-----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, Npst9JR7j+kVI6l/uu+JpPyKUM1+yd01hkvRbMzeqxkSy7zv9meSu1joF+VBOL72 rgVRjXXVoiSZk/t5aFanlA== 0000950144-97-003447.txt : 19970401 0000950144-97-003447.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950144-97-003447 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970102 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGAL CINEMAS INC CENTRAL INDEX KEY: 0000905035 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE THEATERS [7830] IRS NUMBER: 621412720 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21772 FILM NUMBER: 97569479 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 10-K 1 REGAL CINEMAS FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 2, 1997 Commission file number 0-21772 REGAL CINEMAS, INC. (Exact name of registrant as specified in its charter) Tennessee 62-1412720 --------------------------- ------------------------------------- (State or other jurisdiction (I.R.S. employer identification number) of incorporation or organization) 7132 Commercial Park Drive Knoxville, Tennessee 37918 -------------------------------------- ------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (423) 922-1123 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value per share ------------------------------------ (Title of class) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant on March 14, 1997, was $883,500,000 approximately. The market value calculation was determined using the closing sale price of the Registrant's common stock on March 14, 1997, as reported on The Nasdaq Stock Market's National Market. Shares of common stock, no par value per share, outstanding on March 7, 1997, were 33,157,043. DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Documents from which portions are incorporated by reference - ----------------- ----------------------------------------------------------- Part III Portions of the Registrant's Proxy Statement relating to the Registrant's Annual Meeting of Shareholders to be held on May 1, 1997 are incorporated by reference into Items 10, 11, 12 and 13.
2 REGAL CINEMAS, INC. FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
Page ---- PART I ....................................................................................................1 Item 1. Business...................................................................................1 Industry Overview..............................................................................1 Strategy.......................................................................................2 Theatre Operations.............................................................................3 Film Licensing.................................................................................5 Entertainment Centers..........................................................................6 Competition....................................................................................7 Regulation.....................................................................................7 Employees......................................................................................8 Risk Factors...................................................................................8 Executive Officers.............................................................................9 Item 2. Properties................................................................................10 Item 3. Legal Proceedings.........................................................................10 Item 4. Submission of Matters to a Vote of Security-Holders.......................................10 PART II ...................................................................................................11 Item 5. Market for the Registrant's Common Equity and Related Shareholder Matters.................11 Item 6. Selected Financial Data...................................................................12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................13 Overview......................................................................................13 Background of Regal...........................................................................13 Results of Operations.........................................................................13 Fiscal Years Ended January 2, 1997 and December 28, 1995......................................15 Fiscal Years Ended December 28, 1995 and December 29, 1994....................................16 Liquidity and Capital Resources...............................................................16 New Accounting Pronouncements.................................................................18 Item 8. Financial Statements and Supplementary Data...............................................18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......34 PART III ...................................................................................................35 Item 10. Directors and Executive Officers of the Registrant....................................35 Item 11. Executive Compensation................................................................35 Item 12. Security Ownership of Certain Beneficial Owners and Management........................35 Item 13. Certain Relationships and Related Transactions........................................35 PART IV ...................................................................................................36 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................36 SIGNATURES..................................................................................................38 INDEX TO EXHIBITS...........................................................................................39
3 REGAL CINEMAS, INC. PART I ITEM 1. BUSINESS Regal Cinemas, Inc. ("Regal" or the "Company") is a leading regional motion picture exhibitor in the eastern United States. Since its founding, Regal's growth has come through the acquisition of a net of 114 theatres with 760 screens, the development of 42 theatres with 459 screens and the addition of 68 screens to existing theatres. Operations began with the acquisition of Regal's first theatre in January 1990. As of January 2, 1997, Regal operated 156 multi-screen theatres with an aggregate of 1,287 screens and is the sixth largest motion picture exhibitor in the United States based upon number of screens in operation. In addition, at January 2, 1997, the Company had 14 new theatres with 196 screens under construction and six screens under construction at existing theatres. The Company was incorporated under the laws of the State of Tennessee in November 1989. The Company's principal offices are located at 7132 Commercial Park Drive, Knoxville, Tennessee 37918, and its telephone number is (423) 922-1123. INDUSTRY OVERVIEW The domestic motion picture exhibition industry is comprised of approximately 350 exhibitors, 130 of which operate ten or more total screens. At May 1, 1996, the five largest exhibitors operated approximately 34% of the total screens in operation with no one exhibitor operating more than 9% of the total screens. From 1986 through 1996 the net number of screens in operation in the United States increased from approximately 22,000 to approximately 28,000, and admissions revenues increased from approximately $3.8 billion to approximately $5.8 billion. In an effort to realize greater operating efficiencies, operators of multi-theatre circuits have emphasized the development of larger multi-screen complexes. This trend is evidenced by the increase in the average number of screens per location for the industry from approximately 3.5 screens in 1986 to approximately 4.8 screens in 1996. Theatrical motion picture exhibition is the initial way most films are made available to the public to see. Management believes that forms of home entertainment, such as cable television, video cassettes and pay per view, has not adversely affected theatre admissions or the number of films released for theatrical exhibition. Overall attendance has remained relatively stable over the past ten years, with no single year varying more than approximately 10% from the industry average of 1.15 billion during that period. Management believes the number of films released for theatrical exhibition will remain relatively stable or increase because a film's initial theatrical exhibition success establishes the value of the film throughout its life cycle in ancillary markets. In recent years, there has been an increasing consolidation of the major film production companies. During 1996, films distributed by the eight largest film production companies accounted for approximately 92% of the domestic admissions revenues and included 49 of the top 50 grossing films. Films are licensed through film distributors, who typically establish geographic film licensing zones and allocate each available film to one theatre within that zone. See "Film Licensing." 1 4 Historically, the motion picture exhibition industry has experienced some seasonality, as major film distributors have generally released the films expected to have the greatest commercial appeal during the summer and the Thanksgiving through year-end holiday season. 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. STRATEGY OPERATING STRATEGY. Management believes the following characteristics are the key elements of its operating strategy: - Multi-Screen Theatres. The Company's multi-screen 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 serve patrons from common support facilities. These factors result in increased attendance, improved utilization of theatre seating capacity and operating efficiencies. - Cost Control. Regal has designed prototype theatres adaptable to a variety of locations, which management believes result in construction and operating cost savings. The shifting of films to smaller auditoriums within a theatre to accommodate changing attendance levels allows the Company to exhibit films for extended periods, resulting in lower film rental costs as a percentage of admission revenues. In addition, a significant component of theatre level management's compensation is based on controlling operating expenses at the theatre level. - Patron Satisfaction/Quality Control. Regal emphasizes conveniently located, modern, high quality facilities that offer a wide variety of films. To maintain quality and consistency within the Company's theatres, Regal conducts regular inspections of each theatre and operates a "mystery shopper" program. To enhance the movie going experience, the Company invests in high quality projection and stereo sound equipment, including the latest digital sound systems. - Centralized Corporate Decision Making/Decentralized Operations. Functions centralized through the Company's corporate office include film licensing and concession purchasing, as well as decisions on theatre construction and configuration. Cost controls at the theatre level include close monitoring of concession, advertising and payroll expenses. Regal devotes significant resources to training its theatre managers, who are responsible for most aspects of its theatres' day-to-day operations. - Marketing. Regal actively markets its theatres through grand opening promotions, including "VIP" preopening parties, direct mail campaigns, television commercials in certain markets and promotional activities, such as live music, spotlights and skydivers, which frequently generate media coverage. Regal develops patron loyalty through a number of marketing programs such as a summer children's film series in which children's films are shown at reduced rates during the morning hours. Regal also utilizes special marketing programs for specific films and concession items. GROWTH STRATEGY. Management believes that the following characteristics are the key elements of its growth strategy: 2 5 - Develop New Theatres in Existing and Target Markets. At January 2, 1997, the Company had 14 theatres with 196 screens under construction and currently plans to develop 250 to 300 screens annually for the next several years. Regal will seek to develop multi-screen theatres with at least ten screens in both its existing markets and in other mid-sized metropolitan markets and suburban growth areas of larger metropolitan markets in the eastern United States. Management will continue to locate theatres in areas that are under screened because of changing demographic trends or that are served by aging theatre facilities or by theatres having an insufficient number of screens. Regal targets theatre locations with high visibility and convenient roadway access in geographic film licensing zones in which it will be the sole exhibitor. Regal continually reviews potential sites for theatres, including both new construction and the conversion of existing retail space. - Add Screens to Existing Theatres. To enhance profitability and maintain competitiveness at existing theatres, the Company will continue to add additional screens where appropriate. The Company currently has six screens under construction at existing theatre facilities and anticipates the addition of 10 to 20 screens to certain of its theatres. 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, Regal will continue to consider strategic acquisitions of complementary theatres or theatre circuits at which Regal can improve profitability and increase screen counts. Since its inception through January 2, 1997, Regal has acquired a net of 114 theatres with 760 screens, which has served to establish and enhance the Company's presence in selected geographic markets. - Develop Complementary Theatre Concepts. To complement the Company's theatre development, Regal opened comprehensive family entertainment centers in Chesapeake, Virginia, Rochester, New York and Syracuse, New York. The Company currently has three additional FunScapes(TM) under construction and may seek to develop additional FunScape(TM) complexes at strategic locations. THEATRE OPERATIONS As of January 2, 1997, Regal operated 156 multi-screen theatres with an aggregate of 1,287 screens in 20 states. Since inception, Regal has increased its average screens per location from 4.8 to 8.3 screens, as compared to the average for the five largest domestic motion picture exhibitors of approximately 5.7 screens at May 1, 1996. Multi-screen 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 reduce film rental costs by exhibiting films for a longer period of time through the shifting of 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 minimize staffing requirements, reduce lobby congestion and contribute to more desirable parking and traffic flow patterns. Regal has designed prototype theatres, adaptable to a variety of locations, which management believes result in construction and operating cost savings. Regal's multi-screen theatre complexes, which typically contain auditoriums having from 100 to 500 seats each, feature wall-to-wall screens, digital stereo surround-sound, multi-station concessions, computerized ticketing systems, plush seating with cup holders, 3 6 neon-enhanced interiors and exteriors, and video game areas adjacent to the theatre lobby. Approximately 70% of the Company's screens are less than eight years old. In addition, the Company has a continuing program to maintain clean, comfortable and modern facilities. Management believes that maintaining a theatre circuit consisting primarily of modern multi-screen theatres also enhances the Company's ability to license commercially successful modern films from distributors. See "Film Licensing." Functions centralized at the Company's corporate office include site selection, lease negotiation, theatre design and construction, coordination of film selection, concession purchasing, advertising and financial and accounting activities. Regal's theatre operations are under the supervision of its Chief Operating Officer and are divided into two geographic divisions, each of which is headed by a Vice President supervising several district theatre supervisors. The district theatre supervisors are responsible for implementing Company operating policies and supervising the managers of the individual theatres, who are responsible for most of the day-to-day operations of the Company's theatres. Regal 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. 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. Regal 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, Regal receives revenues from concession sales and video games located adjacent to the theatre lobby. Concession sales constituted 28.2% of total revenues for fiscal 1996. Regal emphasizes prominent and appealing concession stations designed for rapid service and efficiency. Although popcorn, candy and soft drinks remain the best selling concession items, the Company's theatres offer a wide range of concession choices. Regal continually seeks to increase concession sales through optimizing product mix, introducing special promotions from time to time and training staff to cross sell products. In addition to traditional concession stations, certain of the Company's 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. Regal 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 newspaper's circulation area. Primary multi- media advertising campaigns for major film releases are carried out and paid for by the film distributors. The Company conducts marketing efforts throughout the year to promote specific films, concession items and its theatre complexes. Regal markets its new theatres through grand opening promotions, including "VIP" preopening parties, direct mail campaigns, radio and television commercials in certain markets and promotional activities such as live music, spotlights and skydivers, which frequently generate 4 7 media coverage. Regal's theatres also exhibit previews of coming attractions and films presently playing on the Company's other screens in the same market area. Regal operates 14 theatres with an aggregate of 86 screens, which exhibit second run movies and charge lower admission prices (typically $1.50). These movies are the same high quality features shown at all of Regal'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. Regal 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. Regal's discount theatres generate theatre level cash flows similar to Regal's first run theatres. Management does not anticipate a significant increase in the percentage of discount theatres in its theatre circuit. As of January 2, 1997, Regal operated 104 of its 156 theatres pursuant to lease agreements, owns the land and building for 37 theatres and operates pursuant to ground leases at 15 locations. Of the 156 theatres operated by Regal as of January 2, 1997, 114 were acquired and 42 have been developed by Regal. FILM LICENSING Regal licenses films from distributors on a film-by-film and theatre-by-theatre basis. Film buyers negotiate directly with film distributors on behalf of the Company. Prior to negotiating for a film license, the Company and its film buyers evaluate 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. Historically, Tri-State Theatre Services, Inc., an independent film booking agency which is controlled by a director of the Company ("Tri-State"), provided film licensing services for Regal. During 1996, Regal changed its operations to perform those services internally. Tri-State will continue to provide consulting services on film recognition and strategy. 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. Regal believes that approximately 72% of its theatres are now located in film licensing zones in which they are now the sole exhibitors, permitting the Company to exhibit many of the most commercially successful films in these zones. In film zones where Regal 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 choose which exhibitor is offered a movie and then that exhibitor will negotiate film rental terms directly with the distributor for the film. 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. Regal currently does not bid for films in any of its markets, although it may be required to do so in the future. Although Regal 5 8 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. 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 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 to seven weeks. 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, Regal 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. Regal's business is dependent upon the availability of marketable motion pictures and its relationships with distributors. Many distributors provide quality first run movies to the motion picture exhibition industry; however, eight distributors accounted for approximately 92% of industry admission revenues during 1996, and 49 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 or lack of commercial success of motion pictures would have a material adverse effect upon the Company's business. Regal licenses films from each of the major distributors and believes that its relationship 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. Based on industry statistics, Regal believes that in 1996 no single distributor accounted for more than 22% of the films licensed by the Company, or films producing more than 22% of the Company's admission revenues. ENTERTAINMENT CENTERS To complement the Company's theatre development, Regal developed and operates comprehensive family entertainment centers in Chesapeake, Virginia, Rochester, New York and Syracuse, New York. Each complex, includes a 13 screen theatre and a 50,000 square foot family entertainment center. Each theatre facility exhibits first run films, is equipped with the latest Dolby and DTS digital sound systems, and features an oversized lobby with two concession stands and a specialty cafe. A food court connects the theatres to the entertainment center and features nationally recognized brand name pizza, taco, sandwich and dessert restaurants. The entertainment center generally will feature a 36-hole, tropical-themed miniature golf course, a children's soft play and exercise area, multi-level laser tag, video batting cages, a video golf course, helmet type and motion simulator virtual reality units and a high-tech video arcade. In addition, the center contains eight party rooms for various social gatherings. The two level family entertainment center is totally enclosed and under roof for year-round operation. Each theatre and entertainment center totals approximately 95,000 square feet and management believes the facility is a comprehensive entertainment destination. The Company currently has three 6 9 additional FunScape(TM) complexes under construction and may seek to develop additional FunScape(TM) complexes at strategic locations. The $5.0 million to $6.0 million estimated cost of construction of the entertainment center is comparable to the cost of constructing the adjacent theatre complex. The Company is financing the construction of the entertainment centers and the attached theatre facility through cash on hand, cash flow from operations and borrowings available under its credit facility. COMPETITION The motion picture exhibition industry is highly competitive, particularly in licensing aspects of films, 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. Regal believes that the principal competitive factors in film licensing 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. Competition for patrons is dependent upon factors such as the availability of popular films, the location of theatres, the comfort and quality of theatres and ticket prices. Regal believes that it competes favorably with respect to each of these factors. There are approximately 350 participants in the domestic motion picture exhibition industry. Industry participants vary substantially in size, from small independent operators of a single screen theatre to large national chains of multi-screen theatres affiliated with entertainment conglomerates. Many of the Company's competitors have been in existence significantly longer than Regal and may be better established in certain of the markets where the Company's theatres are located. Other theatre operators also have sought to increase the number of theatres and screens in operation. Such increases may cause certain local markets or portions thereof to become over screened, resulting in a negative impact on the earnings of the theatres involved and thus on the Company's theatres in those markets. Concurrent with the increase in the number of screens, there has been a reduction in the number of theatre locations and a consolidation among exhibitors. At May 1, 1996, the five largest motion picture exhibition companies operated approximately 34% of the total screens, the largest of which operated less than 9% of the total screens. The motion picture exhibition industry faces competition from a number of motion picture exhibition delivery systems. In recent years alternative delivery systems have been developed for the exhibition of filmed entertainment, including cable television, video cassettes and pay per view. While the impact of such delivery systems on movie theatres is difficult to determine precisely, there can be no assurance that they will not adversely impact attendance at the Company's theatres. Movie theatres also face competition from other forms of entertainment competing for the public's leisure time and disposable income. 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. Regal 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 which predate the formation of the Company, 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. 7 10 The Company believes that it is in substantial compliance with all current applicable regulations relating to accommodations for the disabled. Regal intends to comply with future regulations in that regard, and the Company does not currently anticipate that compliance will require the Company to expend substantial funds. Regal'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. Approximately 58% of the Company's employees are paid at the federal minimum wage and, accordingly, the minimum wage largely determines the Company's labor costs for those employees. EMPLOYEES As of fiscal year end 1996, Regal employed 4,227 persons, of which 608 were full-time and 3,619 were part-time employees. Of the Company's employees, 131 are corporate personnel, 362 are theatre management personnel and the remainder are hourly theatre personnel. Film projectionists at 27 of the Company's theatres in the Cleveland, Ohio, Ft. Wayne, Indiana and Richmond, Virginia 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 December 1997. Regal's expansion into new markets may increase the number of employees represented by unions. Regal considers its employee relations to be good. RISK FACTORS In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is including the following cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward looking statements of the Company made by, or on behalf of, the Company. Expansion Plans. Regal's continued ability to expand will depend on a number of factors, including the selection and availability of suitable locations, the hiring and training of sufficiently skilled management and personnel, the availability of adequate financing and other factors, some of which are beyond the control of the Company. There is no assurance that all of Regal's planned new theatres can be operated profitably. Dependence on Films. The ability of Regal to operate successfully depends upon a number of factors, the most important of which is the availability of marketable motion pictures. Poor relationships with distributors, a disruption in the production of motion pictures or poor commercial success of motion pictures could have a material adverse effect upon Regal's business. See " - Film Licensing." Fluctuations in Quarterly Results of Operations. Regal'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 Regal'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. Competition. The motion picture exhibition industry is highly competitive, particularly with respect to licensing films, attracting patrons and finding new theatre sites. There are a number of well-established competitors. Many of Regal's competitors have been in existence significantly longer than Regal and may be better established in the markets where Regal's theatres are or may be located. 8 11 Alternative motion picture exhibition delivery systems exist for the exhibition of filmed entertainment, including cable television, video cassettes and pay per view. An expansion of such delivery systems could have a material adverse effect upon Regal's business. See " Film Licensing" and " - Competition." Dependence on Senior Management. Regal's success depends upon the continued contributions of its senior management, including Michael L. Campbell, Chairman, President and Chief Executive Officer of the Company. The loss of the services of one or more of Regal's senior management could have a material adverse effect upon its business and development. Regal's loan agreement provides that Mr. Campbell or a successor reasonably acceptable to Regal's lenders must be employed as Chief Executive Officer. Regal has an employment agreement with Mr. Campbell. Volatility of Market Price. From time to time, there may be significant volatility in the market price for Regal common stock. Quarterly operating results of Regal or of other motion picture exhibitors, changes in general conditions in the economy, the financial markets or the motion picture industry, natural disasters or other developments affecting Regal or its competitors could cause the market price of the Regal common stock to fluctuate substantially. In addition, in recent years the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance. EXECUTIVE OFFICERS The following table sets forth certain information concerning the executive officers of the Company.
