-----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, TmqZvkgWXBsvg6MA2VAl/yf8RdtraG1zEYOcuRm8W2YXXgF/PQnWDNw/IfO9aqwA 7ZuJvDXT+dz8bmr3Fhhvcg== 0000950134-98-009965.txt : 19981231 0000950134-98-009965.hdr.sgml : 19981231 ACCESSION NUMBER: 0000950134-98-009965 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19981230 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: 333-69943 FILM NUMBER: 98778536 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 DECEMBER 30, 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) - ------------------------------------------------------------------------------------------------------------------- 8 7/8% Senior Subordinated Debentures due 2010........ $200,000,000 100% $200,000,000 $55,600 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
(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 THIS PROSPECTUS, DATED DECEMBER 30, 1998, IS SUBJECT TO COMPLETION AND AMENDMENT. PROSPECTUS OFFER TO EXCHANGE ALL OUTSTANDING AND UNREGISTERED 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010 FOR 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010 OF REGAL CINEMAS, INC. We hereby offer, upon the terms and conditions described in this Prospectus, to exchange all of our outstanding and unregistered 8 7/8% Senior Subordinated Debentures due 2010 ("Old Debentures") for our registered 8 7/8% Senior Subordinated Debentures due 2010 ("Debentures"). The Old Debentures were issued on December 16, 1998 and, as of the date of this Prospectus, an aggregate principal amount of $200.0 million is outstanding. The terms of the Debentures are identical to the terms of the Old Debentures except that the Debentures will be registered under the Securities Act of 1933, as amended, and will not contain any legends restricting their transfer. The Old Debentures and Debentures are sometimes collectively referred to as the "Debentures." On May 27, 1998, we issued $400.0 million aggregate principal amount of our 9 1/2% Senior Subordinated Notes due 2008 (the "Existing Regal Notes"). On November 10, 1998, we issued an additional $200.0 million of our 9 1/2% Senior Subordinated Notes due 2008 (the "Tack-on Regal Notes"). The Existing Regal Notes and the Tack-on Regal Notes, which are substantially similar and of equal ranking to the Debentures, are sometimes collectively referred to as the "9 1/2% Regal Notes." INFORMATION ABOUT THE DEBENTURES: - ----------------------------------------------------- * PLEASE CONSIDER THE FOLLOWING: - The Debentures will mature on December 15, 2010. - You should carefully review the Risk Factors beginning on page 12 of this Prospectus. - We will pay interest on the Debentures semi-annually on June 15 and December 15 of each year beginning June 15, 1999, at - Our offer to exchange Old Debentures for the rate of 8 7/8% per annum. Debentures will be open until 5:00 p.m., New York City time, on , 1999, unless we - We have the option to redeem all or a portion of the extend the offer. Debentures on or after December 15, 2003 at certain rates set forth on page 78 of this Prospectus. - You should also carefully review the procedures for tendering the Old Debentures beginning on page - We also have the option to redeem up to 35% of the original 68 of this Prospectus. aggregate principal amount of the Debentures on or prior to December 15, 2001 with the net cash proceeds from a public - If you fail to tender your Old Debentures, you equity offering. will continue to hold unregistered securities and your ability to transfer them could be adversely - The Debentures are unsecured obligations and are of equal affected. ranking in right of payment to our other outstanding senior subordinated indebtedness. The Debentures are subordinated - No public market currently exists for the to our senior indebtedness. Please be advised that, as of Debentures. We do not intend to list the October 1, 1998, after giving pro forma effect to the Debentures on any securities exchange and, offering of the Old Debentures and the offering of the therefore, no active public market is Tack-on Regal Notes, we had $548.1 million of senior anticipated. indebtedness and $600.0 million of indebtedness of equal ranking in right of payment to the Debentures. - -----------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------------ THE DATE OF THIS PROSPECTUS IS , 1999 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). You may read and copy any reports, statements and other information we file at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call 1-800-SEC-0330 for further information on the public reference rooms. Our filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov. Additional information about us is also available on our website at http://www.regalcinemas.com. We have filed a Registration Statement on Form S-4 to register with the SEC the Debentures to be issued in exchange for the Old Debentures. This Prospectus is part of that Registration Statement. As allowed by the SEC's rules, this Prospectus does not contain all of the information you can find in the Registration Statement or the exhibits to the Registration Statement. This information is available to you without charge upon written or oral request. Please make any such requests to D. Mark Monroe at Regal Cinemas, Inc., 7132 Commercial Park Drive, Knoxville, Tennessee 37918 (telephone: (423) 922-1123). In order to obtain delivery of any requested materials before making an investment decision in the Debentures, you must make your request by , 1999. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS WE INCORPORATE HEREIN BY REFERENCE. IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS ABOUT THESE MATTERS THAT IS NOT DISCUSSED OR INCORPORATED IN THIS PROSPECTUS, YOU MUST NOT RELY ON THAT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE DELIVERY OF THIS PROSPECTUS OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN THAT THERE HAS NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. IT ALSO DOES NOT MEAN THAT THE INFORMATION IN THIS PROSPECTUS OR IN THE DOCUMENTS WE INCORPORATE HEREIN BY REFERENCE IS CORRECT AFTER THIS DATE. i 4 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements about our financial condition, results of operations and business. These statements may be made expressly in this document, or may be "incorporated by reference" to other documents we have filed with the SEC. You can find many of these statements by looking for words such as "believes," "expects," "anticipates," "estimates," or similar expressions used in this Prospectus or incorporated herein. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by us in those statements include, among others, the following: - - our ability to license high-quality motion pictures from major studios and/or independent producers; - - our ability to secure financing for constructing new theatres and adding screens to existing theatres; - - our ability to successfully integrate our completed acquisitions; - - the competitive nature of the motion picture exhibition businesses; and - - our ability to pay interest and principal on a large amount of debt. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. You are cautioned not to place undue reliance on such statements, which speak only as of the date of this Prospectus or, in the case of documents incorporated by reference, the date of such document. We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this Prospectus. Additionally, we don't undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained or incorporated by reference in this Prospectus. ii 5 PROSPECTUS SUMMARY This brief summary highlights selected information from the Prospectus. It does not contain all of the information that is important to you. We urge you to carefully read and review the entire Prospectus and the other documents to which it refers to fully understand the terms of the Debentures and the exchange offer. In this Prospectus, the "Company," "we," "us" and "our" refer to Regal Cinemas, Inc. and its subsidiaries, unless the context requires otherwise. On August 26, 1998, the Company acquired Act III Cinemas, Inc., which is sometimes referred to herein as "Act III." THE COMPANY REGAL CINEMAS, INC. 7132 Commercial Park Drive Knoxville, Tennessee 37918 (423) 922-1123 The Company is the largest motion picture exhibitor in the United States based upon the number of screens in operation. We develop, acquire and operate multiplex theatres primarily in mid-sized metropolitan markets, and growing suburban areas of larger metropolitan markets, predominantly in the eastern and northwestern United States. As of October 1, 1998 we had 385 theatres, with an aggregate of 3,312 screens in 29 states. We primarily operate multiplex theatres with an average of 8.6 screens per location, which we believe is among the highest in our industry. We anticipate that 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. For the twelve months ended October 1, 1998, without giving pro forma effect to the Transactions (as defined on page 19), the Act III Combination (as defined on page 20), the offering of the Old Debentures (sometimes referred to herein as the "Original Offering") and the offering of the Tack-on Regal Notes (sometimes referred to herein as the "Tack-on Offering"), we had revenues, operating income and EBITDA of $590.0 million, $26.8 million and $136.1 million, respectively. As a result of our focus on enhancing revenue, operating efficiently and controlling costs, we have increased our EBITDA margins each year, achieving what we believe are among the highest EBITDA margins in the motion picture exhibition industry. For the five year period ended January 1, 1998, without giving effect to the Transactions, the Act III Combination, the Original Offering or the Tack-on Offering, we had compound annual growth rates in revenues, operating income and EBITDA of 23.4%, 39.6% and 38.3%, respectively, and our EBITDA margins increased from 15.5% to 23.2%. In addition, our new theatres built during fiscal years 1992 through 1996 have yielded a return on invested capital of 29.6% (calculated as 1997 theatre cash flow divided by cumulative capital expenditures for such theatres). BUSINESS STRATEGY Our operating strategy is to create a leading movie exhibition company with a strong presence in mid-sized metropolitan markets. To do this, we have built new multiplex theatres, acquired theatres from other companies and upgraded theatres we already owned. 1 6 We believe that owning a large number of quality theatre complexes allows us to increase revenues while reducing operating costs. Building New Theatres. We build large, state-of-the-art movie theatres (generally with 14 to 18 screens) designed to attract numerous movie patrons. All of our new theatres, as well as many of our older ones, feature wall-to-wall screens, digital stereo surround-sound and plush stadium seating. Our multiplex theatres enable us to show a large selection of films, stagger starting times and serve concessions to our patrons more efficiently. Acquiring Theatres. While we believe that a significant portion of our future growth will come from the development of new theatres, we continue to consider strategic acquisitions of theatres and theatre companies. In addition, we may enter into joint ventures that could help us expand both domestically and internationally. Increasing Revenues and Reducing Operating Costs. Owning a large number of quality theatres allows us to increase revenues by centralizing many of our operating functions such as film licensing, concessions purchasing, advertising and new theatre construction and design. Furthermore, our multiplex theatres give us the ability to provide a broad range of other services to our patrons, such as specialty cafes, video arcades and theatre rentals. We have also created complementary theatre concepts like our FunScapes(TM) entertainment complexes and have agreed to include IMAX(R) 3-D theatres in ten of our new multiplexes. For a more detailed explanation of our business and business strategy, we advise you to read the section entitled "Business" beginning on page 41. USE OF PROCEEDS The Company will not receive any cash from the exchange of the Debentures for the Old Debentures. The net proceeds of the Original Offering were used to repay all of the then outstanding indebtedness of the revolving line of credit under our senior credit facilities and the excess was used for working capital purposes. 2 7 THE EXCHANGE OFFER SECURITIES TO BE EXCHANGED... On December 16, 1998, we issued $200.0 million aggregate principal amount of Old Debentures to placement agents in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (sometimes referred to herein as the "Securities Act"). The terms of the Debentures and the Old Debentures are substantially identical in all material respects, except that the Debentures will be freely transferable by their holders except as otherwise provided herein. See "Description of the Debentures" beginning on page 77. THE EXCHANGE OFFER........... We are offering to exchange $1,000 principal amount of Debentures for each $1,000 principal amount of Old Debentures. As of the date hereof, $200.0 million aggregate principal amount of Old Debentures are outstanding. Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to certain third parties unrelated to us, we believe that Debentures issued pursuant to the exchange offer in exchange for Old Debentures may be offered for resale, resold or otherwise transferred by holders thereof (other than any holder which is an "affiliate" of the Company within the meaning of Rule 405 promulgated under the Securities Act, or a broker-dealer who purchased Old Debentures directly from us to resell pursuant to Rule 144A or any other available exemption promulgated under the Securities Act), without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Debentures are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to engage in a distribution of Debentures. However, the SEC has not considered the exchange offer in the context of a no-action letter and we cannot be sure that the staff of the SEC would make a similar determination with respect to the exchange offer as in such other circumstances. Furthermore, 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 Debentures and has no arrangement or understanding to participate in a distribution of Debentures. Each broker-dealer that receives Debentures for its own account pursuant to the exchange offer must acknowledge that it will comply with the 3 8 prospectus delivery requirements of the Securities Act in connection with any resale of such Debentures. Broker-dealers who acquired Old Debentures directly from us and not as a result of market-making activities or other trading activities may not rely on the staff's interpretations discussed above or participate in the exchange offer and must comply with the prospectus delivery requirements of the Securities Act in order to resell the Old Debentures. EXPIRATION DATE.............. The exchange offer will expire at 5:00 p.m., New York City time, , 1999 or such later date and time to which it is extended. WITHDRAWAL................... The tender of the Old Debentures pursuant to the exchange offer may be withdrawn at any time prior to 5:00 p.m., New York City time, on , 1999, or such later date and time to which we extend the offer. Any Old Debentures not accepted for exchange for any reason will be returned without expense to the tendering holder thereof as soon as practicable after the expiration or termination of the exchange offer. INTEREST ON THE DEBENTURES AND THE OLD DEBENTURES....... Interest on the Debentures will accrue from the date of the original issuance of the Old Debentures or from the date of the last periodic payment of interest on the Old Debentures, whichever is later. No additional interest will be paid on Old Debentures tendered and accepted for exchange. CONDITIONS TO THE EXCHANGE OFFER...................... The exchange offer is subject to certain customary conditions, certain of which may be waived by us. See "The Exchange Offer -- Conditions to the Exchange Offer" beginning on page 75. PROCEDURES FOR TENDERING OLD DEBENTURES................. Each holder of the Old Debentures 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 Debentures and any other required documentation, to the exchange agent at the address set forth herein. Persons holding the Old Debentures 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, by which each tendering participant will 4 9 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 us that, among other things, (i) the Debentures acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the person receiving such Debentures, whether or not such person is the registered holder of the Old Debentures, (ii) the holder is not engaging in and does not intend to engage in a distribution of such Debentures, (iii) the holder does not have an arrangement or understanding with any person to participate in the distribution of such Debentures and (iv) the holder is not an "affiliate," as defined under Rule 405 promulgated under the Securities Act, of the Company. We will accept for exchange any and all Old Debentures which are properly tendered (and not withdrawn) in the exchange offer prior to 5:00 p.m., New York City time, on , 1999. The Debentures issued pursuant to the exchange offer will be delivered promptly following the expiration date. See "The Exchange Offer -- Terms of the Exchange Offer" beginning on page 70. EXCHANGE AGENT............... IBJ Schroder Bank & Trust Company is serving as exchange agent (sometimes referred to herein as the "Exchange Agent") in connection with the exchange offer. FEDERAL INCOME TAX CONSIDERATIONS............. The exchange of Old Debentures for Debentures pursuant to the exchange offer should not constitute a sale or an exchange for federal income tax purposes. See "Certain Federal Income Tax Considerations" beginning on page 105. EFFECT OF NOT TENDERING...... Old Debentures 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. We will have no further obligation to provide for the registration under the Securities Act of such Old Debentures. 5 10 THE DEBENTURES ISSUER....................... Regal Cinemas, Inc. SECURITIES OFFERED........... $200.0 million principal amount of 8 7/8% Senior Subordinated Debentures due 2010. MATURITY..................... December 15, 2010. INTEREST..................... The Debentures will bear interest at a rate of 8 7/8% per annum and will be payable semi-annually on each June 15 and December 15, commencing June 15, 1999. OPTIONAL REDEMPTION.......... The Debentures are redeemable at our option, in whole or in part, at any time on or after December 15, 2003, at the redemption prices set forth herein, plus accrued and unpaid interest. In addition, at any time prior to December 15, 2001, we may redeem up to 35% of the aggregate principal amount of the Debentures with the proceeds of one or more Equity Offerings (as defined on page 96), at the redemption price set forth herein, plus accrued and unpaid interest; provided that after any such redemption at least $130.0 million aggregate principal amount of the Debentures remains outstanding. See "Description of the Debentures -- Optional Redemption" beginning on page 78. RANKING...................... The Debentures will be unsecured and rank junior in right of payment to all our senior indebtedness. The Debentures will be of equal ranking in right of payment to all existing and future of our senior subordinated indebtedness, including the 9 1/2% Regal Notes. As of October 1, 1998, on a pro forma basis after giving effect to the Original Offering and the Tack-on Offering, we would have had approximately $548.1 million of senior indebtedness (excluding $500.0 million in unused commitments) and, not including the Debentures, approximately $600.0 million of subordinated indebtedness outstanding. See "Description of the Debentures" beginning on page 77 and "Description of Certain Indebtedness" beginning on page 64. CHANGE OF CONTROL............ If a Change of Control (as defined on page 94) occurs, we will be required to make an offer to purchase the Debentures at a purchase price equal to 101% of their principal amount on the date of such purchase, plus accrued and unpaid interest. See "Description of the Debentures -- Change of Control" beginning on page 78. 6 11 CERTAIN COVENANTS............ The indenture governing the Debentures (sometimes referred to herein as the "Indenture") contains certain provisions that, among other things, limit our ability 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 Debentures attain Investment Grade Status (as defined on page 97) substantially all of such provisions shall cease to apply. See "Description of the Debentures -- Certain Covenants" beginning on page 84. USE OF PROCEEDS.............. The Company will not receive any cash from the exchange of the Debentures for the Old Debentures. The net proceeds of the Original Offering were used to repay all of the then outstanding indebtedness under the revolving line of credit under our senior credit facilities and the excess was used for working capital purposes. RISK FACTORS We urge you to carefully review the Risk Factors beginning on page 12 for a discussion of factors you should consider before exchanging your Old Debentures for Debentures. 7 12 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA We have summarized below the historical consolidated financial data of the Company for the last five fiscal years and for the nine months ended October 1, 1998. The information should be read in conjunction with the "Selected Historical Consolidated Financial Data" section on page 29, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section on page 31 and our historical consolidated financial statements and related notes included on pages F-1 through F-56 of this Prospectus.
FISCAL YEAR ENDED NINE MONTHS ENDED -------------------------------------------------------------------- ----------------------- DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1, 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 $ 237.6 $ 315.5 Concession sales............. 61.4 74.7 87.3 110.2 137.2 100.7 137.0 Other........................ 3.6 5.1 8.3 13.0 16.8 13.5 25.4 ------- ------- ------- ------- ------- ------- ------- Total revenue............ 214.4 265.0 309.0 389.2 479.1 351.8 477.9 Costs and Expenses: Operating expenses: Film rental and advertising.............. 82.8 101.0 115.4 145.2 178.2 129.9 170.4 Cost of concessions and other.................... 8.8 9.9 11.4 15.1 16.6 15.6 21.6 Rent expense............... 28.0 32.5 34.5 41.4 53.7 39.2 56.7 Other expense.............. 49.0 60.4 71.2 86.4 102.8 74.8 107.0 General and administrative... 12.7 14.1 14.8 16.6 16.6 12.9 13.7 ------- ------- ------- ------- ------- ------- ------- Total costs and expenses... 181.3 217.9 247.3 304.7 367.9 272.4 369.4 ------- ------- ------- ------- ------- ------- ------- Sub-Total.................. 33.1 47.1 61.7 84.5 111.2 79.4 108.5 Depreciation and amortization............... 11.0 13.6 19.4 24.7 30.5 21.5 35.5 Loss on impairment of assets(1).................. -- -- -- -- 5.0 5.0 -- Merger expenses.............. -- 5.1 1.2 1.6 7.8 7.8 -- Recapitalization expenses.... -- -- -- -- -- -- 64.5 ------- ------- ------- ------- ------- ------- ------- Operating income........... 22.1 28.4 41.1 58.2 67.9 45.1 8.5 Interest expense, net........ 6.5 7.2 10.3 12.2 13.2 8.7 32.0 Other (income) expense, net........................ 1.8 -- .7 (.7) .4 .5 .5 ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes and loss (gain) on extraordinary item....... 13.8 21.2 30.1 46.7 54.3 35.9 (24.0) Provision for income taxes... 5.1 8.5 12.2 20.8 19.1 12.1 .1 ------- ------- ------- ------- ------- ------- ------- Income (loss) before loss (gain) on extraordinary item..................... 8.7 12.7 17.9 25.9 35.2 23.8 (24.1) Loss (gain) on extraordinary item....................... (.2) 1.8 .4 .8 10.0 10.0 11.9 ------- ------- ------- ------- ------- ------- ------- Net income (loss).............. $ 8.9 $ 10.9 $ 17.5 $ 25.1 $ 25.2 $ 13.8 $ (36.0) ======= ======= ======= ======= ======= ======= =======
8 13
FISCAL YEAR ENDED NINE MONTHS ENDED -------------------------------------------------------------------- ----------------------- DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1, 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 operating activities................... $ 29.8 $ 36.5 $ 40.0 $ 67.5 $ 64.0 $ 25.2 $ 17.7 Cash flow used in investing activities................... $ 20.8 $ 106.4 $ 112.6 $ 131.1 $ 202.3 $ 135.6 $ 161.2 Cash flow provided by financing activities................... $ 7.3 $ 63.5 $ 69.8 $ 72.2 $ 139.6 $ 105.6 $ 140.3 EBITDA(2)...................... $ 33.1 $ 47.1 $ 61.7 $ 84.5 $ 111.2 $ 79.4 $ 108.5 EBITDAR(2)..................... $ 61.1 $ 79.6 $ 96.2 $ 125.9 $ 164.9 $ 118.6 $ 165.2 EBITDA margin(3)............... 15.5% 17.8% 20.0% 21.7% 23.2% 22.6% 22.7% EBITDAR margin(3).............. 28.5% 30.0% 31.1% 32.4% 34.4% 33.7% 34.6% Ratio of EBITDA to interest expense(4)................... 4.7x 6.3x 5.8x 6.6x 8.0x 8.4x 3.3x Ratio of EBITDAR to interest and rent expense(4).......... 1.7x 2.0x 2.1x 2.3x 2.4x 2.4x 1.8x Capital expenditures and acquisitions................. $ 23.6 $ 108.6 $ 113.9 $ 143.7 $ 203.2 $ 113.6 $ 157.7 Ratio of earnings to fixed charges(5)................... 1.8x 2.1x 2.2x 2.6x 2.5x 2.3x -- Deficiency of earnings to cover fixed charges(5)............. -- -- -- -- -- -- $ 27.3 OPERATING DATA(6): Theatre locations.............. 160 195 206 223 256 238 385 Screens........................ 1,110 1,397 1,616 1,899 2,306 2,111 3,312 Average screens per location... 6.9 7.2 7.8 8.5 9.0 8.9 8.6 Attendance (in thousands)...... 41,624 49,690 55,091 65,530 76,331 56,534 70,049 Average ticket price........... $ 3.59 $ 3.73 $ 3.87 $ 4.06 $ 4.26 $ 4.20 $ 4.50 Average concessions per patron....................... $ 1.47 $ 1.50 $ 1.58 $ 1.68 $ 1.80 $ 1.78 $ 1.96
AS OF OCTOBER 1, 1998 ------------------------ ACTUAL ADJUSTED(7) ---------- ----------- BALANCE SHEET DATA: Cash and cash equivalents................................. $ 15.2 $ 125.2 Total assets.............................................. 1,591.2 1,701.1 Long-term obligations (including current maturities)...... 1,226.4 1,348.1 Stockholders' equity...................................... $ 239.9 $ 234.5
- ------------------------- (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 indentures governing the Debentures and the 9 1/2% Regal Notes. EBITDAR represents EBITDA before rent expense. 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. (7) Adjusted to reflect the Original Offering and the Tack-on Offering. 9 14 SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA We have summarized below the unaudited combined pro forma financial information of the Company for the year ended January 1, 1998 and for the nine months ended October 1, 1998 to give pro forma effect to the Transactions, the Act III Combination, the Original Offering and the Tack-on Offering. This information should be read in conjunction with the unaudited pro forma consolidated financial data beginning on page 22 of this Prospectus and in conjunction with our historical consolidated financial statements and related notes included on pages F-1 through F-56 of this Prospectus. You should be aware that this pro forma information may not be indicative of what actual results will be in the future or would have been for the periods presented.
NINE YEAR MONTHS ENDED ENDED JANUARY 1, OCTOBER 1, 1998 1998 ----------- ----------- (IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA) CONSOLIDATED STATEMENT OF INCOME DATA: Revenue: Admissions.............................................. $ 498.0 $ 442.9 Concession sales........................................ 215.4 197.4 Other................................................... 19.0 26.8 ------- ------- Total revenue....................................... 732.4 667.1 Costs and Expenses: Operating expenses: Film rental and advertising........................... 271.4 237.7 Cost of concessions and other......................... 29.0 29.1 Rent expense.......................................... 69.4 71.9 Other expense......................................... 165.4 147.5 General and administrative.............................. 19.7 16.1 ------- ------- Total costs and expenses............................ 554.9 502.3 ------- ------- Sub-Total........................................... 177.5 164.9 Depreciation and amortization........................... 66.9 64.8 Loss on impairment of assets(1)......................... 5.0 -- Merger expenses......................................... 7.8 -- Recapitalization expenses............................... 25.9 64.9 ------- ------- Operating income.................................... 71.9 35.2 Interest expense, net................................... 115.7 85.9 Other (income) expense.................................. (1.4) .5 ------- ------- Loss before income taxes and loss on extraordinary item.............................................. (42.4) (51.2) Benefit from income taxes............................... (9.5) (8.5) ------- ------- Loss before extraordinary item.......................... $ (32.9) $ (42.7) ======= =======
10 15
YEAR NINE MONTHS ENDED ENDED JANUARY 1, OCTOBER 1, 1998 1998 ---------- ----------- (IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA) OPERATING AND OTHER FINANCIAL DATA: EBITDA(2)................................................. $ 177.5 $ 164.9 EBITDAR(2)................................................ $ 246.9 $ 236.8 EBITDA margin(3).......................................... 24.2% 24.7% EBITDAR margin(3)......................................... 33.7% 35.5% Ratio of EBITDA to interest expense(4).................... 1.5x 1.9x Ratio of EBITDAR to interest and rent expense(4).......... 1.3x 1.5x Deficiency of earnings to cover fixed charges(5).......... $ 45.1 $ 55.6 OPERATING DATA (6): Theatre locations......................................... 388 385 Screens................................................... 3,132 3,312 Average screens per location.............................. 8.1 8.6 Attendance (in thousands)................................. 118,583 99,915 Average ticket price...................................... $ 4.20 $ 4.43 Average concessions per patron............................ $ 1.82 $ 1.98
AS OF OCTOBER 1, 1998 ----------- BALANCE SHEET DATA: Cash and cash equivalents............................................. $ 125.2 Total assets.......................................................... 1,701.1 Long term obligations (including current maturities).................. 1,348.1 Stockholders' equity.................................................. $ 234.5
- ------------------------- (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 indentures governing the Debentures and the 9 1/2% Regal Notes. 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. 11 16 RISK FACTORS In addition to the other information contained in this Prospectus, you should carefully consider the following information about our business before you exchange your Old Debentures for Debentures. THERE ARE RISKS ASSOCIATED WITH FAILING TO EXCHANGE OLD DEBENTURES Holders of Old Debentures who do not exchange their Old Debentures for Debentures pursuant to the exchange offer will continue to be subject to restrictions on transfer and exchange of their Old Debentures. In general, the Old Debentures may not be offered or sold, unless they are registered under the Securities Act and applicable state securities laws. After this exchange offer, we do not anticipate registering any Old Debentures under the Securities Act. Accordingly, the liquidity of the market for a holder's Old Debentures could be adversely affected upon the completion of the exchange offer if a holder does not participate. See "The Exchange Offer" beginning on page 68. WE DEPEND ON MOTION PICTURE PRODUCTION AND PERFORMANCE AND ON OUR RELATIONSHIP WITH FILM DISTRIBUTORS Our ability to operate successfully depends upon a number of factors, the most important of which are the availability and appeal of motion pictures, our ability to license motion pictures and the performance of such motion pictures in our markets. We mostly license 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 hurt our business and results of operations. Because film distributors usually release 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 hurt our results for those particular periods or for any fiscal year. Our business also depends on maintaining good relations with the major film distributors that license films to our theatres. A deterioration in our relationship with any of the nine major film distributors could affect our ability to get commercially successful films and, therefore, could hurt our business and results of operations. See "Business -- Film Licensing" beginning on page 49. In addition, in times of recession, attendance levels experienced by motion picture exhibitors may be adversely effected. For example, revenues declined for the industry in 1990 and 1991. WE HAVE SIGNIFICANT EXPANSION PLANS Our growth strategy involves constructing new theatres and adding new screens to certain of our existing theatres. We seek to locate our theatres in markets that we believe are underscreened or that are served by older theatre facilities. At October 1, 1998 we had 53 new theatres with 833 screens under construction and 46 new screens under construction at eight existing theatres. We intend to develop approximately 250 to 300 screens during the fourth quarter of 1998 and approximately 700 to 800 screens during 1999. We expect that the money we will spend in connection with new theatre construction or renovations to existing theatres will be approximately $125.0 million for the 12 17 fourth quarter of 1998 and approximately $300.0 million during 1999. We expect to get this money from cash flow from operations, asset sale proceeds and borrowings under our senior credit facilities. There is no guarantee, however, that we will generate enough cash flow from operations or proceeds from asset sales or that our future borrowing capacity under our senior credit facilities will be enough to cover our anticipated spending. In addition, we intend to continue our 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 is no guarantee that such additional financing will be available on reasonable terms, or at all. Our ability to open theatres and complete screen expansions on a timely and profitable basis is subject to many factors, some of which are beyond our control. There is significant competition in the United States for site locations from both theatre companies and other businesses. There is no guarantee that we will be able to obtain adequate capital resources, acquire attractive theatre sites, negotiate acceptable lease terms and build theatres and complete screen expansions on a timely and cost-effective basis. There is also no guarantee that we will be able to hire, train and retain skilled managers and personnel. Finally, there can be no assurance that we will achieve our planned expansion or that our new theatres will achieve targeted levels of profitability. THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITIONS Our growth strategy may also involve us acquiring additional theatres and/or theatre companies. There is substantial competition for attractive acquisition candidates. There is no guarantee that we will be able to successfully acquire quality theatres or theatre companies or be able to integrate their operations into ours. There is also no guarantee that future acquisitions will not affect our operating results, particularly right after an acquisition while we are in the process of integrating operations. Moreover, our strategy involves increasing net revenue while reducing operating expenses. Although we believe that this plan is reasonable, there is no guarantee that we will be able carry out our plans without delay or that our plan will result in the increased profitability, cost savings or other benefits we expected. In addition, the integration of acquired companies requires substantial attention from our senior management, which may limit the amount of time available to be devoted to our day-to-day operations or to our growth strategy. Finally, expansion of our theatre circuit can be risky if we do not effectively manage such growth and if we have to incur additional debt in connection with such acquisitions. WE OPERATE IN A COMPETITIVE ENVIRONMENT The motion picture exhibition industry is very competitive. Theatres operated by national and regional circuits and by smaller independent exhibitors compete with our theatres. Many of our competitors have been around longer than we have and may be better established in some of our existing and future markets. Many of our competitors are growing just like we are which may cause some markets to become over screened, which could hurt everybody's earnings. Filmgoers are generally not brand conscious and usually choose a theatre based on the films showing there. We believe that the principal competitive factors in our industry are: licensing terms; the seating capacity, location and reputation of an exhibitor's theatres; the quality of 13 18 projection and sound equipment at the theatres; and the exhibitor's ability and willingness to promote the films. Failure to compete well in any of these categories could hurt our business and results of operations. In areas where real estate is readily available, it is hard to prevent competing companies from opening theatres near one of ours, which may affect our theatre. Competitors have also built or are planning to build theatres in certain areas in which we operate, which may result in excess capacity in such areas and hurt attendance and pricing at our theatres in such areas. In addition, there are many other ways to view movies once the movies leave the theatre, including cable television, video cassettes, satellite and pay-per-view services. Creating new ways to watch movies (such as video on demand) could hurt our business and results of operations. We also compete 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" beginning on page 51. WE DEPEND ON OUR SENIOR MANAGEMENT Our success depends upon the continued contributions our senior management, including Michael L. Campbell, our Chairman, President and Chief Executive Officer. We currently have employment contracts with Mr. Campbell and other senior executives, but we only maintain key-man life insurance for Mr. Campbell. If we lost the services of Mr. Campbell it could hurt our business and development. See "Management -- Executive Compensation -- Campbell and Dunn Employment Agreements" beginning on page 60. OUR QUARTERLY RESULTS OF OPERATIONS FLUCTUATE Our revenues are usually seasonal because of the way the major film distributors release films. Generally, the most marketable movies are released during the summer and the Thanksgiving through year-end holiday season. An unexpected hit film during other periods can alter the traditional trend. The timing of movie releases can have a significant effect on our results of operations, and our results one quarter are not necessarily the same as results for the next quarter. The seasonality of our business, however, has lessened 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" beginning on page 31. WE HAVE SUBSTANTIAL INDEBTEDNESS, LEASE COMMITMENTS AND LEVERAGE We have a large amount of debt. As of October 1, 1998, on a pro forma basis after giving effect to the Original Offering and the Tack-on Offering, we would have had approximately $1.35 billion of indebtedness outstanding, with approximately $500.0 million available for future borrowings under our senior credit facilities. On the same pro forma basis, we would have had a deficiency of earnings to cover fixed charges of $45.1 million for the year ended January 1, 1998 and $55.6 million for the nine months ended October 1, 1998. In addition, we may incur more debt in the future, for things such as funding future construction and acquisitions as part of our growth strategy. See "Capitalization" beginning on page 21, "Description of the Debentures" beginning on page 77 and "Description of Certain Indebtedness" beginning on page 64. 