<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
REGAL CINEMAS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, no par value ("Regal Common Stock"), of Regal Cinemas, Inc.
(2) Aggregate number of securities to which transaction applies:
36,114,774 shares of Regal Common Stock
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $31.00
(4) Proposed maximum aggregate value of transaction: $1,119,557,994.00
(5) Total fee paid: $223,912.00
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
As filed with the Commission on April 16, 1998.
<PAGE> 2
(REGAL CINEMAS LOGO)
To Our Shareholders:
You are cordially invited to attend the special meeting of shareholders of
Regal Cinemas, Inc., to be held at 7132 Commercial Park Drive, Knoxville,
Tennessee on Monday, May 18, 1998 at 10:00 a.m., local time.
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger dated as of January 19,
1998, among Regal, Screen Acquisition Corp., a Delaware corporation, and Monarch
Acquisition Corp., a Delaware corporation, pursuant to which, upon the terms and
subject to the conditions of that agreement, Screen Acquisition Corp. and
Monarch Acquisition Corp. will be merged with and into Regal, with Regal being
the surviving corporation, and with each share of Regal's common stock
outstanding immediately prior to the effective time of the merger being
converted into the right to receive $31.00 in cash without interest. Screen
Acquisition Corp. is a newly formed corporation which is currently owned by KKR
1996 Fund L.P., a Delaware limited partnership organized at the direction of
Kohlberg Kravis Roberts & Co. L.P. Monarch Acquisition Corp. is a newly formed
corporation which is currently owned by an affiliate of Hicks, Muse, Tate &
Furst Equity Fund III, L.P., a Delaware limited partnership organized at the
direction of Hicks, Muse, Tate & Furst Incorporated and its affiliates.
Accordingly, upon consummation of the merger, the current shares of Regal common
stock will cease to represent ownership interests in Regal. A copy of the
agreement and plan of merger is attached to the accompanying Proxy Statement as
Annex A.
Goldman, Sachs & Co., financial advisor to Regal in connection with the
merger, has rendered its written opinion that, as of January 19, 1998, the
consideration to be received by the holders of Regal common stock pursuant to
the agreement and plan of merger is fair from a financial point of view to such
holders. A copy of the full text of that written opinion is attached to the
accompanying Proxy Statement as Annex B.
I urge you to read carefully the accompanying Notice of Special Meeting of
Shareholders and Proxy Statement (and its Annexes) for details of the merger and
additional related information.
THE BOARD OF DIRECTORS OF REGAL HAS DETERMINED THAT THE CONSIDERATION TO BE
PAID TO REGAL SHAREHOLDERS IN THE MERGER IS FAIR TO SUCH HOLDERS AND HAS ADOPTED
THE AGREEMENT AND PLAN OF MERGER. THE REGAL BOARD HAS FURTHER DETERMINED THAT
THE MERGER IS ADVISABLE AND IN THE BEST INTERESTS OF REGAL AND ITS SHAREHOLDERS,
AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT
AND PLAN OF MERGER.
Your vote is important to Regal. Whether or not you plan to attend the
Special Meeting in person and regardless of the number of shares of Regal common
stock you own, please complete, sign, date and return the enclosed proxy card
promptly in the enclosed pre-addressed, postage-paid envelope. You may, of
course, attend the Special Meeting, revoke your proxy and vote in person even if
you have already returned your proxy card.
Sincerely,
/S/ Michael L. Campbell
Michael L. Campbell
Chairman, President and
Chief Executive Officer
April 16, 1998
This Proxy Statement is dated April 16, 1998 and is first being mailed to
shareholders on or about April 17, 1998.
<PAGE> 3
(REGAL CINEMAS LOGO)
---------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 1998
---------------
Notice is hereby given that a special meeting of shareholders (as it may be
adjourned or postponed, the "Special Meeting") of Regal Cinemas, Inc., a
Tennessee corporation ("Regal"), will be held at 7132 Commercial Park Drive,
Knoxville, Tennessee, on Monday, May 18, 1998 at 10:00 a.m., local time, for the
following purpose:
To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of January 19, 1998 (the "Merger Agreement"), among
Regal, Screen Acquisition Corp., a Delaware corporation ("KKR Merger
Subsidiary"), and Monarch Acquisition Corp., a Delaware corporation ("Hicks
Muse Merger Subsidiary" and, together with KKR Merger Subsidiary, the
"Merger Subsidiaries"), pursuant to which, upon the terms and subject to
the conditions of the Merger Agreement, each Merger Subsidiary will be
merged with and into Regal (the "Merger"), with Regal being the surviving
corporation, and with each share of Regal's common stock, no par value (the
"Regal Common Stock"), outstanding immediately prior to the effective time
of the Merger (other than shares of Regal Common Stock held by Regal or
either Merger Subsidiary) being converted into the right to receive $31.00
in cash without interest.
