defined in Section 2.4), unless such Non-Selling Holder shall have delivered to the Company within 30 days from the date the First Offer Notice is received by such Non-Selling Holder a written notice to the effect that it does not wish to purchase any of the Offered Shares, and which notice shall contain a non-binding indication of interest from such Non-Selling Holder whether it would consider participating in a Proposed Sale as a Tagging Stockholder if the purchase price therein were at least equal to the purchase price specified in the First Offer Notice. If a 7 7 Non-Selling Holder shall not have delivered a notice referred to in either of the two preceding sentences, then such Non-Selling Holder will be deemed to have elected not to exercise the right of first offer specified in the First Offer Notice and not to participate in any Proposed Sale (and thereafter such Non-Selling Holder shall not be entitled to receive any of the notices with respect to such Proposed Sale under Section 2.4). The number of Offered Shares that each Non-Selling Holder who delivers a Section 2.3 Notice shall have the right to purchase shall be equal to the lesser of (x) the number of Section 2.3 Shares, if any, specified in such Non-Selling Holder's Section 2.3 Notice and (y) the number of Offered Shares equal to the product of (i) the aggregate number of Offered Shares and (ii) the quotient obtained by dividing (A) the number of Section 2.3 Shares specified in such Non-Selling Holder's Section 2.3 Notice by (B) the aggregate number of Section 2.3 Shares; provided, however, that if at the end of such 30-day period, the aggregate number of Section 2.3 Shares of all Non-Selling Holders is less than the total number of Offered Shares, then the Selling Holder shall, at its option, have the right (subject to complying with Section 2.4) to proceed with its efforts to Transfer all the Offered Shares for the purchase price and upon the terms set forth in the First Offer Notice, as set forth below. If the Non-Selling Holders, collectively, shall have agreed to purchase all the Offered Shares (or the Selling Holder shall have elected to proceed with the Transfer to the Non-Selling Holders of the number of Offered Shares as to which it has received offers to purchase from the Non-Selling Holders), each Non-Selling Holder shall consummate its purchase by delivering, against receipt of certificates or other instruments representing the Stock being purchased, appropriately endorsed by the Selling Holder, the aggregate purchase price to be paid by it (the "Required Funds") via wire transfer of immediately available funds to an account specified by the Selling Holder not less than one Business Day before the closing date referred to below (such closing date also being the referred to herein as the "Funding Date"). The "closing date" (and the Funding Date) will be the later 30 days after the date of receipt of the Section 2.3 Notice by the Selling Holder and five Business Days after receipt of all governmental and regulatory consents and approvals and the expiration of all applicable waiting periods. The Selling Holder shall give participating Non-Selling Holders at least five Business Days written notice of the Funding Date and shall give participating Non-Selling Holders at least twenty Business Days notice of the amount of Required Funds for such Non- Selling Holder, which notice may be delivered at any time after receipt of the Section 2.3 Notice. If any Non-Selling Holder who has offered to purchase Offered Shares (the "Defaulting Non-Selling Holder") fails to transfer as required by this Section 2.3 the Required Funds by 8 8 the Funding Date, then the closing date referred to above shall be postponed and the Selling Holder shall give written notice to the effect set forth in the next sentence to all Non-Selling Holders (if any) who transferred the Required Funds (the "Non-Defaulting Non-Selling Holders"). Such notice (the "Default Notice") shall state the aggregate amount of Required Funds which Defaulting Non-Selling Holders have failed to provide (such aggregate amount, the "Shortfall"), the aggregate number of Offered Shares related to such Shortfall and the date pursuant to the next sentence by which the Non-Defaulting Non-Selling Holders may, at the sole option of each of them, offer to purchase the Offered Shares related to the Shortfall. Each Non-Defaulting Non-Selling Holder shall have the right to commit to purchase up to the entire number of Offered Shares within five Business Days of the receipt of the Default Notice. Such commitment shall be effected by the delivery to the Selling Holder of a written notice (a "Commitment Notice") to that effect. If, after giving effect to the Commitment Notices and the aggregate amount of Required Funds already received, more than 100% of the Offered Shares would be subject to purchase, then the number of shares offered to be purchased in the Commitment Notices shall be reduced pro rata by the same method applied in the second sentence of the third paragraph of this Section 2.3(a) so that 100% of the Offered Shares (or such lower percentage thereof as the Selling Holder has agreed to sell) are subject to purchase, and the Selling Holder shall, subject to the provisions set forth below, sell such shares as provided below. If after giving effect to the Commitment Notices and the aggregate amount of Required Funds already received, fewer than 95% of the Offered Shares would be subject to purchase, then the Selling Holder may, but shall be under no obligation to, sell such Offered Shares. If, after giving effect to the Commitment Notices and the aggregate amount of Required Funds already received, 95% to 100% of the Offered Shares would be subject to purchase, then the Selling Holder shall, subject to the provisions set forth below, sell such shares as provided below. The Selling Holder shall then give written notice to each Non-Defaulting Non-Selling Holder of the number of Offered Shares, if any, related to the Shortfall that it shall purchase from such Non-Defaulting Non-Selling Holder after giving effect to the three immediately preceding sentences, and such Non-Defaulting Non-Selling Holders shall have ten Business Days (the tenth such Business Day, the "Postponed Funding Date") following receipt of such notice to provide the additional Required Funds in the same manner set forth in the second sentence of the third paragraph of this Section 2.3(a). If at the close of business on the Proposed Funding Date, after giving effect to the aggregate amount of Required Funds received by the Funding Date and the Postponed Funding Date, fewer than 95% of the Offered Shares would be subject to purchase, then the Selling Holder may, but shall be under no obligation to, sell the Offered Shares. If at the close of business on the Postponed Funding Date, after giving effect to the aggregate amount of Required Funds received by the Funding Date and the Postponed Funding Date, 95% or more of the Offered 9 9 Shares would be subject to purchase, then the Selling Holder shall sell the Offered Shares to the Non-Defaulting Non-Selling Holders. The postponed closing date shall be the Postponed Funding Date. The right of first offer granted to the Non-Selling Holders hereunder shall terminate if unexercised within 30 days after receipt of the First Offer Notice. (b) If the Selling Holder shall be permitted to proceed with the proposed Transfer of the Offered Shares, the Selling Holder shall have 180 days to consummate such proposed Transfer, on terms no more favorable to the transferee(s) than those terms set forth in the First Offer Notice, before the provisions of this Section 2.3 shall again be in effect with respect to such shares of Stock. In connection with any Transfer of all or any portion of the Offered Shares to the Non-Selling Holders who shall have accepted the offer set forth in the First Offer Notice, the Selling Holder shall not be required to make any representations and warranties, other than as to its beneficial ownership of the Offered Shares and its authority as an entity to consummate such Transfer, and shall not be required to provide any indemnities in respect of the Offered Shares or any portion thereof; provided that the inclusion of any such provisions in connection with a Transfer of the Offered Shares to a transferee or transferees other than the Non-Selling Holders will not be deemed to be on terms more favorable to the purchaser(s) than those contained in the First Offer Notice. 2.4. Tag-Along Rights. (a) So long as this Agreement remains in effect, with respect to any proposed Transfer (other than an Excluded Transfer and other than a Transfer to one or more Non-Selling Holders pursuant to Section 2.3 hereof) (a "Proposed Sale"), by any Selling Holder, each Non-Selling Holder who both (i) if a First Offer Notice was delivered by such Selling Holder in accordance with Section 2.3, delivered to such Selling Holder a Section 2.3 Notice in accordance with Section 2.3 and was not a Defaulting Non-Selling Holder and (ii) exercises its rights under this Section 2.4(a) in accordance with this Section 2.4 (a "Tagging Stockholder") shall have the right to require the proposed transferee (a "Proposed Transferee") to purchase from such Non-Selling Holder a number of shares of Stock up to the product (rounded up to the nearest whole number) of (i) the quotient determined by dividing (A) the aggregate number of shares of Stock owned by such Tagging Stockholder by (B) the aggregate number of shares of Stock owned by the KKR/HM Partnerships and their respective Affiliates and all Tagging Stockholders and others with tag-along rights and (ii) the total number of shares of Stock proposed to be directly or indirectly Transferred to the Proposed Transferee in the Proposed Sale, at the same price per share of Stock and upon the same terms and conditions (including, without limitation, time of payment and form of consideration) as to be paid and given to the Selling Partnership; provided that in order to be entitled to exercise 10 10 its right to sell shares of Stock to the Proposed Transferee pursuant to this Section 2.4, each Tagging Stockholder must agree to make to the Proposed Transferee the same representations, warranties, covenants, indemnities and agreements as the Selling Holder agrees to make in connection with the Proposed Sale. Each Tagging Stockholder will be responsible for its proportionate share of the costs of the Proposed Sale to the extent not paid or reimbursed by the Proposed Transferee or the Company, provided that a Tagging Stockholder shall not be responsible for any fees paid to the Selling Holder or any Affiliate thereof in connection with any Proposed Sale. (b) The Selling Holder will give notice to each Non-Selling Holder of each proposed Sale not more than ten days after the execution of the definitive agreement relating to the Proposed Sale, setting forth the number of shares of Stock proposed to be so Transferred, the name and address of the Proposed Transferee, the proposed amount and form of consideration (and if such consideration consists in part or in whole of property other than cash, the Selling Holder will provide such information, to the extent reasonably available to the Selling Holder, relating to such non- cash consideration as the Non-Selling Holders together may reasonably request in order to evaluate such non-cash consideration) and other terms and conditions of payment offered by the Proposed Transferee. The Selling Holder will deliver or cause to be delivered to each Tagging Stockholder copies of all transaction documents relating to the Proposed Sale as the same become available. The tag-along rights provided by this Section 2.4 must be exercised by the Non-Selling Holders within five Business Days following receipt of the notice required by the preceding sentence by delivery of a written notice to the Selling Holder indicating its desire to exercise its rights and specifying the number of shares of Stock it desires to sell (the "Tag-Along Notice"). Any indication as to the possible exercise of tag-along rights made by a Non-Selling Holder pursuant to Section 2.3 shall in no way bind the Non-Selling Holder pursuant to the actual exercise of tag-along rights pursuant to this Section 2.4. The Tagging Stockholder will be entitled under this Section 2.4 to Transfer to the Proposed Transferee the number of shares of Stock calculated in accordance with Section 2.4(a). (c) If any Tagging Stockholder exercises its rights under Section 2.4(a), the closing of the purchase of the Stock with respect to which such rights have been exercised will take place concurrently with the closing of the sale of the Selling Holder's Stock to the Proposed Transferee. 2.5. Excluded Transfers. For purposes of Section 2.3 and 2.4 of this Agreement, an "Excluded Transfer" shall mean any Transfer to a Permitted Transferee of the Selling Holder pursuant to Section 2.2, pursuant to a Public Offering, pursuant to a bona fide sale to the public pursuant to Rule 144 under the Securities Act following a QPO, pursuant to a distribution of such shares of 11 11 Stock to the limited partners of the Stockholder (provided that such partners shall have entered into an Assumption Agreement prior to such transfer), or pursuant to any agreement or plan of merger or combination, including any tender or exchange offer in respect thereof, approved by the Board in accordance with Section 4.2(b), or any other Transfer agreed to in writing by the KKR Partnership and the HM Partnership. 2.6. Rights and Obligations of Transferees. Any Permitted Transferee of Stock acquiring such shares in a private transaction (including a transaction subject to Sections 2.3 and 2.4) will be required to become a party to this Agreement by executing and delivering an Assumption Agreement and, upon executing and delivering an Assumption Agreement, will be treated as a Stockholder for all purposes hereof; provided, however, that no such Proposed Transferee will acquire any rights under Article IV unless (i) it acquires the shares in a bona fide purchase for value in accordance with the provisions of Section 2.3, (ii) it acquires all of the shares of Stock held by the HM Partnership and its Affiliates, on the one hand, or the KKR Partnership and its Affiliates, on the other hand, as the case may be, (iii) immediately before the consummation of the proposed Transfer, the HM Partnership or KKR Partnership, as the case may be, was entitled to board designation rights pursuant to Section 4.1(a) and (iv) the Non-Selling Holders shall have consented, in their sole discretion, in writing to the giving of board designation rights to such Proposed Transferee in connection with such transaction. If the consent referred to in clause (iv) of the immediately preceding sentence is not obtained, then the Transfer of such shares of Stock to the Proposed Transferee may occur and such Proposed Transferee may become (by executing an Assumption Agreement) a Permitted Transferee, but such Permitted Transferee will not have any rights under Section 4.1(a) of this Agreement to designate directors to the Board; provided, however, that if such consent of Non-Selling Holders referred to in clause (iv) of the immediately proceeding sentence is not obtained and the proposed Transfer is to be consummated after the fifth anniversary of the date of this Agreement, the Selling Holder may elect not to proceed with the transfer of the Offered Shares to the Proposed Transferee but in lieu thereof may exercise its rights pursuant to Section 3.1(c) of this Agreement (a "Transfer Demand Event"). III. REGISTRATION RIGHTS 3.1. Certain Matters Relating to the Registration Rights Agreement. (a) Agreements Respecting Demand and Piggyback Registration Rights. Subject to Section 3.1(b) and 3.1(c) below, the KKR/HM Partnerships agree, as between themselves, that until immediately following the later of the fifth anniversary of the Closing Date and the first occurrence of a QPO, (i) neither of them will take action as a Demand Party or permit any of their 12 12 Affiliates to take action as a Demand Party under the Registration Rights Agreement and (ii) neither of them will exercise any piggyback registration rights under this Agreement, the Registration Rights Agreement or the DLJ Stockholders' Agreement upon a demand registration request made pursuant to Section 3.2 of the DLJ Stockholders' Agreement. (b) Qualified Public Offering. Unless a QPO shall previously have been effected, on and after the seventh anniversary of the Closing Date, either (x) the HMTF Demand Parties (as defined in the Registration Rights Agreement) who beneficially own of at least a majority of the HM Shares or (y) the KKR Demand Parties (as defined in the Registration Rights Agreement) who beneficially own at least a majority of the KKR Shares (the "Exercising Holders") may cause the Company to effect a QPO. The QPO may be effected either through an underwritten sale of shares of Stock held by the Exercising Holders, through an underwritten sale of primary shares issued by the Company, or through a combination thereof, as specified by the Exercising Holders. The Company agrees that it shall include in such QPO as many shares for its own account as shall reasonably be requested by the Exercising Holders in order to effect a QPO. The aggregate number of shares of Common Stock included in such QPO shall be the minimum number of shares needed in order to effect a QPO. (c) Notwithstanding the preceding paragraph, the HMTF Demand Parties who beneficially own at least a majority of the HM Shares, or the KKR Demand Parties who beneficially own at least a majority of the KKR Shares, whichever of them constitutes the Selling Holder for purposes of Section 2.6, may cause the Company to effect a QPO if a Transfer Demand Event shall have occurred. Such QPO may be effected either through an underwritten sale of shares of Stock held by such Selling Holder, through an underwritten sale of primary shares issued by the Company, or through a combination thereof, as specified by the Selling Holder. The Company agrees that it shall include in such QPO as many shares for its own account as shall reasonably be requested by the Selling Holder in order to effect a QPO. The aggregate number of shares of Common Stock included in such QPO shall be the minimum number of shares needed in order to effect a QPO. ARTICLE IV. CORPORATE GOVERNANCE MATTERS 4.1. Board of Directors. (a) Board Representation. Directors of the Company shall be elected annually. The Board shall consist of (i) four individuals as may be designated from time to time by the HM Partnership (each an "HM Designee"), (ii) four individuals, collectively, as may be