Name Age Position ---- --- -------- Michael L. Campbell 43 Chairman, President, Chief Executive Officer and Director R. Neal Melton 37 Vice President Equipment and Purchasing, Secretary and Director Gregory W. Dunn 37 Executive Vice President and Chief Operating Officer Robert A. Engel, Jr. 44 Senior Vice President Film and Advertising Lewis Frazer III 32 Executive Vice President, Chief Financial Officer and Treasurer R. Keith Thompson 35 Senior Vice President, Real Estate and Development and Assistant Secretary Susan Seagraves 40 Vice President and Corporate Controller
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. R. Neal Melton has served as Vice President Equipment and Purchasing, Secretary and a director since 1990. Prior to joining the Company, Mr. Melton co-founded Premiere with Mr. Campbell and served as Senior Vice President, Secretary and a director of Premiere from 1982 through 1989. 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. Robert A. Engel, Jr. has served as Senior Vice President Film and Advertising since 1990. From 1987 through 1989, Mr. Engel was Vice President of Operations at Premiere and from 1971 to 1987 he 9 12 worked at Associated Theatres of Kentucky in various capacities, rising to Vice President of Operations and Film Buying. Lewis Frazer III is a certified public accountant and has served as Executive Vice President, Chief Financial Officer and Treasurer since February 1993. From May 1992 to February 1993, Mr. Frazer served as Controller. Prior to joining the Company, he served from 1990 to 1992 as Corporate Controller for Kel-San, Inc., an affiliate of Institutional Jobbers. From June 1986 to July 1990, Mr. Frazer was an auditor with Coopers & Lybrand. Mr. Frazer serves as a member of the CFO Committee of the National Association of Theatre Owners. R. Keith Thompson has served as Senior Vice President Real Estate and Development 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. Susan Seagraves has served as Vice President and Corporate Controller since January 1994 when she joined the Company. 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 and from 1988 to 1990 she served as Associate Executive Director of the Thompson Cancer Survival Center. From 1980 to 1988, Ms. Seagraves was in public accounting. ITEM 2. PROPERTIES As of January 2, 1997, Regal operated 104 of its 156 theatres pursuant to lease agreements, owns the land and buildings for 37 theatres and operates pursuant to ground leases at 15 locations. Of the 156 theatres operated by Regal as of January 2, 1997, 114 were acquired as existing theatres and 42 have been developed by Regal. The majority of Regal'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 Regal to pay the cost of insurance, taxes and a portion of the lessor's operating costs. Regal's corporate office is located in approximately 40,000 square feet of space in Knoxville, Tennessee. The Company purchased the corporate office property in the second quarter of 1994. ITEM 3. LEGAL PROCEEDINGS From time to time the Company is involved in routine litigation and proceedings in the ordinary course of business. Currently, the Company does not have pending any litigation or proceeding that will have a material adverse effect upon the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS No matters were submitted to a vote of the shareholders during the fourth quarter ended January 2, 1997. 10 13 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The Company's Common Stock is listed on The Nasdaq Stock Market's National Market (the "Nasdaq National Market") under the symbol "REGL." The following table sets forth, for the calendar quarters indicated, the high and low prices for the Common Stock as reported by the Nasdaq National Market.
High* Low* ------ ------ 1995 First Quarter................................. $11.67 $ 7.55 Second Quarter ............................... 15.11 10.33 Third Quarter................................. 19.11 13.00 Fourth Quarter................................ 19.17 16.00 1996 First Quarter................................. 25.34 17.83 Second Quarter ............................... 33.50 24.59 Third Quarter................................. 30.83 22.75 Fourth Quarter................................ 34.25 23.50
- ----------------------------- * Adjusted for a 50% stock dividend in December 1995 and September 1996. On March 14, 1997, the last reported sales price for the Company's Common Stock on the Nasdaq National Market was $29.75 per share. At March 14, 1997, there were approximately 350 holders of record of the Company's Common Stock and approximately 17,000 beneficial holders. The Company has not declared or paid a cash dividend on its Common Stock. It is the present policy of the Board of Directors to retain all earnings to support operations and to finance expansion. The Company is restricted from the payment of cash dividends without prior approval pursuant to its loan agreements. On September 13, 1996, Regal completed the purchase of assets consisting of eight theatres with 69 screens in California from an individual, George Krikorian and corporations controlled by him. The purchase price was approximately $14.0 million in cash and 703,241 shares of Regal common stock. The issuance was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, for a transaction not involving a public offering. 11 14 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data set forth below as of 1995 and 1996 and for each of the past three fiscal years ending in 1996 are derived from financial statements of the Company which have been audited by Coopers & Lybrand L.L.P., independent accountants. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Report.
(in thousands, except per share data) For the year and at year end ---------------------------------------------------------------- 1992 1993 1994 1995 1996 -------- --------- --------- --------- --------- STATEMENT OF INCOME DATA: Revenues $ 98,710 $ 130,647 $ 170,908 $ 203,414 $ 269,836 Operating income 10,178 15,354 20,856 34,905 51,247 Income before extraordinary items 6,691 7,055 10,280 18,551 30,025 Extraordinary items: Gain (loss) on extinguishment of debt -- 190 (1,752) (448) -- -------- --------- --------- --------- --------- Net income $ 6,691 $ 7,245 $ 8,528 $ 18,103 $ 30,025 Dividends $ (710) $ (739) $ (380) $ (433) $ (229) ======== ========= ========= ========= ========= Net income applicable to common stock $ 5,981 $ 6,506 $ 8,148 $ 17,670 $ 29,796 ======== ========= ========= ========= ========= Earnings per common share before effects of extraordinary item: Primary $ .46 $ .32 $ .37 $ .64 $ .93 Fully diluted $ .36 $ .29 $ .37 $ .63 $ .93 Earnings per common share: Primary $ .46 $ .33 $ .31 $ .62 $ .93 Fully diluted $ .36 $ .30 $ .30 $ .62 $ .93 Weighted average shares and equivalents outstanding: Primary 12,995 19,890 26,658 28,473 31,962 Fully diluted 18,444 22,890 26,831 28,644 32,054 BALANCE SHEET DATA (AT END OF PERIOD): Total assets $ 94,801 $ 119,111 $ 167,401 $ 246,881 $ 378,519 Long-term obligations, including current maturities, and redeemable preferred stock $ 60,380 $ 44,943 $ 55,195 $ 108,342 $ 51,000 Total shareholders' equity $ 23,524 $ 27,300 $ 85,283 $ 106,903 $ 283,721
12 15 ITEM 7. 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 Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries, Litchfield Theatres, Ltd. ("Litchfield"), Neighborhood Entertainment, Inc. ("Neighborhood") and Georgia State Theatres, Inc. ("GST") (collectively referred to as the "Company") should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Report. Regal consummated the acquisitions of Litchfield, Neighborhood, and GST on June 15, 1994, April 17, 1995, and May 30, 1996, respectively. These three acquisitions have been accounted for as poolings of interests. BACKGROUND OF REGAL Regal has achieved significant growth in theatres and screens since its formation in November of 1989. Since inception through January 2, 1997, Regal acquired 114 theatres with 760 screens, developed 42 new theatres with 459 screens and added 68 new screens to acquired theatres. Theatres developed by Regal 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. Regal does not defer any pre-opening costs associated with opening its theatres and expenses such costs in the periods incurred. Theatre closings have had no significant effect on the operations of Regal. On April 8, 1994, Regal completed the acquisition of 13 theatres from National Theatre Holdings Corp. The purchase price of the acquisition was approximately $24.5 million and the assumption of certain obligations totaling $500,000, which Regal funded from cash on hand and borrowings available under the then $60 million revolving credit facility. On April 28, 1995, the Company completed the purchase of substantially all of the assets of three companies which held four theatres with 40 screens. Consideration for the transaction was approximately $14.3 million cash and other consideration and 241,313 shares of Regal common stock. On September 13, 1996, Regal completed the purchase of assets consisting of eight theatres with 69 screens in California from an individual, George Krikorian and corporations controlled by him (collectively "Krikorian"). The purchase price was approximately $14.0 million cash and 703,241 shares of Regal common stock. RESULTS OF OPERATIONS The Company's revenues are generated primarily from box office receipts and concession sales. Additional revenues are generated by electronic video games located adjacent to the lobbies of certain of the Company's theatres and by on-screen advertisements and revenues from the Company's three entertainment centers which are adjacent to theatre complexes. Direct theatre costs consist of film rental costs, costs 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. 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. 13 16 The following table sets forth for the fiscal periods indicated the percentage of total revenues represented by certain items reflected in the Company's consolidated statements of income.
Percentage of Total Revenues ------------------------------------------------- December 29, December 28 January 2, 1994 1995 1997 ------------ ----------- ---------- Revenues: Admissions 69.8% 69.0% 68.3% Concessions 28.4% 28.4% 28.2% Other 1.8% 2.6% 3.5% ----- ----- ----- Total Revenues 100.0% 100.0% 100.0% Operating Expenses: Film rental and advertising costs 38.8% 37.7% 37.6% Cost of concessions and other 3.7% 3.5% 3.6% Theatre operating expenses 33.5% 31.8% 30.2% General and administrative 4.3% 3.8% 3.4% Depreciation and amortization 4.6% 5.4% 5.6% Merger expenses 3.0% .6% .6% ----- ----- ----- Total operating expenses 87.9% 82.8% 81.0% Other income (expense): Interest expense (2.4%) (2.5%) (1.3%) Interest income 0.1% .1% .2% Other 0.2% .3% .5% ----- ----- ----- Income before taxes and extraordinary item 10.0% 15.1% 18.4% Provision for income taxes (4.1%) (6.1%) (7.3%) ----- ----- ----- Income before extraordinary item 5.9% 9.0% 11.1% Extraordinary item: Loss on extinguishment of debt (1.0%) (.2%) - NET INCOME 4.9% 8.8% 11.1% ===== ===== =====
14 17 FISCAL YEARS ENDED JANUARY 2, 1997 AND DECEMBER 28, 1995 Total Revenues. Total revenues increased in 1996 by 32.7% to $269.8 million from $203.4 million in 1995. This increase was due to a 22.8% increase in attendance attributable primarily to the net addition of 252 screens in 1996. Of the $66.4 million increase for 1996, $38.5 million was attributed to theatres previously operated by the Company, $11.5 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 7.0% 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 7.2% 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 29.6% to $192.6 million from $148.6 million in 1995. Direct theatre costs as a percentage of total revenues decreased to 71.4% in 1996 from 73.0% 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 19.4% to $9.3 million from $7.8 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 3.4% in 1996 from 3.8% in 1995. Depreciation and Amortization. Depreciation and amortization expense increased in 1996 by 37.4% to $15.0 million from $10.9 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 46.8% to $51.2 million, or 19.0% of total revenues, from $34.9 million, or 17.2% 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 19.6% and 17.8% of total revenues. Interest Expense. Interest expense decreased in 1996 by 30.1% to $3.5 million from $5.0 million in 1995. The decrease was primarily due to lower average borrowings outstanding. Income Taxes. The provision for income taxes increased in 1996 by 58.7% to $19.6 million from $12.3 million in 1995. The effective tax rate was 39.4% in 1996 as compared to 39.9% in 1995. Net Income. Net income in 1996 increased by 65.9% to $30.0 million from $18.1 million in 1995. Before nonrecurring merger expenses and extraordinary items, net income was $31.2 million and $19.6 million for 1996 and 1995, respectively, reflecting a 59.2% increase. 15 18 FISCAL YEARS ENDED DECEMBER 28, 1995 AND DECEMBER 29, 1994 Total Revenues. Total revenues increased in 1995 by 19.0% to $203.4 million from $170.9 million in 1994. This increase was the result of a 9.9% increase in attendance attributable primarily to the net addition of 169 screens in 1995. Of the $32.5 million increase for 1995, $11.4 million was attributed to theatres previously operated by the Company, $7.1 million was attributed to theatres acquired by the Company, and $14.0 million was attributed to new theatres constructed by the Company. Average ticket prices increased 6.6% during the period, reflecting a smaller proportion of discount theatres in 1995 than in the same period in 1994 and, to a lesser degree, an increase in ticket prices. Average concession sales per customer increased 7.8% 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 1995 increased by 14.6% to $148.6 million from $129.7 million in 1994. Direct theatre costs as a percentage of total revenues decreased to 73.0% in 1995 from 75.9% in 1994. 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, especially acquired 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 1995 by 6.1% to $7.8 million from $7.3 million in 1994, representing administrative costs associated with the 1995 theatre openings and projects under construction. As a percentage of total revenues, general and administrative expenses decreased to 3.8% in 1995 from 4.3% in 1994. Depreciation and Amortization. Depreciation and amortization expense increased in 1995 by 37.9% to $10.9 million from $7.9 million in 1994. This increase was primarily the result of theatre property additions associated with the Company's expansion efforts. Operating Income. Operating income for 1995 increased by 67.4% to $34.9 million, or 17.2% of total revenues, from $20.9 million, or 12.2% of total revenues, in 1994. Before the $1.2 million and $5.1 million of nonrecurring merger expenses for 1995 and 1994, respectively, operating income was 17.8% and 15.2% of total revenues. Interest Expense. Interest expense increased in 1995 by 19.5% to $5.0 million from $4.2 million in 1994. The increase was due to higher average borrowings outstanding net of capitalized interest totaling $1.2 million during 1995, relating to projects under construction. Income Taxes. The provision for income taxes increased in 1995 by 77.1% to $12.3 million from $7.0 million in 1994. The effective tax rate was 39.9% in 1995 as compared to 40.4% in 1994. Net Income. Net income in 1995 increased by 112.3% to $18.1 million from $8.5 million in 1994. Before nonrecurring merger expenses and extraordinary items, net income was $19.6 million and $13.9 million for 1995 and 1994, respectively, reflecting a 41.0% increase. LIQUIDITY AND CAPITAL RESOURCES Substantially all of the Company's revenues are derived from cash box office receipts and concession sales, while film rental fees are ordinarily paid to distributors 15 to 45 days following receipt of admission revenues. The Company thus has an operating cash "float" which partially finances its operations, reducing the Company's needs for external sources of working capital. 16 19 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 been financed with borrowings under the Company's loan agreement, equity financings and internally generated cash. On September 30, 1996, the Company amended its $150 million revolving credit facility. The amendments to the loan agreement require that the indebtedness under the facility be amortized at a rate of $7.5 million per quarter commencing with the quarter ending September 30, 1999, and at a rate of $11.3 million per quarter commencing with the quarter ending September 30, 2001. The loan agreement requires the Company to comply with certain financial and other covenants, including maintaining a minimum net worth of not less than $230.0 million plus 50%of the Company's net income for each quarter commencing with the quarter ending June 27, 1996. On January 2, 1997, $51.0 million was outstanding under the Company's loan agreement. On April 17, 1995, Regal consummated the acquisition of Neighborhood for 814,755 shares of Regal common stock. In conjunction with this transaction, the Company refinanced approximately $10 million of debt on Neighborhood's balance sheet under the Company's revolving credit facility, and Neighborhood redeemed its preferred stock for $1,150,000. On April 28, 1995, the Company completed the acquisition of two theatres with 18 screens, one theatre with 14 screens and one theatre with eight screens from Southern Cinemas, Inc., South Asheville Cinemas, Inc. and Cinemas South, Inc., respectively. The respective theatres are located in Aiken and Charleston, South Carolina, Asheville, North Carolina and Rock Hill, South Carolina. Consideration for the transaction was approximately $14,300,000 cash and other consideration and 241,313 shares of Regal common stock. On May 30, 1996, the Company consummated the acquisition of GST for 1,410,213 shares of Regal common stock. In conjunction with the transaction, the Company refinanced approximately $3 million of GST's debt under the Company's revolving credit facility. On June 10, 1996, the Company completed a secondary stock 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 revolving credit facility. On September 13, 1996, the Company completed the purchase of assets consisting of 8 theatres with 69 screens in California from an individual, George Krikorian, and corporations controlled by him (collectively "Krikorian") for consideration of 703,241 shares of Regal common stock and approximately $14.0 million in cash. At January 2, 1997, the Company had 156 multi-screen theatres with an aggregate of 1,287 screens. At such date, the Company had 14 new theatres with 196 new screens and 6 new screens at one existing location under construction. The Company anticipates that its capital expenditures over the next twelve months will approximate $125 - $150 million. The Company believes that its capital needs for completion of theatre construction and development for at least the next 12 to 18 months will be satisfied by available credit under the loan agreement, as amended, internally generated cash flow and available cash and equivalents. 