14 19 Our high degree of leverage could have negative consequences for you and for us, including, but not limited to, the following: (i) we will have to pay our debt, which would reduce funds available for operations and future business opportunities and increase our vulnerability to bad general economic and industry conditions and competition; (ii) our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate or other purposes, may be limited; (iii) our leveraged position and the provisions in the indenture and the senior credit facilities could limit our ability to compete, as well as our ability to expand, including through acquisitions, and to make capital improvements; and (iv) our ability to refinance the Debentures in order to pay them when they mature or upon a change of control may be adversely affected. In addition, some of the debt under our senior credit facilities bears interest at floating rates which makes our operating results sensitive to fluctuations in interest rates. There can be no guarantee that our future cash flow will be sufficient to meet our obligations and commitments, and any such insufficiency could hurt our business. For the nine month period ended October 1, 1998, our interest expense was approximately $32.8 million, which would increase to $87.4 million on a pro forma basis for such period assuming that the Transactions, the Act III Combination, the Original Offering and the Tack-on Offering occurred on January 3, 1997. Accordingly, the Original Offering and the Tack-on Offering will increase our interest expense. For 1998, the minimum amount we must pay under our non-cancelable operating leases is $73.6 million. See "Unaudited Pro Forma Consolidated Financial Data" beginning on page 22. THERE IS NO GUARANTEE WE WILL BE ABLE TO SERVICE OUR DEBT Our ability to make scheduled payments on our debt, or to refinance our debt depends on our performance, which may be subject to economic, financial, competitive and other factors beyond our control. Based upon our current operations and anticipated growth, we believe that future cash flow from operations, together with the available borrowings under our senior credit facilities, will be adequate to meet our anticipated needs 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" beginning on page 35. There can be no guarantee, however, that our business will continue to generate sufficient cash flow from operations in the future to service our debt and make necessary capital expenditures. If this should occur, we may be required to refinance all or a portion of our debt, including the Debentures, to sell assets or to obtain additional financing. There can be no guarantee 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 acceptable terms, if at all. THE DEBENTURES ARE SUBORDINATED TO OTHER DEBT The Debentures will be unsecured and rank junior in right of payment to all our existing and future senior indebtedness and to all indebtedness and other liabilities of our subsidiaries. As of October 1, 1998, on a pro forma basis after giving effect to the Original Offering and the Tack-on Offering, we had approximately $548.1 million of senior indebtedness outstanding (excluding unused commitments of $500.0 million under our senior credit facilities), including capital lease obligations and indebtedness of our 15 20 subsidiaries to third parties of approximately $29.1 million (excluding guarantees of our senior indebtedness). In addition, all of our indebtedness has a final maturity date that is prior to the final maturity date of the Debentures. Subject to certain limitations, the Indenture permits us to incur additional indebtedness, including senior indebtedness, and permits our subsidiaries to incur indebtedness. We may not pay principal of, premium, if any, or interest on the Debentures or purchase, redeem or otherwise retire the Debentures, if any principal, premium, 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 our senior indebtedness, we may not make any payments on the Debentures for a specified period of time, unless such default is cured or waived or such senior indebtedness has been repaid in full. If we fail to make any payment on the Debentures 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 Debentures 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, our assets will be available to pay obligations on the Debentures only after all senior indebtedness and indebtedness and other liabilities of our 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 Debentures then outstanding. See "Description of the Debentures -- Ranking and Subordination" beginning on page 80 and "Description of Certain Indebtedness" beginning on page 64. WE ARE SUBJECT TO RESTRICTIVE DEBT COVENANTS The Indenture and our senior credit facilities contain certain covenants that restrict, among other things, our ability to incur additional debt, pay dividends or make certain types of payments, enter into certain transactions with affiliates, merge or consolidate with any other person or sell all or substantially all of our assets. In addition, the senior credit facilities contain other limitations including restrictions on us prepaying debt, and also require us to maintain specified financial ratios. Our ability to comply with these financial ratios can be affected by events beyond our control and there can be no guarantee that we will meet those tests. A breach of any of these provisions could result in a default under the senior credit facilities, which would allow the lenders to declare all amounts outstanding thereunder immediately due and payable. If we were unable to pay those amounts, the lenders could proceed against the collateral securing that debt. If the amounts outstanding under the senior credit facilities were accelerated, there can be no guarantee that the assets of the Company would be sufficient to repay the amount in full. In addition, if a default occurs with respect to senior indebtedness, the subordination provisions of such senior indebtedness would likely restrict payments to holders of Debentures. See "Description of the Debentures -- Certain Covenants" beginning on page 84 and "Description of Certain Indebtedness -- Senior Credit Facilities" beginning on page 64. 16 21 OUR RESTRICTIVE DEBT COVENANTS ARE LIMITED Although the Indenture limits our ability to incur debt, there are a number of significant qualifications. Moreover, the Indenture does not impose any limitation on our ability to incur debt that is not considered "Indebtedness" under the Indenture. If the Debentures attain Investment Grade Status, substantially all the covenants in the Indenture, including those limiting our ability to incur debt, pay dividends or make other distributions or engage in transactions with affiliates, will cease to apply. WE WOULD HAVE TO REPURCHASE THE DEBENTURES UPON A CHANGE OF CONTROL If a Change of Control were to occur, we may be required to make an offer to purchase all the outstanding Debentures at a price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase. In such a situation, there can be no guarantee that we would have enough funds to pay for all of the Debentures. If we were required to purchase the Debentures, we would probably require third party financing; however, we cannot be sure we would be able to obtain such financing on acceptable terms, if at all. In addition, the senior credit facilities restrict our ability to repurchase the Debentures, 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 certain debt, in which case we would have pay in full the senior credit facilities and any such senior indebtedness before repurchasing the Debentures. See "Description of Certain Indebtedness -- Senior Credit Facilities" beginning on page 64, "Description of the Debentures -- Change of Control" beginning on page 78 and "Description of the Debentures -- Ranking and Subordination" beginning on page 80. THERE IS NO PUBLIC MARKET FOR THE DEBENTURES There is no active trading market for the Debentures. We do not plan on listing the Debentures on any securities exchange. Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation have told us that they plan on making a market in the Debentures, but they do not have to do so, and may discontinue such activities at any time. Accordingly, we cannot determine the likelihood that an active market for the Debentures will develop, the liquidity of any such market, the ability of holders to sell their Debentures or the prices that they may obtain for their Debentures if sold. Future trading prices for the Debentures will depend upon many factors, including, among others, our operating results, the market for similar securities and changing interest rates. HICKS MUSE AND KKR EFFECTIVELY CONTROL THE COMPANY Each of Hicks, Muse, Tate & Furst Incorporated (sometimes referred to herein as "Hicks Muse") and Kohlberg Kravis Roberts & Co. L.P. (sometimes referred to herein as "KKR") currently owns approximately 46.3% of the Company. Therefore, if they vote together, Hicks Muse and KKR have the power to elect a majority of the directors of the Company and exercise control over our business, policies and affairs. The interests of Hicks Muse, KKR and the holders of the Debentures may differ from each other. We have a stockholders agreement with KKR and Hicks Muse, which requires us to obtain 17 22 the approval of the board designees of each of Hicks Muse and KKR before the Board of Directors may take any action. The stockholders agreement, however, does not contain any "deadlock" resolution mechanisms. THERE COULD BE ADVERSE CONSEQUENCES TO HOLDERS OF THE DEBENTURES IF A COURT FINDS A FRAUDULENT CONVEYANCE Various fraudulent conveyance laws have been passed for the protection of creditors. These laws may be applied by a court to subordinate or avoid the Debentures in favor of our other existing or future creditors. If a court in a lawsuit on behalf of one of our unpaid creditors or a representative of one of our creditors were to find that, at the time we issued the Debentures, we: (i) intended to hinder, delay or defraud any existing or future creditor or considered insolvency with the intent to favor one or more creditors over others; or (ii) did not receive fair consideration or reasonably equivalent value for issuing the Debentures and we, were insolvent, were made insolvent by issuing the Debentures, were engaged or about to engage in a business or transaction for which our remaining assets would be unreasonably small to carry on our business or intended to take on, or believed that we would take on, more debts than we could pay, such court could void our obligations under the Debentures and void such transactions. On the other hand, in such an event, claims of holders of such Debentures could be subordinated to claims of our other creditors. Based upon information currently available to us, we believe that the Debentures are being incurred for proper purposes and in good faith. Also, we are solvent and will continue to be solvent after giving effect to the issuance of the Debentures, will have enough capital for carrying on its business after the issuance of the Debentures and will be able to pay our debts. 18 23 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 (the "Regal Merger"), with the Company continuing as the surviving corporation. The consummation of the Regal Merger resulted in a recapitalization (the "Recapitalization") of the Company. In the Recapitalization, existing holders of the Company's 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 offering of the Existing Regal Notes, 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. The Company's Senior Credit Facilities provide for borrowings of up to $1,019.0 million in the aggregate, consisting of $500.0 million under a revolving credit facility (the "Revolving Credit Facility") and $519.0 million, in the aggregate, under three separate term loan facilities. As of October 1, 1998, after giving pro forma effect to the Original Offering and the Tack-on Offering, the Company would have had approximately $500.0 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 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 offering of the Existing Regal Notes, 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." 19 24 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 then existing credit facilities (the "Act III Bank Debt") and two senior subordinated promissory notes, each in the aggregate principal amount of $75.0 million (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 owned 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. TACK-ON OFFERING On November 10, 1998, the Company issued $200.0 million aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2008 under the same indenture governing the Existing Regal Notes. The proceeds of the Tack-on Offering were used to repay and retire portions of the Senior Credit Facilities. 20 25 USE OF PROCEEDS The Company will not receive any proceeds from the exchange of the Debentures for the Old Debentures. The net proceeds of the Original Offering were used to repay all of the then outstanding indebtedness under the Revolving Credit Facility and the excess proceeds were used for working capital purposes. CAPITALIZATION The following table sets forth the actual capitalization of the Company at October 1, 1998 and the pro forma capitalization of the Company as adjusted to give effect as of that date to the Original Offering and the Tack-on Offering. This table should be read in conjunction with the "Transactions," 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 OCTOBER 1, 1998 --------------------- ACTUAL PRO FORMA -------- --------- (IN MILLIONS) Debt (including current maturities): Senior Credit Facilities(1)............................ $ 797.3 $ 519.0 9 1/2% Regal Notes..................................... 400.0 600.0 Debentures............................................. -- 200.0 Other indebtedness(2).................................. 29.1 29.1 -------- -------- Total Debt..................................... 1,226.4 1,348.1 Stockholders' Equity..................................... 239.9 234.5 -------- -------- Total Capitalization........................... $1,446.3 $1,582.6 ======== ========
- ------------------------- (1) After giving pro forma effect to the Original Offering and the Tack-on Offering, the Company would have had $500.0 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. 21 26 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The following unaudited pro forma consolidated financial data (the "Unaudited Pro Forma Consolidated Financial Data") of the Company are based on the unaudited and audited consolidated financial statements of the Company, which are included elsewhere in this Prospectus, and have been prepared to give effect to the Transactions, the Act III Combination, the Original Offering and the Tack-on Offering, as though such transactions had occurred as of January 3, 1997, for the statement of income data, and as though the Original Offering and the Tack-on Offering had occurred as of October 1, 1998, for the balance sheet data. 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, the Act III Combination, the Original Offering and the Tack-on Offering, 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 do not purport to present what the Company's financial position actually would have been had the Original Offering and the Tack-on Offering, in fact, occurred as of October 1, 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 was accounted for as a purchase applying the provisions of Accounting Principles Board Opinion No. 16 ("APB 16"). 22 27 REGAL CINEMAS, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF OCTOBER 1, 1998 (IN MILLIONS)
REGAL TACK-ON ORIGINAL CONSOLIDATED HISTORICAL(1) OFFERING OFFERING PRO FORMA ------------- -------- -------- ------------ ASSETS Current assets: Cash and cash equivalents................. $ 15.2 $ 110.0(3) $ 125.2 Accounts receivable....................... 7.7 7.7 Prepaids and other current assets......... 16.2 16.2 Refundable income taxes................... 13.9 13.9 -------- ------- -------- Total current assets................. 53.0 110.0 163.0 Property and equipment, net.................. 1,082.0 1,082.0 Goodwill, net................................ 54.9 54.9 Excess purchase cost over net book value of assets acquired........................... 341.9 341.9 Other assets................................. 59.4 $ (4.9)(2) 4.8(3) 59.3 -------- ------ ------- -------- Total assets......................... $1,591.2 $ (4.9) $ 114.8 $1,701.1 ======== ====== ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt...... $ .3 $ .3 Accounts payable.......................... 34.9 34.9 Accrued expenses.......................... 56.2 $ (6.0)(2) $ (.4)(3) 49.8 -------- ------ ------- -------- Total current liabilities............ 91.4 (6.0) (.4) 85.0 Long-term debt: Credit facility........................... 797.3 (193.5) (84.8)(3) 519.0 Senior Subordinated Debt.................. 400.0 200.0 200.0(3) 800.0 Other long-term debt and capital lease obligations............................. 28.8 28.8 Other liabilities............................ 33.8 33.8 -------- ------ ------- -------- Total liabilities.................... 1,351.3 .5 114.8 1,466.6 Stockholders' equity (deficit)............... 239.9 (5.4)(2) 234.5 -------- ------ ------- -------- Total liabilities and stockholders' equity (deficit).................. $1,591.2 $ (4.9) $ 114.8 $1,701.1 ======== ====== ======= ========
See Accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet. 23 28 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF OCTOBER 1, 1998 (IN MILLIONS) (1) The historical balance sheet of the Company as of October 1, 1998 includes the effects of the Act III Combination which was accounted for as a purchase, applying the provisions of APB 16. The purchase cost has been preliminarily allocated to the acquired assets and liabilities of Act III based on estimates of fair value as of the closing date as set forth in the notes to the condensed consolidated financial statement included elsewhere in this Prospectus. (2) Adjustments reflect: (i) the issuance of the Tack-on Regal Notes in the Tack-on Offering; (ii) the use of the proceeds to repay and retire portions of the Senior Credit Facilities and accrued interest; and (iii) the net write-off of deferred financing fees and the related tax benefit. (3) Adjustments reflect: (i) the issuance of the Old Debentures in the Original Offering; (ii) the use of the proceeds to repay the revolving line of credit under the Senior Credit Facilities and accrued interest; (iii) the capitalization of deferred financing fees; and (iv) residual cash for working capital requirements. 24 29 REGAL CINEMAS, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE NINE MONTHS ENDED OCTOBER 1, 1998 (IN MILLIONS)
REGAL THE ACT III ACT III TACK-ON ORIGINAL HISTORICAL TRANSACTIONS HISTORICAL COMBINATION OFFERING SUBTOTAL OFFERING ---------- ------------ ---------- ----------- -------- -------- -------- Revenue: Admissions................... $315.5 $127.4 $442.9 Concession sales............. 137.0 60.4 197.4 Other........................ 25.4 1.4 26.8 ------ ------ ------ Total revenue......... 477.9 189.2 667.1 Costs and Expenses: Operating expenses: Film rental and advertising.............. 170.4 67.3 237.7 Cost of concessions and other.................... 21.6 7.5 29.1 Rent expense............... 56.7 15.2 71.9 Other expense.............. 107.0 40.5 147.5 General and administrative... 13.7 6.1 $(3.8)(4) 16.0 ------ ------ ----- ------ Total costs and expenses............ 369.4 136.6 (3.8) 502.2 ------ ------ ----- ------ Sub-Total............. 108.5 52.6 3.8 164.9 Depreciation and amortization............... 35.5 21.4 7.9(5) 64.8 Recapitalization expenses.... 64.5(1) .4 64.9 ------ ------ ----- ------ Operating income (loss).............. 8.5 30.8 (4.1) 35.2 Interest expense............. 32.8 $ 21.0(2) 26.0 (3.1)(6) $ 2.4(8) 79.1 $ 8.3(9) Interest income.............. (.8) (.7) (1.5) Other, net................... .5 .5 ------ ------ ------ ----- ----- ------ ----- Income (loss) before income taxes and loss on extraordinary item....... (24.0) (21.0) 5.5 (1.0) (2.4) (42.9) (8.3) Provision for (benefit from) income taxes............... .1 (8.2)(3) 1.0 2.7(3) (.9) (5.3) (3.2)(10) ------ ------ ------ ----- ----- ------ ----- Income (loss) before extraordinary loss........... $(24.1) $(12.8) $ 4.5 $(3.7) $(1.5) $(37.6) $(5.1) ====== ====== ====== ===== ===== ====== ===== CONSOLIDATED PRO FORMA ------------ Revenue: Admissions................... $442.9 Concession sales............. 197.4 Other........................ 26.8 ------ Total revenue......... 667.1 Costs and Expenses: Operating expenses: Film rental and advertising.............. 237.7 Cost of concessions and other.................... 29.1 Rent expense............... 71.9 Other expense.............. 147.5 General and administrative... 16.0 ------ Total costs and expenses............ 502.2 ------ Sub-Total............. 164.9 Depreciation and amortization............... 64.8 Recapitalization expenses.... 64.9 ------ Operating income (loss).............. 35.2 Interest expense............. 87.4 Interest income.............. (1.5) Other, net................... .5 ------ Income (loss) before income taxes and loss on extraordinary item....... (51.2) Provision for (benefit from) income taxes............... (8.5) ------ Income (loss) before extraordinary loss........... $(42.7) ======
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income. 25 30 REGAL CINEMAS, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS), CONTINUED FOR THE YEAR ENDED JANUARY 1, 1998 (IN MILLIONS)
REGAL THE ACT III ACT III TACK-ON ORIGINAL HISTORICAL TRANSACTIONS HISTORICAL COMBINATION OFFERING SUBTOTAL OFFERING ---------- ------------ ---------- ----------- -------- -------- -------- Revenue: Admissions................ $325.1 $172.9 $498.0 Concession sales.......... 137.2 78.2 215.4 Other..................... 16.8 2.2 19.0 ------ ------ ------ Total revenue....... 479.1 253.3 732.4 Costs and Expenses: Operating expenses: Film rental and advertising........... 178.2 93.2 271.4 Cost of concessions and other................. 16.6 12.4 29.0 Rent expense............ 53.7 15.7 69.4 Other expense........... 102.8 62.6 165.4 General and administrative.......... 16.6 8.1 $(5.0)(4) 19.7 ------ ------ ----- ------ Total costs and expenses.......... 367.9 192.0 (5.0) 554.9 ------ ------ ----- ------ Sub-Total........... 111.2 61.3 5.0 177.5 Depreciation and amortization............ 30.5 25.9 10.5(5) 66.9 Loss on impairment of assets.................. 5.0 5.0 Merger expenses........... 7.8 7.8 Recapitalization expenses................ 25.9(7) 25.9 ------ ------ ----- ------ Operating income (loss)............ 67.9 9.5 (5.5) 71.9 Interest expense.......... 14.0 $ 57.7(2) 28.1 3.7(6) $ 3.2(8) 106.7 $11.1(9) Interest income........... (.8) (1.3) (2.1) Other (income) expense, net..................... .4 (1.8) (1.4) ------ ------ ------ ----- ------ ------ ----- Income (loss) before income taxes and loss on extraordinary item.................. 54.3 (57.7) (15.5) (9.2) (3.2) (31.3) (11.1) Provision for (benefit from) income taxes...... 19.1 (22.5)(3) (1.1) .5(3) (1.2) (5.2) (4.3)(10) ------ ------ ------ ----- ------ ------ ----- Income (loss) before extraordinary item...... $ 35.2 $(35.2) $(14.4) $(9.7) $ (2.0) $(26.1) $(6.8) ====== ====== ====== ===== ====== ====== ===== CONSOLIDATED PRO FORMA ------------ Revenue: Admissions................ $ 498.0 Concession sales.......... 215.4 Other..................... 19.0 ------- Total revenue....... 732.4 Costs and Expenses: Operating expenses: Film rental and advertising........... 271.4 Cost of concessions and other................. 29.0 Rent expense............ 69.4 Other expense........... 165.4 General and administrative.......... 19.7 ------- Total costs and expenses.......... 554.9 ------- Sub-Total........... 177.5 Depreciation and amortization............ 66.9 Loss on impairment of assets.................. 5.0 Merger expenses........... 7.8 Recapitalization expenses................ 25.9 ------- Operating income (loss)............ 71.9 Interest expense.......... 117.8 Interest income........... (2.1) Other (income) expense, net..................... (1.4) ------- Income (loss) before income taxes and loss on extraordinary item.................. (42.4) Provision for (benefit from) income taxes...... (9.5) ------- Income (loss) before extraordinary item...... $ (32.9) =======
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income. 26 31 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS) (IN MILLIONS) (1) The Regal historical income statement for the nine months ended October 1, 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 offering of the Existing Regal Notes; and (iii) $1.3 million of capital lease obligations of the Company as follows:
NINE MONTHS ENDED YEAR ENDED OCTOBER 1, 1998 JANUARY 1, 1998 --------------- --------------- Interest expense before amortization of deferred financing fees..................... $ 50.9 $ 67.8 Amortization of deferred financing fees....... 2.9 3.9 Historical interest expense................... (32.8) (14.0) ------ ------ Net adjustment...................... $ 21.0 $ 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 Combination as follows:
NINE MONTHS ENDED YEAR ENDED OCTOBER 1, 1998 JANUARY 1, 1998 --------------- --------------- Interest expense.............................. $ 22.9 $ 31.8 Historical interest expense................... (26.0) (28.1) ------ ------ Net adjustment...................... $ (3.1) $ 3.7 ====== ======
27 32 A .125% change in the interest rate on variable rate indebtedness would change annual pro forma interest expense by approximately $.6 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. (8) Reflects the net increase in interest expense resulting from the repayment and retirement of portions of the Senior Credit Facilities with the net proceeds of the Tack-on Offering. (9) Reflects the net increase in interest expense resulting from the repayment of the revolving line of credit under the Senior Credit Facilities with the net proceeds of the Original Offering. (10) Reflects the net tax effect of the increase in net interest expense resulting from the Original Offering at the Company's effective income tax rate of 39%. 28 33 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 PricewaterhouseCoopers LLP, 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 as of and for each of the nine month periods ended October 2, 1997 and October 1, 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 fair presentation of the Company's consolidated results of operations and financial condition for such periods. The operating results for the respective nine month periods ended October 2, 1997 and October 1, 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 Act III and notes thereto included elsewhere in this Prospectus.
FISCAL YEAR ENDED NINE MONTHS ENDED -------------------------------------------------------------------- ----------------------- DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1, 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 $ 237.6 $ 315.5 Concession sales............. 61.4 74.7 87.3 110.2 137.2 100.7 137.0 Other........................ 3.6 5.1 8.3 13.0 16.8 13.5 25.4 ------- ------- ------- ------- ------- ------- -------- Total revenue............ 214.4 265.0 309.0 389.2 479.1 351.8 477.9 Costs and Expenses: Operating expenses: Film rental and advertising.............. 82.8 101.0 115.4 145.2 178.2 129.9 170.4 Cost of concessions and other.................... 8.8 9.9 11.4 15.1 16.6 15.6 21.6 Rent expense............... 28.0 32.5 34.5 41.4 53.7 39.2 56.7 Other expense.............. 49.0 60.4 71.2 86.4 102.8 74.8 107.0 General and administrative... 12.7 14.1 14.8 16.6 16.6 12.9 13.7 ------- ------- ------- ------- ------- ------- -------- Total costs and expenses... 181.3 217.9 247.3 304.7 367.9 272.4 369.4 ------- ------- ------- ------- ------- ------- -------- Sub-Total.................. 33.1 47.1 61.7 84.5 111.2 79.4 108.5 Depreciation and amortization............... 11.0 13.6 19.4 24.7 30.5 21.5 35.5 Loss on impairment of assets(1).................. -- -- -- -- 5.0 5.0 -- Merger expenses.............. -- 5.1 1.2 1.6 7.8 7.8 -- Recapitalization expenses.... -- -- -- -- -- -- 64.5 ------- ------- ------- ------- ------- ------- -------- Operating income........... 22.1 28.4 41.1 58.2 67.9 45.1 8.5 Interest expense, net........ 6.5 7.2 10.3 12.2 13.2 8.7 32.0 Other (income) expense, net........................ 1.8 -- .7 (.7) .4 .5 .5 ------- ------- ------- ------- ------- ------- -------- Income (loss) before income taxes and loss (gain) on extraordinary item....... 13.8 21.2 30.1 46.7 54.3 35.9 (24.0) Provision for income taxes... 5.1 8.5 12.2 20.8 19.1 12.1 .1 ------- ------- ------- ------- ------- ------- -------- Income (loss) before loss (gain) on extraordinary item..................... 8.7 12.7 17.9 25.9 35.2 23.8 (24.1) Loss (gain) on extraordinary item....................... (.2) 1.8 .4 .8 10.0 10.0 11.9 ------- ------- ------- ------- ------- ------- -------- Net income (loss).............. $ 8.9 $ 10.9 $ 17.5 $ 25.1 $ 25.2 $ 13.8 $ (36.0) ======= ======= ======= ======= ======= ======= ========
29 34
FISCAL YEAR ENDED NINE MONTHS ENDED -------------------------------------------------------------------- ----------------------- DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1, 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 operating activities................... $ 29.8 $ 36.5 $ 40.0 $ 67.5 $ 64.0 $ 25.2 $ 17.7 Cash flow used in investing activities................... $ 20.8 $ 106.4 $ 112.6 $ 131.1 $ 202.3 $ 135.6 $ 161.2 Cash flow provided by financing activities................... $ 7.3 $ 63.5 $ 69.8 $ 72.2 $ 139.6 $ 105.6 $ 140.3 EBITDA(2)...................... $ 33.1 $ 47.1 $ 61.7 $ 84.5 $ 111.2 $ 79.4 $ 108.5 EBITDAR(2)..................... $ 61.1 $ 79.6 $ 96.2 $ 125.9 $ 164.9 $ 118.6 $ 165.2 EBITDA margin(3)............... 15.5% 17.8% 20.0% 21.7% 23.2% 22.6% 22.7% EBITDAR margin(3).............. 28.5% 30.0% 31.1% 32.4% 34.4% 33.7% 34.6% Ratio of EBITDA to interest expense(4)................... 4.7x 6.3x 5.8x 6.6x 8.0x 8.4x 3.3x Ratio of EBITDAR to interest and rent expense(4).......... 1.7x 2.0x 2.1x 2.3x 2.4x 2.4x 1.8x Capital expenditures and acquisitions................. $ 23.6 $ 108.6 $ 113.9 $ 143.7 $ 203.2 $ 113.6 $ 157.7 Ratio of earnings to fixed charges(5)................... 1.8x 2.1x 2.2x 2.6x 2.5x 2.3x -- Deficiency of earnings to cover fixed charges(5)............. -- -- -- -- -- -- $ 27.3 OPERATING DATA(6): Theatre locations.............. 160 195 206 223 256 238 385 Screens........................ 1,110 1,397 1,616 1,899 2,306 2,111 3,312 Average screens per location... 6.9 7.2 7.8 8.5 9.0 8.9 8.6 Attendance (in thousands)...... 41,624 49,690 55,091 65,530 76,331 56,534 70,049 Average ticket price........... $ 3.59 $ 3.73 $ 3.87 $ 4.06 $ 4.26 $ 4.20 $ 4.50 Average concessions per patron....................... $ 1.47 $ 1.50 $ 1.58 $ 1.68 $ 1.80 $ 1.78 $ 1.96 BALANCE SHEET DATA: Cash and cash equivalents...... $ 16.3 $ 9.9 $ 7.0 $ 17.1 $ 18.4 $ 12.3 $ 15.2 Total assets................... $ 162.1 $ 252.6 $ 349.0 $ 488.8 $ 660.6 $ 583.7 $1,591.2 Long-term obligations (including current maturities).................. $ 73.5 $ 117.5 $ 188.5 $ 144.6 $ 288.6 $ 248.6 $1,226.4 Stockholders' equity........... $ 26.6 $ 88.1 $ 109.0 $ 279.3 $ 306.6 $ 294.7 $ 239.9
- ------------------------- (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 indentures governing the Debentures and the 9 1/2% Regal Notes. 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 35 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 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 Offering Memorandum. BACKGROUND OF REGAL The Company has achieved significant growth in theatres and screens since its formation in November 1989. From its inception through October 1, 1998, the Company has acquired 313 theatres (net of closed locations) with 2,326 screens, developed 72 new theatres with 908 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, rebates from concession vendors 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 October 1, 1998, approximately 37.3% 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 36 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 (loss):
PERCENTAGE OF TOTAL REVENUES ---------------------------------------------------------------- FOR THE NINE MONTHS FOR THE FISCAL YEAR ENDED ENDED -------------------------------------- ----------------------- DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1, 1995 1997 1998 1997 1998 ------------ ---------- ---------- ---------- ---------- Revenue: Admissions.................. 69.1% 68.4% 67.9% 67.6% 66.0% Concession sales............ 28.2 28.3 28.6 28.6 28.7 Other operating revenue..... 2.7 3.3 3.5 3.8 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 36.9 35.6 Cost of concessions and other.................... 3.7 3.9 3.5 4.5 4.5 Theatre operating expenses................. 34.2 32.8 32.7 32.4 34.3 General and administrative expenses................. 4.8 4.3 3.5 3.7 2.9 Depreciation and amortization............. 6.3 6.3 6.4 6.1 7.4 Merger expenses............. .4 .4 1.6 2.2 -- Recapitalization expenses... -- -- -- -- 13.5 Loss on impairment of assets................... -- -- 1.0 1.4 -- ----- ----- ----- ----- ----- Total operating expenses.......... 86.7 85.0 85.8 87.2 98.2 ----- ----- ----- ----- ----- Operating income.............. 13.3 15.0 14.2 12.8 1.8 Other income (expense): Interest expense............ (3.5) (3.3) (2.9) (2.7) (6.9) Interest income............. .1 .2 .2 .2 .2 Other....................... (.2) (.2) (.1) (.1) (.1) ----- ----- ----- ----- ----- Income (loss) before taxes and extraordinary loss.......... 9.7 12.1 11.4 10.2 (5.0) Provision for income taxes.... 3.9 5.4 4.0 3.4 .1 ----- ----- ----- ----- ----- Income (loss) before extraordinary loss.......... 5.8 6.7 7.4 6.8 (5.1) Extraordinary loss: Loss on extinguishment of debt..................... .1 .2 2.1 2.9 2.4 ----- ----- ----- ----- ----- Net income (loss)............. 5.7% 6.5% 5.3% 3.9% (7.5)% ===== ===== ===== ===== =====
32 37 NINE MONTHS ENDED OCTOBER 1, 1998 AND OCTOBER 2, 1997 Total Revenues. Total revenues for the nine months ended October 1, 1998 increased by 35.9% to $477.9 million from $351.8 million in the comparable 1997 period. This increase was due to a 23.9% increase in attendance attributable primarily to the net addition of 1,201 screens in the last 12 months (834 of which are attributable to the Act III merger). Of the $126.1 million net increase in revenues for the period, a $5.6 million decrease was attributed to theatres previously operated by the Company, $45.9 million increase was attributed to theatres acquired by the Company, and $85.8 million increase was attributed to new theatres constructed by the Company. Average ticket prices increased 7.1% 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 10.1% 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 37.1% to $355.6 million for the nine months ended October 1, 1998 from $259.5 million in the comparable 1997 period. Direct theatre costs as a percentage of total revenues increased to 74.4% in the 1998 period from 73.8% in the 1997 period. The increase of direct theatre 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 increased by 6.2% to $13.7 million for the nine months ended October 1, 1998 from $12.9 million in the comparable 1997 period. As a percentage of total revenues, general and administrative expenses decreased to 2.9% in the 1998 period from 3.7% in the 1997 period. Depreciation and Amortization. Depreciation and amortization expense increased for the nine months ended October 1, 1998 by 64.9% to $35.5 million from $21.5 million in the comparable 1997 period. This increase was primarily the result of theatre property additions associated with the Company's expansion efforts, increased debt amortization costs, and the Act III Combination. Operating Income. Operating income for the nine months ended October 1, 1998 decreased to $8.5 million, or 1.8% of total revenues, from $45.0 million, or 12.8% of total revenues, in the comparable 1997 period. Before nonrecurring expenses associated with the Recapitalization, operating income for the nine month period ended October 1, 1998 was $73.0 million or 15.3% of total revenues. Interest Expense. Interest expense increased for the nine months ended October 1, 1998 by 247.2% to $32.8 million from $9.5 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 income taxes for the nine months ended October 1, 1998 was $0 million as compared to $12.1 million in the 1997 period. The effective tax rate was .1% in the 1998 period as compared to 33.7% in the 1997 period as the 1998 period reflected certain recapitalization, merger and amortization expenses which were not deductible for tax purposes. Net Income (Loss). The net income (loss) for the nine months ended October 1, 1998 was $(36.0) million as compared to $13.8 million income in the 1997 period. Net income before nonrecurring and extraordinary items was $24.4 million or 5.1% of total 33 38 revenues in the nine months ended October 1, 1998 as compared to $30.0 million or 8.5% 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 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. 34 39 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. 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" 35 40 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. The Company's Senior Credit Facilities provide for borrowings of up to $1,019.0 million in the aggregate and 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 $144.0 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. As of October 1, 1998, after giving pro forma effect to the Original Offering and the Tack-on Offering, the Company had $500.0 million of capacity available under the Revolving Credit Facility. 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 36 41 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 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 from the sale of the Existing Regal Notes, 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. 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. On November 10, 1998, the Company issued $200.0 million aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2008 under the same indenture governing 37 42 the Existing Regal Notes. The proceeds of the Tack-on Offering were used to repay and retire portions of the Senior Credit Facilities. On December 16, 1998, the Company issued $200.0 million aggregate principal amount of 8 7/8% Senior Subordinated Debentures due 2010. The proceeds of the Original Offering were used to repay all of the then outstanding indebtedness under the Revolving Credit Facility and the excess was used for working capital purposes. Interest payments on the 9 1/2% Regal Notes and the Debentures and interest payments and amortization with respect to the Senior Credit Facilities represent significant liquidity requirements for the Company. On a pro forma basis, after giving effect to the Transactions, the Act III Combination, the Original Offering and the Tack-on Offering, the Company had interest expense of approximately $87.4 million for the nine month period ended October 1, 1998. In addition, for 1998, the minimum amount required to be paid under the Company's non-cancelable operating leases is $73.6 million. At October 1, 1998, the Company had 53 new theatres with 833 screens and 46 screens at eight existing locations under construction. The Company intends to develop approximately 250 to 300 screens during the fourth quarter of 1998 and approximately 700 to 800 screens during 1999. The Company expects that the capital expenditures in connection with its development plan will aggregate approximately $125.0 million for the fourth quarter of 1998 and approximately $300.0 million during 1999. As of October 1, 1998, the Company had approximately $350.0 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 including any excess cash from the proceeds of the Original Offering. 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 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 9 1/2% Regal Notes, the Debentures 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 indentures governing the Debentures and the 9 1/2% Regal Notes 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 Debentures" and "Description of Certain Indebtedness -- Senior Credit Facilities." 38 43 INFLATION; ECONOMIC DOWNTURN The Company does not believe that inflation has had a material impact on its financial position or results of operations. In times of recession, attendance levels experienced by motion picture exhibitors may be adversely affected. For example, revenues declined for the industry in 1990 and 1991. 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 ("SFAS") No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures About Segment of an Enterprise and Related Information. SFAS No. 130 requires disclosure of comprehensive income and its components in a 39 44 company's financial statements and is effective for fiscal years beginning after December 15, 1997, with restatement of all prior periods shown. The Company adopted SFAS No. 130 in the first quarter of 1998. There is no difference between comprehensive income and net income as reported by the Company for all periods shown. SFAS No. 131 requires new disclosures of segment information in a company's financial statements and is effective for fiscal years beginning after December 15, 1997, with restatement of all prior periods shown. Adoption of SFAS No. 131 did not have a material impact on the Company's consolidated financial statements. On June 15, 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative and Financial Instruments and Hedging Activities. SFAS No. 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. The Company is currently evaluating the effect that SFAS No. 133 will have on the Company's consolidated financial statements. The Company does not expect the adoption of SFAS No. 133 to have a material effect on the Company's consolidated financial statements. 40 45 BUSINESS THE COMPANY The Company is the largest motion picture exhibitor in the United States based upon the number of screens in operation. At October 1, 1998, the Company operated 385 theatres, with an aggregate of 3,312 screens in 29 states. The Company operates primarily multiplex theatres and has an average of 8.6 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 October 1, 1998, without giving pro forma effect to the Transactions, the Act III Combination, the Original Offering and the Tack-on Offering, the Company had revenues, operating income and EBITDA of $590.0 million, $26.8 million and $136.1 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 Transactions, the Act III Combination, the Original Offering and the Tack-on Offering, 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 October 1, 1998, approximately 75% of the Company's screens were located in film licensing zones in which the Company was the sole exhibitor. From its inception through October 1, 1998, the Company has grown by acquiring a net of 313 theatres with 2,326 screens, constructing 72 theatres with 908 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 October 1, 1998, the Company had 53 new theatres with 833 screens under construction and 46 new screens under construction at eight 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 30 theatres with 461 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 August 26, 41 46 1998, Act III operated 130 theatres, with an aggregate of 835 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, is beginning to realize) 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. 42 47 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 October 1, 1998, approximately 89% 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. 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. 43 48 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 October 1, 1998, the Company had 53 new theatres with 833 screens under construction. In addition, the Company has entered into leases in connection with its plans to develop an additional 30 theatres with 461 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 October 1, 1998, the Company had 46 new screens under construction at eight existing theatre facilities and anticipates that it will add a total of 60 to 70 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 letters of intent or other written agreements for any specific acquisitions or joint ventures. Develop Complementary Theatre Concepts. To complement the Company's theatre development, as of October 1, 1998, it had opened six FunScapes(TM) entertainment complexes and had 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 opened 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. 44 49 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. 45 50 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 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. From January 1994 through December 1997, the number of large budget films and the level of marketing support provided by the production companies has increased, 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 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 nine month period ended October 1, 1998, after giving pro forma effect to the Act III Combination, the Company generated 62.8% of its revenues from theatres in six states. The following table sets forth the number of theatres and screens owned and 46 51 operated by the Company, providing certain operating data for the six states where the Company has its largest presence.