designated from time to time by the KKR Partnerships (each a "KKR Designee"), (iii) the chief executive officer of the Company from time to time serving (the "Chief Executive Officer") and (iv) any Independent Directors (to the 13 13 extent the KKR Partnerships, on the one hand, and the HM Partnership on the other hand, agree that there should be Independent Directors), such Independent Directors to be mutually agreed to between the HM Partnership and KKR Partnerships. If at any time the HM Partnership and its Affiliates beneficially own less than 50% of the aggregate number of shares of Stock acquired by them upon the consummation of the Merger (after giving effect to the transactions contemplated by the Act III Investment Agreement)(the "HM Shares"), but more than 10% of the then outstanding shares of Stock, then the number of HM Designees shall be reduced to the number (rounded up to the nearest whole number) that is determined by multiplying the number of directors comprising the Board by a fraction, the numerator which is the number of HM Shares, and the denominator of which is the number of then outstanding shares of Stock. The difference between (x) the number of HM Designees that the HM Partnership was permitted to designate to the Board of Directors immediately prior to the application of the preceding sentence and (y) the number of HM Designees that the HM Partnership shall be permitted to designate immediately after giving effect to the application of the preceding sentence shall be reallocated to the KKR Partnerships. Notwithstanding anything in this Agreement to the contrary, if at any time the HM Partnership and its Affiliates beneficially own less than 50% of the HM Shares and less than 10% of the then outstanding shares of Stock, then all of the HM Designees that the HM Partnership shall be permitted to designate shall be reallocated to the KKR Partnerships (or, if the last sentence of the next succeeding paragraph shall be applicable, then the number of HM Designees shall be reduced to zero and shall not be so reallocated) and the HM Partnership shall no longer have any rights under this Article IV. If at any time the KKR Partnerships and their respective Affiliates beneficially own less than 50% of the aggregate number of shares of Stock acquired by them upon the consummation of the Merger (after giving effect to the transactions contemplated by the Act III Investment Agreement) (the "KKR Shares"), but more than 10% of the then outstanding shares of stock, then the number of KKR Designees shall be reduced to the number (rounded up to the nearest whole number) that is determined by multiplying the number of directors comprising the Board by a fraction, the numerator of which is the number of KKR Shares and the denominator of which is the number of then outstanding shares of Stock. The difference between (x) the number of KKR Designees that the KKR Partnerships were permitted to designate to the Board of Directors immediately prior to the application of the preceding sentence and (y) the number of KKR Designees that the KKR Partnerships shall be permitted to designate immediately after giving effect to the application of the preceding sentence shall be reallocated to the HM Partnership. Notwithstanding anything in this Agreement to the contrary, if at any time the KKR Partnerships and their respective Affiliates beneficially own less than 50% of the KKR 14 14 Shares and less than 10% of the then outstanding shares of Stock, then all of the KKR Designees that the KKR Partnerships shall be permitted to designate shall be reallocated to the HM Partnership (or, if the last sentence of the next preceding paragraph shall be applicable, then the number of HM Designees shall be reduced to zero and shall not be so reallocated) and the KKR Partnerships shall no longer have any rights under this Article IV. The ownership percentages referred to in the two immediately preceding paragraphs will be tested annually as of the record date for the annual meeting of shareholders of the Company, with any then required reduction in the number of HM Designees or KKR Designees (and the related increase in the number of designees of the HM Partnership or the KKR Partnership, as applicable) to occur at the annual meeting of shareholders of the Company. The board of directors of each subsidiary of the Company shall consist of not less than one HM Designee, one KKR Designee and the Chief Executive Officer. (b) Vacancies; Removal. If, prior to his or her election to the Board pursuant to paragraph (a) above, any HM Designee shall be unable or unwilling to serve as a director of the Company, the HM Partnership shall be entitled to nominate a replacement who shall then be an HM Designee for purposes of this Section 4.1. If, following an election to the Board pursuant to this Section 4.1, any HM Designee shall resign or be removed or be unable to serve for any reason prior to the expiration of his or her term as a director of the Company, the HM Partnership shall notify the Board in writing of a replacement HM Designee and each of the Company, the HM Partnership and the KKR Partnerships hereby agree to take such actions as will result in the appointment of such HM Designee to the Board. If the HM Partnership requests that any HM Designee be removed as a director (with or without cause) by written notice thereof to the Company, then each of the Company, the HM Partnership and the KKR Partnerships shall take all actions necessary to effect such removal upon such request. If, prior to his or her election to the Board pursuant to paragraph (a) above, any KKR Designee shall be unable or unwilling to serve as a director of the Company, the KKR Partnerships shall be entitled to nominate a replacement who shall then be a KKR Designee for purposes of this Section 4.1. If, following an election to the Board pursuant to this Section 4.1, any KKR Designee shall resign or be removed or be unable to serve for any reason prior to the expiration of his or her term as a director of the Company, the KKR Partnerships shall notify the Board in writing of a replacement KKR Designee and each of the Company, the HM Partnership and the KKR Partnerships hereby agree to take such actions as will result in the appointment of such KKR Designee to the Board. If the KKR Partnerships request that any KKR Designee be removed as a director (with or without cause) by written notice thereof to the Company, then each of the 15 15 Company, the HM Partnership and the KKR Partnerships shall take all actions necessary to effect such removal upon such request. (c) Costs and Expenses. The Company will pay all reasonable out-of-pocket expenses incurred by the HM Designees and the KKR Designees in connection with their participation in meetings of the Board (and committees thereof) and the Boards of Directors (and committees thereof) of the Subsidiaries of the Company. The Company shall pay to each HM Designee and KKR Designee an annual fee of $40,000, payable in quarterly installments in arrears at the end of each calendar quarter, commencing on September 30, 1998 (the fee for the period from the date hereof until September 30, 1998 being pro rated based on the number of days elapsed from the Closing Date through September 30, 1998). 4.2. Actions by the Board of Directors. (a) Quorum Requirements; Voting Requirements for Action by Board of Directors; Board Committees. The Stockholders and the Company shall take all actions necessary to amend the bylaws of the Company to provide that, for so long as this Agreement is in effect, a quorum for any meeting of the Board shall require the presence of (x) directors constituting at least a majority of the entire Board, and (y) at least one of the HM Designees and (z) at least one of the KKR Designees. Unless agreed to by unanimous consent of the Board in writing, no action by the Board will be valid unless approved by (x) a majority of the directors at a meeting properly convened at which a quorum is present and (y) a majority of the HM Designees present at such meeting and (z) a majority of the KKR Designees present at such meeting. The Company and the Stockholders shall take such further action to provide that the articles of incorporation and/or bylaws of the Company will provide that they may not be amended by action of the Board unless such amendment is approved in the manner set forth in the immediately preceding sentence. The Company and the Stockholders shall take such action as is necessary to cause (i) the Board to establish executive, audit and compensation committees of the Board, the duties of which shall be determined by the Board, (ii) an equal number of HM Designees and KKR Designees to serve on each committee of the Board of Directors, (iii) the Chief Executive Officer of the Company to serve as the Chairman of the Executive Committee, (iv) an HM Designee initially to serve as Chairman of the Audit Committee and a KKR Designee initially to serve as Chairman of the Compensation Committee, and (v) the Audit and Compensation Committee chairmanships to be rotated annually as of the date of the annual meeting of shareholders of the Company between an HM Designee and a KKR Designee. The Stockholders and the Company shall cause the bylaws and/or articles of incorporation of the Company to provide that no action by a committee of the Board shall be valid unless approved in the same manner as required by action of the entire Board, as provided in this paragraph (a). 16 16 (b) Actions Requiring Board Approval. The following matters will require approval of the Board as provided in Section 4.2(a) above: (1) amendments, modifications or the repeal of any provisions of the articles of incorporation or bylaws of the Company; (2) issuances of capital stock, options, warrants or rights to acquire capital stock of the Company (other than issuances of capital stock pursuant to management options issued with the approval of the Board of Directors or options issued and outstanding upon consummation of the Merger); (3) recapitalizations, mergers, exchange offers, tender offers, consolidations, liquidations and dissolutions and similar transactions; (4) sales and other dispositions of businesses or assets for consideration in excess of $5 million per transaction or series of related transactions; (5) joint ventures or acquisitions of businesses or assets involving aggregate consideration (including the assumption of indebtedness, other liabilities or preferred stock) in excess of $5 million per transaction or series of related transactions; (6) incurrences (other than working capital borrowings in amounts less than $5 million at any one time outstanding) of debt or guarantees of debt and the granting of liens or mortgages (other than as required by any debt instrument entered into by the Company with approval of the Board); (7) investments in Persons other than wholly-owned subsidiaries of the Company in excess of $5 million per transaction or series of related transactions; (8) contracts, agreements, commitments or understandings that require or would reasonably be expected to require payments by the Company or any of its subsidiaries in excess of $5 million during the term of such contract, agreement, commitment or understanding or that are otherwise material to the Company or its subsidiaries; (9) approval of annual operating plans and deviations in excess of 5% therefrom; (10) approval of annual capital budget and build plans and deviations therefrom in excess of $2 million individually and $5 million in the aggregate; (11) transactions with either KKR or HMTF (other than the $6.5 million fee to be paid to an Affiliate of KKR and the $12.5 million fee to be paid to an Affiliate of HMTF upon the consummation of the Merger); (12) establishment of Board committees and appointments thereto; (13) hiring and firing of the Company's Chief Executive Officer and other executives of the Company at the Vice President level or higher, and fixing their compensation outside the ordinary course of business; (14) waivers of material rights or settlement of litigation outside the ordinary course of business; (15) institution of litigation and similar proceedings outside the ordinary course; (16) filing of bankruptcy or the institution of similar state law proceedings; (17) filing of any registration statement for securities of the Company or any subsidiary of the Company; and (18) adding of additional items requiring Board approval other than those listed in items (1) through (17) above. Notwithstanding the foregoing, if the number of HM Designees or KKR Designees has been reduced below four as provided in paragraph 4.1(a) above, then the approval of an HM Designee or a KKR Designee (whichever class of director designees shall have been reduced) shall only be required with respect to items (1), 17 17 (10), (15) and (16) above, or any other matter as to which the treatment of, or effect on the holders of HM Shares or KKR Shares, as the case may be, is not proportionate to their share ownership as compared to other shareholders of the Company. (c) Meeting Procedures. Unless otherwise agreed by the parties hereto, the Board shall follow the following procedures: (i) Special meetings of the Board may be held at any time upon the call of at least two directors by oral, telephonic, telegraphic or facsimile notice duly given or sent at least one day, or by written notice sent by express mail at least three days, before the meeting to each director. Reasonable efforts shall be made to ensure that each director actually receives timely notice of any meeting. The annual meeting of the Board shall be held without notice immediately following the annual meeting of shareholders of the Company. (ii) A reasonably detailed agenda shall be supplied to each director reasonably in advance of each meeting of the Board, together with other appropriate documentation with respect to agenda items calling for board action, to inform adequately directors regarding matters to come before the board. Any director wishing to place a matter on the agenda for any meeting of the applicable board of directors may do so by communicating with the chairman of the Board sufficiently in advance of the meeting of the Board of directors so as to permit timely dissemination to all directors of information with respect to the agenda items. (d) Subsidiaries. The HM Partnership and the KKR Partnerships shall cause the bylaws of each subsidiary of the Company to be amended to require the prior approval of the Board of any actions of the subsidiary that, if made by the Company, would require the approval of the Company's Board under the bylaws of the Company or under this Agreement. 4.3. Voting of Shares; Action by the Company. At any annual or special meeting of stockholders of the Company or in any written consent executed in lieu of such a meeting of stockholders, the Stockholders shall take all other action, including by way of voting their shares of Stock, to give effect to the agreements contained in this Agreement. In order to effectuate the provisions of this Article IV, each Stockholder hereby agrees that when any action or vote is required to be taken by such Stockholder pursuant to this Agreement, such Stockholder shall use his or its best efforts to call, or cause the appropriate officers and directors of the Company to call, a special or annual meeting of shareholders of the Company, as the case may be, or execute or cause to be executed a consent in writing in lieu of any such meetings pursuant to applicable 18 18 provisions of the Tennessee Business Corporation Act. In addition, the Company shall take all actions to give effect to the agreements contained in this Agreement. ARTICLE V. MISCELLANEOUS 5.1. Competition. For so long as this Agreement is in effect, the HM Partnership (on its behalf and on behalf of its Affiliates) and the KKR Partnerships (on their behalf and on behalf of their respective Affiliates) agrees that neither of them nor any of their Affiliates will, directly or indirectly, acquire or agree to acquire more than a 5% interest of the equity securities of any motion picture theatre exhibition business anywhere in the world, or acquire or agree to acquire all or substantially all, or any significant portion of, the assets of any such business, or to make or agree to make an investment therein, unless the opportunity to make such acquisition or agreement (the "Opportunity") is first offered to the Company; provided, however, that (i) if any of the HM Designees prevented the Opportunity from being pursued by the Company, neither the HM Partnership nor any of its Affiliates shall independently pursue such Opportunity and (ii) if any of the KKR Designees prevented the Opportunity from being pursued by the Company, neither the KKR Partnerships nor any of their respective Affiliates shall independently pursue such Opportunity. Notwithstanding the foregoing, this Section 6.1 shall not require HMTF or its Affiliates to divest its or their less than 10% ownership interest in Hollywood Theaters, Inc.; provided, however, that HMTF and its Affiliates shall not make any future direct or indirect investment, or acquire any direct or indirect future interest, in Hollywood Theatres, Inc., or any successor thereto. 5.2. Additional Securities Subject to Agreement. Each Stockholder and each Permitted Transferee agrees that any other equity securities of the Company which it hereafter acquires by means of a stock split, stock dividend, distribution, exercise of options or warrants or otherwise (other than pursuant to a Public Offering) will be subject to the provisions of this Agreement to the same extent as if held on the date hereof. 5.3. Termination. Other than as specified below, the provisions of this Agreement will terminate and be of no further force and effect upon the earliest of (i) the date on which the HM Partnership and its Affiliates and the KKR Partnership and its Affiliates, collectively, beneficially own less than 20% of the outstanding shares of Stock, (ii) the date on which any third party or "group" (as defined for purposes of the Securities Exchange Act of 1934, as amended) beneficially owns a greater number of shares of Stock than the HM Partnership and its Affiliates and the KKR Partnership and its Affiliates, collectively, and (iii) ten years after the date of this Agreement. Section 2.3 shall terminate at such time as either the HM Partnership and its Affiliates, on the one hand, or the 19 19 KKR Partnership and its Affiliates, on the other hand, beneficially own less than 50% of the number of shares of Stock (taking into account the proposed stock split to be effected promptly following the consummation of the Merger) beneficially owned by them immediately after the consummation of the Merger, after taking into account the transactions contemplated by the Act III Investment Agreement. Notwithstanding the foregoing, Section 3.1 of this Agreement and the Registration Rights Agreement shall survive the termination of this Agreement. 