17 20 NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the FASB issued Statement of Accounting Standards No. 128, Earnings Per Share (EPS). The Statement simplifies the standards for computing earnings per share by replacing the presentation of primary earnings per share with a presentation of basic earnings per share. Additionally, the Statement requires dual presentation of basic and diluted EPS on the face of the income statement and requires a reconciliation of the numerator and denominator of the diluted EPS calculation. The Company plans to adopt the provisions of the Statement 128 in fiscal year 1997 and the impact on the Company's financial statements has not been determined. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Report of Independent Accountants Consolidated Balance Sheets at December 28, 1995 and January 2, 1997 Consolidated Statements of Income for the years ended December 29, 1994, December 28, 1995 and January 2, 1997 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 29, 1994, December 28, 1995 and January 2, 1997 Consolidated Statements of Cash Flows for the years ended December 29, 1994, December 28, 1995 and January 2, 1997 Notes to Consolidated Financial Statements 18 21 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 December 28, 1995 and January 2, 1997, 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 2, 1997. 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 certain acquisitions, including Neighborhood Entertainment, Inc., which have been accounted for as poolings of interests as described in Note 1 to the consolidated financial statements. We did not audit the financial statements of Neighborhood Entertainment, Inc. for 1994, which statements reflect total revenues constituting 14% in 1994, 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 Neighborhood Entertainment, Inc. is based solely on the report of the other auditor. 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 auditor provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditor, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Regal Cinemas, Inc. and Subsidiaries as of December 28, 1995 and January 2, 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 2, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Knoxville, Tennessee February 6, 1997 19 22 Report of Independent Auditors Stockholders and Board of Directors Neighborhood Entertainment, Inc. We have audited the balance sheets of Neighborhood Entertainment, Inc. as of December 31, 1994 and 1993, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994 (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 audits 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 financial position of Neighborhood Entertainment, Inc. at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 6 to the financial statements, in 1993 the Company changed its method of accounting for income taxes. ERNST & YOUNG LLP Richmond, Virginia March 21, 1995 20 23 REGAL CINEMAS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
ASSETS DECEMBER 28, JANUARY 2, 1995 1997 ------------ ----------- Current assets: Cash and equivalents 5,775 14,778 Accounts receivable 927 2,285 Inventories 875 1,240 Prepaids and other current assets 3,039 3,030 Refundable income taxes 2,493 2,773 Deferred income taxes 122 -- --------- --------- Total current assets 13,231 24,106 --------- --------- Property and equipment Land 25,200 32,550 Buildings and leasehold improvements 133,590 207,412 Equipment 83,523 111,358 Construction in progress 22,391 34,247 --------- --------- 264,704 385,567 Accumulated depreciation and amortization (40,995) (54,343) --------- --------- Total property and equipment, net 223,709 331,224 Goodwill, net 8,667 22,144 Other assets 1,274 1,045 --------- --------- Total assets $ 246,881 $ 378,519 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 13,254 $ -- Accounts payable 16,684 26,011 Accrued expenses 5,956 6,202 --------- --------- Total current liabilities 35,894 32,213 --------- --------- Long-term debt, less current maturities 95,088 51,000 Other liabilities 3,542 3,420 Deferred income taxes 5,454 8,165 --------- --------- Total liabilities 139,978 94,798 --------- --------- Commitments (Note 4) Shareholders' equity: Preferred stock, no par; 1,000,000 shares authorized, none issued -- -- Common stock, no par; 50,000,000 shares authorized; 27,666,192 issued and outstanding in 1995; 33,139,733 issued and outstanding 74,484 221,506 in 1997 Retained earnings 32,419 62,215 --------- --------- Total shareholders' equity 106,903 283,721 --------- --------- Total liabilities and shareholders' equity $ 246,881 $ 378,519 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 21 24 REGAL CINEMAS, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED ----------------------------------------------- DECEMBER 29, DECEMBER 28, JANUARY 2, 1994 1995 1997 ------------ ------------ ---------- Revenues: Admissions $ 119,294 $ 140,198 $ 184,300 Concessions 48,547 57,840 76,117 Other operating revenues 3,067 5,376 9,419 --------- --------- --------- Total revenues 170,908 203,414 269,836 Operating expenses: Film rental and advertising costs 66,298 76,598 101,357 Cost of concessions and other 6,314 7,147 9,685 Theatre operating expenses 57,096 64,813 81,599 General and administrative expenses 7,314 7,760 9,267 Depreciation and amortization 7,936 10,945 15,042 Merger expenses 5,094 1,246 1,639 --------- --------- --------- Total operating expenses 150,052 168,509 218,589 --------- --------- --------- Operating income 20,856 34,905 51,247 --------- --------- --------- Other income (expense): Interest expense (4,175) (4,989) (3,489) Interest income 206 293 567 Other 349 664 1,250 --------- --------- --------- Income before income taxes and extraordinary item 17,236 30,873 49,575 Provision for income taxes (6,956) (12,322) (19,550) --------- --------- --------- Income before extraordinary item 10,280 18,551 30,025 Extraordinary item: Loss on extinguishment of debt, net of applicable taxes (1,752) (448) -- --------- --------- --------- Net income 8,528 18,103 30,025 --------- --------- --------- GST and NEI dividends (380) (433) (229) --------- --------- --------- Net income applicable to common stock $ 8,148 $ 17,670 $ 29,796 ========= ========= ========= Earnings per common share before effect of extraordinary item: Primary $ .37 $ .64 $ .93 Fully diluted .37 .63 .93 Extraordinary item: Primary (.06) (.02) -- Fully diluted (.07) (.01) -- Earnings per common share: Primary $ .31 $ .62 $ .93 ========= ========= ========= Fully diluted $ .30 $ .62 $ .93 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 22 25 REGAL CINEMAS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
RETAINED COMMON EARNINGS STOCK (DEFICIT) TOTAL --------- --------- --------- Balances at December 30, 1993 $ 49,212 $ 6,742 $ 55,954 Payment of GST and Neighborhood dividends -- (380) (380) Issuance of 2,038,500 shares of common stock, net of 20,139 -- 20,139 offering costs Accretion and proceeds from exercise of Litchfield stock 1,041 (141) 900 purchase warrants prior to merger Issuance of 67,373 shares upon exercise of stock options 33 -- 33 and restricted stock awards Stock option amortization 109 -- 109 Net income -- 8,528 8,528 --------- --------- --------- Balances at December 29, 1994 70,534 14,749 5,283 Payment of GST dividends -- (433) (433) Issuance of 241,313 shares of common stock 2,426 -- 2,426 Issuance of 194,142 shares upon exercise of stock options 407 -- 407 and restricted stock awards Issuance of Neighborhood Entertainment, Inc. stock prior 150 -- 150 to merger Income tax benefits related to exercised stock options 817 -- 817 Stock option amortization 150 -- 150 Net income -- 18,103 18,103 --------- --------- --------- Balances at December 28, 1995 74,484 32,419 106,903 Payment of GST dividends -- (229) (229) Issuance of 5,015,741 shares of common stock, net of 140,651 -- 140,651 offering costs Issuance of 457,902 shares upon exercise of stock options 1,177 -- 1,177 and restricted stock awards Income tax benefits related to exercised stock options 5,017 -- 5,017 Stock option amortization 177 -- 177 Net income -- 30,025 30,025 --------- --------- --------- Balances at January 2, 1997 $ 221,506 $ 62,215 $ 283,721 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 23 26 REGAL CINEMAS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS)
YEARS ENDED ----------------------------------------------- DECEMBER 29, DECEMBER 28, JANUARY 2, 1994 1995 1997 ------------ ------------ ----------- Cash flows from operating activities: Net income $ 8,528 $ 18,103 $ 30,025 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,936 11,049 15,042 Loss on extinguishment of debt 1,752 448 -- Deferred income taxes 987 4,009 2,832 Deferred compensation and rent 71 (247) (121) Changes in operating assets and liabilities: Accounts receivable (840) 525 (1,358) Current taxes receivable (842) (1,037) 4,737 Inventories (77) (215) (365) Prepaids and other current assets (403) (527) 9 Accounts payable 5,128 2,850 9,327 Accrued expenses and other liabilities 2,838 (1,798) 517 Income taxes payable 39 84 -- --------- --------- --------- Net cash provided by operating activities 25,117 33,244 60,645 Cash flows from investing activities: Capital expenditures (60,198) (80,502) (114,334) Investment in goodwill and other assets (1,586) (7,091) (7,396) Net cash used in investing activities (61,784) (87,593) (121,730) Cash flows from financing activities: Dividends paid (282) (332) (500) Net proceeds from issuance of stock 20,139 -- 126,763 Borrowings under long-term debt 56,140 64,332 76,500 Payments on long-term debt (45,933) (10,248) (133,842) Debt issuance costs (854) (257) (10) Exercise of warrants and options 933 557 1,177 Redemption of preferred stock -- (1,150) -- --------- --------- --------- Net cash provided by financing activities 30,143 52,902 70,088 Net increase (decrease) in cash and equivalents (6,524) (1,447) 9,003 Cash and equivalents at beginning of period 13,746 7,222 5,775 --------- --------- --------- Cash and equivalents at end of period $ 7,222 $ 5,775 $ 14,778 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 24 27 REGAL CINEMAS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY AND BASIS OF PRESENTATION Regal Cinemas, Inc. (Regal) and its wholly owned subsidiaries, Litchfield Theatres, Ltd. (Litchfield), Neighborhood Entertainment Inc. (Neighborhood), and Georgia State Theatres, Inc. (GST), 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. On June 15, 1994, Regal issued 8,706,068 shares of its common stock for all of the outstanding common stock of Litchfield. 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. 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 Litchfield, Neighborhood and GST. Separate results of the combining entities for the years ended 1994, 1995 and 1996, are as follows:
(in thousands) 1994 1995 1996 --------- --------- --------- Revenues: Regal $ 117,700 $ 184,958 $ 265,127 Litchfield (through June 30 for 1994) 17,991 -- -- Neighborhood (through April 27 for 1995) 23,974 5,135 -- GST (through May 30 for 1996) 11,243 13,321 4,709 --------- --------- --------- $ 170,908 $ 203,414 $ 269,836 ========= ========= ========= Net income (loss): Regal $ 10,501 $ 19,061 $ 29,935 Litchfield (through June 30 for 1994) (3,522) -- -- Neighborhood (through April 27 for 1995) 889 (1,824) -- GST (through May 30 for 1996) 660 866 90 --------- --------- --------- $ 8,528 $ 18,103 $ 30,025 ========= ========= =========
The net loss for Litchfield for the six months ended June 30, 1994, and the net loss for Neighborhood for the four months ended April 27, 1995, reflect approximately $3,203,000 and $1,219,000, respectively, of expenses (net of applicable income taxes) associated with the mergers, principally legal and accounting fees, severance and benefit related costs and other costs of consolidating. 25 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Regal and its wholly-owned subsidiaries. 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 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 December 28, 1995 and January 2, 1997, the Company held approximately $3,850,000 and $12,916,000, respectively, in temporary cash investments (valued at cost, which approximates market) in the form of certificates of deposit and variable rate investment accounts with major financial institutions. INCOME TAXES - Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. INVENTORIES - Inventories consist of concession products and theatre supplies and are stated on the basis of first-in, first-out (FIFO) cost, which is not in excess of net realizable value. DEBT ACQUISITION AND LEASE COSTS (INCLUDED IN OTHER ASSETS) - Debt acquisition and lease costs are deferred and amortized over the terms of the related agreements. DEFERRED RENT (INCLUDED IN OTHER LIABILITIES) - Rent expense is recognized on a straight-line basis after considering the effect of rent escalation provisions and rent holidays for newly opened theatres resulting in a level monthly rent expense for each lease over its term. DEFERRED REVENUE (INCLUDED IN OTHER LIABILITIES) - Deferred revenue relates primarily to vendor rebates. Rebates are recognized as a reduction of costs of concessions as earned. INTEREST RATE SWAPS - Interest rate swaps are entered into as a hedge against interest exposure of variable rate debt. The differences to be paid or received on swaps are included in interest expense. The fair value of the Company's interest rate swap agreements is based on dealer quotes. These values represent the amounts the Company would receive or pay to terminate the agreements taking into consideration current interest rates. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Unless indicated otherwise, the fair value of the Company's financial instruments approximates carrying value. 26 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 3. ACQUISITIONS In addition to the Litchfield, Neighborhood and GST mergers described in Note 1, the Company completed the purchase of substantially all of the assets of three companies which held four theatres with 40 screens in April 1995. The purchase price of the acquisition was approximately $14.3 million cash and other consideration and 241,313 shares of Regal common stock. Also, in September 1996, Regal completed the purchase of assets consisting of eight theatres with 69 screens from an individual, George Krikorian, and corporations controlled by him (collectively, "Krikorian") for consideration of 703,241 shares of Regal common stock and approximately $14.0 million cash. These transactions have been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated at fair value to the separately identifiable assets (principally property, equipment, and leasehold improvements) of the respective theatre locations, with the remaining balance allocated to goodwill, which is being amortized on a straight line basis generally over twenty to thirty years. The results of operations of these theatre locations have been included in the financial statements for the periods subsequent to the acquisition date. The following unaudited pro forma results of operations for all periods presented assume the individual acquisitions occurred as of the beginning of the respective periods after giving effect to certain adjustments, including depreciation, increased interest expense on acquisition debt and related income tax effects. The pro forma results have been prepared for comparative purposes only and do not purport to indicate the results of operations which would actually have occurred had the combination been in effect on the dates indicated, or which may occur in the future. (in thousands of dollars, except per share data)
1995 ACQUISITION: 1994 1995 Revenues $183,082 $205,241 Operating income 22,840 35,119 Income before extraordinary item 11,470 18,509 Net income applicable to common stock 8,421 17,628 Earnings per common share: Primary $ .31 $ .62 ======== ========= Fully diluted $ .31 $ .62 ======== ========= 1996 ACQUISITION: 1995 1996 Revenues $224,216 $277,241 Operating income 36,029 51,331 Income before extraordinary item 31,997 49,659 Net income applicable to common stock 18,794 29,880 Earnings per common share: Primary $ .66 $ .93 ======== ========= Fully diluted $ .66 $ .93 ======== =========
27 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 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. Minimum rentals payable under all noncancelable operating leases with terms in excess of one year as of January 2, 1997, are summarized for the following fiscal years: (in thousands) 1997 $26,937 1998 26,629 1999 26,684 2000 25,961 2001 25,722 Thereafter 274,367
Rent expense under such operating leases was $17,702,000, $18,659,000 and $24,927,000 for fiscal years 1994, 1995 and 1996, respectively. 5. LONG-TERM DEBT Long-term debt at December 28, 1995 and January 2, 1997, consists of the following:
DECEMBER 28, JANUARY 2, 1995 1997 ------------ ---------- (IN THOUSANDS) $150,000,000 senior reducing revolving credit facility which expires on June 30, 2003, with interest payable quarterly, at LIBOR (5.6% at January 2, 1997) plus .4%. 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. $ 92,450 $ 51,000 Other obligations, extinguished in 1996 15,892 -- ----------- ---------- 108,342 51,000 Less current maturities (13,254) -- ----------- ---------- $ 95,088 $ 51,000 =========== ==========
Regal's credit facility contains various restrictive covenants which require Regal to maintain certain financial ratios. During 1996, the Company amended its Loan Agreement to decrease the interest rate, extend the maturity of the facility to June 30, 2003, and modify certain financial covenants. 28 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 5. LONG-TERM DEBT, CONTINUED Upon consummation of the Litchfield and Neighborhood mergers, Regal refinanced all existing debt of the respective acquired companies, recognizing losses on extinguishments of debt (net of applicable income taxes) of $1,752,000 in 1994 and $448,000 in 1995. Such losses are reported as extraordinary items in the accompanying consolidated statements of income. The Company's debt at January 2, 1997, is scheduled to mature as follows: (in thousands) 1997 $ -- 1998 -- 1999 5,100 2000 10,200 2001 10,200 Thereafter 25,500 -------- Total $ 51,000 ========