NUMBER NUMBER PERCENT OF OF OF TOTAL STATE THEATRES SCREENS THEATRE REVENUE ----- -------- ------- --------------- Florida.................................. 69 745 20.3% Washington............................... 45 289 10.9 Oregon................................... 47 244 9.5 Virginia................................. 36 260 8.2 Ohio..................................... 35 299 7.1 Texas.................................... 23 203 6.8 Other.................................... 130 1,272 37.2 --- ----- ----- Total.......................... 385 3,312 100.0% === ===== =====
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 47 52 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 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 48 53 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 October 1, 1998, the Company operated 26 theatres with an aggregate of 176 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 October 1, 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. 49 54 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. As of October 1, 1998, the Company operated 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. 50 55 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 of which opened 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. 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 theatre provide comprehensive information to the corporate office by 8:00 a.m. each morning. These daily management reports address all aspects of theatre operations, including concession sales, fraud detection and film booking. Payroll information is gathered daily from theatres through the use of automated time keeping systems, enabling a daily comparison of actual to budgeted labor for each theatre. The Company's systems allow it to properly schedule and manage its hourly workforce. A corporate help desk is 51 56 also available to monitor and resolve any processing problems that might arise in the theatres. PROPERTIES As of October 1, 1998, the Company operated 243 of its 385 theatres pursuant to lease agreements, owned the land and buildings for 99 theatres and operated 43 locations pursuant to ground leases. Of the 385 theatres operated by the Company as of October 1, 1998, 313 were acquired as existing theatres and 72 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 October 1, 1998, the Company employed 11,326 persons, of which 1,614 were full-time and 9,712 were part-time employees. Of the Company's employees, as of the same date and on the same pro forma basis, 357 were corporate personnel, 1,770 were theatre management personnel and the remainder were hourly theatre personnel. Film projectionists at 16 of 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 52 57 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 October 1, 1998, approximately 37.3% 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. 53 58 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 R. Keith Thompson..... 36 Senior Vice President Real Estate and Construction D. Mark Monroe........ 36 Vice President, Acting Chief Financial Officer 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..... 40 Director John R. Muse.......... 47 Director Alexander Navab, 32 Director Jr.................. 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. 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 Acting Chief Financial Officer since October 1, 1998 and as Vice President and Treasurer since November 1997. From September 1995 to October 1997, Mr. Monroe served as the 54 59 Director of Accounting 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, Triton Energy Limited 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 55 60 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., Coho Energy, Inc., Glass's Group, International Home Foods, Inc., LIN Television Corporation, Lucchese, Inc., 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, 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 56 61 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 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. 57 62 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 1996 115,358 130,000 52,500 Chief Operating Officer 1995 87,536 75,000 61,875 Lewis Frazer III(2)............. 1997 $120,000 $120,000 60,000 Former Executive Vice President, 1996 108,413 124,950 45,000 Chief 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(2).............. 1997 $ 95,000 $ 50,000 -- Former Senior Vice President 1996 85,540 55,000 30,000 Film and 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 $18.83, the closing price of the Common Stock on The Nasdaq Stock Market on December 28, 1995 (as adjusted for a three-for-two stock split in September 1996). Dividends are paid on all restricted shares to the same extent as on any other shares of Common Stock. 58 63 (2) As of October 1, 1998, Messrs. Frazer and Engel were no longer employed by the Company. The following table summarizes certain information regarding stock options issued to the Named Executive Officers during fiscal 1997. No stock appreciation rights have been granted by the Company. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------ PERCENT OF NUMBER OF TOTAL POTENTIAL REALIZABLE SECURITIES OPTIONS ANNUAL RATES OF UNDERLYING GRANTED TO STOCK APPRECIATION OPTIONS EMPLOYEES EXERCISE OPTION TERM(2) GRANTED IN FISCAL PRICE EXPIRATION ----------------------- NAME (#)(1) 1997 ($/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(3)............. 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(3)... -- -- -- -- -- --
- ------------------------- (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 $31.875, the exercise prices of the options granted. (3) As of October 1, 1998, Messrs. Frazer and Engel were no longer employed by the Company. 59 64 The following table summarizes certain information with respect to stock options exercised by the Named Executive Officers pursuant to the Company's stock option plans.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE OPTIONS HELD AT MONEY OPTIONS HELD AT SHARES JANUARY 1, 1998(#) JANUARY 1, 1998(1)($) 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(2)............. -- -- 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(2)... -- -- 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. (2) As of October 1, 1998, Messrs. Frazer and Engel were no longer employed by the Company. CAMPBELL AND DUNN EMPLOYMENT AGREEMENTS The Company has entered into employment agreements with Messrs. Campbell and Dunn pursuant to which they respectively serve as Chief Executive Officer and Chief Operating 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 and $325,000 per year for Messrs. Campbell and Dunn, respectively. Messrs. Campbell and Dunn are entitled to receive annual target bonuses of 140% and 100%, 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 and Dunn 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 and Dunn 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 and Dunn by the Company under certain circumstances in which Messrs. Campbell and Dunn 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. 60 65 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 a stockholder agreement with Hicks Muse and KKR (the "KKR/Hicks Muse Stockholders Agreement"). 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. 61 66 PRINCIPAL STOCKHOLDERS The following table and the accompanying footnotes set forth, as of December 9, 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 c/o Hicks, Muse, Tate & Furst Incorporated 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...................................... -- Robert A. Engel, Jr................................... -- R. Keith Thompson..................................... 272,769 * All directors and executive officers as a group (15 persons)............................................ 3,227,620 1.5
- ------------------------- * 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 62 67 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 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 managing members of which are Henry R. Kravis and George R. Roberts, and the other members of which are 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 directors of the Company. Mr. Alexander Navab, Jr. is a limited partner of KKR Associates 1996 L.P. and is also 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. 63 68 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. In addition, the Company used the net proceeds of the Original Offering and the Tack-on Offering to repay, and in the case of the Tack-on Offering, retire, portions of the Senior Credit Facilities. 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 $519.0 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. 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. As of October 1, 1998, there was $240.0 million outstanding under the Term A Facility. 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 64 69 Act III Combination to the Company pursuant to which Term loans ("Term B Loans") were made. As of October 1, 1998, there was $144.0 million outstanding under the Term B Facility. 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. As of October 1, 1998, there was $135.0 million outstanding under the Term C Facility. 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. 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 - ----------------------------------------------- ---------- --------- Greater than or equal to 5.5:1 2.250% 1.000% Greater than or equal to 5.0:1 Less than 5.5:1 2.000% .750% Greater than or equal to 4.5:1 Less than 5.0:1 1.625% .375% Greater than or equal to 4.0:1 Less than 4.5:1 1.375% .125% Greater than or equal to 3.5:1 Less than 4.0:1 1.125% .000% Greater than or equal to 3.0:1 Less than 3.5:1 .875% .000% Less than 3.0:1 .625% .000%
TERM B LOANS TERM C LOANS TOTAL ---------------------- ---------------------- LEVERAGE RATIO LIBOR RATE BASE RATE LIBOR RATE BASE RATE - ----------------------------------------------- ---------- --------- ---------- --------- Greater than or equal to 5.5:1 2.500% 1.250% 2.750% 1.500% Greater than or equal to 4.5:1 Less than 5.5:1 2.250% 1.000% 2.500% 1.250% Less than 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 65 70 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. 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. 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. 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. 9 1/2% REGAL NOTES Concurrently with the consummation of the Regal Merger, the Company issued $400.0 million aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2008 pursuant to an indenture dated as of May 27, 1998, by and between the Company and IBJ Schroder Bank & Trust Company, as Trustee. On November 10, 1998, the Company issued $200.0 million aggregate principal amount of 9 1/2% Senior Subordinated Notes due 2008 under the same indenture governing the Existing Regal Notes. Except with respect to redemption premiums and redemption dates, maturity, interest rate and interest payment dates, the terms of the 9 1/2% Regal Notes are substantially identical to, and rank pari passu with, the Debentures. The 9 1/2% Regal Notes are unsecured, senior subordinated obligations of the Company and will mature on June 1, 2008. Interest on the 9 1/2% Regal Notes accrues at a rate of 9 1/2% per annum and is payable in cash semi-annually on June 1 and December 1 of each 66 71 year, commencing December 1, 1998, to the holders of record of 9 1/2% Regal Notes at the close of business on the May 15 and November 15, respectively, immediately preceding such interest payment date. The 9 1/2% Regal 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
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 9 1/2% Regal 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 65% of the aggregate principal amount of the 9 1/2% Regal Notes issued under the indenture governing the 9 1/2% Regal Notes would remain outstanding immediately after giving effect to such redemption. The indenture governing the 9 1/2% Regal Notes 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 9 1/2% Regal Notes in cash at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. 67 72 THE EXCHANGE OFFER PURPOSE AND EFFECT The Old Debentures were sold by the Company on December 16, 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 Debentures and, upon the effectiveness of that Registration Statement, offer to the holders of the Old Debentures the opportunity to exchange their Old Debentures for a like principal amount of Debentures, 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 Debentures not tendered will not have any further registration rights and those Old Debentures will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for the Old Debentures 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 Debentures acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving the Debentures, (ii) neither the holder nor any such other person is engaging in or intends to engage in a distribution of the Debentures, (iii) neither the holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of the Debentures 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 Debentures 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 Debentures 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 Debentures. For purposes of the foregoing, "Transfer Restricted Securities" means each Old Debenture until (i) the date on which such Old Debenture has been exchanged for a Debenture in the Exchange Offer, (ii) the date on which such Old Debenture 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 Debenture is sold pursuant to Rule 144 under circumstances in which any legend borne by such Old Debenture relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed or such Old Debenture is eligible to be sold pursuant to paragraph (k) of Rule 144, or (iv) such Old Debenture 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 Debentures under the Securities Act. See "-- Procedures for Tendering." 68 73 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 Debentures issued pursuant to the Exchange Offer in exchange for Old Debentures may be offered for resale, resold and otherwise transferred by any person receiving such Debentures, 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 Debentures 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 Debentures) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the Debentures 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 Debentures. Holders of Old Debentures 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 Debentures 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 Debentures for its own account in exchange for Old Debentures, where such Old Debentures 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 Debentures. See "Plan of Distribution." Each broker-dealer that receives Debentures for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Old Debentures as a result of market-making activities or other trading activities and will deliver a prospectus in connection with any resale of such Debentures. 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 Debentures received in exchange for Old Debentures where such Old Debentures 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 Debentures. The Exchange Offer is not being made to, nor will the Company accept tenders for exchange from, holders of Old Debentures 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 Debentures not tendered will not have any further registration rights and those Old Debentures will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for a 69 74 holder's Old Debentures 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 Debentures 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 Debentures in exchange for each $1,000 principal amount of outstanding Old Debentures accepted in the Exchange Offer. Holders may tender some or all of their Old Debentures pursuant to the Exchange Offer. However, Old Debentures may be tendered only in integral multiples of $1,000 in principal amount. The form and terms of the Debentures are substantially the same as the form and terms of the Old Debentures except that the Debentures have been registered under the Securities Act and will not bear legends restricting their transfer. The Debentures will evidence the same debt as the Old Debentures and will be issued pursuant to, and entitled to the benefits of, the Indenture pursuant to which the Old Debentures were issued. As of , 1999, Old Debentures representing $200.0 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 Debentures. 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. The Company shall be deemed to have accepted validly tendered Old Debentures 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 Debentures from the Company. If any tendered Old Debentures 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 Debentures will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old Debentures 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 Debentures 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 , 1999, 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 70 75 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 Debentures, 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 Debentures may tender the Old Debentures 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 Debentures 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 Debentures, 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 DEBENTURES 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 DEBENTURES 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 Debentures 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 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 Debentures, either make appropriate arrangements to register ownership of the Old Debentures in the beneficial owner's name or obtain a 71 76 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 Debentures 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 Debentures listed therein, the Old Debentures 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 Debentures. If the Letter of Transmittal or any Old Debentures 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 Debentures 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 Debentures not properly tendered or any Old Debentures 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 Debentures. 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 Debentures 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 Debentures, neither the Company, the Exchange Agent, nor any other person shall incur any liability for failure to give such notification. Tenders of Old Debentures will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Debentures 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 Debentures 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 Debentures in the open market, in 72 77 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 Debentures acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Debentures, 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 Debentures, (iii) neither the holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Debentures 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. In all cases, issuance of Debentures for Old Debentures 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 Debentures or a timely Book-Entry Confirmation of such Old Debentures 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 Debentures are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Old Debentures are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Debentures will be returned without expense to the tendering holder thereof (or, in the case of Old Debentures 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 Debentures 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 Debentures for its own account in exchange for Old Debentures, where such Old Debentures 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 Debentures. See "Plan of Distribution." BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Debentures 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 Debentures being tendered by causing the Book-Entry Transfer Facility to transfer such Old Debentures 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 Debentures 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 73 78 5:00 p.m., New York City time, on the Expiration Date or the guaranteed delivery procedures described below must be complied with. DTC's Automated Tender Offer Program ("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 Debentures 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 Debentures desires to tender such Old Debentures and the Old Debentures are not immediately available, or time will not permit such holder's Old Debentures 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 Debentures and the amount of Old Debentures 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 Debentures, 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 Debentures, 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, 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 Debentures 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 Debentures 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 Debentures to be withdrawn (the "Depositor"), (ii) identify the Old Debentures to be withdrawn (including the certificate number or numbers and principal amount of such Old Debentures), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Old Debentures were tendered (including any required 74 79 signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee register the transfer of such Old Debentures into the name of the person withdrawing the tender, and (iv) specify the name in which any such Old Debentures 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 Debentures so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Debentures 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 Debentures 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 Debentures in exchange for, any Old Debentures and may terminate or amend the Exchange Offer if at any time before the acceptance of such Old Debentures for exchange or the exchange of the Debentures for such Old Debentures, 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 Debentures tendered, and no Debentures will be issued in exchange for any such Old Debentures, 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. 75 80 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 Debentures for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct the Company to register Debentures in the name of, or request that Old Debentures 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. 76 81 DESCRIPTION OF THE DEBENTURES GENERAL The Debentures 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 filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summary of certain provisions of the Indenture and the Debentures 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 reference to the Trust Indenture Act of 1939, as amended) and the Debentures. Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Indenture. Except with respect to redemption premiums and redemption dates, maturity, interest rate and interest payment dates, the terms of the Debentures are substantially identical to, and will be pari passu with, the 9 1/2% Regal Notes. 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 Debentures will be payable, and the Debentures 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), 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 Debenture Register. The Debentures will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the Trustee will act as a Paying Agent and the Registrar for the Debentures. The Debentures may be presented for registration of transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the Debentures. Subject to the covenants described below under "Certain Covenants" and applicable law, the Company may issue additional Debentures under the Indenture. The Debentures offered hereby and any additional Debentures subsequently issued would be treated as a single class for all purposes under the Indenture. PRINCIPAL, MATURITY AND INTEREST The Debentures offered hereby in the principal amount of $200.0 million will be unsecured, senior subordinated obligations of the Company and will mature on December 15, 2010. Interest on the Debentures will accrue at a rate of 8 7/8% per annum and will be payable in cash semi-annually on each June 15 and December 15, commencing June 15, 1999 to the holders of record of Debentures at the close of business on the June 1 and December 1, respectively, immediately preceding such interest payment date. Interest on the Debentures will accrue from the most recent interest payment date to which interest has been paid or, if no interest has been paid, from the date of original issuance. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 77 82 OPTIONAL REDEMPTION The Debentures may be redeemed at any time on or after December 15, 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 December 15 of each of the years set forth below:
REDEMPTION YEAR PRICE ---- ---------- 2003........................................................ 104.438% 2004........................................................ 103.328 2005........................................................ 102.219 2006........................................................ 101.109 2007 and thereafter......................................... 100.000
In addition, prior to December 15, 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 Debentures at a redemption price equal to 108.875% of the principal amount thereof plus accrued and unpaid interest to the redemption date; provided, however, that after any such redemption, at least 65% of the aggregate principal amount of the Debentures issued under the Indenture would 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 Debentures are to be redeemed at any time, selection of Debentures for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Debentures are listed or, in the absence of such requirements or if the Debentures 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 Debentures 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 Debentures to be redeemed at its registered address. If any Debenture is to be redeemed in part only, the notice of redemption that relates to such Debenture shall state the portion of the principal amount thereof to be redeemed. A new Debenture in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Debenture. On and after the redemption date, interest ceases to accrue on Debentures 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 Debentures in cash pursuant to the offer described below (the "Change of Control 78 83 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 Debentures 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 Debentures, 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 Debentures 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 Debentures 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 Debentures, 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 Debentures purchased pursuant to a Change of Control Offer will be required to surrender such Debentures to the U.S. Paying Agent and the Registrar for the Debentures 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 Debentures 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 Debentures 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 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 Debentures protection in the event of certain highly leveraged transactions, reorganizations, restructurings, mergers and other similar transactions that might adversely affect the holders of Debentures, 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 Debentures, 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 79 84 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 Debentures 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 Debentures 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 Debentures 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 Debentures 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 Debentures upon a Change of Control is waivable by the board of directors of the Company. Without the consent of each holder of Debentures 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 Debentures 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 Debentures, any liquidated damages ("Additional Amounts") under the Registration Rights Agreement (as defined herein) and all other Obligations with respect to the Debentures, 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, and is pari passu in right of payment with the 9 1/2% Regal Notes; provided, however, payment from the money or the proceeds of U.S. Government Obligations held in any defeasance trust 80 85 described under "-- Satisfaction and Discharge of Indenture; Defeasance" below is not subordinate to any Senior Indebtedness or subject to the restrictions described herein. The Debentures 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 October 1, 1998 on a pro forma basis after giving effect to the Original Offering and the Tack-on Offering, the Company had approximately $548.1 million of Senior Indebtedness outstanding (excluding unused commitments of $500.0 million under the Senior Credit Facilities), including capital lease obligations and indebtedness of the Company's subsidiaries to third parties of approximately $29.1 million (excluding guarantees of 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 Debentures in accordance with the provisions of the Indenture. The Debentures will in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company, including the 9 1/2% Regal Notes. 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 Additional Amounts or other Obligations with respect to, the Debentures 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 Debentures (collectively, "pay the Debentures") 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 Debentures 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 Debentures (except that holders of the Debentures may receive (i) Qualified Capital Stock issued by the Company to pay interest on the Debentures or issued in exchange for 81 86 the Debentures, (ii) securities substantially identical to the Debentures 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 Debentures and having a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Debentures) 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 Debentures 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 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 Debentures 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 Debentures 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 Debentures 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 Debentures may receive (i) Qualified Capital Stock issued by the Company to pay interest on the Debentures or issued in exchange for the Debentures, (ii) securities substantially identical to the Debentures 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 Debentures and having a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Debentures). If a distribution is made to the Trustee or to holders of the 82 87 Debentures 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 Debentures 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 Debentures (except payment (i) in Qualified Capital Stock issued by the Company to pay interest on the Debentures or issued in exchange for the Debentures, (ii) in securities substantially identical to the Debentures 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 Debentures and have a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Debentures), 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 Debentures 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 Debentures, and creditors of the Company who are not holders of Senior Indebtedness (including holders of the Debentures) 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 Debentures 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 Additional 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 Debentures achieve 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 Debentures 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 Debentures will be entitled to substantially no covenant protection. 83 88 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 Debentures 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 Debentures). 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 84 89 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 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 May 27, 1998 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 85 90 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 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 86 91 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 Debentures 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 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 Debentures and the Indenture 87 92 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 Debentures. 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 88 93 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 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 Debentures are outstanding, the Company will provide to the Trustee and the holders of Debentures 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. EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (i) the failure to pay interest on the Debentures 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 Debentures 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 Debentures 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 Debentures; (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. 89 94 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 Debentures shall, or the holders of at least 30% in principal amount of outstanding Debentures may, declare the principal of all the Debentures, 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 Debentures. At any time after a declaration of acceleration with respect to the Debentures as described in the preceding paragraph, the holders of a majority in principal amount of the Debentures 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 Debentures 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 Debentures) on overdue installments of interest and overdue payments of 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 Debentures 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 Debentures. 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 Debentures, 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 90 95 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 Debentures 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 Debentures 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 Debentures 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 Debentures (except for certain obligations of the Company to register the transfer or exchange of such Debentures, replace stolen, lost or mutilated Debentures, 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 Debentures 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 Debentures, 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 Debentures 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 Debentures not theretofore delivered to the Trustee for cancellation (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. 91 96 MODIFICATION OF THE INDENTURE From time to time, the Company and the Trustee, together, without the consent of the holders of the Debentures, 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 Debentures, except that, without the consent of each holder of the Debentures affected thereby, no amendment may, directly or indirectly: (i) reduce the amount of Debentures 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 Debentures; (iii) reduce the principal of or change the fixed maturity of any Debentures, or change the date on which any Debentures may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Debentures payable in money other than that stated in the Debentures and the Indenture; (v) make any change in provisions of the Indenture protecting the right of each holder of a Debenture to receive payment of principal of, premium on and interest on such Debenture 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 Debentures to waive a Default or Event of Default; or (vi) after the Company's obligation to purchase the Debentures 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 Debentures 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 Debenture waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Debentures. 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 Debentures 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, 92 97 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 Debentures, 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 Debentures 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. 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. 93 98 "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, 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 94 99 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 Debentures 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. "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 Debentures by Moody's or S&P, as the case may be. "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 95 100 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 Debentures 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 Debentures; 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 Debentures 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 96 101 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 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 December 16, 1998. "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 97 102 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 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. 98 103 "9 1/2% Regal Notes" means the Company's 9 1/2% Senior Subordinated Notes due 2008 issued pursuant to that certain indenture dated as of May 27, 1998, by and between the Company and IBJ Schroder Bank & Trust Company. "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 (including the 9 1/2% Regal Notes and the Debentures); (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 $1.22 billion; (iii) Indebtedness evidenced by or arising under the Debentures and the Indenture in respect of the Debentures; (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 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 99 104 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 $1.22 billion 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 100 105 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. "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. 101 106 "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 Transactions, and as amended in connection with the Act III Combination, 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 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 Debentures; 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 9 1/2% Regal Notes (as to which the Debentures rank pari passu in right of payment) or (5) obligations in respect of any Capital Stock. "Senior Subordinated Indebtedness" means the Debentures and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Debentures 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 102 107 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 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 103 108 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. 104 109 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of certain federal income tax considerations relevant to the exchange of Old Debentures for Debentures, 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 Debentures. 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 DEBENTURES FOR DEBENTURES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS. EXCHANGE OF OLD DEBENTURES FOR DEBENTURES The exchange of Old Debentures for Debentures pursuant to the Exchange Offer should not constitute a significant modification of the terms of the Old Debentures 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 Debentures. PLAN OF DISTRIBUTION Each broker-dealer that receives Debentures for its own account in exchange for Old Debentures pursuant to the Exchange Offer, where such Old Debentures 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 Debentures. 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 Debentures received in exchange for Old Debentures where such Old Debentures 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 , 1999, all dealers effecting transactions in the Debentures may be required to deliver a Prospectus. The Company will not receive any proceeds from any sale of Debentures by broker-dealers. Debentures 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 Debentures 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 Debentures. Any broker-dealer that resells the 105 110 Debentures 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 Debentures may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of the Debentures 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 Debentures) other than commissions or concessions of any broker-dealers and will indemnify holders of the Old Debentures (including any broker-dealers) against certain liabilities, including certain liabilities under the Securities Act. LEGAL MATTERS The validity of the Debentures 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 included herein in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in accounting and auditing. The report of PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP 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 106 111 elsewhere in the Prospectus, and have been so included in reliance upon the report 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 PricewaterhouseCoopers 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. 107 112 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS REGAL CINEMAS, INC.
PAGE ---- Report of Coopers & Lybrand L.L.P., 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 October 1, 1998 (Unaudited) and January 1, 1998........................... F-21 Condensed Consolidated Statements of Operations for the Nine Months Ended October 1, 1998 and October 2, 1997 (Unaudited)............................................... F-22 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 1, 1998 and October 2, 1997 (Unaudited)............................................... F-23 Notes to Condensed Consolidated Financial Statements........ F-24
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ACT III CINEMAS, INC.
PAGE ---- Report of Deloitte & Touche LLP Independent Auditors........ F-30 Report of PricewaterhouseCoopers LLP Independent Accountants............................................... F-31 Consolidated Balance Sheets at December 31, 1996 and 1997... F-32 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and 1997.......................... F-34 Consolidated Statements of Shareholders' Deficit for the Years Ended December 31, 1995, 1996 and 1997.............. F-35 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997.......................... F-36 Notes to Consolidated Financial Statements.................. F-37 Consolidated Balance Sheets at December 31, 1997 and June 30, 1998 (Unaudited)...................................... F-51 Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1997 and 1998 (Unaudited)... F-52 Consolidated Statement of Shareholders' Deficit for the Six Months Ended June 30, 1998 (Unaudited).................... F-53 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1998 (Unaudited).................. F-54 Notes to Consolidated Financial Statements for the Six Months Ended June 30, 1997 and 1998 (Unaudited)........... F-55
F-1 113 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-2 114 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-3 115 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-4 116 REGAL CINEMAS, INC. CONSOLIDATED BALANCE SHEETS
JANUARY 2, JANUARY 1, 1997 1998 ----------- ----------- (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS) ASSETS 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-5 117 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-6 118 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-7 119 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-8 120 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) F-9 121 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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. F-10 122 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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 F-11 123 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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
Rent expense under such operating leases was $34,459, $41,427 and $52,632 for fiscal years 1995, 1996 and 1997, respectively. F-12 124 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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-13 125 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. F-14 126 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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 ========= =======
F-15 127 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 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. F-16 128 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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
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) ======= =======
F-17 129 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 ======= ======= =======
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. F-18 130 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 ======= ====== =====
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 ======= ====== =====
F-19 131 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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-20 132 REGAL CINEMAS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS)
OCTOBER 1, JANUARY 1, 1998 1998 ----------- ---------- (UNAUDITED) ASSETS Current assets: Cash and equivalents................................. $ 15,161 $ 18,398 Accounts receivable.................................. 7,686 4,791 Inventories.......................................... 4,258 2,159 Prepaids and other current assets.................... 11,943 6,377 Refundable income taxes.............................. 13,907 2,424 ---------- --------- Total current assets......................... 52,955 34,149 ---------- --------- Property and equipment: Land................................................. 115,093 53,955 Buildings and leasehold improvements................. 643,263 366,323 Equipment............................................ 374,855 211,465 Construction in progress............................. 92,473 46,529 ---------- --------- 1,225,684 678,272 Accumulated depreciation and amortization............ (143,674) (112,927) ---------- --------- Total property and equipment, net............ 1,082,010 565,345 Excess purchase cost over fair value of net assets acquired............................................. 396,841 52,619 Other assets........................................... 59,415 8,537 ---------- --------- Total assets................................. $1,591,221 $ 660,650 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note 4)........ $ 306 $ 306 Accounts payable..................................... 34,882 38,982 Accrued expenses..................................... 56,258 13,739 ---------- --------- Total current liabilities.................... 91,446 53,027 ---------- --------- Long-term debt, less current maturities (Note 4)....... 1,226,122 288,277 Other liabilities...................................... 33,788 12,771 ---------- --------- Total liabilities............................ 1,351,356 354,075 ---------- --------- Commitments (Note 4) Shareholders' equity (Note 1): Preferred stock, no par; 100,000,000 shares authorized, none issued........................... -- -- Common stock, no par; 500,000,000 shares authorized; 216,182,146 and 223,903,849 shares issued and outstanding at October 1, 1998 and January 1, 1998.............................................. 193,459 223,707 Loans to Shareholders................................ (501) -- Retained earnings...................................... 46,907 82,868 ---------- --------- Total shareholders' equity................... $ 239,865 $ 306,575 ---------- --------- Total liabilities and shareholders' equity... $1,591,221 $ 660,650 ========== =========
See accompanying notes to condensed consolidated financial statements. F-21 133 REGAL CINEMAS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS OF DOLLARS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ----------------------- ----------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Revenue: Admissions............................. $124,563 $ 87,147 $315,481 $237,602 Concessions............................ 54,966 37,641 137,007 100,637 Other operating revenue................ 10,196 4,780 25,380 13,519 -------- -------- -------- -------- Total revenues................. 189,725 129,568 477,868 351,758 -------- -------- -------- -------- Operating expenses: Film rental and advertising costs...... 66,368 48,602 170,355 129,900 Cost of concessions and other.......... 8,556 5,404 21,551 15,621 Theatre operating expenses............. 63,540 38,851 163,717 113,963 General and administrative expenses.... 5,732 3,392 13,743 12,936 Depreciation and amortization.......... 15,599 7,078 35,516 21,538 Merger expenses........................ -- 7,789 -- 7,789 Loss on impairment of assets........... -- 4,960 -- 4,960 Recapitalization expenses (Note 1)..... 2,479 -- 64,526 -- -------- -------- -------- -------- Total operating expenses....... 162,274 116,076 469,408 306,707 -------- -------- -------- -------- Operating income......................... 27,451 13,492 8,460 45,051 Other income (expense): Interest expense....................... (19,508) (3,379) (32,835) (9,456) Interest income........................ 382 560 849 734 Other.................................. (209) (122) (445) (453) -------- -------- -------- -------- Income (loss) before income taxes and extraordinary item..................... 8,116 10,551 (23,971) 35,876 Provision for income taxes (Note 5)...... 4,012 2,300 100 12,099 -------- -------- -------- -------- Income (loss) before extraordinary item................................... 4,104 8,251 (24,071) 23,777 Extraordinary loss on retirement of debt, net of income tax benefit of $7,602 and $6,141, respectively (Note 4)............................ -- (10,020) (11,890) (10,020) -------- -------- -------- -------- Net income (loss)........................ $ 4,104 $ (1,769) $(35,961) $ 13,757 ======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements. F-22 134 REGAL CINEMAS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) (UNAUDITED)
NINE MONTHS ENDED ------------------------ OCTOBER 1, OCTOBER 2, 1998 1997 ----------- ---------- Cash flows from operating activities: Net income (loss).......................................... $ (35,961) $ 13,757 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Loss on extinguishment of debt...................... 11,890 10,020 Depreciation and amortization....................... 35,516 21,538 Loss on impairment of assets........................ -- 4,960 Deferred income taxes............................... 7,276 (4,750) Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable.............................. 3,035 1,413 Inventories...................................... (72) (73) Refundable income taxes.......................... (13,230) 1,866 Prepaids and other current assets................ (2,644) (1,671) Accounts payable................................. (23,429) (13,799) Accrued expenses and other liabilities........... 35,353 (8,064) ----------- --------- Net cash provided by operating activities........ 17,734 25,197 Cash flows from investing activities: Capital expenditures, net................................ (157,728) (113,551) Increase in other assets................................. (3,499) (22,083) ----------- --------- Net cash used in investing activities............ (161,227) (135,634) Cash flows from financing activities: Long-term debt........................................... 1,217,375 104,015 Payments made on long-term debt.......................... (684,500) -- Deferred financing costs................................. (35,441) -- Premium paid to pay off long-term debt................... (14,530) -- Proceeds from issuance of common stock................... 774,717 1,500 Purchase and retirement of common stock.................. (1,117,407) -- Stock compensation expense............................... 42 90 ----------- --------- Net cash provided by financing activities........ 140,256 105,605 ----------- --------- Net decrease in cash and equivalents....................... (3,237) (4,832) Cash and equivalents at beginning of period................ 18,398 17,116 ----------- --------- Cash and equivalents at end of period...................... $ 15,161 $ 12,284 =========== =========
See accompanying notes to condensed consolidated financial statements. F-23 135 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND BASIS OF PRESENTATION Regal Cinemas, Inc. and its wholly owned subsidiaries, collectively referred to as the "Company," operates multi-screen motion picture theatres principally throughout the eastern and northwestern United States. The Company formally operates on a fiscal year ending on the Thursday closest to December 31. The condensed consolidated balance sheet as of October 1, 1998, the condensed consolidated statements of operations for the three months and nine months ended October 1, 1998 and October 2, 1997 and the condensed consolidated statements of cash flows for the nine months ended October 1, 1998 and October 2, 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 nine-month periods ended October 1, 1998 are not necessarily indicative of the operating results for the full year. 2. 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., with the Company continuing as the surviving corporation of the Merger (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 a $400 million senior subordinated note offering, initial borrowings of $375.0 million under its senior credit facilities 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 were 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 Company's existing 8.5% senior subordinated notes; (iv) to pay related fees F-24 136 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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 the Company's common stock, no par value (the "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"). As a result of the Recapitalization and the Act III combination (see Note 3), 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. During 1998, nonrecurring costs of approximately $64.5 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 and Recapitalization costs above, an aggregate of $19.5 million was paid to KKR and Hicks Muse. 3. ACQUISITIONS On August 26, 1998, the Company acquired Act III Cinemas, Inc. (the "Act III Merger"), the ninth largest motion picture exhibitor in the United States based on number of screens in operation. Total purchase cost was approximately $312.0 million, representing primarily the value of 60,383,388 shares of the Company's common stock issued to acquire each share of Act III's outstanding common stock and 5,195,598 options of the Company issued for Act III options. In connection with the Act III merger, the Company also amended its credit facilities and borrowed $383.3 million thereunder to repay Act III's borrowings and accrued interest under Act III's existing credit facilities and two senior subordinated notes totaling $150.0 million. The Act III merger has been accounted for as a purchase, applying the applicable provisions of Accounting Principles Board Opinion No. 16. Preliminary allocation of the purchase price as of September 30, 1998 is as follows:
($'S IN MILLIONS) Property, plant and equipment............................... $390.5 Other long-term assets...................................... 23.2 Long-term debt assumed...................................... (405.0) Net working capital acquired................................ (38.6) Excess purchase cost over fair value of net assets acquired.................................................. 341.9 ------ Total purchase cost............................... $312.0 ======
F-25 137 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The above allocation of purchase cost has been preliminarily allocated to the acquired assets and liabilities of Act III based on estimates of fair value as of the closing date. Such estimates were based on valuations and studies which are not yet complete. Therefore, the above allocation of purchase price may change when such studies are completed. The Company is amortizing goodwill over an estimated useful life of 40 years. The following unaudited consolidated pro forma condensed results of operations data gives effect to the Act III Combination and Regal Recapitalization as if they had occurred as of January 1, 1997 ($'s in millions):
THREE MONTHS ENDED NINE MONTHS ENDED ----------------------- ----------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Pro Forma Revenues................. $247.3 $197.7 $667.1 $541.0 Pro Forma Income (Loss) Before Extraordinary Items.............. $ 5.0 $ .4 $(36.1) $ (3.3)
On July 31, 1997, the Company 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. Separate results of the combining entities for the three and nine-month periods ended October 2, 1997 are as follows:
THREE NINE MONTHS MONTHS ENDED ENDED OCTOBER 2, OCTOBER 2, 1997 1997 ---------- ---------- (IN THOUSANDS) Revenues: Regal............................................... $111,651 $267,357 Cobb Theatres, L.L.C. and Tricob Partnership........ 16,469 81,151 -------- -------- $128,120 $348,508 ======== ======== Net (loss): Regal............................................... $ 648 $ 16,518 Cobb Theatres, L.L.C. and Tricob Partnership........ (2,417) (2,761) -------- -------- $ (1,769) $ 13,757 ======== ========
F-26 138 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 4. LONG-TERM DEBT Long-term debt at October 1, 1998 and January 1, 1998, consists of the following:
OCTOBER 1, JANUARY 1, 1998 1998 ---------- ---------- (IN THOUSANDS) $400,000 of the Company's 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:
REDEMPTION PRICE YEAR ---------- 2003....................... 104.750% 2004....................... 103.167% 2005....................... 101.583% 2006 and thereafter........ 100.000% $ 400,000 $ --
Term Loans........................................... 712,500 -- Revolving credit facility............................ 84,845 -- $125,000 of the Company's senior subordinated notes, due October 1, 2007 with interest payable semiannually at 8.5%............................... -- 125,000 $250,000 of the Company's senior reducing revolving credit facility.................................... -- 162,000 Capital lease obligations, payable in monthly installments plus interest at 14%.................. 24,241 -- Other non-recourse debt, generally payable in monthly installments, plus interest at approximately 10%... 4,772 -- Other................................................ 70 1,583 ---------- -------- 1,226,428 288,583 Less current maturities.............................. (306) (306) ---------- -------- $1,226,122 $288,277 ========== ========
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. In August 1998 in connection with the Act III merger, such credit facilities were amended. F-27 139 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Such credit facilities (the "Credit Facilities") now include a $500,000 Revolving Credit Facility (including the availability of Revolving Loans, Swing Line Loans, and Letters of Credit) and three term loan facilities: Term A ($240,000), Term B ($240,000), and 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 in the credit facilities, of the unused portion of the Revolving Credit Facility. The Revolving Credit Facility expires in June 2005. At October 1, 1998, there was approximately $84.9 million outstanding under the Revolving Credit Facility. 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 October 1, 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 Company's 8.5% senior subordinated notes ("Old 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 Old 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 Old Regal Notes. On May 27, 1998, the Company paid, for each $1,000 principal amount, $1,116.24 for the Old Regal Notes tendered plus, in each case, accrued and F-28 140 REGAL CINEMAS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED unpaid interest of $13.22. Regal financed the purchase price of the Old 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 Old Regal Notes as well as for the write-off of deferred financing costs related to the Company's previous credit facility. 5. INCOME TAXES The effective income tax rate on income (loss) before extraordinary items for the nine month periods ended October 1, 1998 and October 2, 1997 differs from the statutory income tax rates due primarily to nondeductible recapitalization costs in 1998 and state income taxes in 1998 and 1997. The Company's effective tax rates for the nine-month period ended October 1, 1998 and October 2, 1997 were .1% and 33.7%, respectively. 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. 8. SUBSEQUENT EVENTS On November 10, 1998 the Company issued and sold $200,000,000 senior subordinated notes due 2008 which bear interest at 9 1/2%. These instruments are identical to the Company's $400,000,000 senior subordinated notes offered May 27, 1998 as described in Note 4. On December 16, 1998 the Company also issued and sold $200,000,000 senior subordinated debentures due 2010 which bear interest at 8 7/8%. The proceeds from these offerings were used primarily to reduce amounts outstanding under the Company's Senior Credit Facilities. F-29 141 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 F-30 142 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 F-31 143 ACT III CINEMAS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1997
1996 1997 -------- -------- (AMOUNTS IN THOUSANDS) ASSETS 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. F-32 144 ACT III CINEMAS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1997
1996 1997 --------- ---------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) LIABILITIES AND SHAREHOLDERS' DEFICIT 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............................ 4,479 607 Loans to shareholders................................. -- (501) Accumulated deficit................................... (37,759) (104,342) -------- --------- Total shareholders' deficit................... (33,279) (104,236) -------- --------- TOTAL................................................... $281,427 $ 482,611 ======== =========
See notes to consolidated financial statements. F-33 145 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. F-34 146 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. F-35 147 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. F-36 148 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. F-37 149 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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. F-38 150 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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 F-39 151 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED $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. F-40 152 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 F-41 153 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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 F-42 154 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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 ======== ======= ======= ======= ========
F-43 155 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. F-44 156 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 ========== =====
F-45 157 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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. F-46 158 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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% ==== ==== =====
F-47 159 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. F-48 160 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. 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. F-49 161 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. * * * * * * F-50 162 ACT III CINEMAS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND JUNE 30, 1998 (UNAUDITED)
DECEMBER 31 JUNE 30 1997 1998 ----------- --------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS 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. F-51 163 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. F-52 164 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. F-53 165 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. F-54 166 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 F-55 167 ACT III CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED) 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. 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. F-56 168 ------------------------------------------------------------ ------------------------------------------------------------ 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 ---- Where You Can Find More Information........ i Cautionary Statement Regarding Forward- ii Looking Statements....................... Prospectus Summary......................... 1 Risk Factors............................... 12 The Transactions........................... 19 Use of Proceeds............................ 21 Capitalization............................. 21 Unaudited Pro Forma Consolidated Financial 22 Data..................................... Selected Historical Consolidated Financial 29 Data..................................... Management's Discussion and Analysis of 31 Financial Condition and Results of Operations............................... Business................................... 41 Management................................. 54 Certain Transactions....................... 61 Principal Stockholders..................... 62 Description of Certain Indebtedness........ 64 The Exchange Offer......................... 68 Description of the Debentures.............. 77 Certain Federal Income Tax 105 Considerations........................... Plan of Distribution....................... 105 Legal Matters.............................. 106 Experts.................................... 106 Change in Accountants...................... 107 Index to Consolidated Financial F-1 Statements...............................