5.4. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by cable, by telecopy, by telegram, by telex or registered or certified mail (postage prepaid, return receipt requested) as follows (or at such other address for a party as shall be specified in a notice given in accordance with this Section 5.7): (i) if to a KKR Partnership: c/o Kohlberg Kravis Roberts & Co. 9 West 57th Street, Suite 4200 New York, NY 10019 Attention: Clifton S. Robbins Telecopy: (212) 750-0003 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: Charles I. Cogut, Esq. Telecopy: (212) 455-2502 (ii) if to the HMTF Partnership: c/o Hicks, Muse, Tate & Furst Incorporated 200 Crescent Court Suite 1600 Dallas, Texas 75201 Attention: Lawrence D. Stuart, Jr. Telecopy: (214) 740-7313 with a copy to: Weil, Gotshal & Manges LLP 100 Crescent Court Suite 1300 Dallas, Texas 75201 Attention: Jeremy W. Dickens, Esq. Telecopy: (214) 746-7777 (iii) if to the Company: 20 20 Regal Cinemas, Inc. 7132 Commercial Park Drive Knoxville, Tennessee 37918 Attention: Michael Campbell Telecopy: (423) 922-3188 with copies to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: Charles I. Cogut, Esq. Telecopy: (212) 455-2502 -and- Weil, Gotshal & Manges LLP 100 Crescent Court Suite 1300 Dallas, Texas 75201 Attention: Jeremy W. Dickens, Esq. Telecopy: (214) 746-7777 5.5. Further Assurances. The parties hereto will sign such further documents, cause such meetings to be held, resolutions passed, exercise their votes and do and perform and cause to be done such further acts and things as may be necessary in order to give full effect to this Agreement and every provision hereof. 5.6. Non-Assignability. This Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by any party hereto without the express prior written consent of the other parties, and any attempted assignment, without such consents, will be null and void; provided, however, that any of the KKR/HM Partnerships may assign or delegate any of its rights hereunder to any Affiliate. 5.7. Amendment; Waiver. This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the parties hereto; provided, however, that this Agreement may be amended, supplemented or otherwise modified by a written instrument executed only by the HM Partnership and the KKR Partnerships so long as any such amendment, supplement or modification does not impose any material additional burdens on the Company. No waiver by any party of any of the provisions hereof will be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, will be deemed to constitute a waiver by the party taking such action of compliance with any covenants or agreements contained herein. The waiver by 21 21 any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach. 5.8. Third Parties. This Agreement does not create any rights, claims or benefits inuring to any person that is not a party hereto nor create or establish any third party beneficiary hereto. 5.9. Governing Law. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the principles of conflict of laws thereof. The parties to this Agreement hereby agree to submit to the jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof in any action or proceeding arising out of or relating to this Agreement. The parties hereto irrevocably and unconditionally waive trial by jury in any legal action or proceeding in relation to this Agreement and for any counterclaim therein. 5.10. Specific Performance. Without limiting or waiving in any respect any rights or remedies of the parties hereto under this Agreement now or hereinafter existing at law or in equity or by statute, each of the parties hereto will be entitled to seek specific performance of the obligations to be performed by the other in accordance with the provisions of this Agreement. 5.11. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. 5.12. Titles and Headings. The section headings contained in this Agreement are for reference purposes only and will not affect the meaning or interpretation of this Agreement. 5.13. Severability. If any provision of this Agreement is declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement will not be affected and will remain in full force and effect. 5.14. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which together will be deemed to be one and the same instrument. 22 22 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. REGAL CINEMAS, INC. By: -------------------- Title: KKR 1996 Fund L.P. By: KKR Associates 1996, L.P., its general partner By: KKR 1996 GP LLC, its general partner By: -------------------- Authorized Signatory KKR PARTNERS II, L.P. By: KKR Associates, L.P., its general partner By: -------------------- Authorized Signatory REGAL EQUITY PARTNERS, L.P. By: TOH/Ranger, LLC, its general partner By: -------------------- Authorized Signatory 23 EXHIBIT A ASSUMPTION AGREEMENT [DATE] To the parties to the Stockholders' Agreement referred to below Dear Sirs: Reference is made to the Stockholders' Agreement dated as of May 27, 1998 (as the same be amended, supplemented or otherwise modified from time to time, the "Stockholders' Agreement") among Regal Cinemas, Inc., a Tennessee corporation (the "Company"), KKR 1996 Fund L.P., a Delaware limited partnership ("KKR Fund"), KKR Partners II, L.P., a Delaware limited partnership ("KKR Partners II" and, together with the KKR Fund, the "KKR Partnerships"), and Regal Equity Partners, L.P., a Delaware limited partnership and an affiliate of Hicks, Muse, Tate & Furst Incorporated (the "HM Partnership" and, together with the KKR Fund and KKR Partners II, the "KKR/HM Partnerships"; the HM Partnership, the KKR Fund and KKR Partners II, each a "Stockholder"). This is an Assumption Agreement referred to in the Stockholders' Agreement. Capitalized terms used but not defined herein have the meanings given such terms in the Stockholders' Agreement. The undersigned (the "Transferee") is a proposed transferee of shares of Stock currently held by [TRANSFEROR NAME] (the "Transferor"), and has received a copy of the Stockholders' Agreement as currently in effect. In connection with the proposed transfer of shares of Stock to the Transferee, the Transferee hereby assumes, and agrees to be bound to the same extent as the Transferor by, the Stockholders' Agreement with respect to such shares of Stock. From and after the execution and delivery hereof and the consummation of the transfer of such shares of Stock to the Transferee, the Transferee understands that it shall be deemed to be a party to the Stockholders' Agreement as a Permitted Transferee of the Transferor, subject to the limitation on certain rights as provided in Section 2.6 of the Agreement. Very truly yours, [TRANSFEREE NAME] By --------------------------- Name: Title: EX-10.16 3 STOCKHOLDER & REG. RIGHT AGREEMENT 1 EXHIBIT 10.16 STOCKHOLDERS' AND REGISTRATION RIGHTS AGREEMENT STOCKHOLDERS' AND REGISTRATION RIGHTS AGREEMENT dated as of May 27, 1998 (this "Agreement") among Regal Cinemas, Inc., a Tennessee corporation (the "Company"), KKR 1996 Fund L.P., a Delaware limited partnership ("KKR Fund"), KKR Partners II, L.P. ("KKR Partners II" and, together with the KKR Fund, the "KKR Partnerships"), Regal Equity Partners, L.P., a Delaware limited partnership and an affiliate of Hicks, Muse, Tate & Furst Incorporated (the "HM Partnership" and, together with the KKR Partnerships, the "KKR/HM Partnerships") and the Persons listed on the signature pages hereof under the caption "DLJ Entities" (each, a "DLJ Entity" and, collectively, the "DLJ Entities"). RECITALS: A. The Company, Screen Acquisition Corp. ("Holdco I") and Monarch Acquisition Corp. ("Holdco II" and, together with Holdco I, the "Holdcos") are parties to an Agreement and Plan of Merger dated as of January 19, 1998, as amended by the Amendment Agreement, dated as of May 8, 1998, among the Company, Holdco I and Holdco II (as so amended, the "Merger Agreement"). B. Pursuant to the Merger Agreement, the Holdcos will be merged with and into the Company (the "Merger") and (i) each share of common stock, no par value, of the Company outstanding immediately prior to the Merger (other than shares of common stock of the Company owned by the Company or the Holdcos) will be converted into the right to receive $31.00 per share in cash, (ii) each outstanding share of common stock, par value $.01 per share, of Holdco I will be converted into one share of Common Stock (as defined below) and 56.468990 shares of Preferred Stock (as defined below) and (iii) each outstanding share of common stock, par value $.01 per share, of Holdco II will be converted into one share of Common Stock and 86.468990 shares of Preferred Stock. The Preferred Stock will have the rights, privileges and other terms set forth in the Articles of Amendment to the Charter of the Company in the form attached hereto as Exhibit A. C. Pursuant to a Stock Subscription Agreement dated as of May 27, 1998 among the Holdco, and the DLJ Entities, immediately prior to the Merger, the DLJ Entities will purchase an aggregate of 17.400688615 shares of common stock, par value $.01 per share, of Holdco I. D. The KKR Partnerships, the HM Partnership and the DLJ Entities wish to provide for certain matters relating to their respective holdings of Common Stock and Preferred Stock. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 2 2 ARTICLE I. INTRODUCTORY MATTERS 1.1. Defined Terms. In addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein with initial capital letters: "Affiliate" shall have the meaning given to that term in Rule 405 promulgated under the Securities Act and shall include members of a Person's immediate family or trusts for the benefit of members of the immediate family of such Person; provided that officers, directors or employees of the Company will not be deemed to be Affiliates of a stockholder of the Company for purposes hereof solely by reason of being officers, directors or employees of the Company. "Affiliated Employee Benefit Trust" means any trust that is a successor to the assets held by a trust established under an employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended, or any other trust established directly or indirectly under such plan or any other such plan having the same sponsor. "Agreement" means this Agreement, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. "Assumption Agreement" means a writing reasonably satisfactory in form and substance to the KKR/HM Partnerships whereby a Permitted Transferee of shares of Common Stock becomes a party to, and agrees to be bound to the same extent as its transferor, by the terms of this Agreement. "Board" means the Board of Directors of the Company. "Business Day" means a day other than a Saturday, Sunday, federal or New York State holiday or other day on which commercial banks in New York City are authorized or required by law to close. "Common Stock" means the shares of common stock, no par value per share, of the Company after the consummation of the Merger, including the shares of such common stock issuable upon conversion of the Preferred Stock, and any stock into which such common stock may thereafter be converted or exchanged. "Designated Affiliate" means, in the case of any DLJ Entity (i) any other DLJ Entity, (ii) any general or limited partner of any DLJ Entity (a "DLJ Partner"), and any corporation, partnership, Affiliated Employee Benefit Trust or other entity that is an Affiliate of any DLJ Partner (collectively, the "DLJ Affiliates"), (iii) any managing director, general partner, director, limited partner, officer or employee of any DLJ Entity or of any DLJ Affiliate, or the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any of the foregoing persons referred to in this clause (iii) (collectively, "DLJ Associates"), (iv) a trust, the 3 3 beneficiaries of which, or a corporation, limited liability company or partnership, the stockholders, members of general or limited partners of which, include only DLJ Entities, DLJ Affiliates, DLJ Associates, their spouses or their lineal descendants or (v) a voting trustee for one or more DLJ Entities, DLJ Affiliates or DLJ Associates under the terms of a voting trust designed to conform with the requirements of the insurance laws of the State of New York. "DLJ Parent" means Donaldson, Lufkin & Jenrette, Inc., or any successor thereto. "DLJ Subsidiaries" means, collectively, the direct or indirect subsidiaries of DLJ Parent. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "KKR/HM Registrable Securities" means Registrable Securities (as defined in the KKR/HM Registration Rights Agreement) of the KKR/HM Partnerships or their respective Affiliates. "KKR/HM Registration Rights Agreement" means the Registration Rights Agreement dated as of May 27, 1998 among the Company, the KKR Partnerships and the HM Partnership, as such agreement may be amended, supplemented or otherwise modified from time to time. "Permitted Transferee" means any Person to whom shares of Common Stock or Preferred Stock are Transferred in a Transfer in accordance with Section 2.2 or otherwise not in violation of this Agreement and who is required to, and does, enter into an Assumption Agreement, and includes any Person to whom a Permitted Transferee of any DLJ Entity (or a Permitted Transferee of a Permitted Transferee) so further Transfers shares of Common Stock or Preferred Stock and who is required to, and does, become bound by the terms of this Agreement. "Person" means any individual, corporation, limited liability company, partnership, trust, joint stock company, business trust, unincorporated association, joint venture, governmental authority or other legal entity of any nature whatsoever. "Preferred Stock" means the shares of Series A Convertible Preferred Stock, no par value, of the Company after the consummation of the Merger. "Public Offering" means the sale of shares of Common Stock to the public pursuant to an effective registration statement (other than a registration statement on Form S-4 or S-8 or any similar or successor form) filed under the Securities Act. 4 4 "Registrable Securities" means (i) any Common Stock held by a DLJ Entity or any Permitted Transferees, including shares issued or issuable upon the conversion, exchange or exercise of any security convertible, exchangeable or exercisable into Common Stock (including Preferred Stock), (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, option or other convertible security which is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, such Common Stock, and (iii) any Common Stock or any security convertible, exchangeable or exercisable into Common Stock which may be issued or distributed in respect thereof by way of stock dividend or stock split or other distribution, recapitalization or reclassification. For purposes of this Agreement, any Registrable Securities will cease to be Registrable Securities when (A) a registration statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective registration statement, (B) such Registrable Securities shall have been offered and sold pursuant to Rule 144 (or any similar provision then in effect) under the Securities Act, (C) such Registrable Securities are sold by a Person in a transaction in which rights under the provisions of this Agreement are not assigned in accordance with this Agreement, or (D) such Registrable Securities cease to be outstanding. "Registration Expenses" means any and all expenses incident to the performance by the Company of its obligations under Sections 3.1 and 3.2, including without limitation (i) all SEC, stock exchange, or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees (including, if applicable, the fees and expenses of any "qualified independent underwriter," as such term is defined in Rule 2720 of the NASD, and of its counsel), (ii) all fees and expenses of complying with securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, messenger and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange and all rating agency fees, (v) the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or "cold comfort" letters required by or incident to such performance and compliance, (vi) any fees and disbursements of underwriters customarily paid by the issuers or sellers of securities, including liability insurance if the Company so desires or if the underwriters so require, and the reasonable fees and expenses of any special experts retained in connection with the requested registration, but excluding underwriting discounts and commissions and transfer taxes, if any, (vii) the reasonable out-of-pocket expenses of not more than one law firm incurred by all the DLJ Entities and their Permitted Transferees in connection with the registration, and (viii) the costs and expenses of the Company relating to analyst and investor presentations or any "road show" undertaken in connection with the registration and/or marketing of the Registrable Securities; provided that nothing in this clause (viii) shall obligate the Company to engage or participate in any such presentations or road show. 5 5 "Registration Rights Holders" means, collectively, the DLJ Entities and their Permitted Transferees. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time. "Transfer" means a transfer, sale, assignment, pledge, hypothecation or other disposition, whether directly or indirectly pursuant to the creation of a derivative security, the grant of an option or other right, the imposition of a restriction on disposition or voting or transfer by operation of law. 1.2. Construction. (a) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. Unless the context otherwise requires: (i) "or" is disjunctive but not exclusive, (ii) words in the singular include the plural, and in the plural include the singular, and (iii) the words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified. (b) The term "DLJ Entities," to the extent such entities shall have transferred any of their Shares to "Permitted Transferees", shall mean the DLJ Entities and the Permitted Transferees of the DLJ Entities, taken together, and any right or action that may be taken at the election of the DLJ Entities may be taken at the election of the DLJ Entities and such Permitted Transferees, subject to the requirements of Section 5.7. ARTICLE II. TRANSFERS 2.1. Limitations on Transfer. (a) Until the fifth anniversary of the date hereof, no DLJ Entity or Permitted Transferee may Transfer any shares of Common Stock or Preferred Stock other than (i) in connection with a Public Offering effected in accordance with Section 3.1 or 3.2, (ii) after a Public Offering, in a bona fide sale to the public pursuant to Rule 144 (or any successor provision) under the Securities Act or (iii) in accordance with Sections 2.2, 2.3 or 2.4. (b) In the event of any purported Transfer by a DLJ Entity or a Permitted Transferee of any shares of Common Stock or Preferred Stock in violation of the provisions of this Agreement, such purported Transfer will be void and of no effect and the Company will not give effect to such Transfer. (c) Each certificate representing shares of Common Stock and Preferred Stock held by a DLJ Entity or any Permitted Transferee will bear a legend substantially to 6 6 the following effect (with such additions thereto or changes therein as the Company may be advised by counsel are required by law or necessary to give full effect to this Agreement, the "Legend"): "THE SHARES OF [COMMON STOCK] [PREFERRED STOCK] REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS' AND REGISTRATION RIGHTS AGREEMENT AMONG REGAL CINEMAS, INC., KKR 1996 FUND L.P., KKR PARTNERS II, L.P., REGAL EQUITY PARTNERS, L.P. AND THE OTHER PERSONS NAMED THEREIN, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF SUCH STOCKHOLDERS' AND REGISTRATION RIGHTS AGREEMENT. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH STOCKHOLDERS' AND REGISTRATION RIGHTS AGREEMENT." "THE SHARES OF [COMMON STOCK] [PREFERRED STOCK] REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." The Legend will be removed by the Company by the delivery of substitute certificates without such Legend in the event of (i) a Transfer permitted by this Agreement and in which the Transferee is not required to enter into an Assumption Agreement or (ii) the termination of Article II pursuant to the terms hereof, provided, however, that the second paragraph of the Legend will only be removed if at such time it is no longer required for purposes of applicable securities laws. If any shares of Common Stock or Preferred Stock cease to be Registrable Securities under clause (A) or (B) of the definition thereof, the Company shall, upon the written request of the holder thereof, issue to such holder a new certificate or certificates evidencing such shares, without the second paragraph of the Legend. 2.2. Transfers to Permitted Transferees. The DLJ Entities and their Permitted Transferees may Transfer any or all of the shares of Common Stock or Preferred Stock held by any of them to any Designated Affiliate who duly executes and delivers an Assumption Agreement; provided that in connection therewith the Company, if it so requests promptly following its receipt of such Assumption Agreement (and, in such event, such Assumption Agreement shall not be effective unless and until this proviso has been satisfied), has been furnished with an opinion in form and substance reasonably satisfactory to the Company of counsel reasonably satisfactory to the Company that such Transfer is exempt from or not subject to the provisions of Section 5 of the Securities Act and any other applicable securities laws; and, provided, further, that no Transfer under this Section 7 7 2.2 shall be permitted if such Transfer would require the Company to register a class of equity securities under Section 12 of the Exchange Act under circumstances where the Company does not then have securities of any class registered under Section 12 of the Exchange Act and such transfer would cause such registration to be required. 2.3. Tag-Along Rights. (a) So long as this Agreement remains in effect, with respect to any proposed Transfer by any or all of the KKR/HM Partnerships or any their respective Affiliates (collectively, the "Selling Partnership") of shares of Common Stock to any Person not an Affiliate of any of the KKR/HM Partnerships, other than in a Public Offering, pursuant to a bona fide sale to the public pursuant to Rule 144 under the Securities Act, pursuant to a distribution to the limited partners of any of the KKR/HM Partnerships or pursuant to any agreement or plan of merger or combination, including any tender or exchange offer in respect thereof, that is approved by the Board and that provides for equal treatment of all outstanding shares of Common Stock and Preferred Stock (any such transaction, a "Proposed Sale"), each DLJ Entity and each Permitted Transferee will have the right to require the proposed Transferee or acquiring Person to purchase from each DLJ Entity and each Permitted Transferee who exercises its rights under this Section 2.3(a) in accordance with this Section 2.3 (a "Tagging Stockholder") a number of shares of Common Stock up to the product (rounded up to the nearest whole number) of (i) the quotient determined by dividing (A) the aggregate number of shares of Common Stock owned by the Tagging Stockholders by (B) the aggregate number of shares of Common Stock owned by the KKR/HM Partnerships and their respective Affiliates and the Tagging Stockholders and (ii) the total number of shares of Common Stock proposed to be directly or indirectly Transferred to the transferee or acquiring Person in the Proposed Sale (a "Proposed Transferee"), at the same price per share of Common Stock and upon the same terms and conditions (including, without limitation, time of payment, form of consideration and adjustments to purchase price) as the Selling Partnership; provided that in order to be entitled to exercise its right to sell shares of Common Stock to the Proposed Transferee pursuant to this Section 2.3, each Tagging Stockholder (x) shall agree to the same covenants as the Selling Partnership agrees to in connection with the Proposed Sale and (y) shall make such representations and warranties concerning its title to the shares of Common Stock to be sold in connection with the Proposed Sale and its authority to enter into and consummate the Proposed Sale as the Selling Partnership makes, but shall not be required to make any other representations and warranties. Each Tagging Stockholder will be responsible for funding its proportionate share of any escrow arrangements in connection with the Proposed Sale and for its proportionate share of any withdrawals therefrom, including without limitation any such withdrawals that are made with respect to claims arising out of agreements, covenants, representations, warranties or other provisions relating the Proposed Sale that were not made by the Tagging Stockholder. Each Tagging Stockholder will be responsible for its proportionate share of the fees, commissions and other out-of-pocket expenses (collectively, "Costs") of the Proposed Sale to the extent not paid or reimbursed by the Company, the Proposed Transferee or another Person (other than the Selling Partnership). The Selling Partnership shall be entitled to estimate the Tagging Stockholders' proportionate share of such Costs and to withhold such amounts from payments to be made to the Tagging Stockholder at the time of closing of such Proposed Sale; provided that (i) such estimate shall not preclude the Selling Partnership from 8 8 recovering additional amounts from the Tagging Stockholder in respect of such Tagging Stockholder's proportionate share of such Costs and (ii) the Selling Partnership shall reimburse the Tagging Stockholder to the extent actual amounts are ultimately less than the estimated amounts or any such amounts are paid by the Company, the Proposed Transferee or another Person (other than the Selling Partnership). (b) The Selling Partnership will give notice to the DLJ Entities of each Proposed Sale not more than ten days after the execution of the definitive agreement relating to the Proposed Sale, setting forth the number of shares of Common Stock proposed to be so Transferred, the name and address of the Proposed Transferee, the proposed amount and form of consideration (and if such consideration consists in part or in whole of property other than cash, the Selling Partnership will provide such information, to the extent reasonably available to the Selling Partnership, relating to such non-cash consideration as the DLJ Entities together may reasonably request in order to evaluate such non-cash consideration) and other terms and conditions of payment offered by the Proposed Transferee. The Selling Partnership will deliver or cause to be delivered to each Tagging Stockholder copies of all transaction documents relating to the Proposed Sale promptly as the same become available. The tag-along rights provided by this Section 2.3 must be exercised by the DLJ Entities within seven days following receipt of the notice required by the preceding sentence by delivery of a written notice to the Selling Partnership indicating its desire to exercise its rights and specifying the number of shares of Common Stock it desires to sell (the "Tag-Along Notice"). The Tagging Stockholders will be entitled under this Section 2.3 to Transfer to the Proposed Transferee the number of shares of Common Stock calculated in accordance with Section 2.3(a). (c) If any Tagging Stockholder exercises its rights under Section 2.3(a), the closing of the purchase of the Common Stock with respect to which such rights have been exercised will take place concurrently with the closing of the sale of the Selling Partnership's Common Stock to the Proposed Transferee. 2.4. Drag-Along Rights. (a) So long as this Agreement remains in effect, if any or all of the HM/KKR Partnerships or any of their respective Affiliates (collectively, the "Dragging Partnership") receive an offer from a Person other than an Affiliate of any of the HM/KKR Partnerships (a "Third Party") to purchase (in a transaction of a type referred to in the first sentence of Section 2.3(a)) at least a majority of the shares of Common Stock then outstanding and such offer is accepted by the Dragging Partnership, then each DLJ Entity and each Permitted Transferee (collectively, the "Drag-Along Stockholders") hereby agrees that, if requested by the Dragging Partnership, it will Transfer to such Third Party, subject to Section 2.4(b), on the terms of the offer so accepted by the Dragging Partnership, including, without limitation, time of payment, form of consideration and adjustments to purchase price, the number of shares of Common Stock equal to the number of shares of Common Stock owned by it multiplied by the percentage of the then outstanding shares of Common Stock to which the Third Party offer is applicable. (b) The Dragging Partnership will give notice (the "Drag-Along Notice") to the Drag-Along Stockholders of any proposed Transfer giving rise to the rights of the 9 9 Dragging Partnership set forth in Section 2.4(a) (a "Section 2.4 Transfer") within 10 days following the Dragging Partnership's acceptance of the offer referred to in Section 2.4(a) and, in any event, no later than 10 days prior to the proposed closing date for such Section 2.4 Transfer. The Drag-Along Notice will set forth the number of shares of Common Stock proposed to be so Transferred, the name of the proposed Transferee or acquiring Person, the proposed amount and form of consideration (and if such consideration consists in part or in whole of property other than cash, the Dragging Partnership will provide such information, to the extent reasonably available to the Dragging Partnership, relating to such non-cash consideration as the Drag-Along Stockholders together may reasonably request in order to evaluate such non-cash consideration), the number of shares of Common Stock sought and the other terms and conditions of the offer. Each Drag-Along Stockholder (x) shall agree to the same covenants, as the Dragging Partnership agrees to in connection with the Section 2.4 Transfer and (y) shall make such representations and warranties concerning its title to the shares of Common Stock to be sold in connection with the Section 2.4 Transfer and its authority to enter into and consummate the Section 2.4 Transfer as the Dragging Partnership makes, but shall not be required to make any other representations and warranties. Each Drag-Along Stockholder will be responsible for funding its proportionate share of any escrow arrangements in connection with the Section 2.4 Transfer and for its proportionate share of any withdrawals therefrom, including without limitation any such withdrawals that are made with respect to claims arising out of agreements, covenants, representations, warranties or other provisions relating the Section 2.4 Transfer that were not made by the Drag-Along Stockholder. Each Drag-Along Stockholder will be responsible for its proportionate share of the Costs of the Section 2.4 Transfer to the extent not paid or reimbursed by the Company, the Third Party or another Person (other than the Dragging Partnership. The Dragging Partnership shall be entitled to estimate the Drag-Along Stockholders' proportionate share of such Costs and to withhold such amounts from payments to be made to the Drag-Along Stockholder at the time of closing of the Section 2.4 Transfer; provided that (i) such estimate shall not preclude the Dragging Partnership from recovering additional amounts from the Drag-Along Stockholder in respect of such Drag-Along Stockholder's proportionate share of such Costs and (ii) the Dragging Partnership shall reimburse the Drag-Along Stockholder to the extent actual amounts are ultimately less than the estimated amounts or any such amounts are paid by the Company, the Third Party or another Person (other than the Dragging Partnership). If the Section 2.4 Transfer is not consummated within 180 days from the date of the Drag-Along Notice, the Dragging Partnership must deliver another Drag-Along Notice in order to exercise its rights under this Section 2.4 with respect to such Section 2.4 Transfer. 2.5. Custody Agreement and Power of Attorney. Upon delivering a Tag Along Notice or receiving a Drag-Along Notice, each DLJ Entity and each Permitted Transferee will, if requested by the Selling Partnership or the Dragging Partnership, as the case may be, execute and deliver a custody agreement and power of attorney in form and substance satisfactory to the Selling Partnership or the Dragging Partnership, as the case may be, with respect to the shares of Common Stock which are to be sold by the DLJ Entities and Permitted Transferees pursuant hereto (a "Custody Agreement and Power of Attorney"). The Custody Agreement and Power of Attorney will provide, among other things, that each DLJ Entity and each Permitted Transferee will deliver to and deposit in 10 10 custody with the custodian and attorney-in-fact named therein a certificate or certificates representing such shares of Common Stock (duly endorsed in blank by the registered owner or owners thereof) and irrevocably appoint said custodian and attorney-in-fact as its agent and attorney-in-fact with full power and authority to act under the Custody Agreement and Power of Attorney on its behalf with respect to the matters specified in Section 2.3 or Section 2.4, as the case may be. ARTICLE III. REGISTRATION RIGHTS 3.1. Piggyback Rights. (a) Piggyback Rights. If the Company at any time after the date hereof proposes to register Common Stock under the Securities Act (other than a registration on Form S-4 or S-8, or any successor or other forms promulgated for similar purposes), whether or not for sale for its own account, it will, at each such time, give prompt written notice to the Registration Rights Holders of its intention to do so and of the Registration Rights Holders' rights under this Section 3.1. Upon the written request of any Registration Rights Holder made within 14 days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Registration Rights Holder), the Company will use its reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Registration Rights Holders; provided that (i) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company or any other holder of securities that initiated such registration (an "Initiating Holder") shall determine for any reason not to proceed with the proposed registration of the securities to be sold by it, the Company or such Initiating Holder may, at its election, give written notice of such determination to the Registration Rights Holders and, thereupon, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses incurred in connection therewith), and (ii) if such registration involves an underwritten offering, the Registration Rights Holders of Registrable Securities requesting to be included in the registration must sell their Registrable Securities to the underwriters selected by the Company or the Initiating Holders, as the case may be, on the same terms and conditions as apply to the Company or the Initiating Holders, as the case may be, with, in the case of a combined primary and secondary offering, such differences, including any with respect to indemnification and liability insurance, as may be customary or appropriate in combined primary and secondary offerings. If a registration requested pursuant to this Section 3.1(a) involves an underwritten public offering, any Registration Rights Holder requesting to be included in such registration may elect, in writing prior to the effective date of the registration statement filed in connection with such registration, not to register all or any portion of such securities in connection with such registration. Nothing in this Section 3.1(a) shall operate to limit the right of a Registration Rights Holder to (i) request the registration of Registrable Securities that consist of Common Stock issuable upon conversion, exercise or exchange of convertible securities held by such Registration Rights Holder notwithstanding the fact that at the time of request such Registration Rights Holder holds only convertible securities or (ii) request the registration at one time of Registrable 11 11 Securities that consist of both Common Stock and convertible securities convertible into or exercisable or exchangeable for Common Stock. (b) Expenses. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3.1. (c) Priority in Piggyback Registrations. If a registration pursuant to this Section 3.1 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of Registrable Securities, KKR/HM Registrable Securities and other securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be reasonably likely to have an adverse effect on the price, timing or distribution of the securities offered in such offering, then the Company will include in such registration (i) first, 100% of the securities, if any, the Company proposes to sell for its own account, provided that the registration of shares of Common Stock contemplated by this Section 3.1 was initiated by the Company with respect to shares intended to be registered for sale for its own account and (ii) second, such number of Registrable Securities and KKR/HM Registrable Securities requested to be included in such registration which, in the opinion of such managing underwriter, can be sold without having the adverse effect referred to above, which number of Registrable Securities and KKR/HM Registrable Securities shall be allocated pro rata (subject to the final sentence of this Section 3.1(c)) among all such requesting holders of Registrable Securities and KKR/HM Registrable Securities, such pro rata amount to be determined by multiplying (x) the aggregate number of Registrable Securities and KKR/HM Registrable Securities that may be included in such registration without the adverse effect referred to above by (y) a fraction, the numerator of which is the number of Registrable Securities or KKR/HM Registrable Securities, as the case may be, requested by such Registration Rights Holder or the KKR/HM Partnerships, as the case may be, to be included in such registration and the denominator of which is the aggregate number of Registrable Securities and KKR/HM Registrable Securities requested to be included in such registration. In the event that (i) the Company did not initiate the registration of securities intended to be registered for sale for its own account and (ii) the number of Registrable Securities, KKR/HM Registrable Securities and shares of Common Stock of other holders entitled to registration rights with respect to such Common Stock, in each case requested to be included in such registration, is less than the number which, in the opinion of the managing underwriter, can be sold, the Company may include in such registration the securities it proposes to sell up to the number of securities that, in the opinion of the underwriter, can be sold. The Registration Rights Holders acknowledge and agree that the number of KKR/HM Registrable Securities that this Section 3.1(c) permits to be included in a registration may be allocated among the KKR Partnerships, the HM Partnership, their respective Affiliates and other holders of securities of the Company as such parties shall agree, including holders of securities of the Company parties to, or having rights under, the KKR/HM Registration Rights Agreement. 3.2. Demand Registration. (a) Demand Registration. At any time after the 180th day following the initial Public Offering, upon the written request of any Registration 12 12 Rights Holder (the Registration Rights Holder or Registration Rights Holders making such request, a "Demand Party") requesting that the Company effect the registration under the Securities Act of all or part of such Demand Party's Registrable Securities and specifying the amount and intended method of disposition thereof, the Company will promptly give written notice of such requested registration to the other holders of Registrable Securities, the KKR/HM Partnerships and other holders of securities entitled to notice of such registration under the KKR/HM Registration Rights Agreement and thereupon will, as expeditiously as possible, file a registration statement to effect the registration under the Securities Act of: (i) such Registrable Securities which the Company has been so requested to register by the Registration Rights Holders; and (ii) the KKR/HM Registrable Securities and securities of other holders which the Company has been requested to register by written request given to the Company within 15 days after the giving of such written notice by the Company (which request shall specify the amount and intended method of disposition of such securities); all to the extent necessary to permit the disposition (in accordance with the intended method thereof as aforesaid) of the Registrable Securities, the KKR/HM Registrable Securities and such other securities so to be registered; provided that the Company shall not be required to effect the registration of Registrable Securities at the request of a Demand Party under this Section 3.2(a) on more than two occasions, except as provided in Section 3.2(f); and provided, further, that the Company shall not be obligated to file a registration statement relating to any registration request under this Section 3.2(a): (x) within a period of 180 days (or such lesser period as the managing underwriters in an underwritten offering may permit) after the effective date of any other registration statement relating to any registration request under this Section 3.2(a) or relating to any registration effected under Section 3.1; (y) if with respect thereto the managing underwriter, the SEC, the Securities Act or the rules and regulations thereunder, or the form on which the registration statement is to be filed, would require the conduct of an audit other than the regular audit conducted by the Company at the end of its fiscal year, in which case the filing may be delayed until the completion of such audit (and the Company shall, upon request of the Demand Parties, use its reasonable efforts to cause such audit to be completed expeditiously and without unreasonable delay); or (z) if the Company is in possession of material non-public information and the Board determines in good faith that disclosure of such information would not be in the best interests of the Company and its stockholders, in which case the filing of the registration statement may be delayed until the earlier of the second business day after such conditions shall have ceased to exist and the 90th day after receipt by the 13 13 Company of the written request from a Demand Party to register Registrable Securities under this Section 3(a). Nothing in this Section 3.2(a) shall operate to limit the right of a Registration Rights Holder to (i) request the registration of Registrable Securities that consist of Common Stock issuable upon conversion, exercise or exchange of convertible securities held by such Registration Rights Holder notwithstanding the fact that at the time of request such Registration Rights Holder holds only convertible securities or (ii) request the registration at one time of Registrable Securities that consist of both Common Stock and convertible securities convertible into or exercisable or exchangeable for Common Stock. (b) Expenses. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 3.2. (c) Effective Registration Statement. A registration requested pursuant to this Article 3 will not be deemed to have been effected unless it has become effective; provided that, if, within 180 days after it has become effective, the offering of Registrable Securities pursuant to such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, then such registration will be deemed not to have been effected. (d) Selection of Underwriters. If a requested registration pursuant to this Section 3.2 involves an underwritten offering and neither the Company nor any of the KKR/HM Partnerships (or Affiliates thereof) are registering any securities therein, the Demand Parties shall have the right to select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter; provided, however, that such investment banker or bankers and managers shall be reasonably satisfactory to the Company. If a requested registration pursuant to this Section 3.2 involves an underwritten offering and either the Company or any of the KKR/HM Partnerships (or their Affiliates) are registering any securities therein, the Company shall have the right to select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter; provided, however, that a majority in interest of the holders of the Registrable Securities held by all Registration Rights Holders participating in such registration shall have the right to select one co-manager that is an investment banking firm of nationally recognized standing to participate in the administration of the offering. (e) Priority in Demand Registrations. If a requested registration pursuant to this Section 3.2 involves an underwritten offering and the managing underwriter advises the Company in writing that, in its opinion, the number of Registrable Securities and KKR/HM Registrable Securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be reasonably likely to have an adverse effect on the price, timing or distribution of the securities offered in such offering, then the Company will include in such registration such the number of Registrable Securities and KKR/HM Registrable Securities requested to be included in such registration which, in the 14 14 opinion of such managing underwriter, can be sold without having the adverse effect referred to above, which number shall be allocated pro rata (subject to the final sentence of this Section 3.2(e)) among all such requesting holders of Registrable Securities and KKR/HM Registrable Securities, such pro rata amount to be determined by multiplying (x) the aggregate number of Registrable Securities and KKR/HM Registrable Securities that may be included in such registration without the adverse effect referred to above by (y) a fraction, the numerator of which is the number of Registrable Securities or KKR/HM Registrable Securities, as the case may be, requested by the Registration Rights Holders or the KKR/HM Partnerships (or their Affiliates), as the case may be, to be included in such registration and the denominator of which is the aggregate number of Registrable Securities and KKR/HM Registrable Securities requested to be included in such registration; provided that, after giving effect to such pro ration, the KKR/HM Partnerships or their respective Affiliates that requested to include KKR/HM Registrable Securities in such registration may further reduce the number of KKR/HM Registrable Securities to be so registered, and, in such event, the number of Registrable Securities to be so registered shall be increased by the participating Registration Rights Holders on a share-for-share basis, but not in excess of the total number of Registrable Securities that the Demand Parties originally requested to be included in such registration. In the event that the number of Registrable Securities, KKR/HM Registrable Securities and shares of Common Stock of other holders, in each case entitled to registration rights with respect to such Common Stock requested to be included in such registration is less than the number which, in the opinion of the managing underwriter, can be sold, the Company may include in such registration securities it proposes to sell for its own account up to the number of securities that, in the opinion of the underwriter, can be sold. The Registration Rights Holders acknowledge and agree that the number of KKR/HM Registrable Securities that this Section 3.2(e) permits to be included in a registration may be allocated among the KKR Partnerships, the HM Partnership, their respective Affiliates and other holders of securities of the Company as such parties shall agree, including holders of securities of the Company parties to, or having rights under, the KKR/HM Registration Rights Agreement. (f) Additional Requests. If as a result of the priority provisions set forth in Section 3.2(e), (i) the number of Registrable Securities registered pursuant to Section 3.2 is less than 70% of the number of Registrable Securities set forth in the first request made by the Demand Parties under this Section 3.2 and (ii) the Demand Parties shall have already requested registration under this Section 3.2 on two occasions, then the Demand Parties shall have the right to make one or more additional requests for registration under this Section 3.2 until such time as at least 70% of the number of Registrable Securities set forth in such first request under this Section 3.2 made by the Demand Parties have been registered under this Section 3.2. 3.3. Registration Procedures. If and whenever the Company is required to file a registration statement with respect to, or to use its reasonable efforts to effect or cause the registration of, any Registrable Securities under the Securities Act as provided in this Agreement the Company will as expeditiously as possible: 15 15 (a) prepare and, in any event within 120 days after the end of the period within which a request for registration may be given to the Company pursuant to Section 3.2, file with the SEC a registration statement on an appropriate form with respect to such Registrable Securities and use its reasonable efforts to cause such registration statement to become effective; provided, however, that the Company may discontinue any registration of securities as to which it is the Initiating Party at any time prior to the effective date of the registration statement relating thereto (and, in such event, the Company shall pay the Registration Expenses incurred in connection therewith); provided, further, that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company will furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review of such counsel; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period not in excess of 270 days and to comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; provided that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company will furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review of such counsel; (c) furnish to each seller of such Registrable Securities such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits filed therewith, including any documents incorporated by reference), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and summary prospectus), in conformity with the requirements of the Securities Act, and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities by such seller; (d) use its reasonable efforts to register or qualify such Registrable Securities covered by such registration in such jurisdictions as each seller shall reasonably request, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this subsection (d), it would not be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction; (e) use its reasonable efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental 16 16 agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (f) notify each seller of any such Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act within the appropriate period mentioned in Section 3.3(b), of the Company's becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) otherwise use its reasonable efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable (but not more than 18 months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act; (h) (i) if such Registrable Securities are Common Stock (including Common Stock issuable upon conversion, exchange or exercise of another security), use its reasonable efforts to list such Registrable Securities on any securities exchange on which the Common Stock is then listed if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange; (ii) if such Registrable Securities are convertible, exchangeable or exercisable into Common Stock, upon the reasonable request of sellers of a majority of such Registrable Securities, use its reasonable efforts to list such securities and, if requested, the Common Stock underlying such securities, notwithstanding that at the time of request such sellers hold only such securities, on any securities exchange so requested, if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange; and (iii) use its reasonable efforts to provide a transfer agent and registrar for such Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (i) enter into such customary agreements (including an underwriting agreement in customary form), which may include indemnification provisions in favor of underwriters and other Persons in addition to, or in substitution for the indemnification provisions hereof, and take such other actions as sellers of a majority of shares of such Registrable Securities or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; 17 17 (j) obtain a "cold comfort" letter or letters from the Company's independent public accounts in customary form and covering matters of the type customarily covered by "cold comfort" letters as the seller or sellers of a majority of shares of such Registrable Securities shall reasonably request; (k) make available for inspection by any seller of such Registrable Securities covered by such registration statement, by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (l) notify counsel for the holders of Registrable Securities included in such registration statement and the managing underwriter or agent, immediately, and confirm the notice in writing (i) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the prospectus or any amendment prospectus shall have been filed, (ii) of the receipt of any comments from the SEC, (iii) of any request of the SEC to amend the registration statement or amend or supplement the prospectus or for additional information, and (iv) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes; (m) make every reasonable effort to prevent the issuance of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus and, if any such order is issued, to obtain the withdrawal of any such order at the earliest possible moment; (n) if requested by the managing underwriter or agent or any holder of Registrable Securities covered by the registration statement, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or agent or such holder reasonably requests to be included therein, including, with respect to the number of Registrable Securities being sold by such holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment; (o) cooperate with the holders of Registrable Securities covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing 18 18 securities to be sold under the registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or agent, if any, or the Registration Rights Holders may request; (p) obtain for delivery to the holders of Registrable Securities being registered and to the underwriter or agent an opinion or opinions from counsel for the Company in customary form and in form, substance and scope reasonably satisfactory to such holders, underwriters or agents and their counsel; and (q) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD. 3.4. Other Registration-Related Matters. (a) The Company may require any Person that is selling shares of Common Stock in a Public Offering pursuant to Sections 3.1 or 3.2 to furnish to the Company in writing such information regarding such Person and pertinent to the disclosure requirements relating to the registration and the distribution of the Registrable Securities which are included in such Public Offering as the Company may from time to time reasonably request in writing. (b) Each Registration Rights Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.3(f), it will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until its receipt of the copies of the amended or supplemented prospectus contemplated by Section 3.3(f) and, if so directed by the Company, each Registration Rights Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in their possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company gives any such notice, the period for which the Company will be required to keep the registration statement effective will be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 3.3(f) to and including the date when each seller of Registrable Securities covered by such registration statement has received the copies of the supplemented or amended prospectus contemplated by Section 3.3(f). (c) Each Registration Rights Holder will, in connection with a Public Offering of the Company's securities, upon the request of the Company or of the underwriters managing any underwritten offering of the Company's securities, agree in writing not to effect any sale, disposition or distribution of Registrable Securities (other than those included in the Public Offering) without the prior written consent of the managing underwriter for such period of time commencing 7 days before and ending 180 days (or such earlier date as the managing underwriter shall agree) after the effective date of such registration. (d) Upon delivering the notice referred to either in (i) the second sentence of Section 3.1(a) or (ii) the first sentence in Section 3.2(a), each DLJ Entity and each 19 19 Permitted Transferee will, if requested by the Company, execute and deliver Custody Agreement and Power of Attorney, as described in Section 2.5. 