In March 1995, Regal entered into a seven-year interest rate swap agreement for the management of interest rate exposure. At January 2, 1997, 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 $(709,000) at January 2, 1997. 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 three 3-for-2 stock splits authorized on November 14, 1994, 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. 29 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. COMMON AND PREFERRED STOCK, CONTINUED STOCK OPTIONS - The Company has three employee stock option plans under which 3,929,064 options are authorized and reserved. The options vest over three-to-five year periods and expire ten years after the respective grant dates. Options to purchase 56,330 shares of the Company's common stock are exercisable as of January 2, 1997. Activity within the plans is summarized as follows:
WEIGHTED AVERAGE SHARES EXERCISE PRICE --------- -------------- Under option at December 30, 1993 1,227,242 $ 2.71 Options granted in 1994 792,706 $ 9.78 --------- Options exercised in 1994 (26,867) $ 1.21 --------- 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 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
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 of common stock at an exercise price of $8.30, 20,250 shares at an exercise price of $12.33, and 20,250 shares at an exercise price of $29.59 were granted during 1994, 1995 and 1996, 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. 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 72,087 shares, 25,517 shares and 7,500 shares pursuant to 1994, 1995 and 1996 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. 30 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. COMMON AND PREFERRED STOCK, CONTINUED 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 and 1996, 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 5.9% to 6.6% for 1995 grants and 6.0% to 6.9% for 1996 grants; volatility factors of the expected market price of the Company's common stock of 32.8% 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 and 1996 was $5.67 and $10.34 per share, respectively. As of January 2, 1997, Regal has 632,432, 792,705, 808,875, and 945,546 shares under option with exercise prices ranging from $1.21 - $3.86, $9.78 - $10.08, $12.34 - $17.06 and $22.00 - $29.75, respectively. The option valuation model used by the Company was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee and director options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair values of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The pro forma results do not purport to indicate the effects on reported net income for recognizing compensation expense which are expected to occur in future years. The Company's pro forma information for all 1995 and 1996 option grants follows: (in thousands, except per share data):
1995 1996 Pro forma net income $ 17,874 $ 28,889 ======== ======== Pro forma earnings per share: Primary $ .61 $ .90 ======== ======== Fully diluted $ .61 $ .89 ======== ========
31 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. INCOME TAXES Deferred income taxes reflect the impact of temporary differences between amounts recorded for assets and liabilities for financial reporting purposes and amounts utilized for measurement in accordance with tax laws. The tax effects of the temporary differences giving rise to the Company's net deferred tax liability are as follows: (in thousands)
1995 1996 ---------- ----------- Assets: Accrued rent $ 1,145 $ 724 Alternative minimum tax credits 327 266 Accrued expenses 499 319 State income taxes 348 531 ---------- ----------- 2,319 1,840 ---------- ----------- Liabilities: Property and equipment 7,494 9,937 Other 157 68 7,651 10,005 ---------- ----------- Net deferred tax liability $ (5,332) $ (8,165) ========== ===========
The 1994, 1995 and 1996 provisions for income taxes before extraordinary items (see Note 5) consist of the following: (in thousands)
1994 1995 1996 ---------- ----------- ------------ Current $ 5,969 $ 8,391 $ 16,718 Deferred 1,235 4,009 2,832 Decrease in deferred income tax valuation allowance (248) (78) - ---------- ----------- ------------ $ 6,956 $ 12,322 $ 19,550 ========== =========== ============
A reconciliation of the Company's income tax provision to taxes computed by applying the statutory Federal rate of 34% for 1994, 35% for 1995 and 1996, to pretax financial reporting income before extraordinary items is as follows: (in thousands)
1994 1995 1996 ---------- ----------- ------------ Tax at statutory Federal rate $ 5,860 $ 10,805 $ 17,351 State income taxes, net of Federal benefit 844 1,111 1,968 Decrease in deferred income tax valuation allowance (248) (78) - Nondeductible merger expenses and other 500 484 231 ---------- ----------- ------------ $ 6,956 $ 12,322 $ 19,550 ========== =========== ============
32 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. INCOME TAXES, CONTINUED At January 2, 1997, Neighborhood had approximately $266,000 alternative minimum tax credit carryforwards available to reduce its 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 $590,000, $626,000 and $655,000 in 1994, 1995 and 1996, respectively, for booking fees and consulting services. Regal paid $635,000, $626,000 and $952,000 in 1994, 1995 and 1996, respectively, for legal services provided by a law firm, a member of which serves as a director of the Company. 9. CASH FLOW INFORMATION (in thousands)
FISCAL YEARS ENDED -------------------------------------------------- DECEMBER 29, DECEMBER 28, JANUARY 2, 1994 1995 1997 ----------- ------------ -------------- Supplemental information on cash flows: Interest paid $ 4,242 $ 6,330 $ 5,171 Less: Interest capitalized (383) (1,228) (1,682) ----------- ------------ -------------- Interest paid, net $ 3,859 $ 5,102 $ 3,489 =========== ============ ============== Income taxes paid, net of Neighborhood refunds $ 4,541 $ 9,926 $ 11,318 =========== ============ ==============
Noncash transactions: 1994: - Regal assumed certain obligations totaling approximately $500,000 as additional consideration for certain assets purchased from National Theatre Holdings Corp. 1995: - Regal issued 241,313 shares of Regal common stock valued at approximately $2,426,000 as additional consideration for assets purchased from three companies (see Note 3). - Regal received income tax benefits relating to exercised stock options totaling $817,000. 1996: - Regal issued 703,241 shares of Regal common stock as additional consideration for assets purchased from an individual, and corporations controlled by him (see Note 3). The value of the common stock issued in the 1996 acquisition of approximately $14,100,000 was allocated to property and equipment and goodwill. - Regal received income tax benefits relating to exercised stock options totaling $5,017,000. 33 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 10. EMPLOYEE BENEFIT PLANS The Company sponsors an employee benefit plan under section 401(k) of the Internal Revenue Code for the benefit of substantially all full-time employees. The Company made discretionary contributions of approximately $37,000 and $117,000 to the plans in 1995 and 1996, respectively. All full-time employees are eligible to participate in the plan upon completion of twelve months of employment with 1,000 or more hours of service, subject to a minimum age of 21. 11. EARNINGS PER SHARE Primary earnings per share have been computed by dividing net income applicable to common stock (net income less dividend requirements for preferred stock) by the weighted average number of common and common equivalent shares outstanding during each period. Shares issued in connection with the Litchfield, Neighborhood and GST mergers have been included in shares outstanding for all periods presented. Common equivalent shares relating to options issued during the 12-month period preceding the initial public offering have been calculated using the treasury stock method assuming that the options were outstanding during each period presented and that the fair value of the Company's common stock during each period was equal to the initial public offering price. Common equivalent shares relating to options issued subsequent to the initial public offering have been calculated using the treasury stock method for the portion of each period for which the options were outstanding and using the fair value of the company's common stock for each of the respective periods. All per share data has also been adjusted to give effect to the November 1994, December 1995 and September 1996, respectively, common stock splits. After giving effect to the items described above, primary earnings per common share have been computed based on the assumed weighted average number of common and common equivalent shares outstanding in each period ((in thousands) 26,658 shares in 1994; 28,473 shares in 1995; and 31,962 shares in 1996). Fully diluted earnings per common share utilizes net income before preferred dividends based on the assumed weighted average number of common and common equivalent shares outstanding in each period ((in thousands) 26,831 shares in 1994; 28,644 shares in 1995; and 32,054 shares in 1996). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 34 37 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Proxy Statement issued in connection with the Annual Shareholders Meeting to be held on May 1, 1997 contains under the caption "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" information required by Item 10 of Form 10-K as to directors and certain executive officers of the Company and is incorporated herein by reference. Pursuant to General Instruction G(3), certain information concerning executive officers of the Company is included in Part I of this Form 10-K, under the caption "Executive Officers." ITEM 11. EXECUTIVE COMPENSATION The Proxy Statement issued in connection with the Annual Shareholders Meeting to be held on May 1, 1997 contains under the caption "Executive Compensation" information required by Item 11 of Form 10-K and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Proxy Statement issued in connection with the Annual Shareholders Meeting to be held on May 1, 1997 contains under the caption "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" information required by Item 12 of Form 10-K and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Proxy Statement issued in connection with the Annual Shareholders Meeting to be held on May 1, 1997 contains under the caption "Certain Relationships and Related Transactions" information required by Item 13 of Form 10-K and is incorporated herein by reference. 35 38 ' PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements: The following Financial Statements of Regal Cinemas, Inc. are included in Part II, Item 8. Reports of Independent Accountants Consolidated Balance Sheets at December 28, 1995 and January 2, 1997. Consolidated Statements of Income for the years ended December 29, 1994, December 28, 1995 and January 2, 1997. Consolidated Statements of Changes in Shareholders' Equity for the years ended December 29, 1994, December 28, 1995 and January 2, 1997. Consolidated Statements of Cash Flows for the years ended December 29, 1994, December 28, 1995 and January 2, 1997. Notes to Consolidated Financial Statements 2. Financial Statement Schedules - Not applicable. 3. Exhibits:
Exhibit Number Description ------- ----------- 3.1* -- Restated Charter of Registrant. 3.2* -- Restated Bylaws of Registrant. 4.1* -- Specimen Common Stock certificate. 4.2* -- Article 5 of the Registrant's Restated Charter (included in Exhibit 3.1). 10.1* -- Warrant Certificate dated April 26, 1990. 10.2* -- Form of Warrant Certificate executed January 11, 1991. 10.3* -- Amended and Restated Loan Agreement dated April 20, 1992, as amended by the first and second amendments thereto. 10.4* -- Amended and Restated Subordinated Agreement dated April 20, 1994. 10.5* -- Acquisition Agreement by and between Mallers & Spirou Enterprises, Inc. and Regal Cinemas, Inc. dated March 31, 1993. 10.6* -- Form of Indemnification Agreement. 10.7* -- Amended and Restated Warrant Certificate replacing Warrant Certificate dated April 26, 1990. 10.8* -- Form of Amended and Restated Warrant Certificate replacing Warrant Certificates dated January 11, 1991. 10.9* -- Amended and Restated Loan Agreement dated July 6, 1993, as amended (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended July 1, 1993 as filed with the Securities and Exchange Commission on August 13, 1993 and as amended, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994, as filed with the Securities and Exchange Commission on August 15, 1994). 10.10** -- Acquisition Agreement by and between Regal Cinemas, Inc. and National Theatre Holdings Corp. dated January 24, 1994. 10.11** -- Agreement and Plan of Merger by and among Regal Cinemas, Inc., Regal Acquisition Corporation and Litchfield Theatres, Ltd. dated March 4, 1994. 10.12*** -- Agreement and Plan of Merger dated January 13, 1995 between Regal and Neighborhood Entertainment, Inc.
36 39 10.13**** -- Third Amendment to Second Amended and Restated Loan Agreement dated March 31, 1995, together with a related Guaranty Agreement and Stock Pledge Agreement. 10.14 -- Fourth Amendment to Second Amended and Restated Loan Agreement dated November 30, 1995. 10.15 -- Fifth Amendment to Second Amended and Restated Loan Agreement dated May 31, 1996. 10.16 -- Sixth Amendment to Second Amended and Restated Loan Agreement dated September 30, 1996. MANAGEMENT CONTRACT OR COMPENSATORY PLAN 10.17* -- 1993 Employee Stock Incentive Plan. 10.18* -- 1993 Outside Directors' Stock Option Plan. 10.19* -- Regal Cinemas, Inc. Participant Stock Option Plan. 10.20* -- Regal Cinemas, Inc. Employee Stock Option Plan. 10.21* -- Agreement of Employment and Covenant Not to Compete by and between Michael L. Campbell and Regal Cinemas, Inc. dated March 17, 1990. 10.22* -- Agreement of Employment and Covenant Not to Compete by and between R. Neal Melton and Regal Cinemas, Inc. dated March 17, 1990. 10.23***** -- 401(k) Profit Sharing Plan. 11 -- Statement re: computation of Per Share Earnings. 21 -- Subsidiaries 23.1 -- Independent Auditors' Consent. 23.2 -- Independent Auditors' Consent. 27 -- Financial Data Schedule (for SEC use only).
----------------- * Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 33-62868. ** Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1993. *** Incorporated by reference to the Registrant's Registration Statement on Form S-4, Registration No. 33-89048. **** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1995. ***** Incorporated by reference to the Registrant's Registration Statement on Form S-8, Registration No. 333-13295. (b) During the fourth quarter of fiscal 1996 ended January 2, 1997, the Registrant filed no reports on Form 8-K. 37 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGAL CINEMAS, INC. Dated: March 26, 1997 By: /s/ Michael L. Campbell ------------------------ Michael L. Campbell, Chairman, President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date - --------- ----- ---- /s/ Michael L. Campbell Chairman of the Board, March 26, 1997 - ---------------------------------- President, Chief Executive Officer Michael L. Campbell and Director (Principal Executive Officer) /s/ Lewis Frazer III Executive Vice President, Chief March 26, 1997 - ---------------------------------- Financial Officer and Treasurer Lewis Frazer III (Principal Financial and Accounting Officer) /s/ R. Neal Melton Vice President Equipment and March 26, 1997 - ---------------------------------- Purchasing, Secretary and R. Neal Melton Director /s/ Philip D. Borack Director March 26, 1997 - ---------------------------------- Philip D. Borack /s/ Michael E. Gellert Director March 26, 1997 - ---------------------------------- Michael E. Gellert /s/ J. David Grissom Director March 26, 1997 - ---------------------------------- J. David Grissom /s/ William H. Lomicka Director March 26, 1997 - ---------------------------------- William H. Lomicka /s/ Herbert S. Sanger, Jr. Director March 26, 1997 - ---------------------------------- Herbert S. Sanger, Jr. /s/ Jack Tyrrell Director March 26, 1997 - ---------------------------------- Jack Tyrrell
38 41 INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT - ------------ ----------------------------------------------------------- 3.1* Restated Charter of Registrant. 3.2* Restated Bylaws of Registrant. 4.1* Specimen Common Stock certificate. 4.2* Article 5 of the Registrant's Restated Charter (included in Exhibit 3.1). 10.1* Warrant Certificate dated April 26, 1990. 10.2* Form of Warrant Certificate executed January 11, 1991. 10.3* Amended and Restated Loan Agreement dated April 20, 1992, as amended by the first and second amendments thereto. 10.4* Amended and Restated Subordinated Agreement dated April 20, 1994. 10.5* Acquisition Agreement by and between Mallers & Spirou Enterprises, Inc. and Regal Cinemas, Inc. dated March 31, 1993. 10.6* Form of Indemnification Agreement. 10.7* Amended and Restated Warrant Certificate replacing Warrant Certificate dated April 26, 1990. 10.8* Form of Amended and Restated Warrant Certificate replacing Warrant Certificates dated January 11, 1991. 10.9* Amended and Restated Loan Agreement dated July 6, 1993, as amended (incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended July 1, 1993 as filed with the Securities and Exchange Commission on August 13, 1993 and as amended, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994, as filed with the Securities and Exchange Commission on August 15, 1994). 10.10** Acquisition Agreement by and between Regal Cinemas, Inc. and National Theatre Holdings Corp. dated January 24, 1994. 10.11** Agreement and Plan of Merger by and among Regal Cinemas, Inc., Regal Acquisition Corporation and Litchfield Theatres, Ltd. dated March 4, 1994. 10.12*** Agreement and Plan of Merger dated January 13, 1995 between Regal and Neighborhood Entertainment, Inc. 10.13 **** Third Amendment to Second Amended and Restated Loan Agreement dated March 31, 1995, together with a related Guaranty Agreement and Stock Pledge Agreement. 10.14 Fourth Amendment to Second Amended and Restated Loan Agreement dated November 30, 1995. 10.15 Fifth Amendment to Second Amended and Restated Loan Agreement dated May 31, 1996. 10.16 Sixth Amendment to Second Amended and Restated Loan Agreement dated September 30, 1996. MANAGEMENT CONTRACT OR COMPENSATORY PLAN 10.17* 1993 Employee Stock Incentive Plan. 10.18* 1993 Outside Directors' Stock Option Plan. 10.19* Regal Cinemas, Inc. Participant Stock Option Plan. 10.20* Regal Cinemas, Inc. Employee Stock Option Plan.