Except as set forth above, no other business will be transacted at the
Special Meeting.
KKR Merger Subsidiary is a newly formed corporation which is currently
owned by KKR 1996 Fund L.P., a Delaware limited partnership organized at the
direction of Kohlberg Kravis Roberts & Co. L.P. Hicks Muse Merger Subsidiary is
a newly formed corporation which is currently owned by an affiliate of Hicks,
Muse, Tate & Furst Equity Fund III, L.P., a Delaware limited partnership
organized at the direction of Hicks, Muse, Tate & Furst Incorporated and its
affiliates.
The Merger and other related matters are described in more detail in the
attached Proxy Statement and the Annexes thereto.
The stock transfer books of Regal will not be closed but only shareholders
of record at the close of business on March 31, 1998 will be entitled to notice
of and to vote at the Special Meeting or any adjournment or postponement
thereof. A complete list of the shareholders entitled to vote will be available
for inspection by any shareholder during the Special Meeting; in addition, the
list will be open for examination by any shareholder, during regular business
hours, beginning two business days after the date hereof, at the principal
executive offices of Regal.
All shares of Regal Common Stock represented by properly executed proxies
will be voted in accordance with the specifications on the enclosed proxy. If no
such specifications are made, proxies will be voted FOR approval of the Merger
Agreement.
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Regal Common Stock.
YOUR VOTE IS IMPORTANT TO REGAL. WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING IN PERSON AND REGARDLESS OF THE NUMBER OF SHARES OF REGAL COMMON
STOCK YOU OWN, PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY IN THE ENCLOSED PRE-ADDRESSED, POSTAGE-PAID ENVELOPE. YOU MAY, OF
COURSE, ATTEND THE SPECIAL MEETING, REVOKE YOUR PROXY AND VOTE IN PERSON EVEN IF
YOU HAVE ALREADY RETURNED YOUR PROXY CARD.
<PAGE> 4
Please do not send any stock certificates with your proxy card. If the
Merger Agreement is approved by the shareholders and the Merger is consummated,
you will receive a transmittal form and instructions for the surrender of the
certificates previously representing your shares of Regal Common Stock.
By Order of the Board of Directors
/s/ Lewis Frazer III
Lewis Frazer III
Secretary
Knoxville, Tennessee
April 16, 1998
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 2
THE SPECIAL MEETING......................................... 8
Date, Place and Time...................................... 8
Matters to Be Considered at the Special Meeting........... 8
Record Date; Quorum....................................... 8
Required Vote............................................. 8
Voting of Proxies......................................... 8
Revocability of Proxies................................... 9
Solicitation of Proxies................................... 9
THE PARTIES................................................. 10
Regal..................................................... 10
Merger Subsidiaries, KKR and Hicks Muse................... 10
THE MERGER.................................................. 10
Background of the Merger.................................. 10
Reasons for the Merger and Recommendation of the Regal
Board.................................................. 12
Opinion of Goldman Sachs.................................. 14
Certain United States Federal Income Tax Consequences..... 17
Interests of Certain Persons in the Merger................ 18
Regulatory Filings and Approvals.......................... 21
Rights of Shareholders Who Object to the Merger........... 22
Regal's Plans if the Merger is Not Consummated............ 22
THE MERGER AGREEMENT........................................ 22
General................................................... 22
Conversion of Securities.................................. 22
Exchange of Certificates; Procedures for Exchange......... 23
Representations and Warranties............................ 23
Conduct of Business Pending the Merger.................... 24
Conditions to the Merger.................................. 27
No Solicitation........................................... 29
Access to Information..................................... 30
Reasonable Best Efforts................................... 30
Financing................................................. 30
Solvency of Regal Following the Merger.................... 31
Termination............................................... 31
Fees and Expenses......................................... 32
Amendment and Waiver...................................... 33
Employee Benefits; Regal Equity Plans..................... 33
SELECTED CONSOLIDATED FINANCIAL DATA........................ 35
OWNERSHIP OF VOTING SECURITIES.............................. 36
CERTAIN PENDING LITIGATION.................................. 38
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............. 38
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 38
SHAREHOLDER PROPOSALS....................................... 39
WHERE YOU CAN FIND MORE INFORMATION......................... 39
INDEX OF DEFINED TERMS...................................... 41
</TABLE>
<TABLE>
<CAPTION>
ANNEXES
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<S> <C> <C>
Annex A............... -- Agreement and Plan of Merger dated as of January 19, 1998,
among Regal Cinemas, Inc., Screen Acquisition Corp. and
Monarch Acquisition Corp.