3.5. Indemnification. (a) Indemnification by the Company. In the event of any registration of any securities of the Company under the Securities Act pursuant to Section 3.1 or 3.2, the Company hereby indemnifies and agrees to hold harmless, to the extent permitted by law, the sellers of any Registrable Securities covered by such registration statement (each a "Holder"), each Affiliate of such Holder and their respective directors and officers or general and limited partners (and the directors, officers, employees, affiliates and controlling Persons of any of the foregoing), each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act (collectively, the "Indemnified Parties"), against any and all losses, claims, damages or liabilities, joint or several, and expenses to which such Indemnified Party may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof, whether or not such Indemnified Party is a party thereto) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of a prospectus, in the light of the circumstances when they were made, and the Company will reimburse such Indemnified Party for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company will not be liable to any Indemnified Party in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, in any such preliminary, final or summary prospectus, or any amendment or supplement thereto in reliance upon and in conformity with written information with respect to such Indemnified Party furnished to the Company by such Indemnified Party expressly for use in the preparation thereof. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any Indemnified Party and will survive the Transfer of such securities by such Holder. (b) Indemnification by the Holders and Underwriters. The Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Sections 3.1, that the Company shall have received an undertaking reasonably satisfactory to it from the Holder of such Registrable Securities or any prospective underwriter to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 3.5(a)) the Company, all other Holders or any prospective underwriter, as the case may be, and any of their respective Affiliates, directors, officers and controlling Persons, with respect to any untrue statement in or omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such untrue statement or omission was made in 20 20 reliance upon and in conformity with written information with respect to such Holder or underwriter furnished to the Company by such Holder or underwriter expressly for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Holders, or any of their respective affiliates, directors, officers or controlling Persons and will survive the Transfer of such securities by such Holder. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Notices of Claims. Etc. Promptly after receipt by an Indemnified Party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 3.5, such Indemnified Party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided that the failure of the Indemnified Party to give notice as provided herein will not relieve the indemnifying party of its obligations under Section 3.5(a) or 3.5(b), except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, unless in such Indemnified Party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the indemnifying party to such Indemnified Party of its election so to assume the defense thereof, the indemnifying party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. If, in such Indemnified Party's reasonable judgment, having common counsel would result in a conflict of interest between the interests of such indemnified and indemnifying parties, then such Indemnified Party may employ separate counsel reasonably acceptable to the indemnifying party to represent or defend such Indemnified Party in such action, it being understood, however, that the indemnifying party will not be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such Indemnified Parties (and not more than one separate firm of local counsel at any time for all such Indemnified Parties) in such action. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. (d) Contribution. If the indemnification provided for hereunder from the indemnifying party is unavailable to an Indemnified Party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein, then the indemnifying party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities 21 21 or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and Indemnified Parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and Indemnified Parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or Indemnified Parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party under this Section 3.5(d) as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 3.5(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (e) Other Indemnification. Indemnification similar to that specified in this Section 3.5 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any law or with any governmental entity other than as required by the Securities Act. (f) Non-Exclusivity. The obligations of the parties under this Section 3.5 will be in addition to any liability which any party may otherwise have to any other party. ARTICLE IV. PREEMPTIVE RIGHTS 4.1. Preemptive Right. Until the fifth anniversary of the date hereof, the DLJ Entities and their Permitted Transferees shall have the right to purchase for cash their Preemptive Right Pro Rata Share of newly issued Common Stock or Preferred Stock which the Company may from time to time propose to sell to the KKR/HM Partnerships or any of them for cash. The "Preemptive Right Pro Rata Share" shall be, at any given time, that proportion which the number of shares of Common Stock held by the DLJ Entities and the Permitted Transferees at such time bears to the total Common Stock issued and outstanding at such time. 4.2. Preemptive Notices. In the event the Company proposes to undertake an issuance for cash of Common Stock and/or Preferred Stock to any KKR/HM Partnership or any of Affiliate of a KKR/HM Partnership, it shall give the DLJ Entities written notice (the "Preemptive Notice") of its intention to sell Common Stock and/or Preferred Stock for 22 22 cash, the price, the identity of the purchaser and the principal terms upon which the Company proposes to issue the same. The DLJ Entities and their Permitted Transferees shall have five Business Days from the delivery date of any Preemptive Notice to agree to purchase a number of shares of Common Stock and/or Preferred Stock up to the Preemptive Right Pro Rata Share (in each case calculated prior to the issuance) for the price and upon the terms specified in the Preemptive Notice by giving written notice to the Company and stating therein the number of shares of Common Stock and/or Preferred Stock to be purchased. 4.3. Failure to Exercise Preemptive Right. In the event the DLJ Entities fail to purchase all of the Preemptive Right Pro Rata Share pursuant to this Article 4, the Company shall have 180 days after the date of the Preemptive Notice to consummate the sale of the Common Stock and/or Preferred Stock with respect to which the DLJ Entities' preemptive right was not exercised, at or above the price and upon terms not more favorable to the purchasers of such Common Stock or Preferred than the terms specified in the initial Preemptive Notice given in connection with such sale. 4.4. Act III. Notwithstanding anything in this Agreement to the contrary, the DLJ Entities shall not have any preemptive rights with respect to issuances of Common Stock or Preferred Stock to the KKR/HM Partnerships or any of them in connection with any transaction of any nature between the Company and Act III Cinemas, Inc. ARTICLE V. MISCELLANEOUS 5.1. Access. Until the first occurrence of a Public Offering, upon the DLJ Entities' request, the Company shall provide to the DLJ Entities a copy of the financial information contained in the Company's monthly management reports to the extent such information is made available to the KKR/HM Partnerships. In addition, the DLJ Entities and their Permitted Transferees, upon their reasonable request, (a) shall be provided reasonable access during business hours to the books, records and properties of the Company, (b) shall be provided with a reasonable opportunity to discuss the business and affairs of the Company and (c) shall be provided with such additional information concerning the Company, its subsidiaries or the financial condition, business or operations of the Company or its subsidiaries as the DLJ Entities or the Permitted Transferees shall reasonably request and as can be obtained without unreasonable expense, provided that the DLJ Entities shall cause all information relating to the Company to be held in strict confidence in accordance with the provisions of Section 5.2. Notwithstanding the foregoing, the Company shall have no obligation to provide to the DLJ Entities and their Permitted Transferees access to or information concerning matters that the Company considers to be competitively sensitive, including without limitation proposed acquisitions, divestitures, theatre upgrades, rebuilds or expansions and new theatre builds. 5.2. Confidential Information. (a) Each DLJ Entity and Permitted Transferee agrees that it will not use at any time any Confidential Information (as defined 23 23 below) of which any DLJ Entity or any Permitted Transferee is or becomes aware except in connection with its investment in the Company. (b) Each DLJ Entity and Permitted Transferee further agrees that the Confidential Information will be kept strictly confidential and will not be disclosed by it or its Representatives (as defined below), except (i) as required by applicable law, regulation or legal process, and only after compliance with Section 5.2(c) (provided that this clause (i) may not be relied upon to the extent any action is taken by a DLJ Entity or Permitted Transferee which requires such disclosure and, but for such action, such disclosure would not have been required) and (ii) that it may disclose the Confidential Information or portions thereof to those of its officers, employees, directors and representatives of its legal, accounting and financial advisors (the persons to whom such disclosure is permissible being "Representatives") who need to know such information in connection with the investment by the DLJ Entities and the Permitted Transferees in the Company; provided that such Representatives (x) are informed of the confidential and proprietary nature of the Confidential Information and (y) agree to be bound by and perform the provisions of this Section 5.2. Each DLJ Entity agrees to be responsible for any breach of this Section 5.2 by its Representatives other than those Representatives who after the date hereof execute a separate confidentiality agreement with the Company (it being understood that such responsibility shall be in addition to and not by way of limitation of any right or remedy the Company may have against such Representatives with respect to any such breach). (c) If any DLJ Entity, Permitted Transferee or Representative becomes legally compelled (including by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose any of the Confidential Information, the DLJ Entities shall provide the Company with prompt and, if legally permissible, prior written notice of such requirement to disclose such Confidential Information. Upon receipt of such notice, the Company may seek a protective order or other appropriate remedy. If such protective order or other remedy is not obtained, such DLJ Entity, Permitted Transferee or Representative agrees to disclose only that portion of the Confidential Information which is legally required to be disclosed and to take all reasonable steps to preserve the confidentiality of the Confidential Information. In addition, the DLJ Entities, Permitted Transferees and Representatives will not oppose any action (and will, if and to the extent requested by the Company, cooperate with, assist and join with the Company, at the Company's expense and on a reasonable basis, in any reasonable action) by the Company to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. (d) "Confidential Information" means oral and written information concerning the Company and its subsidiaries furnished to any DLJ Entity or Permitted Transferee by or on behalf of the Company (irrespective of the form of communication and whether such information is so furnished before, on or after the date hereof), and all analyses, compilations, data, studies, notes, interpretations, memoranda or other documents prepared by any DLJ Entity or Permitted Transferee or any Representative containing or based in whole or in part on any such furnished information. The term "Confidential Information" does not include any information which (i) at the time of disclosure or 24 24 thereafter is generally available to the public (other than as a result of a disclosure directly or indirectly by any DLJ Entity, Permitted Transferee or Representative in violation hereof), (ii) is or becomes available to any DLJ Entity or Permitted Transferee on a nonconfidential basis from a source other than the Company or its advisors, provided that such source was not known by the DLJ Entities or Permitted Transferees to be prohibited from disclosing such information to it by a legal, contractual or fiduciary obligation owed to the Company or (iii) is already in the possession of any DLJ Entity or Permitted Transferee (other than information furnished by or on behalf of the Company). 5.3. Competition. For so long as any DLJ Entity or any Permitted Transferee holds shares of Common Stock, none of DLJ Parent, any DLJ Entity, any Permitted Transferee, any DLJ Subsidiary or any merchant banking fund controlled by DLJ Parent or any DLJ Subsidiary shall directly or indirectly acquire any interest, or invest in any manner, in any Person engaged in the motion picture theatre exhibition business, whether located in or outside of the United States; provided, however, that the limitations set forth in this Section 5.3 shall not restrict any ordinary course investment banking, lending or other non-merchant banking activities conducted by any of DLJ Parent, any DLJ Entity, any Permitted Transferee, any DLJ Subsidiary or any merchant banking fund controlled by DLJ Parent or any DLJ Subsidiary. The foregoing provisions of this Section 5.3 shall not be applicable to investments by DLJ Real Estate Capital Partners, L.P. (the "Existing Fund") or any similar successor real estate merchant banking fund or partnership that is a DLJ Subsidiary or is controlled by DLJ Parent or any DLJ Subsidiary (a "Successor Fund"); provided that neither the Existing Fund nor any Successor Fund shall operate, directly or indirectly, any motion picture theatre exhibition business. The DLJ Entities and Permitted Transferees agree that if at any time when this Section 5.3 shall be in effect the Company notifies the DLJ Entities in writing that the Company believes the Existing Fund or any Successor Fund is competing with the business of the Company and its subsidiaries, then the Company, the DLJ Entities and the Permitted Transferees shall discuss in good faith the nature of the business of the Existing Fund and/or any Successor Fund, on the one hand, and the investment by the DLJ Entities and the Permitted Transferees in the Company, on the other hand, with a view to reaching a mutually satisfactory resolution with respect to such matters. 