39 42
EXHIBIT NO. EXHIBIT - ------------ ----------------------------------------------------------- 10.21* Agreement of Employment and Covenant Not to Compete by and between Michael L. Campbell and Regal Cinemas, Inc. dated March 17, 1990. 10.22* Agreement of Employment and Covenant Not to Compete by and between R. Neal Melton and Regal Cinemas, Inc. dated March 17, 1990. 10.23***** 401(k) Profit Sharing Plan. 11 Statement re: computation of Per Share Earnings. 21 Subsidiaries 23.1 Independent Auditors' Consent. 23.2 Independent Auditors' Consent. 27 Financial Data Schedule (for SEC use only)
- ----------------- * Incorporated by reference to the Registrant's Registration Statement on Form S-1, Registration No. 33-62868. ** Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 30, 1993. *** Incorporated by reference to the Registrant's Registration Statement on Form S-4, Registration No. 33- 89048. **** Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1995. ***** Incorporated by reference to the Registrant's Registration Statement on Form S-8, Registration No. 333- 13295. 40 EX-10.14 2 4TH AMENDMENT TO RESTATED LOAN AGR. DATED 11/30/95 1 Exhibit 10.14 FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (the "Fourth Amendment"), is made and entered into as of the 30th day of November, 1995, by and among (i) REGAL CINEMAS, INC., a Tennessee corporation with principal office and place of business in Knoxville, Tennessee (the "Borrower"), (ii)(a) PNC BANK, KENTUCKY, INC., a Kentucky banking corporation with principal office and place of business in Louisville, Kentucky ("PNC"), (b) THE FIRST NATIONAL BANK OF BOSTON, a national banking association with principal office and place of business in Boston, Massachusetts ("Bank of Boston"), (c) FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking association with principal office and place of business in Nashville, Tennessee ("First Union"), (d) FIRST AMERICAN NATIONAL BANK, a national banking association with principal office and place of business in Knoxville, Tennessee ("First American"), (e) THE DAIWA BANK, LIMITED, a Japanese banking corporation maintaining an office in Chicago, Illinois ("Daiwa"), (f) NATIONSBANK OF TENNESSEE, N.A., a national banking association with an office and place of business in Knoxville, Tennessee (NationsBank"), and (g) WACHOVIA BANK OF GEORGIA, N.A., a national banking association with principal office and place of business in Atlanta, Georgia ("Wachovia") (PNC, Bank of Boston, First Union, First American, Daiwa, NationsBank and Wachovia is each hereinafter individually referred to as a "Bank," and all of the same are hereinafter collectively referred to as the "Banks"), (iii) PNC BANK, KENTUCKY, INC., in its capacity as agent for the Banks (in such capacity, the "Agent"), and (iv) THE FIRST NATIONAL BANK OF BOSTON, in its capacity as Lead Manager. P R E L I M I N A R Y S T A T E M E N T: A. Pursuant to that certain Second Amended and Restated Loan Agreement dated as of July 7, 1993, among the Borrower, PNC, Bank of Boston, First Union, First American, Daiwa and NationsBank (collectively, the "Original Banks"), the Agent and Bank of Boston, in its capacity as Lead Manager, as amended pursuant to (i) that certain First Amendment to Second Amended and Restated Loan Agreement dated as of May 6, 1994, among the Borrower, the Original Banks and the Agent, (ii) that certain Second Amendment to Second Amended and Restated Loan Agreement dated as of June 15, 1994, among the Borrower, the Original Banks and the Agent, and (iii) that certain Third Amendment to Second Amended and Restated Loan 2 Agreement dated as of March 31, 1995, among the Borrower, the Original Banks and the Agent (the "Third Amendment") (collectively, the "Loan Agreement"), the Original Banks have established a reducing revolving credit facility in the principal amount of One Hundred Million Dollars ($100,000,000.00) (the "Reducing Revolver") in favor of the Borrower upon the terms and conditions set forth in the Loan Agreement. B. The Borrower has now requested that the Original Banks increase the principal amount of the Reducing Revolver from One Hundred Million Dollars ($100,000,000.00) to One Hundred Fifty Million Dollars ($150,000,000.00), and that the Original Banks agree to certain other amendments and modifications to the Loan Agreement, all which the Original Banks are willing to do upon the express condition that the Borrower execute and deliver this Fourth Amendment and the other documents and instruments referred to herein to which the Borrower is a party. C. Wachovia desires to participate in the Reducing Revolver as a Bank under the Loan Agreement up to the principal amount of Seventeen Million Dollars ($17,000,000.00). D. The Borrower and the Original Banks are willing to permit Wachovia to participate in the Reducing Revolver up to the principal amount of Seventeen Million Dollars ($17,000,000.00). NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth herein and for other good and valuable consideration, the mutuality, receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. Each capitalized term used herein, unless otherwise expressly defined herein, shall have the meaning set forth in the Loan Agreement. 2. Wachovia hereby agrees to participate in the Reducing Revolver up to the principal amount of Seventeen Million Dollars ($17,000,000.00). In furtherance thereof, Wachovia is hereby made a party to the Loan Agreement and shall be a Bank for all purposes of the Loan Agreement and the other Loan Instruments, and Wachovia hereby assumes all obligations of a Bank under the Loan Agreement up to its Pro Rata Share of the aggregate Revolving Loan Commitments of the Banks. Without in any way limiting the generality of the foregoing, Wachovia hereby severally agrees, subject to the - 2 - 3 limitations set forth in the Loan Agreement, to lend to the Borrower from time to time during the period from the date of this Fourth Amendment to but excluding the Revolving Loan Commitment Termination Date, an aggregate amount not exceeding its Pro Rata Share of the aggregate Revolving Loan Commitments of the Banks. 3. The term "Loan Instruments", as defined in Section 1.67 of the Loan Agreement, is hereby redefined to mean the Loan Agreement, as amended by this Fourth Amendment, the Revolving Notes, as such term is redefined herein, the Guaranty Agreement, as such term is redefined herein, the Stock Pledge Agreement, as such term is redefined herein, any Interest Rate Agreement entered into by the Borrower, any applications, reimbursement agreements and other documents or certificates executed in favor of PNC relating to the Letters of Credit, all Borrowing Certificates and Compliance Certificates delivered to the Agent, and all other agreements, documents and instruments securing and/or pertaining to the Reducing Revolver. 4. The term "Reducing Revolver", as defined in Section 1.94 of the Loan Agreement, is hereby redefined to mean the reducing revolving credit facility established by the Banks in favor of the Borrower in the principal amount of One Hundred Fifty Million Dollars ($150,000,000.00) pursuant to the Loan Agreement and this Fourth Amendment, pursuant to which the Borrower may obtain Revolving Loans and/or Letters of Credit during the term of the Reducing Revolver. All references to the "aggregate principal balance of the Revolving Loans outstanding" or similar phrases in this Loan Agreement shall mean, as at the date of determination thereof, the sum of (i) the entire aggregate outstanding principal balance of all Revolving Loans made by the Banks pursuant to the Loan Agreement, and (ii) the then-existing Letter of Credit Usage. 5. Section 1.119 of the Loan Agreement, which was added to the Loan Agreement pursuant to the Third Amendment, is hereby deleted. 6. The term "Guaranty Agreement", as defined in Section 1.121 of the Loan Agreement, is hereby redefined to mean, collectively, (a) that certain Guaranty Agreement dated as of March 31, 1995, executed and delivered by Litchfield Theatres, Ltd. in favor of the Agent, in its capacity as agent for the Banks, as amended pursuant to that certain First Amendment to Guaranty Agreement of even date herewith, between Litchfield Theatres, Ltd. and the Agent, in its capacity as agent for the Banks, together with all - 3 - 4 future amendments and modifications thereto, and (b) that certain Guaranty Agreement of even date herewith, executed and delivered by Neighborhood Entertainment, Inc., in favor of the Agent, in its capacity as agent for the Banks, together with all future amendments and modifications thereto. 7. The term "Stock Pledge Agreement", as defined in Section 1.122 of the Loan Agreement, is hereby redefined to mean that certain Stock Pledge Agreement dated as of March 31, 1995, between the Borrower and the Agent, in its capacity as agent for the Banks, as amended pursuant to that certain First Amendment to Stock Pledge Agreement of even date herewith, between the Borrower and the Agent, in its capacity as agent for the Banks, together with all future amendments and modifications thereto. 8. The Loan Agreement is amended by adding Section 1.123 as follows: 1.123 'Net Worth' means, as at any date on which the amount thereof shall be determined, the stockholders equity of the Borrower, as determined in accordance with GAAP and by reference to the most recent consolidated balance sheet of the Borrower. 9. The Banks hereby increase the principal amount of the Reducing Revolver from One Hundred Million Dollars ($100,000,000.00) to One Hundred Fifty Million Dollars ($150,000,000.00). Section 2 of the Loan Agreement is hereby amended to reflect the increase in the principal amount of the Reducing Revolver from One Hundred Million Dollars ($100,000,000.00) to One Hundred Fifty Million Dollars ($150,000,000.00) and to substitute the figure "One Hundred Fifty Million Dollars ($150,000,000.00)" for the figure "One Hundred Million Dollars ($100,000,000.00)" wherever the same appears in Section 2 of the Loan Agreement. In furtherance thereof, each Bank's "Revolving Loan Commitment", as defined in Section 2.1A of the Loan Agreement and as set forth on Schedule 2.1 attached to the Loan Agreement and Exhibit A attached to the Third Amendment, is hereby redefined to mean each Bank's Revolving Loan Commitment set forth opposite its name on Exhibit A attached hereto and made a part hereof, which shall supersede in its entirety Schedule 2.1 attached to the Loan Agreement and Exhibit A attached to the Third Amendment. The obligation of the Borrower to repay all advances under the Reducing Revolver plus accrued interest thereon shall be - 4 - 5 evidenced by the Revolving Notes and the Loan Agreement, as amended by this Fourth Amendment. As of the date of this Fourth Amendment, the Revolving Notes issued and outstanding pursuant to the Loan Agreement and this Fourth Amendment include (a) that certain Amended and Restated Reducing Revolving Promissory Note dated November 30, 1995, made by the Borrower, payable to the order of PNC, and in the face principal amount of Thirty-Three Million Dollars ($33,000,000.00), (b) that certain Amended and Restated Reducing Revolving Promissory Note dated November 30, 1995, made by the Borrower, payable to the order of Bank of Boston, and in the face principal amount of Twenty-Six Million Dollars ($26,000,000.00), (c) that certain Amended and Restated Reducing Revolving Promissory Note dated November 30, 1995, made by the Borrower, payable to the order of First Union, and in the face principal amount of Twenty Million Dollars ($20,000,000.00), (d) that certain Amended and Restated Reducing Revolving Promissory Note dated November 30, 1995, made by the Borrower, payable to the order of First American, and in the face principal amount of Seventeen Million Dollars ($17,000,000.00), (e) that certain Amended and Restated Reducing Revolving Promissory Note dated November 30, 1995, made by the Borrower, payable to the order of Daiwa, and in the face principal amount of Seventeen Million Dollars ($17,000,000.00), (f) that certain Amended and Restated Reducing Revolving Promissory Note dated November 30, 1995, made by the Borrower, payable to the order of NationsBank, and in the face principal amount of Twenty Million Dollars ($20,000,000.00), and (g) that certain Reducing Revolving Promissory Note dated November 30, 1995, made by the Borrower, payable to the order of Wachovia, and in the face principal amount of Seventeen Million Dollars ($17,000,000.00). 10. Section 2.1E of the Loan Agreement, titled Scheduled Reductions in Revolving Loan Commitments, is hereby amended to provide that the Revolving Loan Commitments of the Banks shall permanently reduce by the following amounts and on the following dates (the "Revolving Loan Commitment Reduction Dates") in proportion to each Bank's Pro Rata Share per the following schedule: - 5 - 6
Revolving Loan Scheduled Reduction Remaining Commitment in Revolving Revolving Reduction Date Loan Commitments Loan Commitments -------------- ------------------- ---------------- October 1, 1997 $ 7,500,000 $142,500,000 January 1, 1998 $ 7,500,000 $135,000,000 April 1, 1998 $ 7,500,000 $127,500,000 July 1, 1998 $ 7,500,000 $120,000,000 October 1, 1998 $ 7,500,000 $112,500,000 January 1, 1999 $ 7,500,000 $105,000,000 April 1, 1999 $ 7,500,000 $ 97,500,000 July 1, 1999 $ 7,500,000 $ 90,000,000 October 1, 1999 $11,250,000 $ 78,750,000 January 1, 2000 $11,250,000 $ 67,500,000 April 1, 2000 $11,250,000 $ 56,250,000 July 1, 2000 $11,250,000 $ 45,000,000 October 1, 2000 $11,250,000 $ 33,750,000 January 1, 2001 $11,250,000 $ 22,500,000 April 1, 2001 $11,250,000 $ 11,250,000 June 30, 2001 $11,250,000 0
The schedule set forth in this Section 10 shall supersede in their entirety the schedules respectively set forth in Section 2.1E of the Loan Agreement and Section 7 of the Third Amendment. 11. The schedules of the Applicable Base Rate Margins respectively set forth in Section 2.2A(i) of the Loan Agreement and Section 8 of the Third Amendment are hereby amended and restated as follows:
Applicable Pricing Level Base Rate Margin ------------- ---------------- Pricing Level I 0% Pricing Level II 0% Pricing Level III 0% Pricing Level IV 0% Pricing Level V 0%
12. The schedules of the Applicable LIBOR Rate Margins respectively set forth in Section 2.2A(ii) of the Loan Agreement and Section 9 of the Third Amendment are hereby amended and restated as follows: - 6 - 7
Applicable LIBOR Pricing Level Rate Margin ------------- ---------------- Pricing Level I 1 and 1/2% Pricing Level II 1 and 1/4% Pricing Level III 1% Pricing Level IV 3/4 of 1% Pricing Level V 1/2 of 1%
13. Section 2.3B of the Loan Agreement, titled Commitment Fee, is hereby amended to provide that the Borrower shall pay to the Agent, for the benefit of the Banks in proportion to their respective Pro Rata Shares, commitment fees for the period from and including the effective date of this Fourth Amendment to and excluding the date the Revolving Loan Commitments expire, equal to the average of the daily excess of the Revolving Loan Commitments (as reduced in accordance with the schedule set forth in Section 10 of this Fourth Amendment or pursuant to Section 2.4C of the Loan Agreement) over the aggregate principal amount of Revolving Loans outstanding plus the Letter of Credit Usage multiplied by 1/4 of 1% per annum, such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on the last day of each Fiscal Quarter, commencing on the first such date to occur after the date of this Fourth Amendment, and on the date the Revolving Loan Commitments expire. Reductions in the amounts available for borrowing under the Revolving Loan Commitments arising from the operation of the limitation set forth in the second paragraph of Section 2.1A of the Loan Agreement shall not constitute usages of Revolving Loan Commitments for purposes of this Section 13 or Section 2.3B of the Loan Agreement and shall not reduce the amount of the commitment fees payable by the Borrower under this Section 13 or Section 2.3B of the Loan Agreement. 14. The schedules of the Applicable Letter of Credit Fee Percentages set forth in Section 2.7F(ii) of the Loan Agreement and Section 13 of the Third Amendment are hereby amended and restated as follows: - 7 - 8
Applicable Letter Pricing Level of Credit Fee Percentage ------------- ------------------------ Pricing Level I 1 and 1/2% Pricing Level II 1 and 1/4% Pricing Level III 1% Pricing Level IV 3/4 of 1% Pricing Level V 1/2 of 1%
15. Section 8.12 of the Loan Agreement, titled Pro Forma Debt Service Coverage, and Section 19 of the Third Amendment are hereby amended to provide that the Borrower will not permit, as at each Fiscal Quarter end, the ratio of (a) its Cash Flow From Operations for the four-Fiscal Quarter period ended on such four-Fiscal Quarter end, to (b) its Pro Forma Debt Service in respect of the four (4) immediately succeeding Fiscal Quarters: (i) To be less than 1.25 to 1.0 as at any Fiscal Quarter end during the period from the date hereof through June 30, 1997; and (ii) To be less than 1.5 to 1.0 at any Fiscal Quarter end after July 1, 1997. For purposes of determining the Borrower's compliance with the provisions of this Section 14 as of each Funding Date and/or Transaction Date, the Borrower's Cash Flow From Operations shall be determined for the twelve full calendar months preceding the particular Funding Date and/or Transaction Date, the Borrower's Pro Forma Debt Service shall be determined for the twelve full calendar months commencing with the calendar month in which the particular Funding Date and/or Transaction Date occurs, and the Borrower will not permit the ratio of the Borrower's Cash Flow From Operations for the twelve full calendar months preceding the particular Funding Date and/or Transaction Date to the Borrower's Pro Forma Debt Service for the twelve full calendar months commencing with the calendar month in which the particular Funding Date and/or Transaction Date occurs: (i) To be less than 1.25 to 1.0 as at any calendar month end during the period from the date hereof through June 30, 1997; and (ii) To be less than 1.5 to 1.0 at any calendar month end after July 1, 1997. - 8 - 9 16. Section 8.13 of the Loan Agreement, titled Minimum Tangible Net Worth, and renamed Minimum Net Worth pursuant to this Fourth Amendment, and Section 20 of the Third Amendment are hereby amended to provide that the Borrower will not permit its Net Worth, as such term has been defined herein, (a) to be less than Eighty Million Dollars ($80,000,000.00) as of June 29, 1995, and (b) with respect to each Fiscal Quarter of the Borrower after Fiscal Quarter ended June 29, 1995, to be less than the minimum Net Worth required of the Borrower as at its immediately preceding Fiscal Quarter end plus the sum of (i) 50% of its Net Income (but not including any net losses) for its Fiscal Quarter then ended, (ii) 100% of all proceeds (net of underwriters' discount and other customary and usual closing costs) realized by the Borrower from the private placement and/or public offering of any shares of its stock during the Borrower's Fiscal Quarter then ended, and (iii) 100% of all additions to the Borrower's stockholders' equity resulting from the issuance by the Borrower of its capital stock to pay in whole or in part the purchase price of Theaters acquired by the Borrower during the Borrower's Fiscal Quarter then ended. 