Annex B............... -- Opinion of Goldman, Sachs & Co. dated as of January 19, 1998
</TABLE>
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHY IS REGAL PROPOSING TO MERGE?
A. The Regal Board believes that, as a result of various factors relating to
Regal and the motion picture exhibition industry generally, the value of
shares of Regal's common stock will be maximized by converting them into the
right to receive $31.00 in cash without interest.
Q. WHEN IS THE SPECIAL MEETING?
A. The special meeting will take place on Monday, May 18, 1998.
Q. WHAT DO I NEED TO DO NOW?
A. Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible so that your shares may
be represented at the special meeting of shareholders. If you sign and send
in your proxy card and do not indicate how you want to vote, your proxy will
be counted as a vote in favor of the merger. If you do not vote or you
abstain, it will have the effect of a vote against the merger agreement.
You may attend the meeting and vote your shares in person, rather than
signing and mailing your proxy card. In addition, you may take back your
proxy up to and including the day of the special meeting by following the
directions on page 9 and either change your vote or attend the special
meeting and vote in person.
THE REGAL BOARD UNANIMOUSLY RECOMMENDS VOTING FOR APPROVAL OF THE MERGER
AGREEMENT.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your broker will vote your shares only if you provide instructions on how to
vote your shares, following the directions provided by your broker. Without
instructions, your shares will not be voted, which will have the effect of a
vote against the merger agreement.
Q. SHOULD I SEND MY STOCK CERTIFICATES NOW?
A. No. After the merger is completed, we will send you written instructions for
exchanging your stock certificates.
Q. PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A. In the merger, each share of common stock that you own will be canceled and
converted into the right to receive $31.00 in cash without interest.
Q. WHAT ARE THE TAX CONSEQUENCES TO SHAREHOLDERS OF THE MERGER?
A. The receipt of cash by shareholders in exchange for shares of common stock
will be a taxable transaction for Federal income tax purposes. To review the
tax consequences to shareholders in greater detail, see page 17.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working toward completing the merger as quickly as possible. We hope
to complete the merger in the second quarter of 1998.
Q. AM I RECEIVING FAIR VALUE FOR MY SHARES OF COMMON STOCK?
A. The Regal Board believes that the consideration to be paid to Regal's
shareholders in the merger is fair to such holders. In making this
determination, the Regal Board considered a number of factors which are
described in this Proxy Statement. These factors included the historical
trading price of Regal's common stock. The closing trading price for Regal's
common stock was $27.88 on December 31, 1997, $30.25 on January 16, 1998 (the
last trading day prior to the announcement by Regal of the merger) and $30.06
on April 15, 1998 (the last trading day prior to the date of this Proxy
Statement). These factors also included the written opinion of Goldman, Sachs
& Co. that, as of January 19, 1998, the consideration to be received by the
Regal shareholders in the merger is fair from a financial point of view to
such holders.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger,
you should contact:
Regal Cinemas, Inc.
7132 Commercial Park Drive
Knoxville, Tennessee 37918
Attention: Lewis Frazer III
Telephone Number: (423) 922-1123
1
<PAGE> 7
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents we have
referred you to. See "Where You Can Find More Information" on page 39. The
merger agreement is attached as Annex A to this document. We encourage you to
read the merger agreement. It is the legal document that governs the merger.
THE PARTIES (PAGE 10)
REGAL CINEMAS, INC.