------------------------ DEALER PROSPECTUS DELIVERY OBLIGATION UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ REGAL CINEMAS LOGO OFFER TO EXCHANGE ALL OUTSTANDING AND UNREGISTERED 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010 FOR 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010 --------------------- PROSPECTUS --------------------- , 1999 ------------------------------------------------------------ ------------------------------------------------------------ 169 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 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. II-1 170 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. 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.(1) 2.2 -- Agreement and Plan of Merger, dated as of August 20, 1998, by and among Regal Cinemas, Inc., Knoxville Acquisition Corp. and Act III Cinemas, Inc.(2) 3.1 -- Amended and Restated Charter of the Registrant.(3) 3.2 -- Restated Bylaws of the Registrant.(4) 4.1 -- Specimen Common Stock certificate.(4) 4.2 -- Article 5 of the Registrant's Amended and Restated Charter (included in the Amended and Restated Charter filed as Exhibit 3.1 hereto). 4.3 -- Indenture, dated as of May 27, 1998, by and between Regal Cinemas, Inc. and IBJ Schroder Bank & Trust Company.(5) 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 hereto). 4.5 -- Indenture, dated as of December 16, 1998, by and between Regal Cinemas, Inc. and IBJ Schroder Bank & Trust Company.* 4.6 -- Form of Regal Cinemas, Inc. 8 7/8% Senior Subordinated Debenture due December 15, 2010 (contained in the Indenture filed as Exhibit 4.5 hereto). 5 -- Opinion of Weil, Gotshal & Manges LLP.+ 10.1 -- Employment Agreement, dated as of May 27, 1998, by and between Regal Cinemas, Inc. and Michael L. Campbell.(5) 10.2 -- Employment Agreement, dated as of May 27, 1998, by and between Regal Cinemas, Inc. and Gregory W. Dunn.(5)
II-2 171
EXHIBIT NO. DESCRIPTION ------- ----------- 10.3 -- Credit Agreement, dated as of May 27, 1998, by and between Regal Cinemas, Inc., its subsidiaries and the lenders named therein.(5) 10.3-1 -- First Amendment, dated as of August 26, 1998, by and between Regal Cinemas, Inc., its subsidiaries and the lenders named therein.(3) 10.4 -- Agreement and Plan of Merger, dated as of June 11, 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.(6) 10.5 -- Agreement and Waiver, dated as of 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.(7) 10.6 -- 1993 Employee Stock Incentive Plan.(4) 10.7 -- Regal Cinemas, Inc. Participant Stock Option Plan.(4) 10.8 -- Regal Cinemas, Inc. Employee Stock Option Plan.(4) 10.9 -- 1998 Stock Purchase and Option Plan for Key Employees of Regal Cinemas, Inc.(8) 10.10 -- Form of Management Stockholder's Agreement.(8) 10.11 -- Form of Non-Qualified Stock Option Agreement.(8) 10.12 -- Form of Sale Participation Agreement.(8) 10.13 -- Form of Registration Rights Agreement.(8) 10.14 -- Stockholders' Agreement, dated as of May 27, 1998, by and among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR Partners II, L.P. and Regal Equity Partners, L.P.(3) 10.15 -- Stockholders' and Registration Rights Agreement, dated as of May 27, 1998, by and among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR Partners II, L.P., Regal Equity Partners, L.P. and the DLJ signatories thereto.(3) 10.16 -- Placement Agreement, dated as of November 4, 1998, by and between Regal Cinemas, Inc. and Morgan Stanley & Co. Incorporated.(9) 10.17 -- Registration Rights Agreement, dated as of November 10, 1998, by and between Regal Cinemas, Inc. and Morgan Stanley & Co. Incorporated.(9) 10.18 -- Placement Agreement, dated as of December 9, 1998, by and among Regal Cinemas, Inc., Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation.*
II-3 172
EXHIBIT NO. DESCRIPTION ------- ----------- 10.19 -- Registration Rights Agreement, dated as of December 16, 1998, by and among Regal Cinemas, Inc., Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation.* 12 -- Statement regarding computation of ratio of earnings to fixed charges.* 16.1 -- Letter from PricewaterhouseCoopers LLP.(10) 16.2 -- Letter from PricewaterhouseCoopers LLP.(11) 21 -- Subsidiaries.(3) 23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5 hereto). 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 signature pages).* 25.1 -- 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.(3) 25.2 -- Statement of Eligibility and Qualification of IBJ Schroder Bank & Trust Company, as Trustee, under the Indenture listed as Exhibit 4.5 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 Current Report on Form 8-K dated January 20, 1998. (2) Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 1, 1998. (3) Incorporated by reference to the Registrant's Registration Statement on Form S-4, Registration No. 333-64399. (4) Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 33-62868. (5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 1998. (6) Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on Form 10-Q for the quarter ended May 31, 1997. II-4 173 (7) Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 14, 1997. (8) Incorporated by reference to the Registrant's Registration Statement on Form S-8, Registration No. 333-52943. (9) Incorporated by reference to the Registrant's Registration Statement on Form S-4, Registration No. 333- . (10) Incorporated by reference to the Registrant's Current Report on Form 8-K/A dated September 16, 1998. (11) 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 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-5 174 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 December 30, 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 D. Mark Monroe, or any of them, each acting along, 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 the said attorneys-in-fact and agents, or their substitutes or substitute, may lawfully do or cause to be done by virtue hereof. II-6 175 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 December 30, 1998 - ------------------------------------------ Officer and Director Michael L. Campbell (Principal Executive Officer) /s/ D. MARK MONROE Vice President, December 30, 1998 - ------------------------------------------ Acting Chief Financial D. Mark Monroe Officer and Treasurer (Principal Financial and Accounting Officer) /s/ DAVID DENIGER Director December 30, 1998 - ------------------------------------------ David Deniger /s/ THOMAS O. HICKS Director December 30, 1998 - ------------------------------------------ Thomas O. Hicks /s/ HENRY R. KRAVIS Director December 30, 1998 - ------------------------------------------ Henry R. Kravis /s/ MICHAEL J. LEVITT Director December 30, 1998 - ------------------------------------------ Michael J. Levitt /s/ JOHN R. MUSE Director December 30, 1998 - ------------------------------------------ John R. Muse /s/ ALEXANDER NAVAB, JR. Director December 30, 1998 - ------------------------------------------ Alexander Navab, Jr. /s/ CLIFTON S. ROBBINS Director December 30, 1998 - ------------------------------------------ Clifton S. Robbins Director December , 1998 - ------------------------------------------ George R. Roberts
II-7 176 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.(1) 2.2 -- Agreement and Plan of Merger, dated as of August 20, 1998, by and among Regal Cinemas, Inc., Knoxville Acquisition Corp. and Act III Cinemas, Inc.(2) 3.1 -- Amended and Restated Charter of the Registrant.(3) 3.2 -- Restated Bylaws of the Registrant.(4) 4.1 -- Specimen Common Stock certificate.(4) 4.2 -- Article 5 of the Registrant's Amended and Restated Charter (included in the Amended and Restated Charter filed as Exhibit 3.1 hereto). 4.3 -- Indenture, dated as of May 27, 1998, by and between Regal Cinemas, Inc. and IBJ Schroder Bank & Trust Company.(5) 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 hereto). 4.5 -- Indenture, dated as of December 16, 1998, by and between Regal Cinemas, Inc. and IBJ Schroder Bank & Trust Company.* 4.6 -- Form of Regal Cinemas, Inc. 8 7/8% Senior Subordinated Debenture due December 15, 2010 (contained in the Indenture filed as Exhibit 4.5 hereto). 5 -- Opinion of Weil, Gotshal & Manges LLP.+ 10.1 -- Employment Agreement, dated as of May 27, 1998, by and between Regal Cinemas, Inc. and Michael L. Campbell.(5) 10.2 -- Employment Agreement, dated as of May 27, 1998, by and between Regal Cinemas, Inc. and Gregory W. Dunn.(5) 10.3 -- Credit Agreement, dated as of May 27, 1998, by and between Regal Cinemas, Inc., its subsidiaries and the lenders named therein.(5) 10.3-1 -- First Amendment, dated as of August 26, 1998, by and between Regal Cinemas, Inc., its subsidiaries and the lenders named therein.(3) 10.4 -- Agreement and Plan of Merger, dated as of June 11, 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.(6) 10.5 -- Agreement and Waiver, dated as of 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.(7)
177
EXHIBIT NO. DESCRIPTION ------- ----------- 10.6 -- 1993 Employee Stock Incentive Plan.(4) 10.7 -- Regal Cinemas, Inc. Participant Stock Option Plan.(4) 10.8 -- Regal Cinemas, Inc. Employee Stock Option Plan.(4) 10.9 -- 1998 Stock Purchase and Option Plan for Key Employees of Regal Cinemas, Inc.(8) 10.10 -- Form of Management Stockholder's Agreement.(8) 10.11 -- Form of Non-Qualified Stock Option Agreement.(8) 10.12 -- Form of Sale Participation Agreement.(8) 10.13 -- Form of Registration Rights Agreement.(8) 10.14 -- Stockholders' Agreement, dated as of May 27, 1998, by and among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR Partners II, L.P. and Regal Equity Partners, L.P.(3) 10.15 -- Stockholders' and Registration Rights Agreement, dated as of May 27, 1998, by and among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR Partners II, L.P., Regal Equity Partners, L.P. and the DLJ signatories thereto.(3) 10.16 -- Placement Agreement, dated as of November 4, 1998, by and between Regal Cinemas, Inc. and Morgan Stanley & Co. Incorporated.(9) 10.17 -- Registration Rights Agreement, dated as of November 10, 1998, by and between Regal Cinemas, Inc. and Morgan Stanley & Co. Incorporated.(9) 10.18 -- Placement Agreement, dated as of December 9, 1998, by and among Regal Cinemas, Inc., Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation.* 10.19 -- Registration Rights Agreement, dated as of December 16, 1998, by and among Regal Cinemas, Inc., Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation.* 12 -- Statement regarding computation of ratio of earnings to fixed charges.* 16.1 -- Letter from PricewaterhouseCoopers LLP.(10) 16.2 -- Letter from PricewaterhouseCoopers LLP.(11) 21 -- Subsidiaries.(3) 23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as Exhibit 5 hereto). 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 signature pages).*
178
EXHIBIT NO. DESCRIPTION ------- ----------- 25.1 -- 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.(3) 25.2 -- Statement of Eligibility and Qualification of IBJ Schroder Bank & Trust Company, as Trustee, under the Indenture listed as Exhibit 4.5 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 Current Report on Form 8-K dated January 20, 1998. (2) Incorporated by reference to the Registrant's Current Report on Form 8-K dated September 1, 1998. (3) Incorporated by reference to the Registrant's Registration Statement on Form S-4, Registration No. 333-64399. (4) Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 33-62868. (5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 2, 1998. (6) Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on Form 10-Q for the quarter ended May 31, 1997. (7) Incorporated by reference to the Registrant's Current Report on Form 8-K dated August 14, 1997. (8) Incorporated by reference to the Registrant's Registration Statement on Form S-8, Registration No. 333-52943. (9) Incorporated by reference to the Registrant's Registration Statement on Form S-4, Registration No. 333- . (10) Incorporated by reference to the Registrant's Current Report on Form 8-K/A dated September 16, 1998. (11) Incorporated by reference to the Registrant's Current Report on Form 8-K/A dated September 23, 1998. EX-4.5 2 INDENTURE 1 EXHIBIT 4.5 ================================================================================ REGAL CINEMAS, INC., Issuer and IBJ SCHRODER BANK & TRUST COMPANY, Trustee ---------- Indenture Dated as of December 16, 1998 ---------- 8 7/8% Senior Subordinated Debentures due 2010 ================================================================================ 2 CROSS-REFERENCE TABLE
TIA Sections Indenture Sections - ------------ ------------------ ss. 310(a)(1).......................................................... 7.10 (a)(2).......................................................... 7.10 (b)............................................................. 7.03; 7.08 ss. 311(a)............................................................. 7.03 (b)............................................................. 7.03 ss. 312(a)............................................................. 2.04 (b)............................................................. 10.02 (c)............................................................. 10.02 ss. 313(a)............................................................. 7.06 (b)(2).......................................................... 7.07 (c)............................................................. 7.05; 7.06; 11.02 (d)............................................................. 7.06 ss. 314(a)............................................................. 7.05; 11.02 (a)(4).......................................................... 4.12; 11.02 (c)(1).......................................................... 11.03 (c)(2).......................................................... 11.03 (e)............................................................. 4.12; 11.04 ss. 315(a)............................................................. 7.02 (b)............................................................. 7.05; 11.02 (c)............................................................. 7.02 (d)............................................................. 7.02 (e)............................................................. 6.11 ss. 316(a)(1)(A)....................................................... 6.05 (a)(1)(B)....................................................... 6.04 (b)............................................................. 6.07 (c)............................................................. 9.03 ss. 317(a)(1).......................................................... 6.08 (a)(2).......................................................... 6.09 (b)............................................................. 2.05 ss. 318(a)............................................................. 11.01 (c)............................................................. 11.01
Note: The Cross-Reference Table shall not for any purpose be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS1
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions .......................................................... 1 SECTION 1.02. Incorporation by Reference of Trust Indenture Act .................... 17 SECTION 1.03. Rules of Construction ................................................ 18 ARTICLE TWO THE DEBENTURES SECTION 2.01. Form and Dating ...................................................... 19 SECTION 2.02. Restrictive Legends .................................................. 20 SECTION 2.03. Execution, Authentication and Denominations .......................... 22 SECTION 2.04. Registrar and Paying Agent ........................................... 23 SECTION 2.05. Paying Agent to Hold Money in Trust .................................. 24 SECTION 2.06. Transfer and Exchange ................................................ 24 SECTION 2.07. Book-Entry Provisions for Global Debentures .......................... 25 SECTION 2.08. Special Transfer Provisions .......................................... 27 SECTION 2.09. Replacement Debentures ............................................... 30 SECTION 2.10. Outstanding Debentures ............................................... 31 SECTION 2.11. Temporary Debentures ................................................. 31 SECTION 2.12. Cancellation ......................................................... 31 SECTION 2.13. CUSIP Numbers ........................................................ 32 SECTION 2.14. Defaulted Interest ................................................... 32 SECTION 2.15. Issuance of Additional Debentures .................................... 32 ARTICLE THREE REDEMPTION SECTION 3.01. Right of Redemption .................................................. 32 SECTION 3.02. Notices to Trustee ................................................... 33 SECTION 3.03. Selection of Debentures to Be Redeemed ............................... 33 SECTION 3.04. Notice of Redemption ................................................. 34 SECTION 3.05. Effect of Notice of Redemption ....................................... 35 SECTION 3.06. Deposit of Redemption Price .......................................... 35 SECTION 3.07. Payment of Debentures Called for Redemption .......................... 35 SECTION 3.08. Debentures Redeemed in Part .......................................... 35
- ---------- Note: The Table of Contents shall not for any purposes be deemed to be a part of the Indenture. 4 ii ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Debentures ................................................ 36 SECTION 4.02. Maintenance of Office or Agency ...................................... 36 SECTION 4.03. Fall-away Event ...................................................... 37 SECTION 4.04. Limitation on Restricted Payments .................................... 37 SECTION 4.05. Limitation on the Incurrence of Additional Indebtedness and Issuance of Capital Stock ......................... 39 SECTION 4.06. Limitations on Transactions with Affiliates .......................... 40 SECTION 4.07. Repurchase of Debentures upon a Change of Control .................... 41 SECTION 4.08. Existence ............................................................ 42 SECTION 4.09. Payment of Taxes and Other Claims .................................... 42 SECTION 4.10. Maintenance of Properties and Insurance .............................. 43 SECTION 4.11. Notice of Defaults ................................................... 43 SECTION 4.12. Compliance Certificates .............................................. 43 SECTION 4.13. Commission Reports and Reports to Holders ............................ 44 SECTION 4.14. Waiver of Stay, Extension or Usury Laws .............................. 44 SECTION 4.15. Limitation on Layering ............................................... 45 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. When Company May Merge, Etc .......................................... 45 SECTION 5.02. Successor Substituted ................................................ 46 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default .................................................... 46 SECTION 6.02. Acceleration ......................................................... 47 SECTION 6.03. Other Remedies ....................................................... 48 SECTION 6.04. Waiver of Past Defaults .............................................. 48 SECTION 6.05. Control by Majority .................................................. 49 SECTION 6.06. Limitation on Suits .................................................. 49 SECTION 6.07. Rights of Holders to Receive Payment ................................. 50 SECTION 6.08. Collection Suit by Trustee ........................................... 50 SECTION 6.09. Trustee May File Proofs of Claim ..................................... 50 SECTION 6.10. Priorities ........................................................... 51 SECTION 6.11. Undertaking for Costs ................................................ 51 SECTION 6.12. Restoration of Rights and Remedies ................................... 51
5 iii SECTION 6.13. Rights and Remedies Cumulative ....................................... 52 SECTION 6.14. Delay or Omission Not Waiver ......................................... 52 ARTICLE SEVEN TRUSTEE SECTION 7.01. General .............................................................. 52 SECTION 7.02. Certain Rights of Trustee ............................................ 52 SECTION 7.03. Individual Rights of Trustee ......................................... 54 SECTION 7.04. Trustee's Disclaimer ................................................. 54 SECTION 7.05. Notice of Default .................................................... 54 SECTION 7.06. Reports by Trustee to Holders ........................................ 54 SECTION 7.07. Compensation and Indemnity ........................................... 54 SECTION 7.08. Replacement of Trustee ............................................... 55 SECTION 7.09. Successor Trustee by Merger, Etc ..................................... 56 SECTION 7.10. Eligibility .......................................................... 57 SECTION 7.11. Money Held in Trust .................................................. 57 ARTICLE EIGHT DISCHARGE OF INDENTURE SECTION 8.01. Termination of Company's Obligations ................................. 57 SECTION 8.02. Defeasance and Discharge of Indenture 58 SECTION 8.03. Defeasance of Certain Obligations .................................... 60 SECTION 8.04. Application of Trust Money ........................................... 62 SECTION 8.05. Repayment to Company ................................................. 62 SECTION 8.06. Reinstatement ........................................................ 62 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders ........................................... 63 SECTION 9.02. With Consent of Holders .............................................. 63 SECTION 9.03. Revocation and Effect of Consent ..................................... 65 SECTION 9.04. Notation on or Exchange of Debentures 65 SECTION 9.05. Trustee to Sign Amendments, Etc ...................................... 65 SECTION 9.06. Conformity with Trust Indenture Act .................................. 66
6 iv ARTICLE TEN SUBORDINATION OF DEBENTURES SECTION 10.01. Debentures Subordinated to Senior Indebtedness ...................... 66 SECTION 10.02. No Payment on Debentures in Certain Circumstances ................... 66 SECTION 10.03. Payment over of Proceeds upon Dissolution, Etc ...................... 68 SECTION 10.04. Subrogation ......................................................... 70 SECTION 10.05. Obligations of Company Unconditional 71 SECTION 10.06. Notice to Trustee ................................................... 71 SECTION 10.07. Reliance on Judicial Order or Certificate of Liquidating Agent ...... 72 SECTION 10.08. Trustee's Relation to Senior Indebtedness ........................... 72 SECTION 10.09. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness ................ 73 SECTION 10.10. Holders Authorize Trustee to Effectuate Subordination of Debentures . 73 SECTION 10.11. Not to Prevent Events of Default .................................... 73 SECTION 10.12. Trustee's Compensation Not Prejudiced ............................... 73 SECTION 10.13. No Waiver of Subordination Provisions ............................... 73 SECTION 10.14. Payments May Be Paid Prior to Dissolution ........................... 74 SECTION 10.15. Consent of Holders of Senior Indebtedness Under the Senior Credit Facilities .............................. 74 SECTION 10.16. Trust Moneys Not Subordinated ....................................... 74 SECTION 10.17. Notice to Representative of Designated Senior Indebtedness .......... 74 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act of 1939 75 SECTION 11.02. Notices ............................................................. 75 SECTION 11.03. Certificate and Opinion as to Conditions Precedent .................. 76 SECTION 11.04. Statements Required in Certificate or Opinion 77 SECTION 11.05. Rules by Trustee, Paying Agent or Registrar ......................... 77 SECTION 11.06. Payment Date Other Than a Business Day .............................. 77 SECTION 11.07. Governing Law 78 SECTION 11.08. No Adverse Interpretation of Other Agreements 78 SECTION 11.09. No Recourse Against Others .......................................... 78 SECTION 11.10. Successors 78 SECTION 11.11. Duplicate Originals 78 SECTION 11.12. Separability ........................................................ 78 SECTION 11.13. Table of Contents, Headings, Etc .................................... 78 EXHIBIT A Form of Debenture .................................................... A-1 EXHIBIT B Form of Certificate .................................................. B-1
7 v EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors ....................... C-1 EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S .............................. D-1
8 INDENTURE, dated as of December 16, 1998, between REGAL CINEMAS, INC., a Tennessee corporation (the "Company"), and IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation, trustee (the "Trustee"). RECITALS The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance initially of up to $200,000,000 aggregate principal amount of the Company's 8 7/8% Senior Subordinated Debentures due 2010 (the "Debentures") issuable as provided in this Indenture. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done, and the Company has done all things necessary to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, valid obligations of the Company as hereinafter provided. This Indenture is subject to, and shall be governed by, the provisions of the Trust Indenture Act of 1939, as amended, that are required to be a part of and to govern indentures qualified under the Trust Indenture Act of 1939, as amended. AND THIS INDENTURE FURTHER WITNESSETH For and in consideration of the premises and the purchase of the Debentures by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders, as follows. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions . "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. 9 2 "Act III" means Act III Cinemas, Inc., a Delaware corporation. "Act III Merger" means the merger of Act III with and into the Company. "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. "Affiliate Transaction" has the meaning specified in Section 4.06. "Agent" means any Registrar, Co-Registrar, Paying Agent, Transfer Agent or authenticating agent. "Agent Members" has the meaning provided in Section 2.07(a). "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. "Board of Directors" means the Board of Directors of the Company or any committee of such Board of Directors duly authorized to act under this Indenture. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "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 10 3 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 this 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. "Change of Control Offer" has the meaning provided in Section 4.07(a). "Change of Control Payment Date" has the meaning provided in Section 4.07(c). "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Commodity Agreement" means any commodity futures contract, commodity option or other similar agreement or arrangement. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to Article Five of this Indenture and thereafter means the successor. "Company Order" means a written request or order signed in the name of the Company (i) by its Chairman of the Board, its Chief Executive Officer, its President, a Vice President or its Chief Financial Officer and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee; provided, however, that such written request or order may be signed by any two officers or directors listed in clause (i) above in lieu of being signed by one of such officers or directors listed in such clause (i) and one of the officers listed in clause (ii) above. "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 11 4 unusual items and cumulative effects of changes in accounting principles reducing such net income, less all non-cash items, extraordinary items, 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 Section 4.04(a) (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 Section 4.05; 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 Debentures 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 12 5 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. "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at One State Street, New York, New York 10004; Attention: Corporate Administration. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement. "Debentures" means any of the securities, as defined in the first paragraph of the recitals hereof, that are authenticated and delivered under this Indenture. For all purposes of this Indenture, the term "Debentures" shall include the Debentures initially issued on the Issue Date, any Exchange Debentures to be issued and exchanged for any Debentures pursuant to the Registration Rights Agreement and this Indenture and any other Debentures issued after the Closing Date under this Indenture. For purposes of this Indenture, all Debentures shall vote together as one series of Debentures under this Indenture. "Debenture Obligations" means all Obligations relating to the Debentures, including, without limitation, all principal, premium, if any, interest (including, without limitation, any additional amounts payable with respect to the Debentures as a result of the failure to comply with the terms of the Registration Rights Agreement). "Debt Rating" shall mean the rating assigned to the Debentures by Moody's or S&P, as the case may be. "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. "Depositary" means The Depository Trust Company, its nominees, and their respective successors. 13 6 "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) of Section 4.04(a). "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 this 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 Debentures 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 Debentures; 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 Debentures 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. "Event of Default" has the meaning provided in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Debentures" means any securities of the Company containing terms identical to the Debentures (except that such Exchange Debentures shall be registered under the Securities Act) that are issued and exchanged for the Debentures pursuant to the Registration Rights Agreement and this Indenture. 14 7 "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 this Indenture shall be computed in conformity with GAAP as in effect on the date hereof. "Global Debentures" has the meaning provided in Section 2.01. "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. "Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated. "Holder" or "Debentureholder" means the registered holder of any Debenture. "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 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. "Indenture" means this Indenture as originally executed or as it may be amended or supplemented from time to time by one or more indentures supplemental to this Indenture entered into pursuant to the applicable provisions of this Indenture. "Independent Financial Advisor" means an accounting, appraisal, investment banking firm or consultant to Persons engaged in the motion picture exhibition and distribution business of 15 8 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. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Payment Date" means each semiannual interest payment date on June 15 and December 15 of each year, commencing June 15, 1999. "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 December 16, 1998. "KKR" means Kohlberg Kravis Roberts & Co. L.P. "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 Section 4.13. 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 16 9 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 of whether such incremental contributions could then be reflected in pro forma financial statements under GAAP, Regulation S-X promulgated by the Commission or any other regulation or policy of the Commission); provided, however, that such incremental contributions were identified and quantified in good faith in an Officers' 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). 17 10 "Moody's" means Moody's Investors Service, Inc. or any successor to the rating agency business thereof. "9 1/2% Regal Notes" means the Company's 9 1/2% Senior Subordinated Notes due 2008 issued pursuant to that certain indenture dated as of May 27, 1998, by and between the Company and IBJ Schroder Bank & Trust Company. "Non-U.S. Person" means a person who is not a "U.S. person" (as defined in Regulation S). "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. "Officer" means, with respect to the Company, (i) the Chairman of the Board, the Chief Executive Officer, the President, any Vice President or the Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary. "Officers' Certificate" means a certificate signed by one Officer listed in clause (i) of the definition thereof and one Officer listed in clause (ii) of the definition thereof or two officers listed in clause (i) of the definition thereof. Each Officers' Certificate shall include the statements provided for in TIA Section 314(e) to the extent applicable. "Offshore Global Debenture" has the meaning provided in Section 2.01. "Offshore Physical Debentures" has the meaning provided in Section 2.01. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 11.04 hereof. The counsel may be an employee of or counsel to the Company. Each such Opinion of Counsel shall include the statements provided for in TIA Section 314(e). "Paying Agent" has the meaning provided in Section 2.04, except that, for the purposes of Article Eight, the Paying Agent shall not be the Company or a Subsidiary of the Company or an Affiliate of any of them. The term "Paying Agent" includes any additional Paying Agent. "Payment Blockage Period" has the meaning provided in Section 10.02. "Permitted Indebtedness" means, without duplication, (i) Indebtedness outstanding on the Issue Date (including the 9 1/2% Regal Notes and the Debentures); (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 18 11 outstanding does not exceed $1.22 billion; (iii) Indebtedness evidenced by or arising under the Debentures and this Indenture in respect of the Debentures; (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 Section 4.05 of this Indenture, 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 Section 4.04(a) 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 Section 4.04(b) (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 Section 4.05 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 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 this 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 19 12 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 this 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 Section 4.05(a) 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 $1.22 billion 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. "Physical Debentures" has the meaning provided in Section 2.01. "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. "principal" of a debt security, including the Debentures, means the principal amount due on the stated maturity as shown on such debt security. "Private Placement Legend" means the legend initially set forth on the Debentures in the form set forth in Section 2.02. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "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 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 20 13 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. "Redemption Date" means, when used with respect to any Debenture to be redeemed, the date fixed for such redemption by or in accordance with this Indenture. "Redemption Price" means, when used with respect to any Debenture to be redeemed, the price at which such Debenture is to be redeemed in accordance with this Indenture. "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 Section 4.05 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. "Refunding Capital Stock" has the meaning provided in Section 4.04(b). "Registrar" has the meaning provided in Section 2.04. "Registration Rights Agreement" means the Registration Rights Agreement, dated December 16, 1998, between the Company and Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation and certain permitted assigns specified therein. "Registration Statement" means the Registration Statement as defined and described in the Registration Rights Agreement. "Regular Record Date" for the interest payable on any Interest Payment Date means the June 1 or December 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice chairman of the board of directors, the chairman or any vice chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice 21 14 president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee in its corporate trust department customarily performing functions similar to those performed by any of the above-designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "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 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 of Section 4.05 of this Indenture. "Rule 144A" means Rule 144A under the Securities Act. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, 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. 22 15 "Securities Act" means the Securities Act of 1933, as amended. "Security Register" has the meaning provided in Section 2.04. "Senior Credit Facilities" means the credit facilities under that certain Credit Agreement dated as of May 27, 1998, as amended on August 26, 1998, among the Company and The Bank of Nova Scotia, as administrative agent and collateral agent, BancAmerica Robertson Stephens, as syndication agent, The Chase Manhattan Bank, as documentation 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 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 Debentures; 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 Debenture Obligations and the 9 1/2% Regal Notes (as to which the Debentures rank pari passu in right of payment) or (5) obligations in respect of any Capital Stock. "Senior Subordinated Indebtedness" means the Debentures and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Debentures 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. 23 16 "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 this 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 this Indenture to the contrary, an Unrestricted Subsidiary shall not be deemed to be a Restricted Subsidiary for purposes of this 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. "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date this Indenture was executed, except as provided in Section 9.06. "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. "Transaction Date" means, with respect to the incurrence of any Indebtedness by the Company or any of its Restricted Subsidiaries, the date such Indebtedness is to be incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "Trustee" means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of Article Seven of this Indenture and thereafter means such successor. "United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended and as codified in Title 11 of the United States Code, as amended from time to time hereafter, or any successor federal bankruptcy law. 24 17 "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; 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 Section 4.05 of this Indenture 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 shall be evidenced to the Trustee by the filing with the Trustee of a certified copy of the resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions. "U.S. Global Debentures" has the meaning provided in Section 2.01. "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. "U.S. Physical Debentures" has the meaning provided in Section 2.01. "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. SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: 25 18 "indenture securities" means the Debentures; "indenture security holder" means a Holder or a Debentureholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company or any other obligor on the Debentures. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule of the Commission and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction . Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (iii) "or" is not exclusive; (iv) words in the singular include the plural, and words in the plural include the singular; (v) provisions apply to successive events and transactions; (vi) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; (vii) all ratios and computations based on GAAP contained in this Indenture shall be computed in accordance with the definition of GAAP set forth in Section 1.01; and (viii) all references to Sections or Articles refer to Sections or Articles of this Indenture unless otherwise indicated. 26 19 ARTICLE TWO THE DEBENTURES SECTION 2.01. Form and Dating. The Debentures and the Trustee's certificate of authentication shall be substantially in the form annexed hereto as Exhibit A with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture. The Debentures may have notations, legends or endorsements required by law or stock exchange agreements to which the Company is subject. Each Debenture shall be dated the date of its authentication. The terms and provisions contained in the form of the Debentures annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Debentures in registered form, substantially in the form set forth in Exhibit A (the "U.S. Global Debentures"), registered in the name of the nominee of the Depositary, deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the U.S. Global Debentures may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, in accordance with the instructions given by the Holder thereof, as hereinafter provided. Debentures offered and sold in offshore transactions in reliance on Regulation S shall be issued initially in the form of one or more temporary global Debentures in registered form substantially in the form set forth in Exhibit A (the "Temporary Offshore Global Debentures"), registered in the name of the nominee of the Depositary, deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Offshore Global Debentures may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, as hereinafter provided. At any time after the 40th day following the later of commencement of the offering of the Debentures and the Issue Date, upon receipt by the Trustee and the Company of a certificate substantially in the form of Exhibit B hereto, one or more permanent global Debentures in registered form substantially in the form set forth in Exhibit A (the "Permanent Offshore Global Debentures"; and together with the Temporary Offshore Global Debentures, the "Offshore Global Debentures") duly executed by the Company and authenticated by the Trustee as hereinafter provided shall be deposited with the Trustee, as custodian for the Depositary or its nominee, and the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Temporary Offshore Global Debentures in an amount equal to the principal amount of the beneficial interest in the Temporary Offshore Global Debentures transferred. 27 20 Debentures offered and sold to Institutional Accredited Investors after the Issue Date shall be issued in the form of permanent certificated Debentures in registered form in substantially the form set forth in Exhibit A (the "U.S. Physical Debentures"). Debentures issued pursuant to Section 2.07 in exchange for interests in the Offshore Global Debentures shall be in the form of permanent certificated Debentures in registered form substantially in the form set forth in Exhibit A (the "Offshore Physical Debentures"). The Offshore Physical Debentures and U.S. Physical Debentures are sometimes collectively herein referred to as the "Physical Debentures." The U.S. Global Debentures and the Offshore Global Debentures are sometimes referred to herein as the "Global Debentures." The definitive Debentures shall be typed, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Debentures may be listed, all as determined by the Officers executing such Debentures, as evidenced by their execution of such Debentures. SECTION 2.02. Restrictive Legends. Unless and until a Debenture is exchanged for an Exchange Debenture or otherwise sold in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, (i) the U.S. Global Debentures and U.S. Physical Debentures shall bear the legend set forth below on the face thereof and (ii) the Offshore Physical Debentures and Offshore Global Debentures shall bear the legend set forth below on the face thereof until at least the 41st day after the Closing Date and receipt by the Company and the Trustee of a certificate substantially in the form of Exhibit B hereto, and the Temporary Offshore Global Debentures shall bear the legend set forth below on the face thereof. THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS DEBENTURE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS DEBENTURE, RESELL OR OTHERWISE TRANSFER THIS DEBENTURE EXCEPT (A) TO THE COMPANY OR ANY 28 21 SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS DEBENTURE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS DEBENTURE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS DEBENTURE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS DEBENTURE IN VIOLATION OF THE FOREGOING RESTRICTIONS. Each Global Debenture, whether or not an Exchange Debenture, shall also bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN 29 22 AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL DEBENTURE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL DEBENTURE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION S 2.01, 2.06, 2.07 AND 2.08 OF THE INDENTURE. SECTION 2.03. Execution, Authentication and Denominations. Subject to Article Four and applicable law, the aggregate principal amount of Debentures which may be authenticated and delivered under this Indenture is unlimited. The Debentures shall be executed by two Officers of the Company. The signature of these Officers on the Debentures may be by facsimile or manual signature in the name and on behalf of the Company. If an Officer whose signature is on a Debenture no longer holds that office at the time the Trustee or authenticating agent authenticates the Debenture, the Debenture shall be valid nevertheless. A Debenture shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on the Debenture. The signature shall be conclusive evidence that the Debenture has been authenticated under this Indenture. At any time and from time to time after the execution of this Indenture, the Trustee or an authenticating agent shall upon receipt of a Company Order authenticate for original issue Debentures in the aggregate principal amount specified in such Company Order; provided that the Trustee shall be entitled to receive an Officers' Certificate and an Opinion of Counsel of the Company in connection with such authentication of Debentures. Such Company Order shall specify the amount of Debentures to be authenticated and the date on which the original issue of Debentures is to be authenticated and, in case of an issuance of Debentures pursuant to Section 2.15, shall certify that such issuance is in compliance with Article Four. The Trustee may appoint an authenticating agent to authenticate Debentures. An authenticating agent may authenticate Debentures whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such 30 23 authenticating agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. The Debentures shall be issuable only in registered form without coupons and only in denominations of $1,000 in principal amount and any integral multiple thereof. SECTION 2.04. Registrar and Paying Agent. The Company shall maintain one or more offices or agencies where Debentures may be presented for registration of transfer or for exchange (each a "Transfer Agent" and such Transfer Agent in the Borough of Manhattan, The City of New York, the "Registrar"), one or more offices or agencies where Debentures may be presented for payment (each a "Paying Agent") and an office or agency where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served, one of which in each case shall be in the Borough of Manhattan, The City of New York. The Company shall cause the Registrar to keep a register of the Debentures and of their transfer and exchange (the "Security Register"). The Security Register shall be in written form or any other form capable of being converted into written form within a reasonable time. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any such Agent and any change in the address of such Agent. If the Company fails to maintain a Registrar, Paying Agent and/or agent for service of notices and demands, the Trustee shall act as such Registrar, Paying Agent and/or agent for service of notices and demands. The Company may remove any Agent upon written notice to such Agent and the Trustee; provided that no such removal shall become effective until (i) the acceptance of an appointment by a successor Agent to such Agent as evidenced by an appropriate agency agreement entered into by the Company and such successor Agent and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as such Agent until the appointment of a successor Agent in accordance with clause (i) of this proviso. The Company, any Subsidiary of the Company, or any Affiliate of any of them may act as Paying Agent, Registrar or Transfer Agent, and/or agent for service of notice and demands. The Company initially appoints the Trustee as Registrar, Paying Agent, authenticating agent and agent for service of notice and demands. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee as of each Regular Record Date and at such other times as the Trustee may reasonably request the names and addresses of Holders as they appear in the Security Register, including the aggregate principal amount of Debentures held by each Holder. 