17. Section 8.14 of the Loan Agreement, titled Capital Expenditures, and Section 21 of the Third Amendment are hereby amended to provide that the Borrower will not make or incur Capital Expenditures in excess of the following amounts: (i) $70,000,000.00 during the Loan Year ending June 30, 1996; (ii) $70,000,000.00 during the Loan Year ending June 30, 1997; (iii) $35,000,000.00 during the Loan Year ending June 30, 1998; and (iv) $17,500,000 during any Loan Year ending after June 30, 1998. The Banks agree that the portion of any Capital Expenditures paid for by the issuance and sale of capital stock of the Borrower shall not be subject to the limitations on the incurrence of Capital Expenditures per the schedule set forth above; provided, the Borrower will not make or incur Capital Expenditures, including Capital Expenditures paid for by the issuance and sale of capital stock of the Borrower, in excess of the following amounts: - 9 - 10 (i) $85,000,000.00 during the Loan Year ending June 30, 1996; (ii) $85,000,000.00 during the Loan Year ending June 30, 1997; (iii) $50,000,000.00 during the Loan Year ending June 30, 1998; and (iv) $32,500,000.00 during any Loan Year ending after June 30, 1998. The Borrower shall have the right, to the extent the Borrower has not expended the maximum amount of Capital Expenditures permitted to be expended by the Borrower in any Loan Year pursuant to the schedules set forth above, to expend the amount of such unexpended Capital Expenditures in respect of such Loan Year (the "Carryover Capital Expenditures") in the immediately succeeding Loan Year, subject to (a) the Borrower may expend the Carry over Capital Expenditures in respect of a particular Loan Year only in the immediately succeeding Loan Year, (b) the amount of the Carryover Capital Expenditures which may be carried over from a Loan Year may not exceed thirty percent (30%) of the amount of Capital Expenditures permitted to be expended by the Borrower in such Loan Year per the schedules set forth above, and (c) all Capital Expenditures expended by the Borrower in any Loan Year shall be deemed the expenditure by the Borrower of a dollar for dollar portion of the maximum amount of Capital Expenditures permitted to be expended by the Borrower in such Loan Year per the schedules set forth above before any such Capital Expenditures expended by the Borrower shall be deemed the expenditure by the Borrower of any portion of the amount of Carryover Capital Expenditures carried over into such Loan Year. Any Carryover Capital Expenditures not permitted to be expended by the Borrower in any particular Loan Year by virtue of the provisions of clauses (a), (b) or (c) of the immediately preceding sentence may not be thereafter expended by the Borrower without the prior written consent of the Requisite Banks. 18. The Borrower, the Banks (other than Daiwa) and the Agent acknowledge that Daiwa is attempting to sell its banking operations and assets located in the United States, including, without limitation, its Revolving Loans and Revolving Loan Commitment, as a going concern to a successor financial institution. Daiwa hereby agrees that, in the event any proposed purchaser of Daiwa's Revolving - 10 - 11 Loans and Revolving Loan Commitment is not acceptable to the Agent and/or the Borrower in their reasonable good faith discretion, or in the event Daiwa has not entered into an agreement providing for the sale of its Revolving Loans and Revolving Loan Commitment to an Eligible Assignee acceptable to both the Agent and the Borrower in their reasonable good faith discretion on or before February 2, 1996 (or such later date as shall be acceptable to the Agent in its sole and absolute discretion), Daiwa shall, at the option of and upon request by the Agent, (a) sell its Revolving Loans and Revolving Loan Commitment to such of the other Banks that elect in their sole and absolute discretion to purchase Daiwa's Revolving Loans and Revolving Loan Commitment, which electing Banks shall thereupon purchase Daiwa's Revolving Loans and Revolving Loan Commitment on a pro rata basis based upon their respective Revolving Loan Commitments or on such other basis as such Banks may agree among themselves, and/or (b) sell its Revolving Loans and Revolving Loan Commitment to an Eligible Assignee identified and approved by both the Agent and the Borrower in their reasonable good faith discretion provided that such Eligible Assignee is ready, willing and able to purchase Daiwa's Revolving Loans and Revolving Loan Commitment or the relevant portion thereof for the purchase price set forth below. In the event the Agent requests Daiwa to sell its Revolving Loans and Revolving Loan Commitment pursuant to this Section 18, the closing of the sale and purchase thereof shall occur not less than thirty (30) days after the Agent has given Daiwa written notice of the purchaser(s) of Daiwa's Revolving Loans and Revolving Loan Commitment, or such shorter period of time as Daiwa shall consent to in writing in its sole and absolute discretion or which shall otherwise be required under applicable federal or state law. Any sale of Daiwa's Revolving Loans and Revolving Loan Commitment pursuant to this Section 18 shall be for an aggregate purchase price equal to the unpaid principal balance of and all accrued interest on Daiwa's Revolving Loans plus any accrued and unpaid commitment fees on Daiwa's Revolving Loan Commitment pursuant to Section 13 hereof and any other amounts agreed to between Daiwa and the purchaser(s) thereof, but less any Letter of Credit Fees paid to Daiwa for the unexpired period of time for which such Letter of Credit Fees were paid. 19. The Borrower agrees to pay to the Agent, on behalf of the Banks, closing fees to the Banks per the following schedule: - 11 - 12
Bank Closing Fee ---- ----------- 1. PNC $ 8,125.00 2. Bank of Boston 6,250.00 3. First Union 9,375.00 4. First American 5,625.00 5. Daiwa 5,625.00 6. NationsBank 6,250.00 7. Wachovia 21,250.00 --------- TOTAL $62,500.00
The Borrower further agrees to pay all out-of-pocket fees and expenses, including, without limitation, reasonable attorneys' fees, incurred by the Agent in preparing, negotiating and obtaining the execution and delivery of this Fourth Amendment and the other documents and instruments referred to herein and in consummating the transactions described herein. 20. This Fourth Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. 21. Except to the extent expressly amended or modified hereby, the Borrower hereby ratifies and reaffirms each of its covenants, agreements, obligations, representations and warranties set forth in the Loan Agreement. 22. This Fourth Amendment shall be effective as of the later of (a) November 30, 1995, or (b) the date of delivery of the following documents to the Banks and/or the Agent: (i) This Fourth Amendment, duly executed by the Borrower and each of the Banks; (ii) The Amended and Restated Reducing Revolving Promissory Notes referred to in Section 9 of this Fourth Amendment, duly executed by the Borrower; (iii) That certain First Amendment to Stock Pledge Agreement dated as of November 30, 1995, between the Borrower and the Agent, duly executed by the Borrower, together with the stock certificates evidencing all of the issued and outstanding shares of common stock of Neighborhood Entertainment, Inc. with duly executed blank stock powers attached thereto; - 12 - 13 (iv) That certain First Amendment to Guaranty Agreement dated as of November 30, 1995, between Litchfield Theatres, Ltd. and the Agent, duly executed and delivered by Litchfield Theatres, Ltd.; (v) That certain Guaranty Agreement dated as of November 30, 1995, from Neighborhood Entertainment, Inc. to the Agent, duly executed and delivered by Neighborhood Entertainment, Inc.; (vi) Certified resolutions of the Board of Directors of the Borrower, authorizing the increase in the Reducing Revolver reflected herein and the Borrower's execution and delivery of this Fourth Amendment and the other documents referred to herein to be executed by the Borrower; (vii) Certified resolutions of the Board of Directors of Litchfield Theatres, Inc., authorizing the execution and delivery of the First Amendment to Guaranty Agreement referred to in subpart (iv) above; (viii) Certified resolutions of the Board of Directors of Neighborhood Entertainment, Inc., authorizing the execution and delivery of the Guaranty Agreement referred to in subpart (v) above; and (ix) An opinion of counsel on behalf of the Borrower, Litchfield Theatres, Ltd. and Neighborhood Entertainment, Inc., in form and substance satisfactory to the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to Second Amended and Restated Loan Agreement to be duly executed as of the day and year first above written. REGAL CINEMAS, INC. By:______________________________ Michael L. Campbell, President (the "Borrower") - 13 - 14 PNC BANK, KENTUCKY, INC. By:_______________________________ Title:____________________________ Address: PNC Bank, Kentucky, Inc. Citizens Plaza 500 West Jefferson Street Louisville, KY 40202 Attn: Benjamin Willingham Regional Corporate Banking Group ("PNC") THE FIRST NATIONAL BANK OF BOSTON By:_______________________________ Title:____________________________ Address: The First National Bank of Boston Media & Communications Dept. 100 Federal Street Mail Stop 01-08-08 Boston, MA 02110 Attn: Matthew E. Murphy, Vice President ("Bank of Boston") - 14 - 15 FIRST UNION NATIONAL BANK OF TENNESSEE By:_______________________________ Title:____________________________ Address: First Union National Bank of Tennessee 150 4th Avenue Box 2648 Nashville, TN 37219 Attn: S. Scott Miler, Vice President ("First Union") FIRST AMERICAN NATIONAL BANK By:_______________________________ Title:____________________________ Address: First American National Bank 505 S. Gay Street Knoxville, TN 37902 Attn: Eric Schwarzentraub, Vice President ("First American") - 15 - 16 THE DAIWA BANK, LIMITED By:_______________________________ Title:____________________________ By:_______________________________ Title:____________________________ Address: The Daiwa Bank, Limited One Peachtree Center 303 Peachtree Street Suite 4420 Atlanta, GA 30308 Attn: Terry Herron, Vice President ("Daiwa") NATIONSBANK OF TENNESSEE, N.A. By:_______________________________ Title:____________________________ Address: NationsBank of Tennessee, N.A. 550 Main Avenue Knoxville, TN 37901-0017 Attn: John F. Fisher, Senior Vice President ("NationsBank") - 16 - 17 WACHOVIA BANK OF GEORGIA, N.A. By:_______________________________ Title:____________________________ Address: 191 Peachtree St, N.E. Mail Code 3940 Atlanta, GA 30303 Attn: Nick T. Weaver, Vice President ("Wachovia") (collectively, the "Banks") PNC BANK, KENTUCKY, INC., in its capacity as Agent By:_______________________________ Title:____________________________ (the "Agent") THE FIRST NATIONAL BANK OF BOSTON, in its capacity as Lead Manager By:_______________________________ Title:____________________________ - 17 - 18 EXHIBIT A
Amount Pro Rata Share of of Revolving Aggregate Revolving Name of Bank Loan Commitment Loan Commitments ------------ --------------- ------------------- 1. PNC Bank, Kentucky, Inc. $ 33,000,000 22.00% 2. The First National Bank of Boston $ 26,000,000 17.3333% 3. First Union National Bank of Tennessee $ 20,000,000 13.3334% 4. First American National Bank $ 17,000,000 11.3333% 5. The Daiwa Bank, Limited $ 17,000,000 11.3333% 6. NationsBank of Tennessee, N.A. $ 20,000,000 13.3334% 7. Wachovia Bank of Georgia, N.A. $ 17,000,000 11.3333% --------------- -------- TOTAL $150,000,000.00 100.00%
EX-10.15 3 5TH AMENDMENT TO RESTATED LOAN AGREEMENT, MAY,1996 1 Exhibit 10.15 FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT THIS FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (the "Fifth Amendment"), is made and entered into as of the 31st day of May, 1996, by and among (i) REGAL CINEMAS, INC., a Tennessee corporation with principal office and place of business in Knoxville, Tennessee (the "Borrower"), (ii)(a) PNC BANK, KENTUCKY, INC., a Kentucky banking corporation with principal office and place of business in Louisville, Kentucky ("PNC"), (b) THE FIRST NATIONAL BANK OF BOSTON, a national banking association with principal office and place of business in Boston, Massachusetts ("Bank of Boston"), (c) FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking association with principal office and place of business in Nashville, Tennessee ("First Union"), (d) FIRST AMERICAN NATIONAL BANK, a national banking association with principal office and place of business in Knoxville, Tennessee ("First American"), (e) THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH, a Japanese banking corporation maintaining an office in Chicago, Illinois ("Sumitomo"), in its capacity as the assignee and successor in interest to The Daiwa Bank, Limited ("Daiwa"), (f) NATIONSBANK OF TENNESSEE, N.A., a national banking association with an office and place of business in Knoxville, Tennessee (NationsBank"), and (g) WACHOVIA BANK OF GEORGIA, N.A., a national banking association with principal office and place of business in Atlanta, Georgia ("Wachovia") (PNC, Bank of Boston, First Union, First American, Sumitomo, NationsBank and Wachovia is each hereinafter individually referred to as a "Bank," and all of the same are hereinafter collectively referred to as the "Banks"), (iii) PNC BANK, KENTUCKY, INC., in its capacity as agent for the Banks (in such capacity, the "Agent"), and (iv) THE FIRST NATIONAL BANK OF BOSTON, in its capacity as Lead Manager. P R E L I M I N A R Y S T A T E M E N T: A. Pursuant to that certain Second Amended and Restated Loan Agreement dated as of July 7, 1993, among the Borrower, PNC, Bank of Boston, First Union, First American, Daiwa and NationsBank (collectively, the "Original Banks"), the Agent and Bank of Boston, in its capacity as Lead Manager, as amended pursuant to (i) that certain First Amendment to Second Amended and Restated Loan Agreement dated as of May 6, 1994, among the Borrower, the Original Banks and the Agent, (ii) that certain Second Amendment to Second Amended and Restated Loan Agreement dated as of June 15, 1994, 2 among the Borrower, the Original Banks and the Agent, (iii) that certain Third Amendment to Second Amended and Restated Loan Agreement dated as of March 31, 1995, among the Borrower, the Original Banks and the Agent (the "Third Amendment"), and (iv) that certain Fourth Amendment to Second Amended and Restated Loan Agreement dated as of November 30, 1995, among the Borrower, the Original Banks, Wachovia and the Agent (the "Fourth Amendment") (collectively, the "Loan Agreement"), the Banks have established a reducing revolving credit facility in the principal amount of One Hundred Fifty Million Dollars ($150,000,000.00) (the "Reducing Revolver") in favor of the Borrower upon the terms and conditions set forth in the Loan Agreement. B. The Borrower has now requested that the Banks agree to certain amendments to the Loan Agreement, which the Banks are willing to do upon the express condition that the Borrower execute and deliver this Fifth Amendment. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth herein and for other good and valuable consideration, the mutuality, receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. Each capitalized term used herein, unless otherwise expressly defined herein, shall have the meaning set forth in the Loan Agreement. 2. Section 8.14 of the Loan Agreement, titled Capital Expenditures, as amended pursuant to Section 21 of the Third Amendment and Section 17 of the Fourth Amendment, is hereby amended to provide that the Borrower will not make or incur Capital Expenditures in excess of the following amounts: (i) $100,000,000.00 during the Loan Year ending June 30, 1996; (ii) $70,000,000.00 during the Loan Year ending June 30, 1997; (iii) $35,000,000.00 during the Loan Year ending June 30, 1998; and (iv) $17,500,000 during any Loan Year ending after June 30, 1998. - 2 - 3 The Banks agree that the portion of any Capital Expenditures paid for by the issuance and sale of capital stock of the Borrower shall not be subject to the limitations on the incurrence of Capital Expenditures per the schedule set forth above; provided, the Borrower will not make or incur Capital Expenditures, including Capital Expenditures paid for by the issuance and sale of capital stock of the Borrower, in excess of the following amounts: (i) $110,000,000.00 during the Loan Year ending June 30, 1996; (ii) $85,000,000.00 during the Loan Year ending June 30, 1997; (iii) $50,000,000.00 during the Loan Year ending June 30, 1998; and (iv) $32,500,000.00 during any Loan Year ending after June 30, 1998. The Borrower shall have the right, to the extent the Borrower has not expended the maximum amount of Capital Expenditures permitted to be expended by the Borrower in any Loan Year pursuant to the schedules set forth above, to expend the amount of such unexpended Capital Expenditures in respect of such Loan Year (the "Carryover Capital Expenditures") in the immediately succeeding Loan Year, subject to (a) the Borrower may expend the Carry over Capital Expenditures in respect of a particular Loan Year only in the immediately succeeding Loan Year, (b) the amount of the Carryover Capital Expenditures which may be carried over from a Loan Year may not exceed thirty percent (30%) of the amount of Capital Expenditures permitted to be expended by the Borrower in such Loan Year per the schedules set forth above, and (c) all Capital Expenditures expended by the Borrower in any Loan Year shall be deemed the expenditure by the Borrower of a dollar for dollar portion of the maximum amount of Capital Expenditures permitted to be expended by the Borrower in such Loan Year per the schedules set forth above before any such Capital Expenditures expended by the Borrower shall be deemed the expenditure by the Borrower of any portion of the amount of Carryover Capital Expenditures carried over into such Loan Year. Any Carryover Capital Expenditures not permitted to be expended by the Borrower in any particular Loan Year by virtue of the provisions of clauses (a), (b) or (c) of the immediately preceding sentence may not be thereafter expended by - 3 - 4 the Borrower without the prior written consent of the Requisite Banks. The Banks hereby agree that the acquisition by the Borrower of certain theaters from Kirkorian Premiere Theaters pursuant to a March 25, 1996 Acquisition Agreement (the "Kirkorian Acquisition") as well as the acquisition by the Borrower of certain theaters from Georgia State Theatres pursuant to a February 2, 1996 Amended and Restated Agreement and Plan of Merger (the "Georgia State Acquisition"), regardless of the manner in which each of the Kirkorian Acquisition and the Georgia State Acquisition is structured and accounted for under GAAP, and regardless of whether any Revolving Loans are made to the Borrower under the Loan Agreement to pay in part the purchase price of the Kirkorian Acquisition and/or the Georgia State Acquisition, shall not be deemed the incurrence by the Borrower of Capital Expenditures for purposes of determining the Borrower's compliance with the provisions of Section 8.14 of the Loan Agreement, as amended pursuant to Section 21 of the Third Amendment, Section 17 of the Fourth Amendment and this Section 2, and accordingly the "purchase price" paid by the Borrower for each of the Kirkorian Acquisition and the Georgia State Acquisition shall not be subject to the limitations on the Borrower's incurrence of Capital Expenditures set forth in this Section 2, provided that both the Kirkorian Acquisition and the Georgia State Acquisition are consummated on or before September 30, 1996. Provided, the Borrower acknowledges and agrees that the Borrower's consummation of each of the Kirkorian Acquisition and the Georgia State Acquisition, regardless of the manner in which each of the Kirkorian Acquisition and the Georgia State Acquisition is structured, shall be subject to all of the other terms and conditions of the Loan Agreement and the other Loan Instruments. 