7132 Commercial Park Drive
Knoxville, Tennessee 37918
(423) 922-1123
Regal operates multi-screen motion picture theatres, principally in the
eastern United States, and is currently the second largest exhibitor (based on
number of motion picture theatre screens) in North America, operating 2,344
screens at 258 locations in 23 states.
SCREEN ACQUISITION CORP. AND MONARCH ACQUISITION CORP.
Screen Acquisition Corp., a Delaware corporation, is currently owned by KKR
1996 Fund, L.P., a Delaware limited partnership organized at the direction of
Kohlberg Kravis Roberts & Co. L.P., commonly known as KKR. Monarch Acquisition
Corp., a Delaware corporation, is currently owned by Hicks, Muse, Tate & Furst
Equity Fund III, L.P., a Delaware limited partnership organized at the direction
of Hicks, Muse, Tate & Furst Incorporated, commonly known as Hicks Muse, and its
affiliates. These "merger subsidiaries" were organized solely for the purpose of
entering into the merger agreement with Regal and closing the merger and related
transactions and have not carried on any activities to date other than
activities incident to their formation and in connection with the transactions
contemplated by the merger agreement. The merger agreement permits the merger
subsidiaries to assign their rights to merge with Regal to any affiliate of
either merger subsidiary, so long as the assigning merger subsidiary remains
obligated for the assignee's performance of its obligations under the merger
agreement. The principal offices of KKR, its fund and its merger subsidiary are
located at 9 West 57th Street, New York, New York 10019, and the telephone
number at that address is (212) 750-8300. The principal offices of Hicks Muse,
its fund and its merger subsidiary are located at 200 Crescent Court, Suite
1600, Dallas, Texas 75201, and the telephone number at that address is (214)
740-7300.
THE SPECIAL MEETING (PAGE 8)
There will be a special meeting of the shareholders of Regal at 7132
Commercial Park Drive, Knoxville, Tennessee, on Monday, May 18, 1998 at 10:00
a.m. local time. At this meeting, shareholders will be asked to approve the
merger agreement.
THE RECORD DATE FOR VOTING (PAGE 8)
The close of business on March 31, 1998 was the record date for determining
which shareholders are entitled to vote at the special meeting. As of the record
date, there were 36,119,028 shares of Regal common stock entitled to vote at the
special meeting.
VOTING (PAGE 8)
You will have one vote for each share of Regal common stock that you owned
on the record date.
The affirmative vote of the holders of a majority of the outstanding shares
of Regal common stock is required to approve the merger agreement.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 22)
In the merger, each share of Regal common stock will be canceled and
converted into the right to receive $31.00 in cash without interest.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS (PAGE 36)
As of the record date, directors and executive officers of Regal and their
affiliates beneficially owned and were entitled to vote 2,852,295 shares of
Regal common stock, which represented 7.9% of the shares of Regal common stock
outstanding on the record date. Each director and executive officer has
indicated his present intention to vote, or cause to be voted, the Regal common
stock owned by him for approval of the merger agreement.
2
<PAGE> 8
BOARD RECOMMENDATION (PAGE 12)
The Regal board of directors has determined that the consideration to be
paid to Regal shareholders in the merger is fair to such holders and has adopted
the merger agreement. The Regal Board has further determined that the merger is
advisable and in the best interests of Regal and its shareholders and the Regal
Board unanimously recommends that shareholders vote FOR approval of the merger
agreement.
FAIRNESS OPINION (PAGE 14)
In deciding to approve the merger, the Regal Board considered, among other
things, the opinion of Goldman, Sachs & Co., which was orally delivered to the
Regal Board on January 18, 1998 (and subsequently confirmed in writing on
January 19, 1998) that, as of such date, the merger consideration to be received
by Regal shareholders pursuant to the merger agreement is fair from a financial
point of view to the Regal shareholders. The written opinion of Goldman Sachs,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as Annex B to this
document.