5.4. Transactions with Affiliates. Without the prior written consent of the DLJ Entities and the Permitted Transferees, the Company will not, and will not permit any of its subsidiaries to, directly or indirectly enter into or permit to exist any transaction or series of related transactions involving aggregate payments or consideration in excess of $5.0 million (including, without limitation, the purchase, sale, lease, contribution or exchange of any property or the rendering of any service) with or for the benefit of any of its Affiliates (other than transactions between the Company and any subsidiary of the Company or among subsidiaries of the Company) (an "Affiliate Transaction"), other than Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction on an arms-length basis from a person that is not an Affiliate; provided, however, that for a transaction or series of related transactions involving value of $10.0 million or more, such determination will be made in good faith by a majority of members of the Board and by a majority of the disinterested members of the 25 25 Board, if any. The foregoing restrictions will not apply to (1) reasonable and customary directors' fees, indemnification and similar arrangements and payments thereunder; (2) any obligations of the Company under any employment agreement, noncompetition or confidentiality agreement with any officer of the Company, as in effect on the date hereof (provided that each amendment of any of the foregoing agreements shall be subject to the limitations of this Section 5.4); (3) any "restricted payment" permitted to be made pursuant to the indenture governing the Company's senior subordinated notes (the "Indenture"); (4) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board; (5) loans or advances to employees in the ordinary course of business of the Company consistent with past practices; (6) payments made in connection with the Merger, including, without limitation, fees payable to and expenses of Hicks, Muse, Tate & Furst Incorporated and its affiliates (collectively, "Hicks Muse") and Kohlberg Kravis Roberts & Co. L.P. and its affiliates (collectively, "KKR"); (7) payments by the Company to KKR or Hicks Muse made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which payments are approved by a majority of the Board in good faith; (8) transactions in which the Company delivers to the DLJ Entities a letter from an independent financial advisor stating that such transaction is fair to the Company from a financial point of view or that is on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction on an arms-length basis from a person that is not an Affiliate; (9) the existence of, or the performance by the Company of its obligations under the terms of, the Stockholders' Agreement dated as of the date hereof among the Company and the KKR/HM Partnerships, the KKR/HM Registration Rights Agreement and any similar agreements (whether or not with the same parties) which it may enter into hereafter; provided, however, that the existence of, or the performance by the Company of obligations under any future amendment to any such existing agreement or under any such similar agreement entered into after the date hereof shall only be permitted by this clause (9) to the extent that the terms thereof are not otherwise disadvantageous to the DLJ Entities in any material respect; and (10) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture which are fair to the Company in the reasonable determination of the Board or the management thereof, or are on terms (taken as a whole) at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. 5.5. Additional Securities Subject to Agreement. Each DLJ Entity and each Permitted Transferee to whom shares of Common Stock or Preferred Stock have been Transferred pursuant to Section 2.2 agrees that any other equity securities of the Company which it hereafter acquires by means of a stock split, stock dividend, distribution, exercise of options or warrants or otherwise (other than pursuant to a Public Offering) will be subject to the provisions of this Agreement to the same extent as if held on the date hereof. 5.6. Termination. This Agreement, other than Sections 3.1, 3.2, 5.2 and 5.3, will terminate and be of no further force and effect (other than with respect to prior 26 26 breaches) at such time as there shall have been one or more Public Offerings such that there exists a public trading market in 20% or more of the Common Stock. Sections 3.1 and 3.2 will terminate and be of no further force and effect (other than with respect to prior breaches) on the earlier of (i) two years after the date of the initial Public Offering and (ii) ten years after the date of the Merger. Section 5.2 will terminate and be of no further force and effect (other than with respect to prior breaches) on the third anniversary of the first date on which no DLJ Entity and no Permitted Transferee owns any shares of Common Stock or Preferred Stock. Section 5.3 will terminate and be of no further force and effect (other than with respect to prior breaches) at such time as no DLJ Entity and no Permitted Transferee to whom shares of Common Stock or Preferred Stock have been Transferred pursuant to Section 2.2 owns any shares of Common Stock or Preferred Stock. 5.7. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by cable, by telecopy, by telegram, by telex or registered or certified mail (postage prepaid, return receipt requested) as follows (or at such other address for a party as shall be specified in a notice given in accordance with this Section 5.7): if to a KKR Partnership: c/o Kohlberg Kravis Roberts & Co. 9 West 57th Street, Suite 4200 New York, NY 10019 Attention: Clifton S. Robbins Telecopy: (212) 750-0003 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: Charles I. Cogut, Esq. Telecopy: (212) 455-2502 if to the HMTF Partnership: c/o Hicks, Muse, Tate & Furst Incorporated 200 Crescent Court Suite 1600 Dallas, Texas 75201 Attention: Lawrence D. Stuart, Jr. Telecopy: (214) 740-7313 27 27 with a copy to: Weil, Gotshal & Manges LLP 100 Crescent Court Suite 1300 Dallas, Texas 75201 Attention: Jeremy W. Dickens, Esq. Telecopy: (214) 746-7777 if to the Company: Regal Cinemas, Inc. 7132 Commercial Park Drive Knoxville, Tennessee 37918 Attention: Michael Campbell Telecopy: (423) 922-3188 with copies to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: Charles I. Cogut, Esq. Telecopy: (212) 455-2502 -and- Weil, Gotshal & Manges LLP 100 Crescent Court Suite 1300 Dallas, Texas 75201 Attention: Jeremy W. Dickens, Esq. Telecopy: (214) 746-7777 if to any of the DLJ Entities or any Permitted Transferee: c/o DLJ Merchant Banking Partners II, Inc. 277 Park Avenue New York, New York 10172 Attention: William F. Dawson, Jr. Fax: (212) 892-7696 28 28 with a copy to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: George R. Bason, Jr. Fax: (212) 450-4800 In the case of any notices, requests, claims, demands or other communications hereunder to more than one DLJ Entity and/or Permitted Transferee, delivery thereof in accordance with the foregoing provisions of this Section 5.7 to DLJ Merchant Banking Partners II, Inc. ("DLJ MBP") shall be deemed to be delivery to all such DLJ Entities and Permitted Transferees. In addition, the DLJ Entities and Permitted Transferees hereby agree that all notices, requests, claims, demands or other communications hereunder to be given by any DLJ Entity or Permitted Transferee hereunder shall be given by DLJ MBP on behalf of all such DLJ Entities and Permitted Transferees, and that no such notice, request, claim, demand or other communication given by any other Person shall be effective hereunder. Each DLJ Entity and Permitted Transferee hereby appoints DLJ MBP as its agent for purposes of receiving and delivering all such notices, requests, claims, demands or other communications hereunder. 5.8. Further Assurances. The parties hereto will sign such further documents, cause such meetings to be held, resolutions passed, exercise their votes and do and perform and cause to be done such further acts and things as may be necessary in order to give full effect to this Agreement and every provision hereof. 5.9. Non-Assignability. This Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by any party hereto without the express prior written consent of the other parties, and any attempted assignment, without such consents, will be null and void; provided, however, that any of the KKR/HM Partnerships may assign or delegate its rights hereunder to any Affiliate, and in the event of any such assignment references to a "KKR/HM Partnership" herein shall be deemed to refer to such Affiliate and, subject to compliance with this Agreement, any DLJ Entity or Permitted Transferee may assign or delegate its rights hereunder to a Permitted Transferee. 5.10. Amendment; Waiver. This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the parties hereto. No waiver by any party of any of the provisions hereof will be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, will be deemed to constitute a waiver by the party taking such action of compliance with any covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach. 29 29 5.11. Third Parties. This Agreement does not create any rights, claims or benefits inuring to any person that is not a party hereto nor create or establish any third party beneficiary hereto. 5.12. Governing Law. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the principles of conflict of laws thereof. The parties to this Agreement hereby agree to submit to the jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof in any action or proceeding arising out of or relating to this Agreement. The parties hereto irrevocably and unconditionally waive trial by jury in any legal action or proceeding in relation to this Agreement and for any counterclaim therein. 5.13. Specific Performance. Without limiting or waiving in any respect any rights or remedies of the parties hereto under this Agreement now or hereinafter existing at law or in equity or by statute, each of the parties hereto will be entitled to seek specific performance of the obligations to be performed by the other in accordance with the provisions of this Agreement. 5.14. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. 5.15. Titles and Headings. The section headings contained in this Agreement are for reference purposes only and will not affect the meaning or interpretation of this Agreement. 5.16. Severability. If any provision of this Agreement is declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement will not be affected and will remain in full force and effect. 5.17. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which together will be deemed to be one and the same instrument. 30 30 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or caused this Agreement to be executed on its behalf as of the date first written above. REGAL CINEMAS, INC. By: ------------------------- Title: KKR 1996 FUND L.P. By: KKR Associates 1996 L.P., its general partner By: KKR 1996 GP LLC, its general partner By: ------------------------- Authorized Signatory KKR PARTNERS II, L.P. By: KKR Associates, L.P., its general partner By: ------------------------- Authorized Signatory REGAL EQUITY PARTNERS, L.P. By: TOH/Ranger, LLC, its general partner By: --------------------------- Authorized Signatory DLJ MERCHANT BANKING PARTNERS II, L.P., a Delaware Limited Partnership By: DLJ Merchant Banking II, Inc., as managing general partner By: --------------------------- Name: Title: 31 31 DLJ MERCHANT BANKING PARTNERS II-A, L.P., a Delaware Limited Partnership By: DLJ Merchant Banking II, Inc., as managing general partner By: ------------------------- Name: Title: DLJ OFFSHORE PARTNERS II, C.V., a Netherlands Antilles Limited Partnership By: DLJ Merchant Banking II, Inc., as advisory general partner By: ------------------------- Name: Title: DLJ DIVERSIFIED PARTNERS, L.P., a Delaware Limited Partnership By: DLJ Diversified Partners, Inc., as managing general partner By: ------------------------- Name: Title: DLJ DIVERSIFIED PARTNERS-A, L.P., a Delaware Limited Partnership By: DLJ Diversified Partners, Inc., as managing general partner By: ------------------------- Name: Title: 32 32 DLJ MILLENNIUM PARTNERS, L.P., a Delaware Limited Partnership By: DLJ Merchant Banking II, Inc., as managing general partner By: ------------------------- Name: Title: DLJ MILLENNIUM PARTNERS-A, L.P., a Delaware Limited Partnership By: DLJ Merchant Banking II, Inc., as managing general partner By: ------------------------- Name: Title: DLJMB FUNDING II, INC., a Delaware corporation By: ------------------------- Name: Title: DLJ FIRST ESC, L.P. By: DLJ LBO Plans Management Corporation, as general partner By: ------------------------- Name: Title: 33 33 UK INVESTMENT PLAN 1997 PARTNERS By: Donaldson, Lufkin & Jenrette, Inc., as general partner By: ------------------------- Name: Title: DLJ EAB PARTNERS, L.P. By: DLJ LBO Plans Management Corporation, as managing general partner By: -------------------------- Name: Title: DLJ ESC II, L.P. By: DLJ LBO Plans Management Corporation, as general partner By: ------------------------- Name: Title: EX-12 4 STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12
Fiscal Year Ended Six Months Ended --------------------------------------------------------------------- ------------------ December 30, December 29, December 28, January 2, January 1, July 3, July 2, 1993 1994 1995 1997 1998 1997 1998 ------------ ------------ ------------ ---------- ---------- ------- ------- (in millions, except for ratios) Income (loss) before income taxes and loss (gain) on extraordinary item $ 13.8 $ 21.2 $ 30.1 $ 46.7 $ 54.3 $ 25.3 $ (32.1) Adjustments: Interest expense 7.0 7.5 10.7 12.8 14.0 6.1 13.3 Amortization of debt issuance costs .4 .3 .3 .6 .5 .4 .7 ------- ------- ------- ------- ------- ------- ------- Earnings $ 21.2 $ 29.0 $ 41.1 $ 60.1 $ 68.8 $ 31.8 $ (18.1) ======= ======= ======= ======= ======= ======= ======= Fixed charges: Interest expense $ 7.0 $ 7.5 $ 10.7 $ 12.8 $ 14.0 $ 6.1 $ 13.3 Interest capitalized -- .4 1.2 1.7 2.6 1.1 1.4 Amortization of debt issuance costs .4 .3 .3 .6 .5 .4 .7 ------- ------- ------- ------- ------- ------- ------- Fixed charges $ 7.4 $ 8.2 $ 12.2 $ 15.1 $ 17.1 $ 7.6 $ 15.4 ======= ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges 2.9 3.5 3.4 4.0 4.0 4.2 -- Deficiency of earnings to cover fixed charges -- -- -- -- -- -- $ 33.5
EX-21 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES
NAME STATE OF ORGANIZATION ---- --------------------- R. C. Cobb, Inc............................................. Alabama Cobb Theatres II, Inc....................................... Alabama Cobb Finance Corp........................................... Alabama Regal Investment Company.................................... Delaware Act III Cinemas, Inc........................................ Delaware Act III Theatres, Inc....................................... Delaware Eastgate Theatres, Inc...................................... Oregon Act III Inner Loop Theatres, Inc............................ Delaware A3 Theatres of Texas, Inc................................... Delaware General American Theatres, Inc.............................. Oregon Broadway Cinemas, Inc....................................... Oregon TEMT Alaska, Inc............................................ Alaska A3 Theatres of San Antonio, Ltd............................. Texas JR Cinemas, Inc............................................. Oregon
EX-23.2 6 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Regal Cinemas, Inc. on Form S-4 of our report on the financial statements of Act III Cinemas, Inc. dated March 25, 1998, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in the Prospectus. /s/ DELOITTE & TOUCHE LLP Portland, Oregon September 25, 1998 EX-23.3 7 CONSENT OF PRICEWATERHOUSECOOPERS LLP-PORTLAND 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 of Regal Cinemas, Inc. of our report dated February 28, 1997, relating to the financial statements of Act III Cinemas, Inc., which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ PRICEWATERHOUSECOOPERS LLP Portland, Oregon September 25, 1998 EX-23.4 8 CONSENT OF PRICEWATERHOUSECOOPERS LLP-KNOXVILLE 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of Regal Cinemas, Inc. on Form S-4 of our report dated February 6, 1998, on our audits of the consolidated financial statements of Regal Cinemas, Inc. as of January 2, 1997 and January 1, 1998, and for each of the three years in the period ended January 1, 1998, which report is included in the Annual Report on Form 10-K of Regal Cinemas, Inc. for the year ended January 1, 1998, filed with the Securities and Exchange Commission. We also consent to the reference to our firm under the caption "Experts." /s/ PRICEWATERHOUSECOOPERS LLP Knoxville, Tennessee September 25, 1998 EX-23.5 9 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.5 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and (i) to the use of our report dated July 2, 1997, with respect to the consolidated financial statements of Cobb Theatres, L.L.C. for the year ended December 31, 1996 included in the Current Report on Form 8-K/A (Amendment No. 1) of Regal Cinemas, Inc. and (ii) to the use of our report dated October 23, 1996, with respect to the consolidated financial statements of Cobb Theatres, L.L.C. for the years ended August 31, 1996 and 1995 included in the Annual Report (Form 10-K) for the year ended August 31, 1996 of Cobb Theatres, L.L.C., filed with the Securities and Exchange Commission, in this Registration Statement (Form S-4) and related Prospectus of Regal Cinemas, Inc. for the registration of $400,000,000 of its senior subordinated notes. /s/ ERNST & YOUNG LLP ---------------------- Birmingham, Alabama September 25, 1998 EX-25 10 FORM T-1 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------------------------ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ------------------------ IBJ SCHRODER BANK & TRUST COMPANY (Exact name of trustee as specified in its charter) NEW YORK 13-5375195 (State of Incorporation (I.R.S. Employer if not a U.S. national bank) Identification No.) ONE STATE STREET, NEW YORK, NEW YORK 10004 (Address of principal executive offices) (Zip code)
STEPHEN GIURLANDO, ASSISTANT VICE PRESIDENT IBJ SCHRODER BANK & TRUST COMPANY ONE STATE STREET NEW YORK, NEW YORK 10004 (212) 858-2000 (Name, Address and Telephone Number of Agent for Service) REGAL CINEMAS, INC. (Exact name of obligor as specified in its charter) TENNESSEE 62-1412720 (State or jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7132 COMMERCIAL PARK DRIVE KNOXVILLE, TN 37918 (Address of principal executive office) (Zip code)
9 1/2 SENIOR SUBORDINATED NOTES DUE 2008 (Title of Indenture Securities) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ITEM 1. GENERAL INFORMATION Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, Two Rector Street, New York, New York Federal Deposit Insurance Corporation, Washington, D.C. Federal Reserve Bank of New York Second District, 33 Liberty Street, New York, New York (b) Whether it is authorized to exercise corporate trust powers. Yes ITEM 2. AFFILIATIONS WITH THE OBLIGORS. If the obligors are an affiliate of the trustee, describe each such affiliation. The obligors are not an affiliate of the trustee. ITEM 13. DEFAULTS BY THE OBLIGORS. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligors are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. None List of exhibits. List below all exhibits filed as part of this statement of eligibility. *1. -- A copy of the Charter of IBJ Schroder Bank & Trust Company as amended to date. (See Exhibit 1A to Form T-1, Securities and Exchange Commission File No. 22-18460). *2. -- A copy of the Certificate of Authority of the trustee to Commence Business (Included in Exhibit 1 above). *3. -- A copy of the Authorization of the trustee to exercise corporate trust powers, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). *4. -- A copy of the existing By-Laws of the trustee, as amended to date (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). 5. -- Not Applicable 6. -- The consent of United States institutional trustee required by Section 321(b) of the Act. 7. -- A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority.