3. The Borrower hereby confirms to the Banks that, upon the consummation of the Georgia State Acquisition, the Borrower will succeed by operation of law to the 50% partnership interest of Georgia State Theatres, Inc. in and to Gainesville Theatres, L.L.P., a Georgia limited liability partnership. In the Borrower's capacity as the owner of a fifty percent (50%) partnership interest in Gainesville Theatres, L.L.P., the Borrower desires to guarantee the payment of a construction/permanent loan in the principal amount not to exceed $3,500,000 to be obtained by Gainesville Theatres, L.L.P. from Wachovia Bank of Georgia, N.A. to finance certain costs of construction of a theater complex by Gainesville Theatres, L.L.P. (the "Gainesville Theatres Term Loan"). In order to permit the Borrower to consummate the foregoing transactions - 4 - 5 without violating certain provisions of the Loan Agreement, the Borrower has requested, and the Banks have agreed, to the following amendments to the Loan Agreement: (a) The Banks hereby waive the provisions of Section 8.1(d) of the Loan Agreement in order to permit the Borrower to own a fifty percent (50%) partnership interest in Gainesville Theatres, L.L.P. without violating the Loan Agreement; and (b) The Banks hereby waive the provisions of Sections 8.2 and 8.16 of the Loan Agreement in order to permit the Borrower to guarantee the payment of the Gainesville Theatres Term Loan without violating the Loan Agreement. The Banks further hereby agree that, so long as Gainesville Theatres, L.L.P. is not in default in the payment of any of the principal of and/or accrued interest on the Gainesville Theatres Term Loan, only fifty percent (50%) of the unpaid principal of the Gainesville Theatres Term Loan must be included in the Borrower's Total Funded Debt for purposes of Sections 8.10 and 8.12 of the Loan Agreement; contrariwise, in the event Gainesville Theaters, L.L.P. is in default in the payment of any of the principal of and/or accrued interest on the Gainesville Theatres Term Loan, the entire unpaid principal of and all accrued and unpaid interest on the Gainesville Theatres Term Loan shall be included in the Borrower's Total Funded Debt for purposes of Sections 8.10 and 8.12 of the Loan Agreement. Finally, the Banks hereby agree that the Borrower's share of the net income (or net loss) of Gainesville Theatres, L.L.P., as determined in accordance with GAAP, shall be included in the Borrower's Net Income, Cash Flow Available for Fixed Charges, Cash Flow from Operations, EBITDA and Theater Level Cash Flow for purposes of Sections 8.10, 8.11 and 8.12 of the Loan Agreement. The Borrower hereby acknowledges and agrees that, except to the limited extent set forth in this Section 3, the Banks have not waived any of the provisions of Sections 8.1, 8.2 or 8.16 of the Loan Agreement or have otherwise modified the defined terms Total Funded Debt, Net Income, Cash Flow Available for Fixed Charges, Cash Flow from Operations, EBITDA and Theater Level Cash Flow and/or the provisions of Sections 8.10, 8.11 or 8.12 of the Loan Agreement. - 5 - 6 4. This Fifth Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. 5. Except to the extent expressly amended or modified hereby, the Borrower hereby ratifies and reaffirms each of its covenants, agreements, obligations, representations and warranties set forth in the Loan Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to Second Amended and Restated Loan Agreement to be duly executed as of the day and year first above written. REGAL CINEMAS, INC. By:_______________________________ Michael L. Campbell, President (the "Borrower") PNC BANK, KENTUCKY, INC. By:_______________________________ Title:____________________________ Address: PNC Bank, Kentucky, Inc. Citizens Plaza 500 West Jefferson Street Louisville, KY 40202 Attn: Benjamin Willingham Regional Corporate Banking Group ("PNC") - 6 - 7 THE FIRST NATIONAL BANK OF BOSTON By:_______________________________ Title:____________________________ Address: The First National Bank of Boston Media & Communications Dept. 100 Federal Street Mail Stop 01-08-08 Boston, MA 02110 Attn: Matthew E. Murphy, Vice President ("Bank of Boston") FIRST UNION NATIONAL BANK OF TENNESSEE By:_______________________________ Title:____________________________ Address: First Union National Bank of Tennessee 150 4th Avenue Box 2648 Nashville, TN 37219 Attn: S. Scott Miler, Vice President ("First Union") - 7 - 8 FIRST AMERICAN NATIONAL BANK By:_______________________________ Title:____________________________ Address: First American National Bank 505 S. Gay Street Knoxville, TN 37902 Attn: Eric Schwarzentraub, Vice President ("First American") THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH By:_______________________________ Title:____________________________ Address: The Sumitomo Bank, Limited One Peachtree Center 303 Peachtree Street Suite 4420 Atlanta, GA 30308 Attn: Manager ("Sumitomo") - 8 - 9 NATIONSBANK OF TENNESSEE, N.A. By:_______________________________ Title:____________________________ Address: NationsBank of Tennessee, N.A. 550 Main Avenue Knoxville, TN 37901-0017 Attn: John F. Fisher, Senior Vice President ("NationsBank") WACHOVIA BANK OF GEORGIA, N.A. By:_______________________________ Title:____________________________ Address: 191 Peachtree St, N.E. Mail Code 3940 Atlanta, GA 30303 Attn: John Tibe, Vice President ("Wachovia") (collectively, the "Banks") - 9 - 10 PNC BANK, KENTUCKY, INC., in its capacity as Agent By:_______________________________ Title:____________________________ (the "Agent") THE FIRST NATIONAL BANK OF BOSTON, in its capacity as Lead Manager By:_______________________________ Title:____________________________ Litchfield Theatres, Ltd., a South Carolina corporation ("Litchfield"), in its capacity as the issuer of that certain Guaranty Agreement dated as of March 31, 1995, in favor of PNC Bank, Kentucky, Inc., as the Agent, and Neighborhood Entertainment, Inc., a Virginia corporation ("Neighborhood"), in its capacity as the issuer of that certain Guaranty Agreement dated as of November 30, 1995, in favor of PNC Bank, Kentucky, Inc., as the Agent, each hereby consents to the amendment of the Loan Agreement in the manner set forth in this Fifth Amendment, and each hereby ratifies and reaffirms all of its representations, warranties, covenants, - 10 - 11 agreements and obligations under the Guaranty Agreement to which it is a party. LITCHFIELD THEATERS, LTD. By:_______________________________ Title:____________________________ Date: May 31, 1996 NEIGHBORHOOD ENTERTAINMENT, INC. By:_______________________________ Title:____________________________ Date: May 31, 1996 - 11 - EX-10.16 4 6TH AMENDMENT TO RESTATED LOAN AGR., SEPT., 1996 1 Exhibit 10.16 SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT THIS SIXTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (the "Sixth Amendment"), is made and entered into as of the 30th day of September, 1996, by and among (i) REGAL CINEMAS, INC., a Tennessee corporation with principal office and place of business in Knoxville, Tennessee (the "Borrower"), (ii)(a) PNC BANK, KENTUCKY, INC., a Kentucky banking corporation with principal office and place of business in Louisville, Kentucky ("PNC"), (b) THE FIRST NATIONAL BANK OF BOSTON, a national banking association with principal office and place of business in Boston, Massachusetts ("Bank of Boston"), (c) FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking association with principal office and place of business in Nashville, Tennessee ("First Union"), (d) FIRST AMERICAN NATIONAL BANK, a national banking association with principal office and place of business in Knoxville, Tennessee ("First American"), (e) THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH, a Japanese banking corporation maintaining an office in Chicago, Illinois ("Sumitomo"), in its capacity as the assignee and successor in interest to The Daiwa Bank, Limited ("Daiwa"), (f) NATIONSBANK OF TENNESSEE, N.A., a national banking association with an office and place of business in Knoxville, Tennessee (NationsBank"), and (g) WACHOVIA BANK OF GEORGIA, N.A., a national banking association with principal office and place of business in Atlanta, Georgia ("Wachovia") (PNC, Bank of Boston, First Union, First American, Sumitomo, NationsBank and Wachovia is each hereinafter individually referred to as a "Bank," and all of the same are hereinafter collectively referred to as the "Banks"), (iii) PNC BANK, KENTUCKY, INC., in its capacity as agent for the Banks (in such capacity, the "Agent"), and (iv) THE FIRST NATIONAL BANK OF BOSTON, in its capacity as Lead Manager. P R E L I M I N A R Y S T A T E M E N T: A. Pursuant to that certain Second Amended and Restated Loan Agreement dated as of July 7, 1993, among the Borrower, PNC, Bank of Boston, First Union, First American, Daiwa and NationsBank (collectively, the "Original Banks"), the Agent and Bank of Boston, in its capacity as Lead Manager, as amended pursuant to (i) that certain First Amendment to Second Amended and Restated Loan Agreement dated as of May 6, 1994, among the Borrower, the Original Banks and the Agent (the "First Amendment"), (ii) that certain Second Amendment to Second Amended and Restated Loan Agreement 2 dated as of June 15, 1994, among the Borrower, the Original Banks and the Agent (the "Second Amendment"), (iii) that certain Third Amendment to Second Amended and Restated Loan Agreement dated as of March 31, 1995, among the Borrower, the Original Banks and the Agent (the "Third Amendment"), (iv) that certain Fourth Amendment to Second Amended and Restated Loan Agreement dated as of November 30, 1995, among the Borrower, the Original Banks, Wachovia and the Agent (the "Fourth Amendment"), and (v) that certain Fifth Amendment to Second Amended and Restated Loan Agreement dated as of May 31, 1996, among the Borrower, the Banks and the Agent (the "Fifth Amendment") (collectively, the "Loan Agreement"), the Banks have established a reducing revolving credit facility in the principal amount of One Hundred Fifty Million Dollars ($150,000,000.00) (the "Reducing Revolver") in favor of the Borrower upon the terms and conditions set forth in the Loan Agreement. B. The Borrower has now requested that the Banks agree to certain amendments to the Loan Agreement, which the Banks are willing to do upon the express condition that the Borrower execute and deliver this Sixth Amendment. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth herein and for other good and valuable consideration, the mutuality, receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows: 1. Each capitalized term used herein, unless otherwise expressly defined herein, shall have the meaning set forth in the Loan Agreement. 2. The term "Applicable Commitment Fee", as defined in Section 1.119 of the Loan Agreement, is hereby re-defined to mean, as of each date of determination thereof, (a) .225% per annum if, as at the most recent Fiscal Quarter end of the Borrower, the ratio of the Borrower's Total Funded Debt as at such Fiscal Quarter end, to the Borrower's Theater Level Cash Flow for the four-Fiscal Quarter period ended on such Fiscal Quarter end, was greater than 2.5 to 1.0, and (b) .175% per annum if, as at the most recent Fiscal Quarter end of the Borrower, the ratio of the Borrower's Total Funded Debt as at such Fiscal Quarter end, to the Borrower's Theater Level Cash Flow for the four-Fiscal Quarter period ended on such Fiscal Quarter end, was equal to or less than 2.5 to 1.0. - 2 - 3 3. The term "Pricing Level", as defined in Section 1.81 of the Loan Agreement, is hereby redefined to mean, for any Pricing Period, Pricing Level I, Pricing Level II or Pricing Level III, as may be in effect for such Pricing Period; provided, however, the Default Rate shall be in effect upon the occurrence and during the continuation of any Event of Default. 4. The term "Pricing Level I", as defined in Section 1.82 of the Loan Agreement, is hereby redefined to mean the Pricing Level that will be in effect for the applicable Pricing Period if, as at the relevant Date of Determination, the ratio of the Borrower's Total Funded Debt as measured on such Date of Determination, to the Borrower's Theater Level Cash Flow for the four-Fiscal Quarter Period ended on such Date of Determination, is greater than 2.5 to 1.0. 5. The term "Pricing Level II", as defined in Section 1.83 of the Loan Agreement, is hereby redefined to mean the Pricing Level that will be in effect for the applicable Pricing Period if, as at the relevant Date of Determination, the ratio of the Borrower's Total Funded Debt as measured on such Date of Determination, to the Borrower's Theater Level Cash Flow for the four- Fiscal Quarter Period ended on such Date of Determination, is greater than 1.5 to 1.0 but is equal to or less than 2.5 to 1.0. 6. The term "Pricing Level III", as defined in Section 1.84 of the Loan Agreement, is hereby redefined to mean the Pricing Level that will be in effect for the applicable Pricing Period if, as at the relevant Date of Determination, the ratio of the Borrower's Total Funded Debt as measured on such Date of Determination, to the Borrower's Theater Level Cash Flow for the four-Fiscal Quarter Period ended on such Date of Determination, is equal to or less than 1.5 to 1.0. 7. The term "Pricing Level IV", as defined in Section 1.85 of the Loan Agreement, and the term "Pricing Level V", as defined in Section 1.117 of the Loan Agreement, are hereby deleted. 8. The term "Revolving Loan Commitment Termination Date", as defined in Section 1.100 of the Loan Agreement, is hereby redefined to mean the Revolving Loan Commitment Termination Date then in effect, which shall be the earliest of (i) June 30, 2003, (ii) the date as of which the Secured Obligations shall have become immediately due and payable pursuant to Section 9 of the Loan Agreement, and (iii) the date on which all of the Secured Obligations are paid - 3 - 4 in full (including, without limitation, the repayment, expiration, termination or cash collateralization of Letters of Credit pursuant to this Loan Agreement) and all Revolving Loan Commitments are reduced to zero. 9. The term "Total Funded Debt", as defined in Section 1.113 of the Loan Agreement, is hereby redefined to mean, as at any date on which the amount thereof shall be determined, (i) all Indebtedness for borrowed money of the Borrower as of such date, including, without limitation, all unpaid Secured Obligations, all unpaid Subordinated Indebtedness and all amounts due under all Capital Leases entered into or assumed by the Borrower, but excluding all Net Cash Proceeds on deposit in the account maintained by the Borrower with the Agent pursuant to Section 2.4(A)(ii)(1) hereof, plus (ii) all Contingent Obligations of the Borrower. 10. The term "Guaranty Agreement", as defined in Section 1.121 of the Loan Agreement, is hereby redefined to mean, collectively, (a) that certain Guaranty Agreement dated as of March 31, 1995, executed and delivered by Litchfield Theatres, Ltd., a South Carolina corporation, in favor of the Agent, as amended pursuant to (i) that certain First Amendment to Guaranty Agreement dated as of November 30, 1995, between Litchfield Theatres, Ltd. and the Agent, and (ii) that certain Second Amendment to Guaranty Agreement dated as of September 30, 1996, between Litchfield Theatres, Ltd. and the Agent, together with all future amendments and modifications thereto, (b) that certain Guaranty Agreement dated as of November 30, 1995, executed and delivered by Neighborhood Entertainment, Inc, a Virginia corporation, in favor of the Agent, as amended pursuant to that certain First Amendment to Guaranty Agreement dated as of September 30, 1996, between Neighborhood Entertainment, Inc. and the Agent, together with all future amendments and modifications thereto, and (c) that certain Guaranty Agreement dated as of September 30, 1996, executed and delivered by Georgia State Theatres, Inc., a Georgia corporation, in favor of the Agent, together with all future amendments and modifications thereto. 11. The term "Stock Pledge Agreement", as defined in Section 1.122 of the Loan Agreement, is hereby redefined to mean that certain Stock Pledge Agreement dated as of March 31, 1995, between the Borrower and the Agent, as amended pursuant to (a) that certain First Amendment to Stock Pledge Agreement dated as of November 30, 1995, between the Borrower and the Agent, and (b) that certain Second Amendment to Stock Pledge Agreement dated as of September - 4 - 5 30, 1996, between the Borrower and the Agent, together with all future amendments and modifications thereto. 12. Section 2.1E of the Loan Agreement, titled Scheduled Reductions in Revolving Loan Commitments, as previously amended pursuant to Section 17 of the First Amendment, Section 7 of the Third Amendment and Section 10 of the Fourth Amendment, is hereby amended to provide that the Revolving Loan Commitments of the Banks shall permanently reduce by the following amounts and on the following dates (the "Revolving Loan Commitment Reduction Dates") in proportion to each Bank's Pro Rata Share per the following schedule:
Revolving Loan Scheduled Reduction Remaining Commitment in Revolving Revolving Reduction Date Loan Commitments Loan Commitments -------------- ------------------- ---------------- October 1, 1999 $ 7,500,000 $142,500,000 January 1, 2000 $ 7,500,000 $135,000,000 April 1, 2000 $ 7,500,000 $127,500,000 July 1, 2000 $ 7,500,000 $120,000,000 October 1, 2000 $ 7,500,000 $112,500,000 January 1, 2001 $ 7,500,000 $105,000,000 April 1, 2001 $ 7,500,000 $ 97,500,000 July 1, 2001 $ 7,500,000 $ 90,000,000 October 1, 2001 $11,250,000 $ 78,750,000 January 1, 2002 $11,250,000 $ 67,500,000 April 1, 2002 $11,250,000 $ 56,250,000 July 1, 2002 $11,250,000 $ 45,000,000 October 1, 2002 $11,250,000 $ 33,750,000 January 1, 2003 $11,250,000 $ 22,500,000 April 1, 2003 $11,250,000 $ 11,250,000 June 30, 2003 $11,250,000 0
The schedule set forth in this Section 12 shall supersede in their entirety the schedules respectively set forth in Section 2.1E of the Loan Agreement, Section 17 of the First Amendment, Section 7 of the Third Amendment and Section 10 of the Fourth Amendment. 13. The schedules of the Applicable Base Rate Margins respectively set forth in Section 2.2A(i) of the Loan Agreement, Section 18 of the First Amendment, Section 8 of the Third Amendment and Section 11 of the Fourth Amendment are hereby amended and restated as follows: - 5 - 6
Applicable Pricing Level Base Rate Margin ------------- ---------------- Pricing Level I 0% Pricing Level II 0% Pricing Level III 0%
The schedule set forth in this Section 13 shall supersede in their entirety the schedules respectively set forth in Section 2.2A(i) of the Loan Agreement, Section 18 of the First Amendment, Section 8 of the Third Amendment and Section 11 of the Fourth Amendment. 14. The schedules of the Applicable LIBOR Rate Margins respectively set forth in Section 2.2A(ii) of the Loan Agreement, Section 19 of the First Amendment, Section 9 of the Third Amendment and Section 12 of the Fourth Amendment are hereby amended and restated as follows:
Applicable LIBOR Pricing Level Rate Margin ------------- ----------- Pricing Level I .90% Pricing Level II .65% Pricing Level III .40%