31 24 SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than 11:00 a.m. (New York City time) each due date of the principal, premium, if any, and interest on any Debentures, the Company shall deposit with one or more Paying Agents money in immediately available funds sufficient to pay such principal, premium, if any, and interest so becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Debentures (whether such money has been paid to it by the Company or any other obligor on the Debentures), and such Paying Agent shall promptly notify the Trustee of any default by the Company (or any other obligor on the Debentures) in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of any of them acts as a Paying Agent, it will, on or before each due date of any principal of, premium, if any, or interest on the Debentures, segregate and hold in a separate trust fund for the benefit of the Holders a sum of money sufficient, with monies held by all other Paying Agents, to pay such principal, premium, if any, or interest so becoming due until such sum of money shall be paid to such Holders or otherwise disposed of as provided in this Indenture, and will promptly notify the Trustee of its action or failure to act. SECTION 2.06. Transfer and Exchange. The Debentures are issuable only in registered form. A Holder may transfer a Debenture only by written application to the Registrar or another Transfer Agent stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon, final acceptance and registration of the transfer by the Registrar in the Security Register. Prior to the registration of any transfer by a Holder as provided herein, the Company, the Trustee, and any agent of the Company shall treat the person in whose name the Debenture is registered as the owner thereof for all purposes whether or not the Debenture shall be overdue, and neither the Company, the Trustee, nor any such agent shall be affected by notice to the contrary. Furthermore, any Holder of a Global Debenture shall, by acceptance of such Global Debenture, agree that transfers of beneficial interests in such Global Debenture may be effected only through a book entry system maintained by the Holder of such Global Debenture (or its agent) and that ownership of a beneficial interest in the Debenture shall be required to be reflected in a book entry. When Debentures are presented to the Registrar or another Transfer Agent with a request to register the transfer or to exchange them for an equal principal amount of Debentures of other authorized denominations (including an exchange of Debentures for Exchange Debentures), the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met (including that such Debentures are duly endorsed or accompanied by a written instrument of transfer duly executed by the Holder thereof or by an attorney who is authorized in writing to act on behalf of the 32 25 Holder); provided that no exchanges of Debentures for Exchange Debentures shall occur until a Registration Statement shall have been declared effective by the Commission and that any Debentures that are exchanged for Exchange Debentures shall be cancelled by the Trustee. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Debentures at the Registrar's request. No service charge shall be made for any registration of transfer or exchange or redemption of the Debentures, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon exchanges pursuant to Section 2.11, 3.08 or 9.04). Neither the Registrar nor any other Transfer Agent shall be required (i) to issue, register the transfer of or exchange any Debenture during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Debentures selected for redemption under Section 3.03 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Debenture so selected for redemption in whole or in part, except the unredeemed portion of any Debenture being redeemed in part. SECTION 2.07. Book-Entry Provisions for Global Debentures. (a) The U.S. Global Debentures and Offshore Global Debentures initially shall (i) be registered in the name of the Depositary for such Global Debentures or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 2.02. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Debenture held on their behalf by the Depositary, or the Trustee as its custodian, or under such Global Debenture, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Debenture for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Debenture. (b) Transfers of a Global Debenture shall be limited to transfers of such Global Debenture in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in Global Debentures may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 2.08. In addition, U.S. Physical Debentures and Offshore Physical Debentures shall be transferred to all beneficial owners in exchange for their beneficial interests in the U.S. Global Debentures or the Offshore Global Debentures, as the case may be, if (i) the Company notifies the Trustee in writing that the Depositary it no longer willing or able to act as Depositary or the Depositary ceases to be registered as a clearing agency under the Exchange Act and a successor depositary is not appointed by the Company within 90 days of such notice, (ii) the Company, at its option, notifies the 33 26 Trustee in writing that it elects to cause the issuance of the Debentures in definitive form under this Indenture, (iii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depositary or (iv) in accordance with the rules and procedures of the Depositary and the provisions of Section 2.08. (c) Any beneficial interest in one of the Global Debentures that is transferred to a person who takes delivery in the form of an interest in another Global Debenture will, upon transfer, cease to be an interest in such Global Debenture and become an interest in such other Global Debenture and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Debenture for as long as it remains such an interest. (d) In connection with any transfer of a portion of the beneficial interests in a Global Debenture to beneficial owners pursuant to paragraph (b) of this Section 2.07, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of such Global Debenture in an amount equal to the principal amount of the beneficial interest in such Global Debenture to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Debentures or Offshore Physical Debentures, as the case may be, of like tenor and amount. (e) In connection with the transfer of the U.S. Global Debentures or the Offshore Global Debentures, in whole, to beneficial owners pursuant to paragraph (b) of this Section 2.07, the U.S. Global Debentures or Offshore Global Debentures, as the case may be, shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the U.S. Global Debentures or Offshore Global Debentures, as the case may be, an equal aggregate principal amount of U.S. Physical Debentures or Offshore Physical Debentures, as the case may be, of authorized denominations. (f) Any U.S. Physical Debenture delivered in exchange for an interest in the U.S. Global Debentures pursuant to paragraph (b), (d) or (e) of this Section 2.07 shall, except as otherwise provided by paragraph (e) of Section 2.08, bear the legend regarding transfer restrictions applicable to the U.S. Physical Debenture set forth in Section 2.02. (g) Any Offshore Physical Debenture delivered in exchange for an interest in the Offshore Global Debentures pursuant to paragraph (b), (d) or (e) of this Section 2.07 shall, except as otherwise provided by paragraph (e) of Section 2.08, bear the legend regarding transfer restrictions applicable to the Offshore Physical Debenture set forth in Section 2.02. (h) The registered holder of a Global Debenture may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through 34 27 Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Debentures. SECTION 2.08. Special Transfer Provisions. Unless and until a Debenture is exchanged for an Exchange Debenture or otherwise sold in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, the following provisions shall apply: (a) Transfers to Non-QIB Institutional Accredited Investors. The following provisions shall apply with respect to the registration of any proposed transfer of a Debenture to any Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons): (i) The Registrar shall register the transfer of any Debenture, whether or not such Debenture bears the Private Placement Legend, if (x) the requested transfer is after the time period referred to in Rule 144(k) under the Securities Act or (y) the proposed transferee has delivered to the Registrar (A) a certificate substantially in the form of Exhibit C hereto and (B) if the aggregate principal amount of the Debentures being transferred is less than $100,000, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Debentures, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Debentures in an amount equal to the principal amount of the beneficial interest in the U.S. Global Debentures to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Debentures of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Debenture to a QIB (excluding Non-U.S. Persons): (i) If the Debenture to be transferred consists of (x) either Offshore Physical Debentures prior to the removal of the Private Placement Legend or U.S. Physical Debentures, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Debenture stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Debenture stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Debenture for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has 35 28 received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in the U.S. Global Debentures, the transfer of such interest may be effected only through the book entry system maintained by the Depositary. (ii) If the proposed transferee is an Agent Member, and the Debenture to be transferred consists of U.S. Physical Debentures, upon receipt by the Registrar of the documents referred to in paragraph (i) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of U.S. Global Debentures in an amount equal to the principal amount of the U.S. Physical Debentures to be transferred, and the Trustee shall cancel the U.S. Physical Debentures so transferred. (c) Transfers of Interests in the Temporary Offshore Global Debentures. The following provisions shall apply with respect to registration of any proposed transfer of an interest in a Temporary Offshore Global Debentures: (i) The Registrar shall register the transfer of any Debenture (x) if the proposed transferee is a Non-U.S. Person and the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto or (y) if the proposed transferee is a QIB and the proposed transferor has checked the box provided for on the form of Debenture stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Debenture stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Debenture for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (ii) If the proposed transferee is an Agent Member, upon receipt by the Registrar of the documents referred to in clause (i)(y) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the U.S. Global Debentures in an amount equal to the principal amount of the Temporary Offshore Global Debentures to be transferred, and the Trustee shall decrease the amount of the Temporary Offshore Global Debentures. 36 29 (d) Transfers of Interests in the Permanent Offshore Global Debentures or Unlegended Offshore Physical Debentures. The following provisions shall apply with respect to any transfer of interests in Permanent Offshore Global Debentures or unlegended Offshore Physical Debentures. The Registrar shall register the transfer of any such Debenture without requiring any additional certification. (e) Transfers to Non-U.S. Persons at Any Time. The following provisions shall apply with respect to any transfer of a Debenture to a Non-U.S. Person: (i) Prior to the 41st day following the later of commencement of the offering of the Debentures and the Issue Date, the Registrar shall register any proposed transfer of a Debenture to a Non-U.S. Person upon receipt of a certificate substantially in the form of Exhibit D hereto from the proposed transferor. (ii) On and after the 41st day following the later of commencement of the offering of the Debentures and the Issue Date, the Registrar shall register any proposed transfer to any Non-U.S. Person if the Debenture to be transferred is a U.S. Physical Debenture or an interest in U.S. Global Debentures, upon receipt of a certificate substantially in the form of Exhibit D hereto from the proposed transferor. (iii) (a) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Debentures, upon receipt by the Registrar of (x) the documents, if any, required by paragraph (ii) and (y) instructions in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Debentures in an amount equal to the principal amount of the beneficial interest in the U.S. Global Debentures to be transferred, and (b) if the proposed transferee is an Agent Member, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Offshore Global Debentures in an amount equal to the principal amount of the U.S. Physical Debentures or the U.S. Global Debentures, as the case may be, to be transferred, and the Trustee shall cancel the Physical Debenture, if any, so transferred or decrease the amount of the U.S. Global Debentures. (f) Private Placement Legend. Upon the transfer, exchange or replacement of Debentures not bearing the Private Placement Legend, the Registrar shall deliver Debentures that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Debentures bearing the Private Placement Legend, the Registrar shall deliver only Debentures that bear the Private Placement Legend unless either (i) the circumstances contemplated by the fourth paragraph of Section 2.01 or (a)(i)(x) or (e)(ii) of this Section 2.08 exist or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee 37 30 to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (g) General. By its acceptance of any Debenture bearing the Private Placement Legend, each Holder of such a Debenture acknowledges the restrictions on transfer of such Debenture set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Debenture only as provided in this Indenture. The Registrar shall not register a transfer of any Debenture unless such transfer complies with the restrictions on transfer of such Debenture set forth in this Indenture. The Registrar shall be entitled to receive and rely on written instructions from the Company verifying that such transfer complies with such restrictions on transfer. In connection with any transfer of Debentures, each Holder agrees by its acceptance of the Debentures to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.07 or this Section 2.08. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. SECTION 2.09. Replacement Debentures. If a mutilated Debenture is surrendered to the Trustee or if the Holder claims that the Debenture has been lost, destroyed or wrongfully taken, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall issue and the Trustee shall authenticate a replacement Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding; provided that the requirements of this Section 2.09 are met. If required by the Company, an indemnity bond must be furnished that is sufficient in the judgment of the Company to protect the Company, the Trustee or any Agent from any loss that any of them may suffer if a Debenture is replaced. The Company may charge such Holder for its expenses and the expenses of the Trustee in replacing a Debenture. In case any such mutilated, lost, destroyed or wrongfully taken Debenture has become or is about to become due and payable, the Company in its discretion may pay such Debenture instead of issuing a new Debenture in replacement thereof. Every replacement Debenture is an additional obligation of the Company and shall be entitled to the benefits of this Indenture. 38 31 SECTION 2.10. Outstanding Debentures. Debentures outstanding at any time are all Debentures that have been authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section 2.10 as not outstanding. If a Debenture is replaced pursuant to Section 2.09, it ceases to be outstanding unless and until the Trustee and the Company receive proof satisfactory to them that the replaced Debenture is held by a bona fide purchaser. If the Paying Agent (other than the Company or an Affiliate of the Company) holds on the maturity date money sufficient to pay Debentures payable on that date, then on and after that date such Debentures cease to be outstanding and interest on them shall cease to accrue. A Debenture does not cease to be outstanding because the Company or one of its Subsidiaries holds such Debenture, provided, however, that in determining whether the Holders of the requisite principal amount of the outstanding Debentures have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company or any other obligor upon the Debentures or any Subsidiaries of the Company or of such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Debentures which the Trustee has actual knowledge to be so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon the Debentures or any Subsidiaries of the Company or of such other obligor. SECTION 2.11. Temporary Debentures. Until definitive Debentures are ready for delivery, the Company may prepare and execute and the Trustee shall authenticate temporary Debentures. Temporary Debentures shall be substantially in the form of definitive Debentures but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Officers executing the temporary Debentures, as evidenced by their execution of such temporary Debentures. If temporary Debentures are issued, the Company will cause definitive Debentures to be prepared without unreasonable delay. After the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures upon surrender of the temporary Debentures at the office or agency of the Company designated for such purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debentures the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Debentures of authorized denominations. Until so exchanged, the temporary Debentures shall be entitled to the same benefits under this Indenture as definitive Debentures. SECTION 2.12. Cancellation. The Company at any time may deliver to the Trustee for cancellation any Debentures previously authenticated and delivered hereunder which the Company 39 32 may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Debentures previously authenticated hereunder which the Company has not issued and sold. Each Transfer Agent and Paying Agent shall forward to the Trustee any Debentures surrendered to them for transfer, exchange or payment. The Trustee shall cancel all Debentures surrendered for transfer, exchange, payment or cancellation and shall destroy them in accordance with its normal procedure. SECTION 2.13. CUSIP Numbers. The Company in issuing the Debentures may use "CUSIP", "CINS" or "ISIN" numbers (if then generally in use), and the Company and the Trustee shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Debentures. The Company shall promptly notify the Trustee of any change in "CUSIP", "CINS" or "ISIN" numbers for the Debentures. SECTION 2.14. Defaulted Interest. If the Company defaults in a payment of interest on the Debentures, it shall pay, or shall deposit with the Paying Agent money in immediately available funds sufficient to pay, the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date. A special record date, as used in this Section 2.14 with respect to the payment of any defaulted interest, shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.15. Issuance of Additional Debentures. The Company may, subject to Article Four of this Indenture and applicable law, issue additional Debentures under this Indenture. The Debentures issued on the Closing Date and any additional Debentures subsequently issued shall be treated as a single class for all purposes under this Indenture. ARTICLE THREE REDEMPTION SECTION 3.01. Right of Redemption. (a) The Debentures are redeemable, at the Company's option, in whole or in part, at any time or from time to time, on or after December 15, 2003 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's last address, as it appears in the Security Register, at the following Redemption Prices (expressed in percentages of principal amount thereof on the applicable Redemption Date), plus accrued and unpaid interest to the Redemption 40 33 Date (subject to the right of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing December 15 of the years set forth below:
Redemption Year Price - ---- ----------- 2003 104.438% 2004 103.328 2005 102.219 2006 101.109 2007 and thereafter 100.000
(b) In addition, at any time and from time to time prior to December 15, 2001, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Debentures originally issued with the proceeds of one or more Equity Offerings, at a Redemption Price (expressed as a percentage of principal amount) of 108.875%, plus accrued and unpaid interest to the Redemption Date (subject to the rights of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date); provided that (i) at least 65% of the aggregate principal amount of Debentures issued under this Indenture remains outstanding after each such redemption and (ii) any such redemption shall occur on or prior to the date that is 90 days after receipt by the Company of the proceeds of an Equity Offering. The Company shall effect such redemption on a pro rata basis. SECTION 3.02. Notices to Trustee. If the Company elects to redeem Debentures pursuant to Section 3.01, it shall notify the Trustee in writing of the Redemption Date and the principal amount of Debentures to be redeemed and the clause of this Indenture pursuant to which redemption shall occur. The Company shall give each notice provided for in this Section 3.02 in an Officers' Certificate at least 45 days before the Redemption Date (unless a shorter period shall be satisfactory to the Trustee). SECTION 3.03. Selection of Debentures to Be Redeemed. If less than all of the Debentures are to be redeemed at any time, the Trustee shall select the Debentures to be redeemed in compliance with the requirements, as certified to it by the Company, of the principal national securities exchange, if any, on which the Debentures are listed or, in the absence of such requirements or if the Debentures are not listed on a national securities exchange, on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem fair and appropriate; provided that no Debenture of $1,000 in principal amount or less shall be redeemed in part. 41 34 The Trustee shall make the selection from the Debentures outstanding and not previously called for redemption. The Trustee may select for redemption portions (equal to $1,000 in principal amount or any integral multiple thereof) of Debentures that have denominations larger than $1,000 in principal amount. Provisions of this Indenture that apply to Debentures called for redemption also apply to portions of Debentures called for redemption. The Trustee shall notify the Company and the Registrar promptly in writing of the Debentures or portions of Debentures to be called for redemption. SECTION 3.04. Notice of Redemption. With respect to any redemption of Debentures pursuant to Section 3.01, at least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail to each Holder whose Debentures are to be redeemed at its registered address. The notice shall identify the Debentures to be redeemed and shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the name and address of each Paying Agent; (iv) that Debentures called for redemption must be surrendered to a Paying Agent in order to collect the Redemption Price; (v) that, unless the Company defaults in making the redemption payment, interest on Debentures called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the Redemption Price plus accrued interest to the Redemption Date upon surrender of the Debentures to a Paying Agent; (vi) that, if any Debenture is being redeemed in part, the portion of the principal amount (equal to $1,000 in principal amount or any integral multiple thereof) of such Debenture to be redeemed and that, on and after the Redemption Date, upon surrender of such Debenture, a new Debenture or Debentures in principal amount equal to the unredeemed portion thereof will be reissued; and (vii) that, if any Debenture contains a CUSIP, CINS or ISIN number as provided in Section 2.13, no representation is being made as to the correctness of the CUSIP, CINS or ISIN number either as printed on the Debentures or as contained in the notice of redemption and that reliance may be placed only on the other identification numbers printed on the Debentures. 42 35 At the Company's request (which request may be revoked by the Company at any time prior to the time at which the Trustee shall have given such notice to the Holders), made in writing to the Trustee at least 45 days (or such shorter period as shall be satisfactory to the Trustee) before a Redemption Date, the Trustee shall give the notice of redemption in the name and at the expense of the Company. If, however, the Company gives such notice to the Holders, the Company shall concurrently deliver to the Trustee an Officers' Certificate stating that such notice has been given. SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption is mailed, Debentures called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender of any Debentures to a Paying Agent, such Debentures shall be paid at the Redemption Price, plus accrued interest, if any, to the Redemption Date. Notice of redemption shall be deemed to be given when mailed, whether or not the Holder receives the notice. In any event, failure to give such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of Debentures held by Holders to whom such notice was properly given. SECTION 3.06. Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with its Paying Agent not later than 11:00 a.m. (New York City time) (or, if the Company is acting as its own Paying Agent, shall segregate and hold in trust as provided in Section 2.05) money sufficient to pay the Redemption Price of and accrued interest on all Debentures to be redeemed on that date other than Debentures or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation. SECTION 3.07. Payment of Debentures Called for Redemption. If notice of redemption has been given in the manner provided above, the Debentures or portion of Debentures specified in such notice to be redeemed shall become due and payable on the Redemption Date at the Redemption Price stated therein, together with accrued interest to such Redemption Date, and on and after such date (unless the Company shall default in the payment of such Debentures at the Redemption Price and accrued interest to the Redemption Date, in which case the principal, until paid, shall bear interest from the Redemption Date at the rate prescribed in the Debentures), such Debentures shall cease to accrue interest. Upon surrender of any Debenture for redemption in accordance with a notice of redemption, such Debenture shall be paid and redeemed by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided that installments of interest whose stated maturity is on or prior to the Redemption Date shall be payable to the Holders registered as such at the close of business on the relevant Regular Record Date. SECTION 3.08. Debentures Redeemed in Part. Upon surrender of any Debenture that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver by 43 36 mail to the Holder without service charge, a new Debenture equal in principal amount to the unredeemed portion of such surrendered Debenture. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Debentures. The Company shall pay the principal of, premium, if any, and interest on the Debentures on the dates and in the manner provided in the Debentures and this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the date due if the Trustee or the Paying Agents (other than the Company, a Subsidiary of the Company, or any Affiliate of any of them) holds on that date money designated for and sufficient to pay the installment, 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 is specified in the Security Register. If the Company or any Subsidiary of the Company or any Affiliate of any of them acts as Paying Agent, an installment of principal, premium, if any, or interest shall be considered paid on the due date if the entity acting as Paying Agent complies with the last sentence of Section 2.05. As provided in Section 6.09, upon any bankruptcy or reorganization procedure relative to the Company, the Trustee shall serve as the Paying Agent, if any, for the Debentures. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at the rate per annum specified in the Debentures. SECTION 4.02. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Debentures may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. The Company may also from time to time designate one or more other offices or agencies where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company shall give prompt written 44 37 notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Corporate Trust Office of the Trustee as such office of the Company in the Borough of Manhattan, The City of New York in accordance with Section 2.04. SECTION 4.03. Fall-away Event. The Company's and its Restricted Subsidiaries' obligations to comply with the provisions of this Indenture under Sections 4.04, 4.05, 4.06 and 5.01 will terminate if and when the Debentures 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 events occurring after such reinstatement if the Debentures cease to have Investment Grade Status, subject to the terms, conditions and obligations set forth in this Indenture, provided, further, that no such Default or Event of Default shall be deemed to have arisen as a result of such reinstatement or as a result of any action taken or omitted from being taken during the period that the foregoing covenants were not in effect. SECTION 4.04. Limitation on Restricted Payments. (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 Section 4.05 of this Indenture; 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 determined by the Board of Directors in good faith) exceeds the sum of (a) (x) 100% of Consolidated EBITDA of the Company accrued subsequent to May 27, 1998 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 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 45 38 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 Article Five; 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 Section 4.05 of this Indenture; (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 46 39 be able to incur $1.00 of Indebtedness under the first paragraph of Section 4.05 of this Indenture; (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 Stock or the declaration and payment of dividends to holders of Preferred Stock of Restricted Subsidiaries, in each case, issued in accordance with Section 4.05 of this Indenture; (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 Section 4.05 of this Indenture; 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 Section 4.04. SECTION 4.05. Limitation on the Incurrence of Additional Indebtedness and Issuance of Capital Stock. (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 47 40 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 set forth in Section 1.01. (c) For purposes of determining compliance with this Section 4.05, 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 Section 4.05, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this Section 4.05 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 Section 4.05. SECTION 4.06. Limitations on Transactions with Affiliates. 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 arm's-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 and by a majority of the disinterested members of the Board of Directors, 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 Section 4.04 of this 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 48 41 options and stock ownership plans approved by the Board of Directors; (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 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 arm's-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 (8) 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 this Indenture which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors 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 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. SECTION 4.07. Repurchase of Debentures upon a Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company purchase all or a portion of such Holder's Debentures in cash pursuant to the offer described in paragraph (c) of this Section 4.07 (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. (b) Prior to the mailing 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, 49 42 if the purchase of the Debentures 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 Debentures, 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 Debentures 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 Debentures pursuant to the provisions of paragraphs (c) and (d) below. (c) Within 30 days following the date on which the Company becomes aware that a Change of Control has occurred, the Company shall send, by first-class mail, postage prepaid, a notice to each Holder, 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 Debentures purchased pursuant to a Change of Control Offer must surrender such Debentures to the Transfer Agent and/or Paying Agent for the Debentures at the addresses 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 Section 4.07 and repurchases all Debentures validly tendered and not withdrawn under such Change of Control Offer. (d) 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 Debentures pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue hereof. SECTION 4.08. Existence. Subject to Articles Four and Five of this Indenture, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and the existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of the Company and each Restricted Subsidiary and the rights (whether pursuant to charter, partnership certificate, agreement, statute or otherwise), licenses and franchises of the Company and each Restricted Subsidiary; provided that the Company shall not be required to preserve any such right, license or franchise, or the existence of any Restricted Subsidiary, if the maintenance or preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries taken as a whole. SECTION 4.09. Payment of Taxes and Other Claims . The Company will pay or discharge and shall cause each of its Subsidiaries to pay or discharge, or cause to be paid or discharged, before the same shall become delinquent (i) all material taxes, assessments and 50 43 governmental charges levied or imposed upon (a) the Company or any such Subsidiary, (b) the income or profits of any such Subsidiary which is a corporation or (c) the property of the Company or any such Subsidiary and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a lien upon the property of the Company or any such Subsidiary; provided that the Company shall not be required to pay or discharge, or cause to be paid or discharged, any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which, if necessary, adequate reserves have been established. SECTION 4.10. Maintenance of Properties and Insurance. The Company will cause all properties used or useful in the conduct of its business or the business of any of its Restricted Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that nothing in this Section 4.10 shall prevent the Company or any Restricted Subsidiary from discontinuing the use, operation or maintenance of any of such properties or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Company, desirable in the conduct of the business of the Company or such Restricted Subsidiary. The Company will provide or cause to be provided, for itself and its Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds customarily insured against by corporations similarly situated and owning like properties, including, but not limited to, products liability insurance and public liability insurance, with reputable insurers or with the government of the United States of America, or an agency or instrumentality thereof, in such amounts, with such deductibles and by such methods as shall be customary for corporations similarly situated in the industry in which the Company or any such Restricted Subsidiary, as the case may be, is then conducting business. SECTION 4.11. Notice of Defaults. In the event that any Officer becomes aware of any Default or Event of Default, the Company shall promptly deliver to the Trustee an Officers' Certificate specifying such Default or Event of Default. SECTION 4.12. Compliance Certificates. (a) The Company shall deliver to the Trustee, within 45 days after the end of each fiscal quarter (120 days after the end of the last fiscal quarter of each year), an Officers' Certificate stating whether or not the signers know of any Default or Event of Default that occurred during such fiscal quarter. In the case of the Officers' Certificate delivered within 120 days after the end of the Company's fiscal year, such certificate shall contain a certification from the principal executive officer, principal financial officer or principal accounting officer of the Company that a review has been conducted of the activities of the 51 44 Company and its Restricted Subsidiaries and the Company's and its Restricted Subsidiaries' performance under this Indenture and that the Company has complied with all conditions and covenants under this Indenture. For purposes of this Section 4.12, such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Indenture. If any of the Officers signing such certificate has knowledge of such a Default or Event of Default, the certificate shall describe any such Default or Event of Default and its status. The first certificate to be delivered pursuant to this Section 4.12(a) shall be for the first fiscal quarter beginning after the execution of this Indenture. (b) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, beginning with the fiscal year in which this Indenture was executed, a certificate signed by the Company's independent certified public accountants stating (i) that their audit examination has included a review of the terms of this Indenture and the Debentures as they relate to accounting matters, (ii) that they have read the most recent Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this Section 4.12 and (iii) whether, in connection with their audit examination, anything came to their attention that caused them to believe that the Company was not in compliance with any of the terms, covenants, provisions or conditions of Article Four and Section 5.01 of this Indenture as they pertain to accounting matters and, if any Default or Event of Default has come to their attention, specifying the nature and period of existence thereof; provided that such independent certified public accountants shall not be liable in respect of such statement by reason of any failure to obtain knowledge of any such Default or Event of Default that would not be disclosed in the course of an audit examination conducted in accordance with generally accepted auditing standards in effect at the date of such examination. SECTION 4.13. Commission Reports and Reports to Holders. Whether or not the Company is then required to file reports with the Commission, the Company shall file with the Commission, to the extent such submissions are accepted for filing, all such reports and other information as it would be required to file with the Commission by Sections 13(a) or 15(d) under the Exchange Act if it were subject thereto. The Company shall supply the Trustee and each Holder or shall supply to the Trustee for forwarding to each such Holder, without cost to such Holder, copies of such reports and other information within 15 days after the date it would have been required to file such reports or other information with the Commission had it been subject to such Sections. The Company also shall comply with the other provisions of TIA Section 314(a). SECTION 4.14. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest on the Debentures as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the 52 45 performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.15. Limitation on Layering. 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 Debentures). ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. When Company May Merge, Etc. 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 Debentures and this 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 Section 4.05 of this Indenture 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 this Indenture and that all conditions precedent in this 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 53 46 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 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. SECTION 5.02. Successor Substituted. Upon any consolidation or merger, or any sale, conveyance, transfer, lease or other disposition of all or substantially all of the property and assets of the Company in accordance with Section 5.01 of this Indenture, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, conveyance, transfer, lease or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and the Company shall be discharged from its Obligations under the Debentures; provided that the Company shall not be released from its obligation to pay the principal of, premium, if any, or interest on the Debentures in the case of a lease of all or substantially all of its property and assets. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default . Any of the following events shall constitute an "Event of Default" hereunder: (i) the failure to pay interest on the Debentures 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 of Article Ten); (ii) the failure to pay principal of or premium, if any, on any Debentures 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 of Article Ten); (iii) a default in the observance or performance of any other covenant or agreement contained in the Debentures or this 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 Debentures; (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 54 47 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; (vi) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any of its Significant Restricted Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law for relief of debtors now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Restricted Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Restricted Subsidiaries or (C) the winding up or liquidation of the affairs of the Company or any of its Significant Restricted Subsidiaries and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (vii) the Company or any of its Significant Restricted Subsidiaries (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law for relief of debtors now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Restricted Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Restricted Subsidiaries or (C) effects any general assignment for the benefit of creditors. SECTION 6.02. Acceleration. Upon the occurrence of an Event of Default (other than an Event of Default specified in clause (vi) or (vii) of Section 6.01 that occurs with respect to the Company), the Trustee may, and the Trustee upon the request of the Holders of 30% in principal amount of the outstanding Debentures shall, or the Holders of at least 30% in principal amount of outstanding Debenture may, declare the principal of all the Debentures, together with all accrued and unpaid interest and premium, if any, 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"). Upon such a declaration of acceleration, such principal, premium, if any, and accrued interest (i) shall be 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 55 48 such Acceleration Notice (unless all Events of Default specified in such Acceleration Notice have been cured or waived). If an Event of Default specified in clauses (vi) through (vii) of Section 6.01 occurs with respect to the Company, the principal of, premium, if any, and accrued interest on the Debentures then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after such declaration or occurrence of acceleration, but before a judgment or decree for the payment of the money due has been obtained by the Trustee, the Holders of at least a majority in principal amount of the outstanding Debentures by written notice to the Company and to the Trustee, may rescind and annul a declaration or occurrence of acceleration and its consequences if (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and (ii) to the extent that payment of such interest is lawful, interest upon overdue installments of interest and overdue payments of principal which has become due otherwise than by such declaration of acceleration, at the rate prescribed therefor by such Debentures, (b) all existing Defaults and Events of Default, other than the non-payment of the principal of, premium, if any, and accrued interest on the Debentures that have become due solely by such declaration of acceleration, have been cured or waived, (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (d) in the event of the cure or waiver of a Default or Event of Default of the type described in clauses (vi) or (vii) of Section 6.01, the Trustee has received an Officers' Certificate and Opinion of Counsel that such Default or Event of Default has been cured or waived. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may, and at the direction of the Holders of at least a majority in principal amount of the outstanding Debentures shall, pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any, or interest on the Debentures or to enforce the performance of any provision of the Debentures or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Debentures or does not produce any of them in the proceeding. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07 and 9.02, the Holders of at least a majority in principal amount of the outstanding Debentures, by notice to the Trustee, may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of, premium, if any, or interest on any Debenture as specified in clause (i) or (ii) of Section 6.01 or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of the Holder of each outstanding Debenture affected. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any 56 49 right consequent thereto. In the event of any Event of Default specified in clauses (iv), (vi) or (vii) of Section 6.01, 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 Holders of the Debentures, 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. SECTION 6.05. Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Debentures may 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; provided that the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of Debentures not joining in the giving of such direction; and provided further that the Trustee may take any other action it deems proper that is not inconsistent with any such direction received from Holders of Debentures. SECTION 6.06. Limitation on Suits. A Holder may not institute any proceeding, judicial or otherwise, with respect to this Indenture or the Debentures, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (i) the Holder has previously given the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of outstanding Debentures shall have made a written request to the Trustee to pursue such remedy; (iii) such Holder or Holders offer the Trustee indemnity reasonably satisfactory to the Trustee against any costs, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Debentures do not give the Trustee a direction that is inconsistent with the request. For purposes of Section 6.05 of this Indenture and this Section 6.06, the Trustee shall comply with TIA Section 316(a) in making any determination of whether the Holders of the 57 50 required aggregate principal amount of outstanding Debentures have concurred in any request or direction of the Trustee to pursue any remedy available to the Trustee or the Holders with respect to this Indenture or the Debentures or otherwise under the law. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Debenture to receive payment of the principal of, premium, if any, or interest on, such Debenture or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Debentures, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal, premium or interest specified in clause (i) or (ii) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor of the Debentures for the whole amount of principal, premium, if any, and accrued interest remaining unpaid, together with interest on overdue principal, premium, if any, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate specified in the Debentures, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor of the Debentures), its creditors or its property and shall be entitled and empowered to collect and receive any monies, securities or other property payable or deliverable upon conversion or exchange of the Debentures or upon any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or 58 51 the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for all amounts due under Section 7.07; Second: to the holders of Senior Indebtedness, and as to the extent required by Article Ten; Third: to Holders for amounts then due and unpaid for principal of, premium, if any, and interest on the Debentures in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal, premium, if any, and interest, respectively; and Fourth: to the Company or any other obligors of the Debentures, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by Holders of more than 10% in principal amount of the outstanding Debentures. SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, Trustee and the Holders shall continue as though no such proceeding had been instituted. 59 52 SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Debentures in Section 2.09, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Six or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. ARTICLE SEVEN TRUSTEE SECTION 7.01. General. The duties and responsibilities of the Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not herein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article Seven. SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections 315(a) through (d): (i) the Trustee may rely, and shall be protected in acting or refraining from acting, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed in good faith by it to be genuine and to have been signed or presented by the proper person; (ii) before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 11.04. The Trustee 60 53 shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion; (iii) the Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any attorney or agent appointed with due care by it hereunder; (iv) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction; (v) the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers, provided that the Trustee's conduct does not constitute negligence or bad faith; (vi) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (vii) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney at the sole cost of the Company; (viii) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (ix) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; and 61 54 (x) the Trustee shall not be deemed to have notice of any Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a Default is received by the Trustee at its Corporate Trust Office, and such notice references the Debentures and this Indenture. SECTION 7.03. Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Debentures and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to TIA Sections 310(b) and 311. SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no representation as to the validity or adequacy of this Indenture or the Debentures, (ii) shall not be accountable for the Company's use or application of the proceeds from the Debentures and (iii) shall not be responsible for any statement in the Debentures other than its certificate of authentication. SECTION 7.05. Notice of Default. If any Default or any Event of Default occurs and is continuing and if such Default or Event of Default is known to the Trustee, the Trustee shall mail to each Holder in the manner and to the extent provided in TIA Section 313(c) notice of the Default or Event of Default within 45 days after it occurs, unless such Default or Event of Default has been cured; provided, however, that, except in the case of a Default in the payment of the principal of, premium, if any, or interest on any Debenture, the Trustee shall be protected in withholding such notice if and so long as the Board of Directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each December 1, beginning with December 1, 1999, the Trustee shall mail to each Holder as provided in TIA Section 313(c) a brief report dated as of such December 1, if required by TIA Section 313(a). A copy of each report at the time of its mailing to the Holders of Securities shall be mailed to the Company and filed with the Commission and each stock exchange on which the Securities are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange or of any delisting thereof. SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee such compensation as shall be agreed upon in writing from time to time for its services hereunder. The compensation of the Trustee shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by the Trustee in the administration of its duties hereunder without negligence, willful misconduct or bad faith on its part. Such 62 55 disubrsements, expenses and advances shall include the reasonable compensation and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability or expense incurred by it without negligence, wilful misconduct or bad faith on its part in connection with the acceptance or administration of this Indenture and its duties under this Indenture and the Debentures, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under this Indenture and the Debentures. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The obligations of the Company under this Section 7.07 shall not be subordinated to the payment of Senior Indebtedness pursuant to Article Ten. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Debentures on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, premium, if any, and interest on particular Debentures. If the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in clauses (vi) through (vii) of Section 6.01, the expenses and the compensation for the services will be intended to constitute expenses of administration under Title 11 of the United States Bankruptcy Code or any applicable federal or state law for the relief of debtors. The provisions of this Section 7.07 shall survive the termination of this Indenture. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. SECTION 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign at any time by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the outstanding Debentures may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the consent of the Company. The Company may remove the Trustee if: (i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is adjudged 63 56 a bankrupt or an insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting. If the Trustee resigns or is removed, or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the outstanding Debentures may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If the successor Trustee does not deliver its written acceptance required by the next succeeding paragraph of this Section 7.08 within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in principal amount of the outstanding Debentures may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after the delivery of such written acceptance, subject to the lien provided in Section 7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, (ii) the resignation or removal of the retiring Trustee shall become effective and (iii) the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder and to the administrative agent under the Senior Credit Facilities. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. If the Trustee is no longer eligible under Section 7.10 or shall fail to comply with TIA Section 310(b), any Holder who satisfies the requirements of TIA Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.08, the Trustee shall resign immediately in the manner and with the effect provided in this Section. The Company shall give notice of any resignation and any removal of the Trustee and each appointment of a successor Trustee to all Holders. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligation under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee 64 57 with the same effect as if the successor Trustee had been named as the Trustee herein, provided such corporation shall be otherwise qualified and eligible under this Article. SECTION 7.10. Eligibility. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have a combined capital and surplus of at least $25 million as set forth in its most recent published annual report of condition that is subject to the requirements of applicable Federal or state supervising or examining authority. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in this Article. SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article Eight of this Indenture. ARTICLE EIGHT DISCHARGE OF INDENTURE SECTION 8.01. Termination of Company's Obligations. Except as otherwise provided in this Section 8.01, the Company may terminate its obligations under the Debentures and this Indenture if: (i) all Debentures previously authenticated and delivered (other than destroyed, lost or stolen Debentures that have been replaced or Debentures that are paid pursuant to Section 4.01 or Debentures for whose payment money or securities have theretofore been held in trust and thereafter repaid to the Company, as provided in Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or (ii) (A) the Debentures mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (B) the Company irrevocably deposits in trust with the Trustee during such one-year period, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders for that purpose, money, U.S. Government Obligations or a combination thereof sufficient (in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee), without consideration of any reinvestment of any interest thereon, to pay principal, premium, if any, and interest on the Debentures to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder, (C) no Default or Event of Default with respect to the Debentures 65 58 shall have occurred and be continuing on the date of such deposit, (D) such deposit will not result in a breach or violation of, or constitute a Default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound and (E) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. With respect to the foregoing clause (i), the Company's obligations under Section 7.07 shall survive. With respect to the foregoing clause (ii), the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the Debentures are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.04 and 8.05 and Article Ten (with respect to payments in respect of Debenture Obligations other than with the assets held in trust as described in clause (ii) above) shall survive. After any such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Debentures and this Indenture except for those surviving obligations specified above. SECTION 8.02. Defeasance and Discharge of Indenture. The Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Debentures on the date of the deposit referred to in clause (A) of this Section 8.02, and the provisions of this Indenture will no longer be in effect with respect to the Debentures, and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same if: (A) with reference to this Section 8.02, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10) and conveyed all right, title and interest to the Trustee for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged to the Trustee for the benefit of the Holders as security for payment of the principal of, premium, if any, and interest, if any, on the Debentures, and dedicated solely to, the benefit of the Holders, in and to (1) money in an amount, (2) U.S. Government Obligations that, through the payment of interest, premium, if any, and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to in this clause (A), money in an amount or (3) a combination thereof in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and interest on the outstanding Debentures on the stated maturity of such principal or interest or any applicable Redemption Date selected by the Company; provided that the 66 59 Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal, premium, if any, and interest with respect to the Debentures; (B) the Company has delivered to the Trustee (1) either (x) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 8.02 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, which Opinion of Counsel shall be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service directed to the Company to the same effect unless there has been a change in applicable federal income tax law after the Closing Date such that a ruling is no longer required or (y) a ruling directed to the Company received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (2) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940 and that after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, provided, that in delivering any such Opinion of Counsel, such counsel shall be entitled to rely upon the statements of experts as to the solvency of the Company, and either (I) the trust funds will no longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (II) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, (a) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute and (b) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding; (C) immediately after giving effect to such deposit, on a pro forma basis, no Default or Event of Default shall have occurred and be continuing on the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company or any 67 60 of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound and is permitted by Article Ten; (D) if the Debentures are then listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Debentures will not be delisted as a result of such deposit, defeasance and discharge; and (E) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02 have been complied with. Notwithstanding the foregoing, the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 8.04, 8.05, 8.06 and the rights, powers, trusts, duties and immunities of the Trustee hereunder and Article Ten (with respect to payments in respect of Debenture Obligations other than with the assets held in trust as described in this Section 8.02) shall survive until the Debentures are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive. If and when a ruling from the Internal Revenue Service or an Opinion of Counsel referred to in clause (B)(1) of this Section 8.02 is able to be provided specifically without regard to, and not in reliance upon, the continuance of the Company's obligations under Section 4.01, then the Company's obligations under such Section 4.01 shall cease upon delivery to the Trustee of such ruling or Opinion of Counsel and compliance with the other conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02. After any such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Debentures and this Indenture except for those surviving obligations in the immediately preceding paragraph. SECTION 8.03. Defeasance of Certain Obligations. The Company may omit to comply with any term, provision or condition set forth in clause (iii) of Section 5.01, the proviso in Section 4.03 and Sections 4.04 through 4.07, 4.13 and 4.15 and clauses (iii) through (vii) of Section 6.01 shall be deemed not to be Events of Default and Article Ten shall not apply to the money and/or U.S. Government Obligations held by the trust referred to in clause (i) below, in each case with respect to the outstanding Debentures if: (i) with reference to this Section 8.03, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10) and conveyed all right, title and interest to the Trustee for the benefit of the Holders, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee as trust funds in trust, specifically pledged to the Trustee for the benefit of the Holders as security for payment of the principal of, 68 61 premium, if any, and interest, if any, on the Debentures, and dedicated solely to, the benefit of the Holders, in and to (A) money in an amount, (B) U.S. Government Obligations that, through the payment of interest, premium, if any, and principal in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment referred to in this clause (i), money in an amount or (C) a combination thereof in an amount sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, without consideration of the reinvestment of such interest and after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, the principal of, premium, if any, and interest on the outstanding Debentures on the stated maturity of such principal or interest or on any applicable Redemption Date selected by the Company; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of such principal, premium, if any, and interest with respect to the Debentures; (ii) the Company has delivered to the Trustee an Opinion of Counsel to the effect that (A) the creation of the defeasance trust does not violate the Investment Company Act of 1940, (B) after the passage of 123 days following the deposit (except, with respect to any trust funds for the account of any Holder who may be deemed to be an "insider" for purposes of the United States Bankruptcy Code, after one year following the deposit), the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law in a case commenced by or against the Company under either such statute, provided, that in delivering any such Opinion of Counsel, such counsel shall be entitled to rely upon the statements of experts as to the solvency of the Company, and either (1) the trust funds will no longer remain the property of the Company (and therefore will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally) or (2) if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, (x) assuming such trust funds remained in the possession of the Trustee prior to such court ruling to the extent not paid to the Holders, the Trustee will hold, for the benefit of the Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise (except for the effect of Section 552(b) of the United States Bankruptcy Code on interest on the trust funds accruing after the commencement of a case under such statute) and (y) the Holders will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used in such case or proceeding, (C) the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default 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 deposit and defeasance had not occurred and (D) the 69 62 Trustee, for the benefit of the Holders, has a valid first-priority security interest in the trust funds; (iii) immediately after giving effect to such deposit on a pro forma basis, no Default or Event of Default shall have occurred and be continuing on the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound and is permitted by Article Ten; (iv) if the Debentures are then listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Debentures will not be delisted as a result of such deposit, defeasance and discharge; and (v) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.03 have been complied with. SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with the Debentures and this Indenture to the payment of principal of, premium, if any, and interest on the Debentures; but such money need not be segregated from other funds except to the extent required by law. SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01, 8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the Company upon request set forth in an Officers' Certificate any excess money held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years; provided that the Trustee or Paying Agent before being required to make any payment may cause to be published at the expense of the Company once in a newspaper of general circulation in The City of New York, or mail to each Holder entitled to such money at such Holder's address (as set forth in the Security Register) notice that such money remains unclaimed and that after a date specified therein (which shall be at least 30 days from the date of such publication or mailing) any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Debentures shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be; provided that, if the Company has made any payment of principal of, premium, if any, or interest on any Debentures because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Debentures to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. 70 63 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company, when authorized by a resolution of its Board of Directors (as evidenced by a Board Resolution delivered to the Trustee), and the Trustee may amend or supplement this Indenture or the Debentures without notice to or the consent of any Holder: (1) to cure any ambiguity, defect or inconsistency in this Indenture; (2) to comply with Article Five; (3) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; (4) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee; (5) to provide for uncertificated Debentures in addition to or in place of certificated Debentures; (6) to add one or more subsidiary guarantees on the terms required by this Indenture; or (7) to make any change that, in the good faith opinion of the Board of Directors as evidenced by a Board Resolution, does not materially and adversely affect the rights of any Holder. 71 64 SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and 6.07 and without prior notice to the Holders, the Company, when authorized by its Board of Directors (as evidenced by a Board Resolution delivered to the Trustee), and the Trustee may amend this Indenture and the Debentures with the written consent of the Holders of a majority in aggregate principal amount of the Debentures then outstanding, and the Holders of a majority in aggregate principal amount of the Debentures then outstanding by written notice to the Trustee may waive future compliance by the Company with any provision of this Indenture or the Debentures. Notwithstanding the provisions of this Section 9.02, without the consent of each Holder affected, an amendment or waiver, including a waiver pursuant to Section 6.04, may not: (i) reduce the amount of Debentures 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 Debentures; (iii) reduce the principal of or change the fixed maturity of any Debentures, or change the fixed maturity of any Debentures, or change the date on which any Debentures may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Debentures payable in money other than that stated in the Debentures and the Indenture; (v) make any change in provisions of the Indenture protecting the right each Holder of a Debenture to receive payment of, premium on and interest on such Debenture 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 Debentures to waive a Default or Event of Default; or (vi) after the Company's obligation to purchase Debentures arises under Section 4.07, amend, modify or change the obligation of the Company to make or consummate a Change of Control Offer or modify any of the provisions or definitions with respect to any such offer. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. 72 65 After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. The Company will mail supplemental indentures to Holders upon request. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. SECTION 9.03. Revocation and Effect of Consent. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Debenture or portion of a Debenture that evidences the same debt as the Debenture of the consenting Holder, even if notation of the consent is not made on any Debenture. However, any such Holder or subsequent Holder may revoke the consent as to its Debenture or portion of its Debenture. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver shall become effective on receipt by the Trustee of written consents from the Holders of the requisite percentage in principal amount of the outstanding Debentures. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then, notwithstanding the last two sentences of the immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies) and only those persons shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder unless it is of the type described in the second paragraph of Section 9.02. In case of an amendment or waiver of the type described in the second paragraph of Section 9.02, the amendment or waiver shall bind each Holder who has consented to it and every subsequent Holder of a Debenture that evidences the same indebtedness as the Debenture of the consenting Holder. SECTION 9.04. Notation on or Exchange of Debentures. If an amendment, supplement or waiver changes the terms of a Debenture, the Trustee may require the Holder to deliver such Debenture to the Trustee. At the Company's expense, the Trustee may place an appropriate notation on the Debenture about the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Debenture thereafter authenticated. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Debenture shall issue and the Trustee shall authenticate a new Debenture that reflects the changed terms. Failure to make the appropriate notation, or issue a new Debenture, shall not affect the validity and effect of such amendment, supplement or waiver. 73 66 SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture and that it will be valid and binding upon the Company. Subject to the preceding sentence, the Trustee shall sign such amendment, supplement or waiver if the same does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the TIA as then in effect. ARTICLE TEN SUBORDINATION OF DEBENTURES SECTION 10.01. Debentures Subordinated to Senior Indebtedness. The Company and the Trustee each covenants and agrees, and each Holder, by its acceptance of a Debenture, likewise covenants and agrees that all Debentures shall be issued subject to the provisions of this Article Ten; and each Person holding any Debenture, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that Debenture Obligations shall, to the extent and in the manner set forth in this Article Ten, be subordinated in right of payment to the prior payment in full, in cash, of all existing and future Senior Indebtedness, including, without limitation, the Company's obligations under the Senior Credit Facilities (including any interest accruing on or subsequent to, or which would have accrued but for the occurrence of, an event specified in Sections 6.01(vi) and 6.01(vii) of this Indenture, whether or not such interest is an allowed claim enforceable against the debtor under the United States Bankruptcy Code). SECTION 10.02. No Payment on Debentures in Certain Circumstances. (a) No direct or indirect payment by or on behalf of the Company of Debenture Obligations (other than with the money, securities or proceeds held under any defeasance trust established in accordance with this Indenture), whether pursuant to the terms of the Debentures or upon acceleration or otherwise, shall be made 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 any Debenture Obligation without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the 74 67 Representative of the Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) above has occurred and is continuing. (b) During the continuance of any other event of default 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, upon receipt by the Trustee with a copy to the Company of written notice from the trustee or other representative for the holders of such Designated Senior Indebtedness (or the holders of at least a majority in principal amount of such Designated Senior Indebtedness then outstanding specifying an election to effect a Payment Blockage Period (as defined below) (a "Blockage Notice")), no payment of Debenture Obligations (other than with the money, securities or proceeds held under any defeasance trust established in accordance with this Indenture) may be made by or on behalf of the Company and except that holders of any Debenture Obligation may receive (i) Qualified Capital Stock issued by the Company to pay interest on the Debentures or issued in exchange for the Debentures, (ii) securities substantially identical to the Debentures 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 Debentures and having a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Debentures) may be made for a period (a "Payment Blockage Period") commencing on the date of receipt of such notice and ending 179 days thereafter (or earlier if such Payment Blockage Period shall be terminated (i) by written notice to the Trustee with a copy to the Company from such trustee of, or other Representatives who gave such 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 paragraphs (a) and (c) of this Section 10.02, the Company may resume payments on the Debentures after the end of such Payment Blockage Period. Not more than one Payment Blockage Period may be commenced with respect to the Debentures during any period of 360 consecutive days, 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 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 Debentures 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 this Indenture. 75 68 For the purposes of this Article Ten (but without limiting the effect of any other provision of this Article Ten), paying any Debenture Obligation shall include any payment or distribution of any kind or character by the Company or its Subsidiaries, by set-off or otherwise, including, without limitation, any repurchase, redemption or acquisition of the Debentures and any direct or indirect payment payable by reason of any other Indebtedness or Obligation being subordinated to the Debentures. (c) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 10.02(a) or 10.02(b) of this Indenture, the Trustee shall promptly notify the representatives of such Senior Indebtedness of such prohibited payment and such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that, upon notice from the Trustee to the representatives of such Senior Indebtedness that such prohibited payment has been made, such representatives within 30 days of receipt of such notice from the Trustee notifies the Trustee of the amounts then due and owing on the Senior Indebtedness, if any, and only the amounts specified in such notice to the Trustee shall be paid to the representatives of such Senior Indebtedness and any excess above such amounts due and owing on Senior Indebtedness shall be paid to the Company. SECTION 10.03. Payment over of Proceeds upon Dissolution, Etc. (a) Upon any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities (other than with the money, securities or proceeds held under any defeasance trust established in accordance with this Indenture), in connection with any dissolution or winding-up or total or partial liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other similar proceedings, any assignment for the benefit of creditors or any marshalling of assets for the benefit of creditors, all amounts due or to become due upon all Senior Indebtedness (including any interest accruing on or subsequent to, or which would have accrued but for the occurrence of, an event specified in paragraphs (vi) and (vii) of Section 6.01, whether or not such interest is an allowed claim enforceable against the debtor under the United States Bankruptcy Code) shall first be paid in full, in cash, before the Holders or the Trustee on their behalf shall be entitled to receive any payment by (or on behalf of) the Company on account of Debenture Obligations, or any payment to acquire any of the Debentures for cash, property or securities, or any distribution with respect to the Debentures of any cash, property or securities. Before any payment may be made by, or on behalf of, the Company on any Debenture Obligations (other than with the money, securities or proceeds held under any defeasance trust established in accordance with this Indenture) in connection with any such dissolution, winding-up, liquidation, reorganization, assignment, marshalling or proceeding, any payment or distribution of assets or securities for the Company of any kind or character, whether in cash, property or securities, to which the Holders or the 76 69 Trustee on their behalf would be entitled, but for the provisions of this Article Ten, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person making such payment or distribution, or by the Holders or the Trustee if received by them or it, directly to the representatives of such Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their representatives or to any trustee or trustees under any other indenture pursuant to which any such Senior Indebtedness may have been issued, as their respective interests appear, to the extent necessary to pay all such Senior Indebtedness in full, in cash or cash equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the representatives of such Senior Indebtedness (except that Holders of the Debentures may receive (i) Qualified Capital Stock issued by the Company to pay interest on the Debentures or issued in exchange for the Debentures, (ii) securities substantially identical to the Debentures 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 Debentures and having a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Debentures). (b) To the extent any payment of Senior Indebtedness (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee or other similar Person, the Senior Indebtedness or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. To the extent the obligation to repay any Senior Indebtedness is declared to be fraudulent, invalid, or otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then the obligation so declared fraudulent, invalid or otherwise set aside (and all other amounts that would come due with respect thereto had such obligation not been so affected) shall be deemed to be reinstated and outstanding as Senior Indebtedness for all purposes hereof as if such declaration, invalidity or setting aside had not occurred. (c) In the event that, notwithstanding the foregoing provision prohibiting such payment or distribution, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities, shall be received by the Trustee or any Holder at a time when such payment or distribution is prohibited by Section 10.03(a) of this Indenture and before all obligations in respect of Senior Indebtedness are paid in full, in cash, such payment or distribution shall be received and held in trust for the benefit of, and shall be paid over or delivered to, the representatives of such Senior Indebtedness (pro rata to such holders on the basis of such respective amount of Senior Indebtedness held by such holders) or their representatives, or to the trustee or trustees under any indenture pursuant to which any such Senior Indebtedness 77 70 may have been issued, as their respective interests appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid in full, in cash, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. (d) For purposes of this Section 10.03, the words "cash, property or securities" shall not be deemed to include, so long as the effect of this clause is not to cause the Debentures to be treated in any case or proceeding or similar event described in this Section 10.03 as part of the same class of claims as the Senior Indebtedness or any class of claims pari passu with, or senior to, the Senior Indebtedness for any payment or distribution, securities of the Company or any other corporation provided for by a plan of reorganization or readjustment that are subordinated, at least to the extent that the Debentures are subordinated, to the payment of all Senior Indebtedness then outstanding; provided that (1) if a new corporation results from such reorganization or readjustment, such corporation assumes the Senior Indebtedness and (2) the rights of the holders of the Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the sale, conveyance, transfer, lease or other disposition of all or substantially all of its property and assets to another corporation upon the terms and conditions provided in Article Five of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 10.03 if such other corporation shall, as a part of such consolidation, merger, sale, conveyance, transfer, lease or other disposition, comply (to the extent required) with the conditions stated in Article Five of this Indenture. SECTION 10.04. Subrogation. (a) Upon the payment in full of all Senior Indebtedness in cash, the Holders shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company made on such Senior Indebtedness until the principal of, premium, if any, and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the representatives of the holders of the Senior Indebtedness of any cash, property or securities to which the Holders or the Trustee on their behalf would be entitled except for the provisions of this Article Ten, and no payment pursuant to the provisions of this Article Ten to the holders of Senior Indebtedness by Holders or the Trustee on their behalf shall, as between the Company, its creditors other than holders of Senior Indebtedness, and the Holders, be deemed to be a payment by the Company to or on account of the Senior Indebtedness. It is understood that the provisions of this Article Ten are intended solely for the purpose of defining the relative rights of the Holders, on the one hand, and the holders of the Senior Indebtedness, on the other hand. (b) If any payment or distribution to which the Holders would otherwise have been entitled but for the provisions of this Article Ten shall have been applied, pursuant to the provisions of this Article Ten, to the payment of all amounts payable under Senior Indebtedness, 78 71 then, and in such case, the Holders shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount required to make payment in full, in cash, of such Senior Indebtedness of such holders. SECTION 10.05. Obligations of Company Unconditional. (a) Nothing contained in this Article Ten or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as among the Company and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of, premium, if any, and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Holders or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Ten of the holders of the Senior Indebtedness. (b) Without limiting the generality of the foregoing, nothing contained in this Article Ten will restrict the right of the Trustee or the Holders to take any action to declare the Debentures to be due and payable prior to their stated maturity pursuant to Section 6.01 of this Indenture or to pursue any rights or remedies hereunder; provided, however, that all Senior Indebtedness then due and payable or thereafter declared to be due and payable shall first be paid in full, in cash, before the Holders or the Trustee on behalf of the Holders are entitled to receive any direct or indirect payment from the Company of Debenture Obligations. SECTION 10.06. Notice to Trustee. (a) The Company shall give prompt written notice to the Trustee of any fact known to the Company that would prohibit the making of any payment to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article Ten. The Trustee shall not be charged with the knowledge of the existence of any default or event of default with respect to any Senior Indebtedness or of any other facts that would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing at its Corporate Trust Office to that effect signed by an Officer of the Company, or by a holder of Senior Indebtedness or trustee or agent thereof; and prior to the receipt of any such written notice, the Trustee shall, subject to Article Seven, be entitled to assume that no such facts exist; provided that, if the Trustee shall not have received the notice provided for in this Section 10.06 at least three Business Days prior to the date upon which, by the terms of this Indenture, any monies shall become payable for any purpose (including, without limitation, the payment of the principal of, premium, if any, or interest on any Debenture), then, notwithstanding anything herein to the contrary, the Trustee shall have full power and authority to receive any monies from the Company and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary that may be received by it on or after such prior date except for an acceleration of the Debentures prior to such application. Nothing contained in this 79 72 Section 10.06 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by this Article Ten. The foregoing shall not apply if the Paying Agent is the Company. The Trustee shall be entitled to rely in good faith on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Indebtedness (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or representative on behalf of any such holder. (b) In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article Ten, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten and, if such evidence is not furnished to the Trustee, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.07. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets or securities referred to in this Article Ten, the Trustee and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other similar Person making such payment or distribution, delivered to the Trustee or to the Holders for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten, provided that such court, trustee, receiver, custodian, assignee, agent or other Person has been apprised of, or the order, decree or certificate makes reference to, the provisions of this Article. SECTION 10.08. Trustee's Relation to Senior Indebtedness. (a) The Trustee and any Paying Agent shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Indebtedness that may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall deprive the Trustee or any Paying Agent of any of its rights as such holder. (b) With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness (except as provided in 80 73 Sections 10.02(c) and 10.03(c) of this Indenture) and shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Debentures or to the Company or to any other person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Ten or otherwise. SECTION 10.09. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness. No right of any present or future holders of any Senior Indebtedness to enforce subordination as provided in this Article Ten will at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. The provisions of this Article Ten are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. SECTION 10.10. Holders Authorize Trustee to Effectuate Subordination of Debentures. Each Holder by his acceptance of any Debentures authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Ten, and appoints the Trustee his attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the property and assets of the Company, the filing of a claim for the unpaid balance of its Debentures in the form required in those proceedings. If the Trustee does not file a proper claim or proof in indebtedness in the form required in such proceeding at least 30 days before the expiration of the time to file such claim or claims, each holder of Senior Indebtedness is hereby authorized to file an appropriate claim for and on behalf of the Holders. SECTION 10.11. Not to Prevent Events of Default. The failure to make a payment on account of principal of, premium, if any, or interest on the Debentures by reason of any provision of this Article Ten will not be construed as preventing the occurrence of an Event of Default. SECTION 10.12. Trustee's Compensation Not Prejudiced. Nothing in this Article Ten will apply to amounts due to the Trustee pursuant to other sections of this Indenture, including without limitation Section 7.07. SECTION 10.13. No Waiver of Subordination Provisions. Without in any way limiting the generality of Section 10.09, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders to the holders of Senior Indebtedness, do any one or more of the following: (a) change the manner, place or terms of payment or extend 81 74 or shorten the time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c) release any Person liable in any manner for the collection of Senior Indebtedness; and (d) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 10.14. Payments May Be Paid Prior to Dissolution. Nothing contained in this Article Ten or elsewhere in this Indenture shall prevent (i) the Company except under the conditions described in Section 10.02 or 10.03, from making payments of principal of, premium, if any, and interest on the Debentures, or from depositing with the Trustee any money for such payments, or (ii) the application by the Trustee of any money deposited with it for the purpose of making such payments of principal of, premium, if any, and interest on the Debentures to the holders entitled thereto unless, at least three Business Days prior to the date upon which such payment becomes due and payable, the Trustee shall have received the written notice provided for in Section 10.02(b) of this Indenture (or there shall have been an acceleration of the Debentures prior to such application) or in Section 10.06 of this Indenture. The Company shall give prompt written notice to the Trustee of any dissolution, winding up, liquidation or reorganization of, or similar proceeding (including any assignment for the benefit of creditors or any marshalling of assets) with respect to, the Company. SECTION 10.15. Consent of Holders of Senior Indebtedness Under the Senior Credit Facilities. The provisions of this Article Ten (including the definitions contained in this Article and references to this Article contained in this Indenture) shall not be amended in a manner that would adversely affect the rights of the holders of Senior Indebtedness under the Senior Credit Facilities, and no such amendment shall become effective unless the holders of Senior Indebtedness under the Senior Credit Facilities shall have consented (in accordance with the provisions of the Senior Credit Facilities) to such amendment. The Trustee shall be entitled to receive and rely on an Officers' Certificate stating that such consent has been given. SECTION 10.16. Trust Moneys Not Subordinated. Notwithstanding anything contained herein to the contrary, payments from money or the proceeds of U.S. Government Obligations held in trust under Article Eight by the Trustee for the payment of principal of, premium, if any, and interest on the Debentures shall not be subordinated to the prior payment of any Senior Indebtedness (provided that, at the time deposited, such deposit did not violate any then outstanding Senior Indebtedness), and none of the Holders shall be obligated to pay over any such amount to any holder of Senior Indebtedness. SECTION 10.17. Notice to Representative of Designated Senior Indebtedness. If payment of the Debentures 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 82 75 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 Debentures (except payment (i) in Qualified Capital Stock issued by the Company to pay interest on the Debentures or issued in exchange for the Debentures, (ii) in securities substantially identical to the Debentures 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 Debentures and have a Weighted Average Life to Maturity at least equal to the remaining Weighted Average Life to Maturity of the Debentures), 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 Debentures only if the subordination provisions of the Indenture otherwise permit payment at that time. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act of 1939. Prior to the effectiveness of the Registration Statement, this Indenture shall incorporate and be governed by the provisions of the TIA that are required or deemed to be part of and to govern indentures qualified under the TIA. After the effectiveness of the Registration Statement, this Indenture shall be subject to the provisions of the TIA that are required or deemed to be a part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 11.02. Notices. Any notice or communication shall be sufficiently given if in writing and delivered in person, mailed by first-class mail or sent by telecopier transmission addressed as follows: if to the Company: Regal Cinemas, Inc. 7132 Commercial Park Drive Knoxville, Tennessee 37918 Telecopier No.: 423-922-6085 Attention: Chief Financial Officer 83 76 if to the Trustee: IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Telecopier No.: 212-858-2952 Attention: Corporate Administration The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to it at its address as it appears on the Security Register by first-class mail and shall be sufficiently given to him if so mailed within the time prescribed. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Copies of any such communication or notice to a Holder shall also be mailed to the Trustee and each Agent at the same time. Failure to mail a notice or communication to a Holder as provided herein or any defect in any such notice or communication shall not affect its sufficiency with respect to other Holders. Except for a notice to the Trustee, which is deemed given only when received, and except as otherwise provided in this Indenture, if a notice or communication is mailed in the manner provided in this Section 11.02, it is duly given, whether or not the addressee receives it. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Debentures. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 11.03. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: 84 77 (i) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.04. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each person signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (iii) a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that, with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.06. Payment Date Other Than a Business Day. If an Interest Payment Date, Redemption Date, Payment Date, stated maturity or date of maturity of any Debenture shall not be a Business Day, then payment of principal of, premium, if any, or interest on such Debenture, as the case may be, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Payment Date or Redemption Date, or at the stated maturity or date of maturity of such Debenture; provided that no interest shall accrue for the period from and after such Interest Payment Date, Payment Date, Redemption Date, stated maturity or date of maturity, as the case may be. 85 78 SECTION 11.07. Governing Law. This Indenture and the Debentures shall be governed by 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. The Trustee, the Company and the Holders agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture or the Debentures. SECTION 11.08. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.09. No Recourse Against Others. No recourse for the payment of the principal of, premium, if any, or interest on any of the Debentures, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company contained in this Indenture or in any of the Debentures, or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator or against any past, present or future partner, stockholder, other equityholder, officer, director, employee or controlling person, as such, of the Company or of any successor Person, either directly or through the Company or any successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Debentures. SECTION 11.10. Successors. All agreements of the Company in this Indenture and the Debentures shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.11. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.12. Separability. In case any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.13. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof. 86 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. REGAL CINEMAS, INC. By: /s/ D. MARK MONROE -------------------------------------- Name: D. Mark Monroe Title: Vice President IBJ SCHRODER BANK & TRUST COMPANY By: /s/ STEPHEN J. GUIRLANDO -------------------------------------- Name: Stephen J. Guirlando Title: Assistant Vice President 87 EXHIBIT A [APPLICABLE LEGENDS] [FACE OF DEBENTURE] REGAL CINEMAS, INC. 8 7/8% Senior Subordinated Debenture due 2010 CUSIP [__________] No. ____ $_________ REGAL CINEMAS, INC., a Tennessee corporation (the "Company", which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to _____________, or its registered assigns, the principal sum of ______________________ ($____________) on December 15, 2010. Interest Payment Dates: June 15 and December 15, commencing June 15, 1999. Regular Record Dates: June 1 and December 1. Reference is hereby made to the further provisions of this Debenture set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Debenture to be signed manually or by facsimile by its duly authorized officers. Date: December 16, 1998 REGAL CINEMAS, INC. By: -------------------------------------- Name: Title: By: -------------------------------------- Name: Title: 88 A-2 (Trustee's Certificate of Authentication) This is one of the 8 7/8% Senior Subordinated Debentures due 2010 described in the within-mentioned Indenture. IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: -------------------------------------- Authorized Signatory 89 A-3 [REVERSE SIDE OF DEBENTURE] REGAL CINEMAS, INC. 8 7/8% Senior Subordinated Debenture due 2010 1. Principal and Interest. The Company will pay the principal of this Debenture on December 15, 2010. The Company promises to pay interest on the principal amount of this Debenture on each Interest Payment Date, as set forth below, at the rate per annum shown above. Interest will be payable semiannually (to the holders of record of the Debentures at the close of business on the June 1 or December 1 immediately preceding the Interest Payment Date) on each Interest Payment Date, commencing June 15, 1999. If an exchange offer (the "Exchange Offer") registered under the Securities Act is not consummated and a shelf registration statement (the "Shelf Registration Statement") under the Securities Act with respect to resales of the Debentures is not declared effective by the Commission, on or before _________, 1999 in accordance with the terms of the Registration Rights Agreement dated December 16, 1998 between the Company and Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation, the annual interest rate borne by the Debentures shall be increased by 0.5% per annum from the rate shown above accruing from the date that is 225 days after _________, payable in cash semiannually, in arrears, on each Interest Payment Date, commencing December 15, 1999 until the Exchange Offer is consummated or the Shelf Registration Statement is declared effective. The Holder of this Debenture is entitled to the benefits of such Registration Rights Agreement. Interest on the Debentures will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from December 16, 1998, provided that, if there is no existing default in the payment of interest and this Debenture is authenticated between a Regular Record Date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 90 A-4 2. Method of Payment. The Company will pay interest on the principal amount of the Debentures as provided above on each June 15 and December 15, commencing June 15, 1999 to the persons who are Holders (as reflected in the Security Register at the close of business on the June 1 or December 1 immediately preceding the Interest Payment Date), in each case, even if the Debenture is cancelled on registration of transfer or registration of exchange after such record date; provided that, with respect to the payment of principal, the Company will make payment to the Holder that surrenders this Debenture to a Paying Agent on or after December 15, 2010. The Company will pay principal, premium, if any, and as provided above, interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by its check payable in such money. It may mail an interest check to a Holder's registered address (as reflected in the Security Register). If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 3. Paying Agent and Registrar. Initially, the Trustee will act as authenticating agent, a Paying Agent and the Registrar. The Company may change any authenticating agent, Paying Agent or Transfer Agent without notice. The Company, any Subsidiary or any Affiliate of any of them may act as a Paying Agent or a Transfer Agent. 4. Indenture; Limitations. The Company issued the Debentures under an Indenture dated as of December 16, 1998 (the "Indenture"), between the Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise indicated. The terms of the Debentures include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Debentures are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Debenture and the terms of the Indenture, the terms of the Indenture shall control. The Debentures are general unsecured obligations of the Company. The Company may, subject to Article Four of the Indenture and applicable law, issue additional Debentures under the Indenture. 91 A-5 5. Optional Redemption. The Debentures are redeemable, at the Company's option, in whole or in part, at any time or from time to time, on or after December 15, 2003 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first class mail to each Holder's last address, as it appears in the Security Register, at the following Redemption Prices (expressed in percentages of principal amount thereof on the applicable Redemption Date), plus accrued and unpaid interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing December 15 of the years set forth below:
Redemption Year Price - ---- ---------- 2003 104.438% 2004 103.328 2005 102.219 2006 101.109 2007 and thereafter 100.000
At any time and from time to time prior to December 15, 2001, the Company may redeem up to 35% of the aggregate principal amount of the Debentures with the proceeds of one or more Equity Offerings, at a Redemption Price (expressed as a percentage of principal amount) of 108.875%, plus accrued and unpaid interest to the Redemption Date (subject to the rights of Holders of record on the relevant Regular Record Date that is prior to the Redemption Date to receive interest due on an Interest Payment Date); provided that (i) at least 65% of the aggregate principal amount of Debentures issued under the Indenture remains outstanding after each such redemption and (ii) any such redemption shall occur on or prior to the date that is 90 days after receipt by the Company of the proceeds of an Equity Offering. The Company shall effect such redemption on a pro rata basis. Debentures in original denominations larger than $1,000 may be redeemed in part. On and after the Redemption Date, interest ceases to accrue on Debentures or portions of Debentures called for redemption, unless the Company defaults in the payment of the Redemption Price. 6. Repurchase upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company purchase all or a portion of such Holder's Debentures in cash pursuant to the offer described in Section 4.07(c) of the Indenture, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. 92 A-6 (b) Prior to the mailing 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 Debentures 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 Debentures, 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 Debentures 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 Debentures pursuant to the provisions of Section 4.07(c) and Section 4.07(d) of the Indenture. A notice of such Change of Control will be mailed within 30 days after any Change of Control occurs to each Holder at its last address as it appears in the Security Register. Debentures in original denominations larger than $1,000 may be sold to the Company in part. On and after the Payment Date, interest ceases to accrue on Debentures or portions of Debentures surrendered for purchase by the Company, unless the Company defaults in the payment of the purchase price. 7. Denominations; Transfer; Exchange. The Debentures are in registered form without coupons in denominations of $1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Debentures in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Debentures selected for redemption. Also, it need not register the transfer or exchange of any Debentures for a period of 15 days before the day of mailing of a notice of redemption of Debentures selected for redemption. 8. Persons Deemed Owners. A Holder shall be treated as the owner of a Debenture for all purposes. 9. Unclaimed Money. If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, unless an abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 93 A-7 10. Discharge Prior to Redemption or Maturity. Under certain circumstances, if the Company deposits with the Trustee money, U.S. Government Obligations or a combination thereof sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Debentures to redemption or maturity of the Debentures, the Company may, under certain circumstances, be discharged from the Indenture and the Debentures, except in certain circumstances for certain provisions thereof, or from certain covenants set forth in the Indenture. 11. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Debentures may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Debentures then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of at least a majority in principal amount of the Debentures then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Debentures to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially and adversely affect the rights of any Holder. 12. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries, among other things, to incur additional Indebtedness, make Restricted Payments, issue Preferred Stock of Restricted Subsidiaries, Guarantee Indebtedness of the Company, engage in transactions with Affiliates, or merge, consolidate or transfer substantially all of its assets. Within 45 days after the end of each fiscal quarter (90 days after the end of the last fiscal quarter of each year), the Company shall deliver to the Trustee an Officers' Certificate stating whether or not the signers thereof know of any Default or Event of Default under such restrictive covenants. 13. Successor Persons. When a successor person or other entity assumes all the obligations of its predecessor under the Debentures and the Indenture, the predecessor person will be released from those obligations. 14. Defaults and Remedies. Any of the following events constitutes an "Event of Default" under the Indenture: 94 A-8 (i) the failure to pay interest on the Debentures 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 of Article Ten); (ii) the failure to pay principal of or premium, if any, on any Debentures 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 of Article Ten); (iii) a default in the observance or performance of any other covenant or agreement contained in the Debentures or this 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 Debentures; (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; (vi) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any of its Significant Restricted Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law for relief of debtors now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Restricted Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Restricted Subsidiaries or (C) the winding up or liquidation of the affairs of the Company or any of its Significant Restricted Subsidiaries and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (vii) the Company or any of its Significant Restricted Subsidiaries (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law for relief of debtors now or hereafter in effect, or consents to the entry of an order for relief in an 95 A-9 involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Restricted Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Restricted Subsidiaries or (C) effects any general assignment for the benefit of creditors. If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee may, and at the direction of the Holders of at least 30% in aggregate principal amount of the Debentures then outstanding shall, declare all the Debentures to be due and payable. If a bankruptcy or insolvency default with respect to the Company occurs and is continuing, the Debentures automatically become due and payable. Holders may not enforce the Indenture or the Debentures except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Debentures. Subject to certain limitations, Holders of at least a majority in principal amount of the Debentures then outstanding may direct the Trustee in its exercise of any trust or power. 15. Subordination. The payment of the Debentures will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full, in cash, of all Senior Indebtedness. 16. Trustee Dealings with the Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not the Trustee. 17. No Recourse Against Others. No incorporator or any past, present or future partner, stockholder, other equityholder, officer, director, employee or controlling person, as such, of the Company or of any successor Person shall have any liability for any obligations of the Company under the Debentures 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 Debenture waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Debentures. 18. Authentication. This Debenture shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Debenture. 96 A-10 19. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish a copy of the Indenture to any Holder upon written request and without charge. Requests may be made to Regal Cinemas, Inc., 7132 Commercial Park Drive, Knoxville, Tennessee 37918; Attention: Chief Financial Officer. 97 A-11 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - -------------------------------------------------------------------------------- Please print or typewrite name and address including zip code of assignee - -------------------------------------------------------------------------------- the within Debenture and all rights thereunder, hereby irrevocably constituting and appointing attorney - -------------------------------------------------------------------- to transfer said Debenture on the books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL DEBENTURES OTHER THAN EXCHANGE DEBENTURES, UNLEGENDED OFFSHORE GLOBAL DEBENTURES AND UNLEGENDED OFFSHORE PHYSICAL DEBENTURES] In connection with any transfer of this Debenture occurring prior to the date which is the earlier of (i) the date the Shelf Registration Statement is declared effective or (ii) the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] [ ] (a) this Debenture is being transferred in compliance with the exemption from registration under the Securities Act of 1933 provided by Rule 144A thereunder. or [ ] (b) this Debenture is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Debenture and the Indenture. 98 A-12 If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Debenture in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.08 of the Indenture shall have been satisfied. Date: --------------- ----------------------------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. Signature Guarantee: --------------------------------- Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Debenture for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933 and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: --------------- ----------------------------------------------------- NOTICE: To be executed by an executive officer 99 A-13 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Debenture purchased by the Company pursuant to Section 4.07 of the Indenture, check the Box: [ ] If you wish to have a portion of this Debenture purchased by the Company pursuant to Section 4.07 of the Indenture, state the amount: $___________________. Date: --------------- Your Signature: ----------------------------------------------------------------- (Sign exactly as your name appears on the other side of this Debenture) Signature Guarantee: -------------------------------- Signature must be guaranteed by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee. 100 EXHIBIT B Form of Certificate , ----------------- -- IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attention: Corporate Administration Regal Cinemas, Inc. 7132 Commercial Park Drive Knoxville, Tennessee 37918 Attention: Chief Financial Officer Re: Regal Cinemas, Inc. (the "Company") 8 7/8% Senior Subordinated Debentures due 2010 (the "Debentures") Dear Sirs: This letter relates to U.S. $______ principal amount of Debentures represented by a Debenture (the "Legended Debenture") which bears a legend outlining restrictions upon transfer of such Legended Debenture. Pursuant to Section 2.02 of the Indenture dated as of December 16, 1998 (the "Indenture") relating to the Debentures, we hereby certify that we are (or we will hold such securities on behalf of) a person outside the United States to whom the Debentures could be transferred in accordance with Rule 904 of Regulation S promulgated under the U.S. Securities Act of 1933. Accordingly, you are hereby requested to exchange the legended certificate for an unlegended certificate representing an identical principal amount of Debentures, all in the manner provided for in the Indenture. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Holder] By: -------------------------------------- Authorized Signatory 101 EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors , ---------------- --- IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attention: Corporate Administration Re: Regal Cinemas, Inc. (the "Company") 8 7/8% Senior Subordinated Debentures due 2010 (the "Debentures") Dear Sirs: In connection with our proposed purchase of $__________________ aggregate principal amount of the Debentures, we confirm that: 1. We understand that any subsequent transfer of the Debentures is subject to certain restrictions and conditions set forth in the Indenture dated as of December 16, 1998 (the "Indenture") relating to the Debentures and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Debentures except in compliance with such restrictions and conditions and the Securities Act of 1933, amended (the "Securities Act"). 2. We understand that the offer and sale of the Debentures have not been registered under the Securities Act, and that the Debentures may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Debentures within the time period referred to in Rule 144(k) of the Securities Act, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and, if such transfer is in respect of an aggregate principal amount of less than $100,000, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available) or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Debentures 102 C-2 from us a notice advising such purchaser that resales of the Debentures are restricted as stated herein. 3. We understand that, on any proposed resale of any Debentures, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Debentures purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Debentures, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Debentures purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By: -------------------------------------- Authorized Signatory 103 EXHIBIT D Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S , --------------- --- IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 Attention: Corporate Administration Re: Regal Cinemas, Inc.(the "Company") 8 7/8% Senior Subordinated Debentures due 2010 (the "Debentures") Dear Sirs: In connection with our proposed sale of U.S. $___________ aggregate principal amount of the Debentures, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933 and, accordingly, we represent that: (1) the offer of the Debentures was not made to a person in the United States; (2) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States; (3) no directed selling efforts have been made by us in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: -------------------------------------- Authorized Signatory EX-10.18 3 PLACEMENT AGREEMENT 1 EXHIBIT 10.18 EXECUTION COPY - ------------------------------------------------------------------------------- PLACEMENT AGREEMENT $200,000,000 REGAL CINEMAS, INC. 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010 December 9, 1998 - ------------------------------------------------------------------------------ 2 December 9, 1998 Morgan Stanley & Co. Incorporated Donaldson, Lufkin & Jenrette Securities Corporation c/o Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Dear Ladies and Gentlemen: Regal Cinemas, Inc., a Tennessee corporation (the "COMPANY"), proposes to issue and sell to Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation (the "PLACEMENT AGENTS") $200,000,000 million principal amount of its 8 7/8% Senior Subordinated Debentures due 2010 (the "SECURITIES") to be issued pursuant to the provisions of an Indenture dated as of December 16, 1998 (the "INDENTURE") between the Company and IBJ Schroder Bank & Trust Company, as Trustee (the "TRUSTEE"). Capitalized terms used herein not otherwise defined herein shall have the meanings given such terms in the Final Memorandum (as defined below). The Securities will be offered without being registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), to "qualified institutional buyers" in compliance with the exemption from registration provided by Rule 144A under the Securities Act ("QIBS"), in offshore transactions in reliance on Regulation S under the Securities Act ("REGULATION S") and to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) ("INSTITUTIONAL ACCREDITED INVESTORS") that deliver a letter in the form of Annex A to the Final Memorandum. The Placement Agents and their direct and indirect transferees will be entitled to the benefits of a Registration Rights Agreement dated the Closing Date between the Company and the Placement Agents (the "REGISTRATION RIGHTS AGREEMENT"). In connection with the sale of the Securities, the Company has prepared an offering memorandum (the "FINAL MEMORANDUM") including a description of the terms of the Securities, the terms of the Offering and a description of the Company. 1. Representations and Warranties. The Company represents and warrants to, and agrees with, you that: (a) The Final Memorandum in the form provided by the Company to the Placement Agents to confirm sales and on the Closing Date (as defined in Section 4), will not contain any untrue statement of a material fact or omit to state a material fact 3 2 necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in such Final Memorandum based upon information relating to any Placement Agent furnished to the Company in writing by such Placement Agent through you expressly for use therein. (b) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Final Memorandum and is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified or in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (c) Each Restricted Subsidiary of the Company, including, without limitation, Act III Cinemas, Inc., a Delaware corporation ("Act III"), has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Final Memorandum and is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except where the failure to be so qualified or in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims other than those described in the Final Memorandum. (d) This Agreement has been duly authorized, executed and delivered by the Company. (e) The Securities have been duly authorized and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to and paid for by the Placement Agents in accordance with the terms of this Agreement, will be valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity and insofar as the same contains any waiver of usury laws as to enforceability, and will be entitled to the benefits of the Indenture and the Registration Rights Agreement. 4 3 (f) The Indenture has been duly authorized by the Company, and when executed and delivered by the Company will be a valid and binding agreement of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity and insofar as the same contains any waiver of usury laws as to enforceability. (g) The Registration Rights Agreement has been duly authorized by the Company, and when executed and delivered by the Company will be a valid and binding agreement of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity and except as rights to indemnification and contribution under the Registration Rights Agreement may be limited under applicable law. (h) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, the Indenture, the Registration Rights Agreement and the Securities will not contravene any provision of applicable law or the certificate of incorporation or by-laws of the Company or any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, the Indenture, the Registration Rights Agreement or the Securities, except those already obtained and such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Securities and by federal and state securities laws with respect to the Company's obligations under the Registration Rights Agreement. (i) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Final Memorandum. (j) The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and defects except such as are described in the Final Memorandum or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries which are material to the business 5 4 of the Company and its subsidiaries, taken as a whole, are held by them under valid and subsisting leases with such exceptions as are not material to the business of the Company and its subsidiaries, taken as a whole, and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries, in each case except as described in the Final Memorandum. (k) There are no legal or governmental proceedings pending or, to the knowledge of the Company, threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject other than proceedings accurately described in all material respects in the Final Memorandum and proceedings that would not reasonably be expected to have a material adverse effect on the Company and its subsidiaries, taken as a whole, or on the power or ability of the Company to perform its obligations under this Agreement, the Indenture, the Registration Rights Agreement or the Securities. (l) The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not reasonably be expected, singly or in the aggregate, to have a material adverse effect on the Company and its subsidiaries, taken as a whole. (n) There are no costs or liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) which would reasonably be expected, singly or in the aggregate, to have a material adverse effect on the Company and its subsidiaries, taken as a whole. (o) The Company is not, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Final Memorandum, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 6 5 (p) Neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act, an "AFFILIATE") of the Company has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or will be integrated with the sale of the Securities in a manner that would require the registration under the Securities Act of the Securities or (ii) engaged in any form of general solicitation or general advertising in connection with the offering of the Securities (as those terms are used in Regulation D under the Securities Act), or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (q) None of the Company, its Affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities and the Company and its Affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S, except no representation, warranty or agreement is made by the Company in this paragraph with respect to the Placement Agents. (r) Assuming the truth of representations and warranties of the Placement Agents in this Agreement, it is not necessary in connection with the offer, sale and delivery of the Securities to the Placement Agents in the manner contemplated by this Agreement to register the Securities under the Securities Act or to qualify the Indenture under the Trust Indenture Act of 1939, as amended. (s) The Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act. (t) The Securities conform in all material respects to the description thereof contained in the Final Memorandum under the heading "Description of the Debentures." (u) (i) The merger of an affiliate of Kohlberg Kravis Roberts & Co. L.P. and an affiliate of Hicks, Muse, Tate & Furst Incorporated with and into the Company, with the Company continuing as the surviving corporation, was consummated pursuant to an Agreement and Plan of Merger dated May 27, 1998, as amended (the "Regal Merger"), (ii) the merger of a wholly owned subsidiary of the Company with and into Act III, with Act III surviving as a wholly owned subsidiary of the Company, was consummated pursuant to an Agreement and Plan of Merger dated August 26, 1998 (the "Act III Merger", and together with the Regal Merger, the "Transactions") and (iii) all required consents, waivers and agreements in connection with the Transactions, 7 6 including any such consents, waivers and agreements from suppliers and lessors of Act III, have been obtained, except where the failure to obtain such consents, waivers or agreements would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (v) The statements in the Final Memorandum will not differ in any material respect from the statements contained in the Offering Memorandum dated November 4, 1998 for the 9 1/2% Senior Subordinated Notes due 2008, except for financial statements for the quarter ended October 1, 1998 included in the Company's quarterly report on Form 10-Q filed November 16, 1998 and matters described by the Company to the Placement Agents prior to the date hereof. 2. Agreements to Sell and Purchase. The Company hereby agrees to sell to the several Placement Agents, and each Placement Agent, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees, severally and not jointly, to purchase from the Company the respective principal amount of Securities set forth in Schedule I hereto opposite its name at a purchase price of 97.625% of the principal amount thereof (the "PURCHASE PRICE") plus accrued interest, if any, to the Closing Date. The Company hereby agrees that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Placement Agents, it will not, during the period beginning on the date hereof and continuing to and including the Closing Date, offer, sell, contract to sell or otherwise dispose of any debt of the Company or warrants to purchase debt of the Company substantially similar to the Securities (other than the sale of the Securities under this Agreement). 3. Terms of Offering. You have advised the Company that the Placement Agents will make an offering of the Securities purchased by the Placement Agents hereunder on the terms to be set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into as in your judgment is advisable. 4. Payment and Delivery. Payment for the Securities shall be made to the Company in Federal or other funds immediately available in New York City against delivery of such Securities for the respective accounts of the several Placement Agents at 10:00 a.m., New York City time, on December 16, 1998, or at such other time on the same or such other date, not later than December 23, 1998, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "CLOSING DATE." Certificates for the Securities shall be in definitive form or global form, as specified by you, and registered in such names and in such denominations as you shall request 8 7 in writing not later than one full business day prior to the Closing Date. The certificates evidencing the Securities shall be delivered to you on the Closing Date for the respective accounts of the several Placement Agents, with any transfer taxes payable in connection with the transfer of the Securities to the Placement Agents duly paid, against payment of the Purchase Price therefor plus accrued interest, if any, to the Closing Date. 5. Conditions to the Placement Agents' Obligations. The several obligations of the Placement Agents to purchase and pay for the Securities on the Closing Date are subject to the following conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date: (i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded for the Company's 9 1/2% Senior Subordinated Notes due 2008 issued on May 27, 1998, the Company's 9 1/2% Senior Subordinated Notes due 2008 issued on November 10, 1998 or any of the Company's other securities by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; and (ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries, taken as a whole, from that set forth in the Final Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Securities on the terms and in the manner contemplated in the Final Memorandum. (b) The Placement Agents shall have received on the Closing Date a certificate, dated the Closing Date and signed by an executive officer of the Company, to the effect set forth in Section 5(a)(i) and to the effect that the representations and warranties of the Company contained in this Agreement are true and correct as of the Closing Date and the Company has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied hereunder on or before the Closing Date. 9 8 The officer signing and delivering such certificate may rely upon the best of his or her knowledge as to proceedings threatened. (c) The Placement Agents shall have received on the Closing Date an opinion of Bass Berry & Sims PLC, local counsel for the Company, dated the Closing Date, to the effect set forth in Exhibit A. Such opinion shall be rendered to the Placement Agents at the request of the Company and shall so state therein. (d) The Placement Agents shall have received on the Closing Date an opinion of Weil, Gotshal & Manges LLP, outside counsel for the Company, dated the Closing Date, to the effect set forth in Exhibit B. Such opinion shall be rendered to the Placement Agents at the request of the Company and shall so state therein. (e) The Placement Agents shall have received on the Closing Date an opinion of Shearman & Sterling, counsel for the Placement Agents, dated the Closing Date, in form and substance satisfactory to you. (f) The Placement Agents shall have received on the Closing Date a letter, dated the Closing Date, in form and substance satisfactory to the Placement Agents, from PricewaterhouseCoopers LLP, independent public accountants for the Company, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Final Memorandum for each of the three years in the period ended January 1, 1998 and the six month period ended July 2, 1998; provided that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (g) The Placement Agents shall have received on the Closing Date a letter, dated the Closing Date, in form and substance satisfactory to the Placement Agents, from Deloitte & Touche LLP, independent public accountants for the Company, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Final Memorandum for the three month period ended October 1, 1998; provided that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (h) The Placement Agents shall have received on the Closing Date a letter, dated the Closing Date, in form and substance satisfactory to the Placement Agents, from PricewaterhouseCoopers LLP, independent public accountants for Act III, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain 10 9 financial information contained in the Final Memorandum for the year ended December 31, 1996; provided that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (i) The Placement Agents shall have received on the Closing Date a letter, dated the Closing Date, in form and substance satisfactory to the Placement Agents, from Deloitte & Touche LLP, independent public accountants for Act III, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Final Memorandum for each of the years in the two year period ended December 31, 1998, for the six month period ended June 30, 1998, and for the period from July 1, 1998 through August 26, 1998; provided that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (j) The Indenture and the Registration Rights Agreement shall have been executed by the parties thereto and shall be in full force and effect on the Closing Date. (k) The Placement Agents shall have received such other documents and certificates as are reasonably requested by you or your counsel. 6. Covenants of the Company. In further consideration of the agreements of the Placement Agents contained in this Agreement, the Company covenants with each Placement Agent as follows: (a) To furnish to you in New York City, without charge, prior to 10:00 a.m. New York City time on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(c), as many copies of the Final Memorandum and any supplements and amendments thereto as you may reasonably request. (b) Before amending or supplementing the Final Memorandum, to furnish to you a copy of each such proposed amendment or supplement and not to use any such proposed amendment or supplement to which you reasonably object. (c) If, during such period after the date hereof and prior to the date on which all of the Securities shall have been sold by the Placement Agents, any event shall occur or condition shall exist as a result of which it is necessary to amend or supplement the Final Memorandum in order to make the statements therein, in the light of the circumstances when the Final Memorandum is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Placement Agents, it is necessary to amend or supplement the Final Memorandum to comply with applicable law, forthwith 11 10 to prepare and furnish, at the Company's own expense, to the Placement Agents, either amendments or supplements to the Final Memorandum so that the statements in the Final Memorandum as so amended or supplemented will not, in the light of the circumstances when the Final Memorandum is delivered to a purchaser, be misleading or so that the Final Memorandum, as amended or supplemented, will comply with applicable law. (d) To endeavor to qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request. (e) Whether or not any sale of the Securities is consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's counsel and the Company's accountants in connection with the issuance and sale of the Securities and all other fees or expenses in connection with the preparation of the Final Memorandum and all amendments and supplements thereto, including all printing costs associated therewith, and the delivering of copies thereof to the Placement Agents, in the quantities herein above specified, (ii) all costs and expenses related to the transfer and delivery of the Securities to the Placement Agents, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or legal investment memorandum in connection with the offer and sale of the Securities under state securities laws and all expenses in connection with the qualification of the Securities for offer and sale under state securities laws as provided in Section 6(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Placement Agents in connection with such qualification and in connection with the Blue Sky or legal investment memorandum, (iv) any fees charged by rating agencies for the rating of the Securities, (v) all document production charges and expenses of counsel for the Placement Agents (but not including their fees for professional services) in connection with the preparation of this Agreement, (vi) the fees and expenses, if any, incurred in connection with the admission of the Securities for trading in PORTAL or any appropriate market system, (vii) the costs and charges of the Trustee and any transfer agent, registrar or depositary, (viii) the cost of the preparation, issuance and delivery of the Securities, and (ix) all other costs and expenses incident to the performance of the obligations of the Company hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 8, and the last paragraph of Section 10, the Placement Agents will pay all of their costs and expenses, including fees and disbursements of their counsel, transfer taxes payable on resale of any of the Securities by them and any advertising expenses connected with any offers they may make. 12 11 (f) Neither the Company nor any Affiliate will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) which could be integrated with the sale of the Securities in a manner which would require the registration under the Securities Act of the Securities. (g) Not to solicit any offer to buy or offer or sell the Securities by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (h) While any of the Securities remain "restricted securities" within the meaning of the Securities Act, to make available, upon request, to any seller of the Securities the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). (i) If requested by you, to use its best efforts to permit the Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the National Association of Securities Dealers, Inc. relating to trading in the PORTAL Market. (j) To refrain from, and to cause its Affiliates or any person acting on its or their behalf (other than the Placement Agents) to refrain from, engaging in any directed selling efforts (as that term is defined in Regulation S) with respect to the Securities, and to comply, and to cause its Affiliates and each person acting on its or their behalf (other than the Placement Agents) to comply, with the offering restrictions requirement of Regulation S. (k) During the period of two years after the Closing Date, not to resell, and to cause its Affiliates (as defined in Rule 144 under the Securities Act) not to resell, any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them. 7. Offering of Securities; Restrictions on Transfer. (a) Each Placement Agent, severally and not jointly, represents and warrants that such Placement Agent is a QIB. Each Placement Agent, severally and not jointly, represents and warrants to the Company that (i) it has not solicited and will not solicit offers for, and has not offered or sold and will not offer or sell, such Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (ii) it has solicited and will solicit offers for such Securities only from, and has offered and will offer such Securities 13 12 only to, persons that it reasonably believes to be (A) in the case of offers inside the United States, (1) QIBs or (2) other institutional accredited investors that, prior to their purchase of the Securities, deliver to such Placement Agent a letter containing the representations and agreements set forth in Appendix A to the Final Memorandum and (B) in the case of offers outside the United States, to persons other than U.S. persons ("FOREIGN PURCHASERS," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)) in reliance upon Regulation S under the Securities Act that, in each case, in purchasing such Securities are deemed to have represented and agreed as provided in the Final Memorandum under the caption "Transfer Restrictions." (b) Each Placement Agent, severally and not jointly, represents, warrants, and agrees with respect to offers and sales outside the United States that: (i) such Placement Agent understands that no action has been or will be taken in any jurisdiction by the Company that would permit a public offering of the Securities, or possession or distribution of the Final Memorandum or any other offering or publicity material relating to the Securities, in any country or jurisdiction where action for that purpose is required; (ii) such Placement Agent will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes the Final Memorandum or any such other material, in all cases at its own expense; (iii) the Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Rule 144A or Regulation S under the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act; (iv) such Placement Agent has offered the Securities and will offer and sell the Securities (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the Offering and the Closing Date, only in accordance with Rule 903 of Regulation S or as otherwise permitted in Section 7(a); accordingly, neither such Placement Agent, its Affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities, and any such Placement Agent, its Affiliates and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; 14 13 (v) such Placement Agent has (A) not offered or sold and, prior to the date six months after the Closing Date, will not offer or sell any Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (B) complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom; and (C) only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on; (vi) such Placement Agent understands that the Securities have not been and will not be registered under the Securities and Exchange Law of Japan, and represents that it has not offered or sold, and agrees not to offer or sell, directly or indirectly, any Securities in Japan or for the account of any resident thereof except pursuant to any exemption from the registration requirements of the Securities and Exchange Law of Japan and otherwise in compliance with applicable provisions of Japanese law; and (vii) such Placement Agent agrees that, at or prior to confirmation of sales of the Securities, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them by Regulation S." Terms used in this Section 7(b) have the meanings given to them by Regulation S. 8. Indemnity and Contribution. (a) The Company agrees to indemnify and hold harmless each Placement Agent and each person, if any, who controls any Placement Agent within the meaning of either Section 15 of the Securities Act or Section 20 of the 15 14 Exchange Act from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in the Final Memorandum (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Placement Agent furnished to the Company in writing by such Placement Agent through you expressly for use therein. (b) Each Placement Agent agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such Placement Agent, but only with reference to information relating to such Placement Agent furnished to the Company in writing by such Placement Agent through you expressly for use in the Final Memorandum or any amendments or supplements thereto. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b), such person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Morgan Stanley & Co. Incorporated, in the case of parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for 16 15 any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) To the extent the indemnification provided for in Section 8(a) or 8(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Placement Agents on the other hand from the offering of the Securities or (ii) if the allocation provided by clause 8(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company on the one hand and of the Placement Agents on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Placement Agents on the other hand in connection with the offering of the Securities shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Securities (before deducting expenses) received by the Company and the total discounts and commissions received by the Placement Agents in respect thereof, bear to the aggregate offering price of the Securities. The relative fault of the Company on the one hand and of the Placement Agents on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Placement Agents and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Placement Agents' respective obligations to contribute pursuant to 17 16 this Section 8 are several in proportion to the respective principal amount of Securities they have purchased hereunder, and not joint. (e) The Company and the Placement Agents agree that it would not be just or equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Placement Agents were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 8(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Placement Agent shall be required to contribute any amount in excess of the amount by which the total price at which the Securities resold by it in the initial placement of such Securities were offered to investors exceeds the amount of any damages that such Placement Agent has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. 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. The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (f) The indemnity and contribution provisions contained in this Section 8 and the representations, warranties and other statements of the Company contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Placement Agent or any person controlling any Placement Agent or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Securities. 9. Termination. This Agreement shall be subject to termination by notice given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of 18 17 any of the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or together with any other such event, makes it, in your judgment, impracticable to market the Securities on the terms and in the manner contemplated in the Final Memorandum. 10. Effectiveness; Defaulting Placement Agents. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. If, on the Closing Date, any one or more of the Placement Agents shall fail or refuse to purchase Securities that it or they have agreed to purchase hereunder on such date, and the aggregate principal amount of Securities which such defaulting Placement Agent or Placement Agents agreed but failed or refused to purchase is not more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, the other Placement Agents shall be obligated severally in the proportions that the principal amount of Securities set forth opposite their respective names in Schedule I bears to the aggregate principal amount of Securities set forth opposite the names of all such non-defaulting Placement Agents, or in such other proportions as you may specify, to purchase the Securities which such defaulting Placement Agent or Placement Agents agreed but failed or refused to purchase on such date; provided that in no event shall the principal amounts of Securities that any Placement Agent has agreed to purchase pursuant to this Agreement be increased pursuant to this Section 10 by an amount in excess of one-ninth of such principal amount of Securities without the written consent of such Placement Agent. If, on the Closing Date any Placement Agent or Placement Agents shall fail or refuse to purchase Securities which it or they have agreed to purchase hereunder on such date and the aggregate principal amount of Securities with respect to which such default occurs is more than one-tenth of the aggregate principal amount of Securities to be purchased on such date, and arrangements satisfactory to you and the Company for the purchase of such Securities are not made within 36 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Placement Agent or of the Company. In any such case either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Final Memorandum or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Placement Agent from liability in respect of any default of such Placement Agent under this Agreement. If this Agreement shall be terminated by the Placement Agents, or any one of them, because of any failure or refusal on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement, the Company will reimburse the Placement Agents or such Placement Agents as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by the Placement Agents in connection with this Agreement or the offering contemplated hereunder. 19 18 11. Notices. All notices and other communications under this Agreement shall be in writing and mailed, delivered or sent by facsimile transmission to: if sent to the Placement Agents, Morgan Stanley & Co. Incorporated, 1585 Broadway, New York, New York 10036, attention: High Yield New Issues Group, facsimile number (212) 761-0587, and if sent to the Company, Regal Cinemas, Inc., attention: Chief Financial Officer, facsimile number (423) 922-6085. 12. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 13. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 14. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. 20 Very truly yours, REGAL CINEMAS, INC. By: /s/ D. MARK MONROE ---------------------------------- Name: D. Mark Monroe Title: Vice President Accepted as of the date hereof MORGAN STANLEY & CO. INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION Acting on behalf of themselves and the several Placement Agents named in Schedule I hereto. By: Morgan Stanley & Co. Incorporated By: /s/ CLIFTON E. STRAIN -------------------------------------- Name: Clifton E. Strain Title: Principal 21