- --------------- * The Exhibits thus designated are incorporated herein by reference as exhibits hereto. Following the description of such Exhibits is a reference to the copy of the Exhibit heretofore filed with the Securities and Exchange Commission, to which there have been no amendments or changes. 1 3 NOTE In answering any item in this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligors and its directors or officers, the trustee has relied upon information furnished to it by the obligors. Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base responsive answers to Item 2, the answer to said Item is based on incomplete information. Item 2, may, however, be considered as correct unless amended by an amendment to this Form T-1. Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and 16 of this form since to the best knowledge of the trustee as indicated in Item 13, the obligors are not in default under any indenture under which the applicant is trustee. 2 4 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility & qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 22nd day of September, 1998. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ STEPHEN J. GIURLANDO ---------------------------------- Stephen J. Giurlando Assistant Vice President 3 5 EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the issue by Regal Cinemas, Inc., of it's 9 1/2% Senior Subordinated Notes due 2008, we hereby consent that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ STEPHEN J. GIURLANDO ------------------------------------- Stephen J. Giurlando Assistant Vice President Dated: September 22, 1998 4 6 EXHIBIT 7 CONSOLIDATED REPORT OF CONDITION OF IBJ SCHRODER BANK & TRUST COMPANY OF NEW YORK, NEW YORK AND FOREIGN AND DOMESTIC SUBSIDIARIES REPORT AS OF JUNE 30, 1998 ASSETS
DOLLAR AMOUNTS IN THOUSANDS -------------- 1. Cash and balance due from depository institutions: a. Non-interest-bearing balances and currency and coin......... $ 36,963 b. Interest-bearing balances................................... $ 13,296 2. Securities: a. Held-to-maturity securities................................. $ 189,538 b. Available-for-sale securities............................... $ 101,159 3. Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries and in IBFs: Federal Funds sold and Securities purchased under agreements to resell............................................................ $ 327,500 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income.................... $1,800,351 b. LESS: Allowance for loan and lease losses................... $ 65,836 c. LESS: Allocated transfer risk reserve....................... $ -0- d. Loans and leases, net of unearned income, allowance, and reserve..................................................... $1,814,515 5. Trading assets held in trading accounts........................... $ 572 6. Premises and fixed assets (including capitalized leases).......... $ 2,194 7. Other real estate owned........................................... $ 819 8. Investments in unconsolidated subsidiaries and associated companies......................................................... $ -0- 9. Customers' liability to this bank on acceptances outstanding...... $ 640 10. Intangible assets................................................. $ 11,293 11. Other assets...................................................... $ 58,872 12. TOTAL ASSETS...................................................... $2,557,361 LIABILITIES 13. Deposits: a. In domestic offices......................................... $ 657,513 (1) Noninterest-bearing......................................... $ 178,024 (2) Interest-bearing............................................ $ 479,489 b. In foreign offices, Edge and Agreement subsidiaries, and IBFs........................................................ $1,362,365 (1) Noninterest-bearing......................................... $ 20,278 (2) Interest-bearing............................................ $1,342,087 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal Funds purchased and Securities sold under agreements to repurchase........................................................ $ 60,000 15. a. Demand notes issued to the U.S. Treasury.................... $ 5,000 b. Trading Liabilities......................................... $ 406 16. Other borrowed money: a. With a remaining maturity of one year or less............... $ 49,916 b. With a remaining maturity of more than one year............. $ 1,375 c. With a remaining maturity of more than three years.......... $ 1,550 17. Not applicable. 18. Bank's liability on acceptances executed and outstanding.......... $ 640 19. Subordinated notes and debentures................................. $ 100,000 20. Other liabilities................................................. $ 69,920 21. TOTAL LIABILITIES................................................. $2,308,685 22. Limited-life preferred stock and related surplus.................. $ N/A EQUITY CAPITAL 23. Perpetual preferred stock and related surplus..................... $ -0- 24. Common stock...................................................... $ 29,649 25. Surplus (exclude all surplus related to preferred stock).......... $ 217,008 26. a. Undivided profits and capital reserves...................... $ 1,885 b. Net unrealized gains (losses) on available-for-sale securities.................................................. $ 134 27. Cumulative foreign currency translation adjustments............... $ -0- 28. TOTAL EQUITY CAPITAL.............................................. $ 248,676 29. TOTAL LIABILITIES AND EQUITY CAPITAL.............................. $2,557,361
5 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE FINANCIAL STATEMENTS OF REGAL CINEMAS, INC. FOR THE SIX MONTHS ENDED JULY 2, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-02-1998 JUL-02-1998 27,480 0 1,080 0 2,194 46,753 769,413 131,232 784,414 74,405 775,963 0 0 (118,941) 42,803 784,414 82,041 288,143 12,995 116,982 190,152 0 13,327 (32,087) (3,912) (28,175) 0 (11,890) 0 (40,065) 0 0
EX-99.1 12 LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER UNREGISTERED 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 OF REGAL CINEMAS, INC. PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1998 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: IBJ SCHRODER BANK & TRUST COMPANY Deliver to: IBJ Schroder Bank & Trust Company, Exchange Agent By Registered or Certified Mail: By Hand or Overnight Delivery before 4:30 p.m.: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company P.O. Box 84 One State Street Bowling Green Station New York, New York 10004 New York, New York 10274-0084 Attn: Securities Processing Window, Attn: Reorganization Dept. SC-1
By Facsimile (for Eligible Institutions): (212) 858-2611 For Information or Confirmation by Telephone: (212) 858-2103 (Originals of all documents sent by facsimile should be sent promptly by registered or certified mail, by hand or by overnight delivery service.) DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. IF YOU WISH TO EXCHANGE UNREGISTERED 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF REGISTERED 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008, PURSUANT TO THE EXCHANGE OFFER, YOU MUST VALIDLY TENDER (AND NOT WITHDRAW) OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. SIGNATURES MUST BE PROVIDED. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE COMPLETING THIS LETTER OF TRANSMITTAL. 2 DESCRIPTION OF TENDERED OLD NOTES - ------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) AGGREGATE AS IT APPEARS ON THE 9 1/2% SENIOR SUBORDINATED NOTES DUE CERTIFICATE PRINCIPAL AMOUNT 2008 NUMBER(S) OF OLD NOTES (PLEASE FILL IN, IF BLANK) OF OLD NOTES TENDERED - ------------------------------------------------------------------------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ TOTAL PRINCIPAL AMOUNT OF OLD NOTES TENDERED - ------------------------------------------------------------------------------------------------------
3 LADIES AND GENTLEMEN: 1. The undersigned hereby tenders to Regal Cinemas, Inc., a Tennessee corporation (the "Company"), the 9 1/2% Senior Subordinated Notes due 2008 (the "Old Notes") described above pursuant to the Company's offer of $1,000 principal amount of 9 1/2% Senior Subordinated Notes due 2008 (the "Notes") in exchange for each $1,000 principal amount of the Old Notes, upon the terms and subject to the conditions contained in the Prospectus dated , 1998 (the "Prospectus"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which together constitute the "Exchange Offer"). 2. The undersigned hereby represents and warrants that it has full authority to tender the Old Notes described above. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the tender of Old Notes. 3. The undersigned understands that the tender of the Old Notes pursuant to all of the procedures set forth in the Prospectus will constitute an agreement between the undersigned and the Company as to the terms and conditions set forth in the Prospectus. 4. Unless the box under the heading "Special Registration Instructions" is checked, the undersigned hereby represents and warrants that: (i) the Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the undersigned, whether or not the undersigned is the holder; (ii) neither the undersigned nor any such other person is engaging in or intends to engage in a distribution of such Notes; (iii) neither the undersigned nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Notes; and (iv) neither the holder nor any such other person is an "affiliate," as such term is defined under Rule 405 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), of the Company. 5. The undersigned may, if, and only if, unable to make all of the representations and warranties contained in Item 4 above, elect to have its Old Notes registered in the shelf registration described in the Registration Rights Agreement, dated as of May 27, 1998, between the Company and Morgan Stanley & Co. Incorporated, Donaldson Lufkin & Jenrette Securities Corporation and Goldman, Sachs & Co. in the form filed as an exhibit to the Registration Statement (the "Registration Rights Agreement") (all terms used in this Item 5 with their initial letters capitalized, unless otherwise defined herein, shall have the meanings given them in the Registration Rights Agreement). Such election may be made by checking the box under "Special Registration Instructions" on page 5. By making such election, the undersigned agrees, as a holder of Transfer Restricted Securities participating in a shelf registration, to indemnify and hold harmless the Company, its directors, officers who sign the Registration Statement and each person, if any, who controls the Company, and any other selling holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and against any and all losses, claims, damages and liabilities whatsoever (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim), joint or several, or any action in respect thereof, to which the Company, or any such director, officer or controlling person may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such loss, claim, damage or liability arises out of, or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement or the Prospectus or in any amendment thereof or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that any such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with information relating to the undersigned furnished to the Company in writing by or on behalf of the undersigned expressly for use therein. Any such indemnification shall be governed by the terms and 4 subject to the conditions set forth in the Registration Rights Agreement, including, without limitation, the provisions regarding notice, retention of counsel, contribution and payment of expenses set forth therein. The above summary of the indemnification provision of the Registration Rights Agreement is not intended to be exhaustive and is qualified in its entirety by reference to the Registration Rights Agreement. 6. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Notes. If the undersigned is a broker-dealer that will receive Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Notes; however, by so acknowledging and delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. If the undersigned is a broker-dealer and Old Notes held for its own account were not acquired as a result of market-making or other trading activities, such Old Notes cannot be exchanged pursuant to the Exchange Offer. 7. Any obligation of the undersigned hereunder shall be binding upon the successors, assigns, executors, administrators, trustees in bankruptcy and legal and personal representatives of the undersigned. 8. Unless otherwise indicated herein under "Special Delivery Instructions," the certificates for the Notes will be issued in the name of the undersigned. SPECIAL DELIVERY INSTRUCTIONS (See Instruction 1) To be completed ONLY IF the Notes are to be issued or sent to someone other than the undersigned or to the undersigned at an address other than that provided above. Mail [ ] Issue [ ] (check appropriate boxes) certificates to: Name: - -------------------------------------------------------------------------------- (PLEASE PRINT) Address: - -------------------------------------------------------------------------------- (INCLUDING ZIP CODE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SPECIAL REGISTRATION INSTRUCTIONS (See Item 5) To be completed ONLY IF (i) the undersigned satisfies the conditions set forth in Item 5 above, (ii) the undersigned elects to register its Old Notes in the shelf registration described in the Registration Rights Agreement, and (iii) the undersigned agrees to indemnify certain entities and individuals as set forth in the Registration Rights Agreement and summarized in Item 5 above. [ ] By checking this box the undersigned hereby (i) represents that it is unable to make all of the representations and warranties set forth in Item 4 above, (ii) elects to have its Old Notes registered pursuant to the shelf registration described in the Registration Rights Agreement, and (iii) agrees to indemnify certain entities and individuals identified in, and to the extent provided in, the Registration Rights Agreement and summarized in Item 5 above. 5 SPECIAL BROKER-DEALER INSTRUCTIONS (See Item 6) [ ] Check here if you are a broker-dealer and wish to receive 10 additional copies of the Prospectus and 10 copies of any amendments or supplements thereto. Name: ------------------------------------------------------------ (PLEASE PRINT) Address: ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ (INCLUDING ZIP CODE)
6 SIGNATURE To be completed by all exchanging noteholders. Must be signed by registered holder exactly as name appears on Old Notes. If signature is by trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. X - -------------------------------------------------------------------------------- X - -------------------------------------------------------------------------------- SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE Dated: - -------------------------------------------------------------------------------- Name(s): - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Capacity: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (INCLUDING ZIP CODE) Area Code and Telephone No.: - ------------------------------------------------------------------------- SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1) Certain Signatures Must be Guaranteed by an Eligible Institution - -------------------------------------------------------------------------------- (NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES) - -------------------------------------------------------------------------------- (ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF FIRM) - -------------------------------------------------------------------------------- (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- (PRINTED NAME) - -------------------------------------------------------------------------------- (TITLE) Dated: - -------------------------------------------------------------------------------- PLEASE READ THE INSTRUCTIONS BELOW, WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL. 7 INSTRUCTIONS 1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must be guaranteed by an eligible guarantor institution that is a member of or participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or by an "eligible guarantor institution" within the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an "Eligible Institution") unless the box entitled "Special Registration Instructions" or "Special Delivery Instructions" above has not been completed or the Old Notes described above are tendered for the account of an Eligible Institution. 2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes, together with a properly completed and duly executed Letter of Transmittal (or copy thereof), should be mailed or delivered to the Exchange Agent at the address set forth above. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. 3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by a person other than a registered holder of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate bond powers, signed by such registered holder exactly as such registered holder's name appears on such Old Notes. If this Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. 4. MISCELLANEOUS. All questions as to the validity, form, eligibility (including time of receipt), acceptance, and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding on all parties. The Company reserves the absolute right to reject any or all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities, or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent, nor any other person shall be under any duty to give notification of defects in such tenders or shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holder thereof as soon as practicable following the Expiration Date. EX-99.2 13 NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY TO TENDER UNREGISTERED 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 (INCLUDING THOSE IN BOOK-ENTRY FORM) OF REGAL CINEMAS, INC. PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1998 As set forth in the Prospectus (as defined below), this form or one substantially equivalent hereto must be used to accept the Exchange Offer (i) if certificates for unregistered 9 1/2% Senior Subordinated Notes due 2008 (the "Old Notes") of Regal Cinemas, Inc., a Tennessee corporation (the "Company"), are not immediately available, (ii) time will not permit a holder's Old Notes or other required documents to reach the Exchange Agent on or prior to the Expiration Date (as defined below) or (iii) the procedure for book-entry transfer cannot be completed on a timely basis. This form may be delivered by facsimile transmission, registered or certified mail, by hand or by overnight delivery service to the Exchange Agent. See "The Exchange Offer -- Procedures for Tendering" in the Prospectus. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: IBJ SCHRODER BANK & TRUST COMPANY Deliver to: IBJ Schroder Bank & Trust Company, Exchange Agent IBJ SCHRODER BANK & TRUST COMPANY By Registered or Certified Mail: By Hand or Overnight Delivery before 4:30 p.m.: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company P.O. Box 84 One State Street Bowling Green Station New York, New York 10004 New York, New York 10274-0084 Attn: Securities Processing Window, Attn: Reorganization Dept. SC-1
By Facsimile (for Eligible Institutions): (212) 858-2611 For Information or Confirmation by Telephone: (212) 858-2103 (Originals of all documents sent by facsimile should be sent promptly by registered or certified mail, by hand or by overnight delivery service.) DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. 2 Ladies and Gentlemen: The undersigned hereby tenders to the Company, in accordance with the Company's offer, upon the terms and subject to the conditions set forth in the Prospectus dated , 1998 (the "Prospectus"), and in the accompanying Letter of Transmittal, receipt of which is hereby acknowledged, $ in aggregate principal amount of Old Notes pursuant to the guaranteed delivery procedures described in the Prospectus. Name(s) of Registered Holder(s): - -------------------------------------------------------------------------------- (PLEASE TYPE OR PRINT) Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Area Code & Telephone No.: - --------------------------------------------------------------------------- Certificate Number(s) for Old Notes (if available): - -------------------------------------------------------------------------------- Total Principal Amount Tendered and Represented by Certificate(s): $ - -------------------------------------------------------------------------------- Signature of Registered Holders(s): - --------------------------------------------------------------------- Dated: - -------------------------------------------------------------------------------- [ ] The Depository Trust Company (Check if Old Notes will be tendered by book-entry transfer) Account Number - -------------------------------------------------------------------------------- THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED. 3 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, being a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office in the United States, hereby guarantees (a) that the above named person(s) "own(s)" the Old Notes tendered hereby within the meaning of Rule 14e-4 ("Rule 14e-4") under the Securities Exchange Act of 1934, as amended, (b) that such tender of such Old Notes complies with Rule 14e-4, and (c) to deliver to the Exchange Agent the certificates representing the Old Notes tendered hereby or confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company, in proper form for transfer, together with the Letter of Transmittal, properly completed and duly executed, with any required signature guarantees and any other required documents, within three New York Stock Exchange trading days after the execution of the Notice of Guaranteed Delivery. Name of Firm: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Area Code and Telephone No.: - ------------------------------------------------------------------------- Authorized Signature: - -------------------------------------------------------------------------------- Name: - -------------------------------------------------------------------------------- Title: - -------------------------------------------------------------------------------- Dated: - -------------------------------------------------------------------------------- NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF OLD NOTES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----