The schedule set forth in this Section 14 shall supersede in their entirety the schedules respectively set forth in Section 2.2A(ii) of the Loan Agreement, Section 19 of the First Amendment, Section 9 of the Third Amendment and Section 12 of the Fourth Amendment. 15. Section 2.3B of the Loan Agreement, titled Commitment Fee, as amended pursuant to Section 11 of the Third Amendment and Section 13 of the Fourth Amendment, is hereby amended to provide that the Borrower shall pay to the Agent, for the benefit of the Banks in proportion to their respective Pro Rata Shares, commitment fees for the period from and including the effective date of this Sixth Amendment to and excluding the date the Revolving Loan Commitments expire, equal to the average of the daily excess of the Revolving Loan Commitments (as reduced in accordance with the schedule set forth in Section 12 of this Sixth Amendment or pursuant to Section 2.4C of the Loan Agreement) over the aggregate principal amount of Revolving Loans outstanding plus the Letter of Credit Usage multiplied by the Applicable Commitment Fee, such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in - 6 - 7 arrears on the last day of each Fiscal Quarter, commencing on the first such date to occur after the date of this Sixth Amendment, and on the date the Revolving Loan Commitments expire. Reductions in the amounts available for borrowing under the Revolving Loan Commitments arising from the operation of the limitation set forth in the second paragraph of Section 2.1A of the Loan Agreement shall not constitute usages of Revolving Loan Commitments for purposes of this Section 15 or Section 2.3B of the Loan Agreement and shall not reduce the amount of the commitment fees payable by the Borrower under this Section 15 or Section 2.3B of the Loan Agreement. 16. The schedules of the Applicable Letter of Credit Fee Percentages respectively set forth in Section 2.7F(ii) of the Loan Agreement, Section 20 of the First Amendment, Section 13 of the Third Amendment and Section 14 of the Fourth Amendment are hereby amended and restated as follows:
Applicable Letter Pricing Level of Credit Fee Percentage ------------- ------------------------ Pricing Level I .90% Pricing Level II .65% Pricing Level III .40%
The schedule set forth in this Section 16 shall supersede in their entirety the schedules respectively set forth in Section 2.7F(ii) of the Loan Agreement, Section 20 of the First Amendment, Section 13 of the Third Amendment and Section 14 of the Fourth Amendment. 17. Section 8.10 of the Loan Agreement, titled Total Funded Debt to Theater Level Cash Flow, as previously amended pursuant to Section 22 of the First Amendment and Section 17 of the Third Amendment, is hereby amended to provide that the Borrower will not permit, as at each Fiscal Quarter end, the ratio of (a) its Total Funded Debt as at such Fiscal Quarter end, to (b) its Theater Level Cash Flow for the four-Fiscal Quarter period ended on such Fiscal Quarter end: (i) To exceed 3.0 to 1.0 at any Fiscal Quarter end during the period from the date hereof through June 30, 1999; and (ii) To exceed 2.5 to 1.0 at any Fiscal Quarter end after June 30, 1999. - 7 - 8 For purposes of determining the Borrower's compliance with the provisions of this Section 17 as of each Funding Date and/or Transaction Date, the Borrower's Total Funded Debt shall also be determined as of the particular Funding Date and/or Transaction Date, the Borrower's Theater Level Cash Flow shall be determined for the twelve full calendar months preceding the particular Funding Date and/or Transaction Date, and the Borrower will not permit the ratio of the Borrower's Total Funded Debt as of the particular Funding Date and/or Transaction Date to the Borrower's Theater Level Cash Flow for the twelve full calendar months preceding the particular Funding Date and/or Transaction Date: (i) To exceed 3.0 to 1.0 on any Funding Date and/or Transaction Date during the period from the date hereof through June 30, 1999; and (ii) To exceed 2.5 to 1.0 on any Funding Date and/or Transaction Date after June 30, 1999. 18. Section 8.11 of the Loan Agreement, titled Fixed Charge Coverage Ratio, as previously amended pursuant to Section 18 of the Third Amendment, is hereby amended to provide that the Borrower will not permit, as at each Fiscal Quarter end, the ratio of (a) its Cash Flow Available for Fixed Charges for the four-Fiscal Quarter period ended on such Fiscal Quarter end, to (b) its Fixed Charges for the four-Fiscal Quarter period ended on such Fiscal Quarter end to be less than 1.75 to 1.0 as at any Fiscal Quarter end, commencing with the Fiscal Quarter ending September 30, 1996. 19. Section 8.12 of the Loan Agreement, titled Pro Forma Debt Service Coverage, as previously amended pursuant to Section 23 of the First Amendment, Section 19 of the Third Amendment and Section 15 of the Fourth Amendment, is hereby amended to provide that the Borrower will not permit, as at each Fiscal Quarter end, the ratio of (a) its Cash Flow From Operations for the four-Fiscal Quarter period ended on such four-Fiscal Quarter end, to (b) its Pro Forma Debt Service in respect of the four (4) immediately succeeding Fiscal Quarters, to be less than 1.25 to 1.0 as at any Fiscal Quarter end, commencing with the Fiscal Quarter ending September 30, 1996. For purposes of determining the Borrower's compliance with the provisions of this Section 19 as of each Funding Date and/or Transaction Date, the Borrower's Cash Flow From Operations shall be determined for the twelve full calendar months preceding the particular Funding Date and/or Transaction Date, the Borrower's Pro Forma Debt Service shall be determined for the twelve full calendar months commencing with the calendar month in which the particular Funding Date and/or Transaction Date occurs, and the Borrower will not permit the ratio of the Borrower's Cash Flow From Operations for the twelve full calendar months preceding the - 8 - 9 particular Funding Date and/or Transaction Date, to the Borrower's Pro Forma Debt Service shall be determined for the twelve full calendar months commencing with the calendar month in which the particular Funding Date and/or Transaction Date occurs, and the Borrower will not permit the ratio of the Borrower's Cash Flow From Operations for the twelve full calendar months preceding the particular Funding Date and/or Transaction Date to the Borrower's Pro Forma Debt Service for the twelve full calender months commencing with the calendar month in which the particular Funding Date and/or Transaction Date occurs to be less than 1.25 to 1.0 as at any calendar month end occurring after August 31, 1996. 20. Section 8.13 of the Loan Agreement, titled Minimum Tangible Net Worth, and renamed Minimum Net Worth pursuant to the Fourth Amendment, as previously amended pursuant to Section 24 of the First Amendment, Section 20 of the Third Amendment and Section 16 of the Fourth Amendment, is hereby amended to provide that the Borrower will not permit its Net Worth, as such term has been defined in the Fourth Amendment, (a) to be less than Two Hundred Thirty Million Dollars ($230,000,000.00) as of June 27, 1996, and (b) with respect to each Fiscal Quarter of the Borrower after Fiscal Quarter ended June 27, 1996, to be less than the minimum Net Worth required of the Borrower as at its immediately preceding Fiscal Quarter end plus the sum of (i) 50% of its Net Income (but not including any net losses) for its Fiscal Quarter then ended, (ii) 100% of all proceeds (net of underwriters' discount and other customary and usual closing costs) realized by the Borrower from the private placement and/or public offering of any shares of its stock during the Borrower's Fiscal Quarter then ended, and (iii) 100% of all additions to the Borrower's stockholders' equity resulting from the issuance by the Borrower of its capital stock to pay in whole or in part the purchase price of Theaters acquired by the Borrower during the Borrower's Fiscal Quarter then ended. 21. Section 8.14 of the Loan Agreement, titled Capital Expenditures, as previously amended pursuant to Section 25 of the First Amendment, Section 21 of the Third Amendment, Section 17 of the Fourth Amendment and Section 2 of the Fifth Amendment, is hereby deleted in its entirety. 22. The Borrower hereby confirms to the Banks that the Borrower has formed a Tennessee limited liability company known as Green Hills Commons, LLC (the "Company") with GH Company, LLC to construct a theater and adjacent FunScape in Nashville, Tennessee. The Borrower further desires to lend up to Fifteen Million Dollars - 9 - 10 ($15,000,000.00) to the Company to enable the Company to purchase the land upon which the theaters and FunScape shall be constructed and to finance certain of the costs of constructing the theaters and FunScape. In order to permit the Borrower to consummate the foregoing transactions without violating certain provisions of the Loan Agreement, the Borrower has requested, and the Banks have agreed, to the following amendments to the Loan Agreement: (a) The Banks hereby waive the provisions of Section 8.1(d) of the Loan Agreement in order to permit the Borrower to own an interest in the Company without violating the Loan Agreement; and (b) The Banks hereby waive the provisions of Section 8.5 of the Loan Agreement through April 1, 1997, in order to permit the Borrower to lend up to Fifteen Million Dollars ($15,000,000.00) to the Company without violating the Loan Agreement. The foregoing waiver of the provisions of Section 8.5 of the Loan Agreement shall be in effect only through April 1, 1997, by which date all amounts lent by the Borrower to the Company shall be required to have been repaid to the Borrower. The Borrower's share of the net income (or net loss) of the Company, as determined in accordance with GAAP, shall be included in the Borrower's Net Income, Cash Flow Available for Fixed Charges, Cash Flow from Operations, EBITDA and Theater Level Cash Flow for purposes of Sections 8.10, 8.11 and 8.12 of the Loan Agreement. The Borrower hereby acknowledges and agrees that, except to the limited extent set forth in this Section 22, the Banks have not waived any of the provisions of Sections 8.1 or 8.5 of the Loan Agreement or have otherwise modified the defined terms Net Income, Cash Flow Available for Fixed Charges, Cash Flow from Operations, EBITDA and Theater Level Cash Flow and/or the provisions of Sections 8.10, 8.11 or 8.12 of the Loan Agreement. 23. Pursuant to Section 22(e) of the Third Amendment, (a) the Borrower hereby confirms to the Banks that Georgia State Theatres, Inc., a Georgia corporation, is a Consolidated Subsidiary of the Borrower, (b) the Borrower shall pledge to the Agent, on behalf of the Banks, all of the issued and outstanding shares of capital stock of Georgia State Theatres, Inc. pursuant to that certain Second Amendment to Stock Pledge Agreement dated as of September 30, 1996, between the Borrower and the Agent, and (c) the Borrower - 10 - 11 shall cause Georgia State Theatres, Inc. to guarantee the payment of the Revolving Notes to the Banks pursuant to that certain Guaranty Agreement dated as of September 30, 1996, between Georgia State Theatres, Inc. and the Agent. 24. This Sixth Amendment may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. 25. Except to the extent expressly amended or modified hereby, the Borrower hereby ratifies and reaffirms each of its covenants, agreements, obligations, representations and warranties set forth in the Loan Agreement. 26. The Borrower agrees to pay all out-of-pocket fees and expenses, including, without limitation, reasonable attorneys' fees, incurred by the Agent in preparing, negotiating and obtaining the execution and delivery of this Sixth Amendment and the other documents and instruments referred to herein and in consummating the transactions described herein. 27. This Sixth Amendment shall be effective as of the later of (a) September 30, 1996, or (b) the date of delivery of the following documents to the Banks and/or the Agent: (i) This Sixth Amendment, duly executed by the Borrower and each of the Banks; (ii) That certain Second Amendment to Stock Pledge Agreement dated as of September 30, 1996, between the Borrower and the Agent, duly executed by the Borrower, together with (1) the stock certificates evidencing all of the issued and outstanding shares of capital stock of Georgia State Theatres, Inc. with duly executed blank stock powers attached thereto, and (2) any written evidence of the Borrower's fifty percent (50%) financial interest in the Company; (iii) That certain Second Amendment to Guaranty Agreement dated as of September 30, 1996, between Litchfield Theatres, Ltd. and the Agent, duly executed and delivered by Litchfield Theatres, Ltd.; (iv) That certain First Amendment to Guaranty Agreement dated as of September 30, 1996, between Neighborhood Entertainment, - 11 - 12 Inc. and the Agent, duly executed and delivered by Neighborhood Entertainment, Inc.; (v) That certain Guaranty Agreement dated as of September 30, 1996, from Georgia State Theatres, Inc. to the Agent, duly executed and delivered by Georgia State Theatres, Inc.; (vi) Certified resolutions of the Board of Directors of the Borrower, authorizing the Borrower's execution and delivery of this Sixth Amendment and the other documents referred to herein to be executed by the Borrower; (vii) Certified resolutions of the Board of Directors of Georgia State Theatres, Inc., authorizing the execution and delivery of the Guaranty Agreement referred to in subpart (v) above; (viii) An opinion of counsel on behalf of the Borrower and Georgia State Theatres, Inc., in form and substance satisfactory to the Agent. IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment to Second Amended and Restated Loan Agreement to be duly executed as of the day and year first above written. REGAL CINEMAS, INC. By:_______________________________ Lewis Frazer, III, Executive Vice President, Chief Financial Officer and Treasurer (the "Borrower") - 12 - 13 PNC BANK, KENTUCKY, INC. By:_______________________________ Title:____________________________ Address: PNC Bank, Kentucky, Inc. Citizens Plaza 500 West Jefferson Street Louisville, KY 40202 Attn: Benjamin Willingham Regional Corporate Banking Group ("PNC") THE FIRST NATIONAL BANK OF BOSTON By:_______________________________ Title:____________________________ Address: The First National Bank of Boston Media & Communications Dept. 100 Federal Street Mail Stop 01-08-08 Boston, MA 02110 Attn: Matthew E. Murphy, Vice President ("Bank of Boston") 14 FIRST UNION NATIONAL BANK OF TENNESSEE By:_______________________________ Title:____________________________ Address: First Union National Bank of Tennessee 150 4th Avenue Box 2648 Nashville, TN 37219 Attn: S. Scott Miler, Vice President ("First Union") FIRST AMERICAN NATIONAL BANK By:_______________________________ Title:____________________________ Address: First American National Bank 505 S. Gay Street Knoxville, TN 37902 Attn: Eric Schwarzentraub, Vice President ("First American") - 14 - 15 THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH By:_______________________________ Title:____________________________ Address: The Sumitomo Bank, Limited One Peachtree Center 303 Peachtree Street Suite 4420 Atlanta, GA 30308 Attn: Manager ("Sumitomo") NATIONSBANK OF TENNESSEE, N.A. By:_______________________________ Title:____________________________ Address: NationsBank of Tennessee, N.A. 550 Main Avenue Knoxville, TN 37901-0017 Attn: John F. Fisher, Senior Vice President ("NationsBank") - 15 - 16 WACHOVIA BANK OF GEORGIA, N.A. By:_______________________________ Title:____________________________ Address: 191 Peachtree St, N.E. Mail Code 3940 Atlanta, GA 30303 Attn: John Tibe, Vice President ("Wachovia") (collectively, the "Banks") PNC BANK, KENTUCKY, INC., in its capacity as Agent By:_______________________________ Title:____________________________ (the "Agent") THE FIRST NATIONAL BANK OF BOSTON, in its capacity as Lead Manager By:_______________________________ Title:____________________________ Litchfield Theatres, Ltd., a South Carolina corporation ("Litchfield"), in its capacity as the issuer of that certain Guaranty Agreement dated as of March 31, 1995, in favor of PNC - 16 - 17 Bank, Kentucky, Inc., as the Agent, and Neighborhood Entertainment, Inc., a Virginia corporation ("Neighborhood"), in its capacity as the issuer of that certain Guaranty Agreement dated as of November 30, 1995, in favor of PNC Bank, Kentucky, Inc., as the Agent, each hereby consents to the amendment of the Loan Agreement in the manner set forth in this Sixth Amendment, and each hereby ratifies and reaffirms all of its representations, warranties, covenants, agreements and obligations under the Guaranty Agreement to which it is a party. LITCHFIELD THEATERS, LTD. By:_______________________________ Title:____________________________ Date: September 30, 1996 NEIGHBORHOOD ENTERTAINMENT, INC. By:_______________________________ Title:____________________________ Date: September 30, 1996 - 17 - EX-11 5 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 COMPUTATION OF EARNINGS PER SHARE REGAL CINEMAS, INC.
YEARS ENDED ----------------------------------------------- (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) DECEMBER 29, DECEMBER 28, JANUARY 2, 1994 1995 1997 ------------ ------------ ----------- PRIMARY: Weighted average number of common shares outstanding 25,592 27,590 30,888 Net effect of dilutive stock options and warrants based on the treasury stock method using average market price 1,066 883 1,074 --------- --------- --------- Weighted average number of common and common equivalent shares outstanding 26,658 28,473 31,962 ========= ========= ========= Net income $ 8,528 $ 18,103 $ 30,025 Less common and preferred dividends 380 433 229 --------- --------- --------- Net income applicable to common shares $ 8,148 $ 17,670 $ 29,796 ========= ========= ========= Net income per common share, as reported $ .31 $ .62 $ .93 ========= ========= ========= FULLY DILUTED: Weighted average number of common shares outstanding 25,592 27,590 30,888 Net effect of dilutive stock options and warrants based on the treasury stock method using ending market price 1,239 1,054 1,166 --------- --------- --------- 26,831 28,644 32,054 ========= ========= ========= Net income $ 8,528 $ 18,103 $ 30,025 Less common and preferred dividends 380 433 229 Net income applicable to common shares $ 8,148 $ 17,670 $ 29,796 ========= ========= ========= Net income per common share assuming full dilution, as reported $ .30 $ .62 $ .93 ========= ========= =========
EX-21 6 SUBSIDIARIES 1 Exhibit 21 Subsidiaries 1. Litchfield Theatres, Ltd., a South Carolina corporation 2. Neighborhood Entertainment, Inc., a Virginia corporation 3. Georgia State Theatres, Inc., a Georgia corporation EX-23.1 7 CONSENT OF INDEPENDENT ACCOUNTANTS 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Regal Cinemas, Inc. on Form S-8 (File Nos. 33-74634, 333-13292 and 333-13295) of our report dated February 6, 1997, on our audits of the consolidated financial statements of Regal Cinemas, Inc. as of December 28, 1995 and January 2, 1997, and for each of the three years in the period ended January 2, 1997, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Knoxville, Tennessee March 26, 1997 EX-23.2 8 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23.2 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the: 1. Registration Statement (Form S-8 No. 33-74634) pertaining to the Regal Cinemas, Inc. Participant Stock Option Plan, Regal Cinemas, Inc. Employee Stock Option Plan, 1993 Employee Stock Incentive Plan and 1993 Outside Directors' Stock Option Plan of Regal Cinemas, Inc.; 2. Registration Statement (Form S-8 No. 333-13295) pertaining to the 401(k) Profit Sharing Plan of Regal Cinemas, Inc.; 3. Registration Statement (Form S-8 No. 333-13291) pertaining to the 1993 Employee Stock Incentive Plan of Regal Cinemas, Inc.; of our report dated March 21, 1995 (with respect to the financial statements of Neighborhood Entertainment, Inc. not separately presented) appearing in the Annual Report (Form 10-K) of Regal Cinemas, Inc. for the fiscal year ended January 2, 1997. ERNST & YOUNG LLP Richmond, Virginia March 26, 1997 EX-27 9 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF REGAL CINEMAS, INC. FOR THE YEAR ENDED JANUARY 2, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR JAN-02-1997 DEC-29-1995 JAN-02-1997 1 14,778 0 2,285 0 1,240 24,106 385,567 54,343 378,519 32,213 51,000 0 0 221,506 62,215 378,519 76,117 269,836 9,685 111,042 107,547 0 3,489 49,575 19,550 30,025 0 0 0 30,025 .93 .93
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