SCHEDULE I PRINCIPAL AMOUNT OF PLACEMENT AGENT SECURITIES TO BE PURCHASED --------------- -------------------------- Morgan Stanley & Co. Incorporated..................................... $140,000,000 Donaldson, Lufkin & Jenrette Securities Corporation................... 60,000,000 ------------- Total................................................................. $200,000,000 ============
22 EXHIBIT A OPINION OF LOCAL COUNSEL FOR THE COMPANY Attach draft opinion of the counsel for the Company to be delivered pursuant to Section 5(c) of the Placement Agreement to the effect that: A. The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Final Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. B. Each subsidiary of the Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in the Final Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable, and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims. C. The Placement Agreement has been duly authorized, executed and delivered by the Company. D. The Securities have been duly authorized by the Company. E. Each of the Indenture and Registration Rights Agreement has been duly authorized, executed and delivered by the Company. F. After due inquiry, such counsel does not know of any legal or governmental proceedings pending or threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its subsidiaries is subject other than proceedings fairly summarized in all material respects in the Final Memorandum and proceedings which such counsel believes are not likely to have a material adverse effect on the 23 A-2 Company and its subsidiaries, taken as a whole, or on the power or ability of the Company to perform its obligations under the Placement Agreement, the Indenture, the Registration Rights Agreement or the Securities or to consummate the transactions contemplated by the Final Memorandum. EX-10.19 4 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.19 - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated December 16, 1998 between REGAL CINEMAS, INC. and MORGAN STANLEY & CO. INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION - -------------------------------------------------------------------------------- 2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into December 16, 1998, between REGAL CINEMAS, INC., a Tennessee corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION (the "Placement Agents"). This Agreement is made pursuant to the Placement Agreement dated December 9, 1998, between the Company and the Placement Agents (the "Placement Agreement"), which provides for the sale by the Company to the Placement Agents of an aggregate of $200,000,000 principal amount of the Company's 8 7/8% Senior Subordinated Debentures Due 2010 (the "Securities"). In order to induce the Placement Agents to enter into the Placement Agreement, the Company has agreed to provide to the Placement Agents and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Placement Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to time. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Closing Date" shall mean the Closing Date as defined in the Placement Agreement. "Company" shall have the meaning set forth in the preamble and shall also include the Company's successors. "Exchange Offer" shall mean the exchange offer by the Company of Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act effected pursuant to Section 2(a) hereof. 3 2 "Exchange Offer Registration Statement" shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form) and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Securities" shall mean securities issued by the Company under the Indenture containing terms identical to the Securities (except that the Exchange Securities will not contain restrictions on transfer) and to be offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer. "Holder" shall mean the Placement Agents, for so long as they own any Registrable Securities, and each of their successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture; provided that for purposes of Sections 4 and 5 of this Agreement, the term "Holder" shall include Participating Broker-Dealers (as defined in Section 4(a)). "Indenture" shall mean the Indenture relating to the Securities dated as of May 27, 1998 between the Company and IBJ Schroder Bank and Trust Company, as trustee, and as the same may be amended from time to time in accordance with the terms thereof. "Majority Holders" shall mean the Holders of a majority of the aggregate principal amount of outstanding Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or any of its affiliates (as such term is defined in Rule 405 under the 1933 Act) (other than the Placement Agents or subsequent Holders of Registrable Securities if such subsequent holders are deemed to be such affiliates solely by reason of their holding of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage or amount. "Person" shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Placement Agents" shall have the meaning set forth in the preamble. "Placement Agreement" shall have the meaning set forth in the preamble. 4 3 "Prospectus" shall mean the prospectus included in a Registration Statement and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to such prospectus, and in each case including all material incorporated by reference therein. "Registrable Securities" shall mean the Securities; provided, however, that the Securities shall cease to be Registrable Securities (i) when a Registration Statement with respect to such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) when such Securities have been sold to the public pursuant to Rule 144(k) (or any similar provision then in force, but not Rule 144A) under the 1933 Act or (iii) when such Securities shall have ceased to be outstanding. "Registration Expenses" shall mean any and all expenses incident to performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws, (vi) the fees and disbursements of the Trustee and its counsel, (vii) the fees and disbursements of counsel for the Company and, in the case of a Shelf Registration Statement, the fees and disbursements of one counsel for the Holders (which counsel shall be selected by the Majority Holders and which counsel may also be counsel for the Placement Agents) and (viii) the fees and disbursements of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, but excluding fees and expenses of counsel to the underwriters (other than fees and expenses set forth in clause (ii) above) or the Holders and underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement of the Company that covers any of the Exchange Securities or Registrable Securities pursuant to the 5 4 provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Securities" shall have the meaning set forth in the preamble. "SEC" shall mean the Securities and Exchange Commission. "Shelf Registration" shall mean a registration effected pursuant to Section 2(b) hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 2(b) of this Agreement which covers all of the Registrable Securities (but no other securities unless approved by the Holders whose Registrable Securities are covered by such Shelf Registration Statement) on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Trustee" shall mean the trustee with respect to the Securities under the Indenture. "Underwriter" shall have the meaning set forth in Section 3 hereof. "Underwritten Registration" or "Underwritten Offering" shall mean a registration in which Registrable Securities are sold to an Underwriter for reoffering to the public. 2. Registration Under the 1933 Act. (a) To the extent not prohibited by any applicable law or applicable interpretation of the Staff of the SEC, the Company shall use its reasonable best efforts to cause to be filed an Exchange Offer Registration Statement covering the offer by the Company to the Holders to exchange all of the Registrable Securities for Exchange Securities and to have such Registration Statement remain effective until the closing of the Exchange Offer. The Company shall commence the Exchange Offer promptly after the Exchange Offer Registration Statement has been declared effective by the SEC and use its reasonable best efforts to have the Exchange Offer consummated not later than 60 days after such effective date. The Company shall commence the Exchange Offer by mailing the related exchange offer Prospectus and 6 5 accompanying documents to each Holder stating, in addition to such other disclosures as are required by applicable law: (i) that the Exchange Offer is being made pursuant to this Registration Rights Agreement and that all Registrable Securities validly tendered will be accepted for exchange; (ii) the dates of acceptance for exchange (which shall be a period of at least 20 business days from the date such notice is mailed) (the "Exchange Dates"); (iii) that any Registrable Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Registration Rights Agreement; (iv) that Holders electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to surrender such Registrable Security, together with the enclosed letters of transmittal, to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice prior to the close of business on the last Exchange Date; and (v) that Holders will be entitled to withdraw their election, not later than the close of business on the last Exchange Date, by sending to the institution and at the address (located in the Borough of Manhattan, The City of New York) specified in the notice a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange and a statement that such Holder is withdrawing his election to have such Securities exchanged. As soon as practicable after the last Exchange Date, the Company shall: (i) accept for exchange Registrable Securities or portions thereof tendered and not validly withdrawn pursuant to the Exchange Offer; and (ii) deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Company and issue, and cause the Trustee to promptly authenticate and mail to each Holder, an Exchange Security equal in principal amount to the principal amount of the Registrable Securities surrendered by such Holder. The Company shall use its reasonable best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirements of the 1933 Act, the 1934 Act and 7 6 other applicable laws and regulations in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate applicable law or any applicable order or interpretation of the Staff of the SEC. The Company shall inform the Placement Agents of the names and addresses of the Holders to whom the Exchange Offer is made, and the Placement Agents shall have the right, subject to applicable law, to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. Each Holder who participates in the Exchange Offer will be required to represent that any Exchange Securities received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any person to participate in the distribution of the Exchange Securities, and that such Holder is not an affiliate of the Company within the meaning of Rule 405 promulgated under the 1933 Act or if it is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the 1933 Act, to the extent applicable. (b) In the event that (i) the Company determines that the Exchange Offer Registration provided for in Section 2(a) above is not available or may not be consummated as soon as practicable after the last Exchange Date because it would violate applicable law or the applicable interpretations of the Staff of the SEC, (ii) the Exchange Offer is not for any other reason consummated by the 225th day after the Closing Date or (iii) any Holder of Registrable Securities shall provide the Company prior to the 20th day following the consummation of the Exchange Offer an opinion of counsel that (A) such Holder is prohibited by applicable law or applicable interpretation of the Staff of the SEC from participating in the Exchange Offer, or (B) such Holder may not resell the Securities acquired by it in the Exchange Offer to the public without delivering a prospectus and that the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder, the Company shall use its reasonable best efforts to cause to be filed as soon as practicable after such determination date or opinion of counsel is given to the Company, as the case may be, a Shelf Registration Statement providing for the sale by the Holders of all of the Registrable Securities and to have such Shelf Registration Statement declared effective by the SEC. In the event the Company is required to file a Shelf Registration Statement solely as a result of the matters referred to in clause (iii) of the preceding sentence, the Company shall use its reasonable best efforts to file and have declared effective by the SEC both an Exchange Offer Registration Statement pursuant to Section 2(a) with respect to all Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) with respect to offers and sales of Registrable Securities after completion of the Exchange Offer. The Company agrees to use its reasonable best efforts to keep the Shelf Registration Statement continuously effective until the expiration of the period referred to in Rule 144(k) with respect to the Registrable Securities or such shorter period that will terminate when all of the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement. The 8 7 Company further agrees to supplement or amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the 1933 Act or by any other rules and regulations thereunder for shelf registration or if reasonably requested by a Holder with respect to information relating to such Holder, and to use its reasonable best efforts to cause any such amendment to become effective and such Shelf Registration Statement to become usable as soon as thereafter practicable. The Company agrees to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly after its being used or filed with the SEC. (c) The Company shall pay all Registration Expenses in connection with the registration pursuant to Section 2(a) or Section 2(b). Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. (d) An Exchange Offer Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that, if, after it has been declared effective, the offering of Registrable Securities pursuant to a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. (e) Without limiting the remedies available to the Placement Agents and the Holders, the Company acknowledges that any failure by the Company to comply with its obligations under Section 2(a) and Section 2(b) hereof may result in material irreparable injury to the Placement Agents or the Holders for which there is no adequate remedy at law, and that it will not be possible to measure damages for such injuries precisely. In the event the Exchange Offer is not consummated and, if required pursuant to Section (b) (i) or (b) (ii) hereof, the Shelf Registration Statement is not declared effective on or prior to the 225th day after the Closing Date, the interest rate on the Securities will be increased by .5% per annum until the date the Exchange Offer is consummated or the Shelf Registration Statement is declared effective by the SEC. 3. Registration Procedures. In connection with the obligations of the Company with respect to the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof, the Company shall as expeditiously as possible: 9 8 (a) prepare and file with the SEC a Registration Statement on the appropriate form under the 1933 Act, which form (x) shall be selected by the Company and (y) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the selling Holders thereof and (z) shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith, and use its reasonable best efforts to cause such Registration Statement to become effective and remain effective in accordance with Section 2 hereof; (b) prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period and cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to keep each Prospectus current during the period described under Section 4(3) and Rule 174 under the 1933 Act that is applicable to transactions by brokers or dealers with respect to the Registrable Securities or Exchange Securities; (c) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, to counsel for the Placement Agents, to counsel for the Holders and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus and any amendment or supplement thereto and such other documents as such Holder or Underwriter may reasonably request, in order to facilitate the public sale or other disposition of the Registrable Securities; and the Company consents to the use of such Prospectus and any amendment or supplement thereto in accordance with this Agreement and applicable law by each of the selling Holders of Registrable Securities and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in the manner described in such Prospectus or any amendment or supplement thereto in accordance with applicable law; (d) use its reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement shall reasonably request in writing by the time the applicable Registration Statement is declared effective by the SEC, to cooperate with such Holders in connection with any filings required to be made with the National Association of Securities Dealers, Inc. and do any and all other acts and things which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in 10 9 securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) file any general consent to service of process or (iii) subject itself to taxation in any such jurisdiction if it is not so subject; (e) in the case of a Shelf Registration, notify each Holder of Registrable Securities, and if requested by such Holders, counsel for the Holders promptly and, if requested by any such Holder or its counsel, confirm such advice in writing (i) when a Registration Statement has become effective and when any post-effective amendment thereto has been filed and becomes effective, (ii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects or if the Company receives any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, (v) of the happening of any event during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading and (vi) of any determination by the Company that a post-effective amendment to a Registration Statement would be appropriate; (f) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment and provide immediate notice to each Holder of the withdrawal of any such order; (g) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without documents incorporated therein by reference or exhibits thereto, unless requested); (h) in the case of a Shelf Registration, cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders may 11 10 reasonably request at least one business day prior to the closing of any sale of Registrable Securities; (i) in the case of a Shelf Registration, upon the occurrence of any event contemplated by Section 3(e)(v) hereof, use its reasonable best efforts to prepare and file with the SEC a supplement or post-effective amendment to a Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company agrees to notify the Holders to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and the Holders hereby agree to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission; (j) a reasonable time prior to the filing of any Registration Statement, any Prospectus, any amendment to a Registration Statement or amendment or supplement to a Prospectus, provide copies of such document to the Placement Agents and their counsel (or, in the case of a Shelf Registration Statement, the Holders and their counsel) (subject to, in each case, each such person acknowledging the confidentiality of the information therein) and make such of the representatives of the Company as shall be reasonably requested by the Placement Agents or their counsel (or, in the case of a Shelf Registration Statement, the Holders or their counsel) available for discussion of such document, and shall not at any time file or make any amendment to the Registration Statement, any Prospectus or any amendment of or supplement to a Registration Statement or a Prospectus, of which the Placement Agents and their counsel (or, in the case of a Shelf Registration Statement, the Holders and their counsel) shall not have previously been advised and furnished a copy or to which the Placement Agents or their counsel (and, in the case of a Shelf Registration Statement, the Holders or their counsel) shall reasonably object; (k) obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement; (l) to the extent not already qualified pursuant to the Registration Statement on Form S-4 (File No. 333-64399) filed by the Company with the SEC on September 28, 1998, as amended on October 14, 1998 and declared effective on October 16, 1998, cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended (the "TIA"), in connection with the registration of the Exchange Securities or 12 11 Registrable Securities, as the case may be, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and execute, and use its reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (m) in the case of a Shelf Registration, make available for inspection by a representative of the Holders of the Registrable Securities, any Underwriter participating in any disposition pursuant to such Shelf Registration Statement, and attorneys and accountants designated by the Holders, at reasonable times and in a reasonable manner, all financial and other records, pertinent documents and properties of the Company, and cause the respective officers, directors and employees of the Company to supply all information reasonably requested by any such representative, Underwriter, attorney or accountant in connection with a Shelf Registration Statement, subject, to, in each case, each such person acknowledging the confidentiality of the information made available; (n) in the case of a Shelf Registration, use its reasonable best efforts to cause all Registrable Securities to be listed on any securities exchange or any automated quotation system on which similar securities issued by the Company are then listed if requested by the Majority Holders, to the extent such Registrable Securities satisfy applicable listing requirements; (o) use its reasonable best efforts to cause the Exchange Securities or Registrable Securities, as the case may be, to be rated by two nationally recognized statistical rating organizations (as such term is defined in Rule 436(g)(2) under the 1933 Act); (p) if reasonably requested by any Holder of Registrable Securities covered by a Registration Statement, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information with respect to such Holder as such Holder reasonably requests to be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such filing; and (q) in the case of a Shelf Registration, enter into such customary agreements and take all such other actions in connection therewith (including those requested by the Holders of a majority of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities including, but not limited to, an 13 12 Underwritten Offering and in such connection, (i) to the extent possible, make such representations and warranties to the Holders and any Underwriters of such Registrable Securities with respect to the business of the Company and its subsidiaries, the Registration Statement, Prospectus and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in Underwritten Offerings and confirm the same if and when requested, (ii) in the case of an Underwritten Offering, obtain opinions of counsel to the Company (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to the Holders and such Underwriters and their respective counsel) addressed to each Underwriter of Registrable Securities, covering the matters customarily covered in opinions requested in underwritten offerings, (iii) obtain "cold comfort" letters from the independent certified public accountants of the Company (and, if necessary, any other certified public accountant of any subsidiary of the Company, or of any business acquired by the Company for which financial statements and financial data are or are required to be included in the Registration Statement) addressed to each Underwriter and, if permitted by the relevant pronouncements of the accounting industry, to each selling Holder, of Registrable Securities, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with Underwritten Offerings, and (iv) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in principal amount of the Registrable Securities being sold or the Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties of the Company made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in an underwriting agreement. In the case of a Shelf Registration Statement and as a condition to the inclusion of any Holder's Registrable Securities in such Registration Statement, the Company may require such Holder of Registrable Securities to furnish to the Company such information regarding the Holder and the proposed distribution by such Holder of such Registrable Securities as the Company may from time to time reasonably request in writing. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at its expense) all copies in its possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. If the Company shall give any such notice to suspend the disposition of Registrable Securities 14 13 pursuant to a Registration Statement, the Company shall extend the period during which the Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders shall have received copies of the supplemented or amended Prospectus necessary to resume such dispositions. Any such suspensions may not exceed 120 days in the aggregate during any 365-day period. The Holders of Registrable Securities covered by a Shelf Registration Statement who desire to do so may sell such Registrable Securities in an Underwritten Offering. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers (the "Underwriters") that will administer the offering will be selected by the Majority Holders of the Registrable Securities included in such offering. 4. Participation of Broker-Dealers in Exchange Offer. (a) The Staff of the SEC has taken the position that any broker-dealer that receives Exchange Securities for its own account in the Exchange Offer in exchange for Securities that were acquired by such broker-dealer as a result of market-making or other trading activities (a "Participating Broker-Dealer"), may be deemed to be an "underwriter" within the meaning of the 1933 Act and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities. The Company understands that it is the Staff's position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, without naming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by Participating Broker-Dealers to satisfy their prospectus delivery obligation under the 1933 Act in connection with resales of Exchange Securities for their own accounts, so long as the Prospectus otherwise meets the requirements of the 1933 Act. (b) In light of the above, notwithstanding the other provisions of this Agreement, the Company agrees that the provisions of this Agreement as they relate to a Shelf Registration other than Sections 3(m) and 3(q), shall also apply to an Exchange Offer Registration to the extent, and with such reasonable modifications thereto as may be, reasonably requested by the Placement Agents or by one or more Participating Broker-Dealers, in each case as provided in clause (ii) below, in order to expedite or facilitate the disposition of any Exchange Securities by Participating Broker-Dealers consistent with the positions of the Staff recited in Section 4(a) above; provided that: 15 14 (i) the Company shall not be required to amend or supplement the Prospectus contained in the Exchange Offer Registration Statement, as would otherwise be contemplated by Section 3(i), for a period exceeding 180 days after the last Exchange Date (as such period may be extended pursuant to the penultimate paragraph of Section 3 of this Agreement) and Participating Broker-Dealers shall not be authorized by the Company to deliver and shall not deliver such Prospectus after such period in connection with the resales contemplated by this Section 4; and (ii) the application of the Shelf Registration procedures set forth in Section 3 of this Agreement to an Exchange Offer Registration, to the extent not required by the positions of the Staff of the SEC or the 1933 Act and the rules and regulations thereunder, will be in conformity with the reasonable request to the Company by the Placement Agents or with the reasonable request in writing to the Company by one or more broker-dealers who certify to the Placement Agents and the Company in writing that they anticipate that they will be Participating Broker-Dealers; and provided further that, in connection with such application of the Shelf Registration procedures set forth in Section 3 to an Exchange Offer Registration, the Company shall be obligated to deal only with one entity representing the Participating Broker-Dealers, which shall be Morgan Stanley & Co. Incorporated unless it elects not to act as such representative. (c) The Placement Agents shall have no liability to the Company or any Holder with respect to any request that it may make pursuant to Section 4(b) above. (d) Each Holder who wishes to exchange Securities for Exchange Securities in the Exchange Offer and who is not a Broker-Dealer shall represent that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities. (e) Each Holder who wishes to exchange Securities for Exchange Securities in the Exchange Offer and who is a Broker-Dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities shall acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. 5. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless the Placement Agents, each Holder and each Person, if any, who controls any Placement Agent or any Holder within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, or is under common control with, or is controlled by, any Placement Agent or any Holder, from and against all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred by such Placement Agent, any Holder or any such 16 15 controlling or affiliated Person in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Exchange Securities or Registrable Securities were registered under the 1933 Act, including all documents incorporated therein by reference, or caused by 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, or caused by any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein in light of the circumstances under which they were made not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Placement Agents or any Holder furnished to the Company in writing through Morgan Stanley & Co. Incorporated or any selling Holder expressly for use therein; provided that the foregoing indemnity agreement with respect to any Registration Statement or Prospectus shall not inure to the benefit of any Placement Agent or Holder from whom the person asserting any such losses, claims, damages or liabilities purchased Securities, or any person controlling such Placement Agent or Holder, if a copy of the Registration Statement or Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Placement Agent to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Securities to such person, and if the Registration Statement or Prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities, unless such failure is the result of noncompliance by the Company with Section 3(c) hereof. In connection with any Underwritten Offering permitted by Section 3, the Company will also indemnify the Underwriters, if any, selling brokers, dealers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of the 1933 Act and the 1934 Act) to the same extent as provided above with respect to the indemnification of the Holders, if requested in connection with any Registration Statement. (b) Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, the Placement Agents and the other selling Holders, and each of their respective directors, officers who sign the Registration Statement and each Person, if any, who controls the Company, any Placement Agent and any other selling Holder within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as the foregoing indemnity from the Company to the Placement Agents and the Holders, but only with reference to information relating to such Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto). 17 16 (c) In case any proceeding (including any governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above, such Person (the "indemnified party") shall promptly notify the Person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all indemnified parties, and that all such fees and expenses shall be reimbursed as they are incurred. In any such case involving the Holders and such Persons who control Holders, such firm shall be designated in writing by the Majority Holders. In all other cases, such firm shall be designated by the Company. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but, if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party for such fees and expenses of counsel in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which such indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) If the indemnification provided for in paragraph (a) or paragraph (b) of this Section 5 is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities, then each indemnifying party under such paragraph, in lieu of 18 17 indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and the Holders shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders' respective obligations to contribute pursuant to this Section 5(d) are several in proportion to the respective principal amount of Registrable Securities of such Holder that were registered pursuant to a Registration Statement. (e) The Company and each Holder agree that it would not be just or equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 5, no Holder shall be required to indemnify or contribute any amount in excess of the amount by which the total price at which Registrable Securities were sold by such Holder exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 5 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. The indemnity and contribution provisions contained in this Section 5 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Placement Agents, any Holder or any Person controlling any Placement Agent or any Holder, or by or on behalf of the Company, its officers or directors or any Person controlling the Company, (iii) acceptance of any of the Exchange Securities and (iv) any sale of Registrable Securities pursuant to a Shelf Registration Statement. 19 18 6. Miscellaneous. (a) No Inconsistent Agreements. The Company has not entered into, and on or after the date of this Agreement will not enter into, any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; provided, however, that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 6(c), which address initially is, with respect to the Placement Agents, the address set forth in the Placement Agreement; and (ii) if to the Company, initially at the Company's address set forth in the Placement Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture. 20 19 (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Placement Agreement. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. The Placement Agents (in its capacity as Placement Agents) shall have no liability or obligation to the Company with respect to any failure by any other Holder to comply with, or any breach by any other Holder of, any of the obligations of such Holder under this Agreement. (e) Purchases and Sales of Securities. The Company shall not, and shall use its best efforts to cause its affiliates (as defined in Rule 405 under the 1933 Act) not to, purchase and then resell or otherwise transfer any Securities. (f) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Placement Agents, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. This Agreement shall be governed by the laws of the State of New York. (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 21 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. REGAL CINEMAS, INC. By: /s/ D. MARK MONROE ------------------------------- Name: D. Mark Monroe Title: Vice President Confirmed and accepted as of the date first above written: MORGAN STANLEY & CO. INCORPORATED DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: Morgan Stanley & Co. Incorporated By: /s/ CLIFTON E. STRAIN ---------------------------------- Name: Clifton E. Strain Title: Principal EX-12 5 STATEMENT RE: RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12
Historical Costs ------------------------------------------------------------------------------------------ Fiscal Year Ended Nine Months Ended --------------------------------------------------------------------- ------------------ December 30, December 29, December 28, January 2, January 1, October 2, October 1, 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 $ 35.9 $ (24.0) Adjustments: Interest expense 7.0 7.5 10.7 12.8 14.0 9.5 32.8 Amortization of debt issuance costs 0.4 0.3 0.3 0.6 0.5 0.6 1.5 Portion of rent expense related to Interest cost 9.3 10.8 11.5 13.8 17.9 13.1 18.9 ------- ------- ------- ------- ------- ------- ------- Earnings $ 30.5 $ 39.8 $ 52.6 $ 73.9 $ 86.7 $ 59.1 $ 29.2 ======= ======= ======= ======= ======= ======= ======= Fixed charges: Interest expense $ 7.0 $ 7.5 $ 10.7 $ 12.8 $ 14.0 $ 9.5 $ 32.8 Interest capitalized -- 0.4 1.2 1.7 2.6 2.0 3.3 Amortization of debt issuance costs 0.4 0.3 0.3 0.6 0.5 0.6 1.5 Portion of rent expense related to Interest cost 9.3 10.8 11.5 13.8 17.9 13.1 18.9 ------- ------- ------- ------- ------- ------- ------- Fixed charges $ 16.7 $ 19.0 $ 23.7 $ 28.9 $ 35.0 $ 25.2 $ 56.5 ======= ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges 1.8 2.1 2.2 2.6 2.5 2.3 -- Deficiency of earnings to cover fixed charges -- -- -- -- -- -- $ 27.3 Pro Forma ------------------------ January 1, October 1, 1998 1998 ---------- ---------- Income (loss) before income taxes and loss (gain) on extraordinary item $ (42.4) $ (51.2) Adjustments: Interest expense 117.6 87.3 Amortization of debt issuance costs 3.9 2.9 Portion of rent expense related to Interest cost 21.4 24.0 ------- ------- Earnings $ 100.5 $ 63.0 Fixed charges: Interest expense $ 117.6 $ 87.3 Interest capitalized 2.7 4.4 Amortization of debt issuance costs 3.9 2.9 Portion of rent expense related to Interest cost 21.4 24.0 ------- ------- Fixed charges $ 145.6 $ 118.6 ======= ======= Deficiency of earnings to cover fixed charges $ 45.1 $ 55.6
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 for $200,000,000 8-7/8% Senior Subordinated Debentures due 2010 of our report on the financial statements of Act III Cinemas, Inc. dated March 25, 1998, appearing in the Prospectus, which is part of such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Portland, Oregon December 29, 1998 EX-23.3 7 CONSENT OF PRICEWATERHOUSECOOPERS LLP-PORTLAND 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT 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. PricewaterhouseCoopers LLP Portland, Oregon December 29, 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 references to our firm under the captions "Experts" and "Selected Historical Consolidated Financial Data." PricewaterhouseCoopers LLP Knoxville, Tennessee December 29, 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 $200,000,000 of its 8 7/8% Senior Subordinated Debentures due 2010. ERNST & YOUNG LLP Birmingham, Alabama December 28, 1998 EX-25.2 10 FORM T-1 STATEMENT OF ELIGIBILITY 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)
8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010 (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 1 3 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. 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 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 16th day of December, 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 8 7/8% Senior Subordinated Debentures due 2010, 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: December 16, 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 SEPTEMBER 30, 1998 ASSETS
DOLLAR AMOUNTS IN THOUSANDS -------------- 1. Cash and balance due from depository institutions: a. Non-interest-bearing balances and currency and coin..... $ 42,702 b. Interest-bearing balances............................... $ 13,444 2. Securities: a. Held-to-maturity securities............................. $ 191,921 b. Available-for-sale securities........................... $ 118,931 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................................................... $ 79,838 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income................ $1,938,005 b. LESS: Allowance for loan and lease losses............... $ 63,361 c. LESS: Allocated transfer risk reserve................... $ -0- d. Loans and leases, net of unearned income, allowance, and reserve..................................................... $1,874,644 5. Trading assets held in trading accounts..................... $ 462 6. Premises and fixed assets (including capitalized leases).... $ 1,922 7. Other real estate owned..................................... $ 819 8. Investments in unconsolidated subsidiaries and associated companies................................................... $ -0- 9. Customers' liability to this bank on acceptances outstanding................................................. $ 371 10. Intangible assets........................................... $ 11,167 11. Other assets................................................ $ 68,097 12. TOTAL ASSETS................................................ $2,404,318 LIABILITIES 13. Deposits: a. In domestic offices..................................... $ 682,904 (1) Noninterest-bearing..................................... $ 135,253 (2) Interest-bearing........................................ $ 547,651 b. In foreign offices, Edge and Agreement subsidiaries, and IBFs.................................................... $1,154,887 (1) Noninterest-bearing..................................... $ 17,024 (2) Interest-bearing........................................ $1,137,863 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............................................... $ 91,000 15. a. Demand notes issued to the U.S. Treasury................ $ 12,693 b. Trading Liabilities..................................... $ 239 16. Other borrowed money: a. With a remaining maturity of one year or less........... $ 31,002 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.... $ 371 19. Subordinated notes and debentures........................... $ 100,000 20. Other liabilities........................................... $ 76,658 21. TOTAL LIABILITIES........................................... $2,152,679 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.................. $ 4,112 b. Net unrealized gains (losses) on available-for-sale securities.................................................. $ 870 27. Cumulative foreign currency translation adjustments......... $ -0- 28. TOTAL EQUITY CAPITAL........................................ $ 251,639 29. TOTAL LIABILITIES AND EQUITY CAPITAL........................ $2,404,318
5 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF REGAL CINEMAS, INC. FOR THE NINE MONTHS ENDED OCTOBER 1, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1998 JAN-02-1998 OCT-01-1998 15,161 0 7,686 0 4,258 52,955 1,225,684 143,674 1,591,221 91,446 1,226,122 0 0 193,459 46,406 1,591,221 315,481 477,868 170,355 191,906 277,502 0 32,835 (23,971) 100 (24,071) 0 (11,890) 0 (35,961) 0 0
EX-99.1 12 FORM OF LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER UNREGISTERED 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010 OF REGAL CINEMAS, INC. PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1999 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999 (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 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010 FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF REGISTERED 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010, PURSUANT TO THE EXCHANGE OFFER, YOU MUST VALIDLY TENDER (AND NOT WITHDRAW) OLD DEBENTURES 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 DEBENTURES - -------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) AGGREGATE AS IT APPEARS ON THE 8 7/8% SENIOR SUBORDINATED DEBENTURES CERTIFICATE PRINCIPAL AMOUNT DUE 2010 NUMBER(S) OF OLD DEBENTURES (PLEASE FILL IN, IF BLANK) OF OLD DEBENTURES TENDERED - -------------------------------------------------------------------------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- TOTAL PRINCIPAL AMOUNT OF OLD DEBENTURES TENDERED - --------------------------------------------------------------------------------------------------------
3 LADIES AND GENTLEMEN: 1. The undersigned hereby tenders to Regal Cinemas, Inc., a Tennessee corporation (the "Company"), the 8 7/8% Senior Subordinated Debentures due 2010 (the "Old Debentures") described above pursuant to the Company's offer of $1,000 principal amount of 8 7/8% Senior Subordinated Debentures due 2010 (the "Debentures") in exchange for each $1,000 principal amount of the Old Debentures, upon the terms and subject to the conditions contained in the Prospectus dated , 1999 (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 Debentures 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 Debentures. 3. The undersigned understands that the tender of the Old Debentures 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 Debentures 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 Debentures; (iii) neither the undersigned nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Debentures; 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 Debentures registered in the shelf registration described in the Registration Rights Agreement, dated as of December 16, 1998, between the Company and Morgan Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation 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 4 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 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 Debentures. If the undersigned is a broker-dealer that will receive Debentures for its own account in exchange for Old Debentures 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 Debentures; 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 Debentures held for its own account were not acquired as a result of market-making or other trading activities, such Old Debentures 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 Debentures will be issued in the name of the undersigned. SPECIAL DELIVERY INSTRUCTIONS (See Instruction 1) To be completed ONLY IF the Debentures 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 Debentures 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 Debentures 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 debentureholders. Must be signed by registered holder exactly as name appears on Old Debentures. 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 Debentures described above are tendered for the account of an Eligible Institution. 2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD DEBENTURES. The Old Debentures, 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 DEBENTURES 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 DEBENTURES 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 Debentures, such Old Debentures 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 Debentures. If this Letter of Transmittal or any Old Debentures 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 Debentures 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 Debentures not properly tendered or any Old Debentures 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 Debentures. 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 Debentures 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 Debentures will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Debentures 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 FORM OF NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY TO TENDER UNREGISTERED 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010 (INCLUDING THOSE IN BOOK-ENTRY FORM) OF REGAL CINEMAS, INC. PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1999 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 8 7/8% Senior Subordinated Debentures due 2010 (the "Old Debentures") of Regal Cinemas, Inc., a Tennessee corporation (the "Company"), are not immediately available, (ii) time will not permit a holder's Old Debentures 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 , 1999 (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 , 1999 (the "Prospectus"), and in the accompanying Letter of Transmittal, receipt of which is hereby acknowledged, $ in aggregate principal amount of Old Debentures 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 Debentures (if available): - --------------------------------------------------------------------------- Total Principal Amount Tendered and Represented by Certificate(s): $ - -------------------------------------------------------------------------------- Signature of Registered Holders(s): - --------------------------------------------------------------------- Dated: - -------------------------------------------------------------------------------- [ ] The Depository Trust Company (Check if Old Debentures 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 Debentures 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 Debentures complies with Rule 14e-4, and (c) to deliver to the Exchange Agent the certificates representing the Old Debentures tendered hereby or confirmation of book-entry transfer of such Old Debentures 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 DEBENTURES WITH THIS FORM. CERTIFICATES OF OLD DEBENTURES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----