In connection with delivering its opinion, Goldman Sachs performed a
variety of financial analyses. These analyses included examining the historical
trading prices of Regal common stock and reviewing and analyzing prior similar
transactions. The Goldman Sachs opinion does not constitute a recommendation as
to how any shareholder should vote at the special meeting. HOLDERS OF REGAL
COMMON STOCK ARE ENCOURAGED TO READ, AND SHOULD READ, THE ENTIRE OPINION
CAREFULLY.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 18)
In considering the Regal Board's recommendation that you vote FOR approval
of the merger agreement, you should be aware that a number of directors and
officers of Regal have interests in the merger that are different from yours. In
particular, Michael L. Campbell, Gregory W. Dunn and Lewis Frazer III, the three
most senior officers of Regal, will receive cash payments for the value of a
portion of the options they hold to acquire Regal Common Stock of $0 (excluding
$6,848,003 in respect of Regal stock options held by Mr. Campbell that his
former spouse has the right to receive under a pre-existing agreement between
them), $1,878,422 and $2,138,574, respectively. The aggregate cash payments that
all executive officers, directors and key executives of Regal will receive for
the options and warrants they hold to acquire Regal Common Stock is $18,635,714.
All of such cash payments are based on the difference between the $31.00 per
share merger consideration and the per share exercise prices of such options and
warrants. The remainder of the value of the options to acquire Regal Common
Stock held by certain senior executive officers of Regal will be converted into
options to acquire common stock of Regal (or a company holding all of the common
stock of Regal) following the merger. One of the directors and certain of the
officers have entered into employment agreements that provide them with
employment retention incentives, equity interests and other benefits following
completion of the merger. Also, Regal will continue certain indemnification and
liability insurance arrangements for its directors and officers after the
merger.
The Regal Board recognized these interests and determined that they neither
supported nor detracted from the fairness of the merger to the shareholders of
Regal.
CONDITIONS TO THE MERGER (PAGE 27)
Regal and the merger subsidiaries are not required to complete the merger
unless various conditions are satisfied. These include:
- approval of the merger agreement by the shareholders of Regal;
- no injunction that prohibits the merger;
- clearance from U.S. antitrust agencies;
- no governmental proceeding pending that materially limits the ownership
or operation of Regal by KKR or Hicks Muse;
- completion of a tender offer by Regal for certain of its outstanding debt
securities if requested by the merger subsidiaries;
- certain management personnel of Regal agreeing to certain equity-based
incentive arrangements with Regal following the merger;
- the merger subsidiaries' receipt of the merger financing proceeds; and
- Regal's receipt of a solvency opinion.
3
<PAGE> 9
TERMINATION OF THE MERGER AGREEMENT (PAGE 31)
Regal and the merger subsidiaries can mutually agree to terminate the
merger agreement at any time.
Regal or either merger subsidiary can terminate the merger agreement if:
- a governmental authority, such as a court, permanently prohibits the
merger or refuses to grant an approval that is required;
- any other party breaches or fails to perform under the merger agreement
in a manner that would have a material adverse effect on such party
unless cured within 30 days after notice of the breach;
- the merger is not completed by May 31, 1998; or
- Regal shareholders fail to approve the merger agreement.
Either merger subsidiary can terminate the merger agreement if:
- the Regal Board withdraws its approval or recommendation of the merger;
or
- the Regal Board agrees with a third party to enter into an alternative
acquisition transaction that the Regal Board believes is more favorable
to the Regal shareholders than the merger.
Regal can terminate the merger agreement if:
- the Regal Board receives an offer from a third party to enter into an
alternative acquisition transaction that the Regal Board believes is more
favorable to the Regal shareholders than the merger and Regal provides
notice of the offer to the merger subsidiaries at least five days before
it terminates the agreement.
FEES AND EXPENSES (PAGE 32)
If the merger agreement is terminated because (i) the Regal Board withdraws
its approval or recommendation of the merger, (ii) the Regal Board accepts an
offer from a third party to enter into an alternate acquisition transaction that
the Regal Board believes is more favorable to the shareholders than the merger
or (iii) any person has made a proposal for an alternate acquisition transaction
and thereafter the merger agreement is terminated because the merger has not
been consummated by May 31, 1998 or because the shareholders of Regal do not
approve the merger agreement, and within 12 months thereafter Regal agrees to or
is the subject of an alternate acquisition transaction, then in each case of
(i), (ii) or (iii) Regal must pay the merger subsidiaries an aggregate
termination fee of $28 million. In addition, if the Regal shareholders fail to
approve the merger agreement for any reason, or if the termination fee otherwise
becomes payable, then Regal must reimburse the merger subsidiaries for joint
expenses of up to $4 million.
REGULATORY APPROVALS (PAGE 21)
U.S. antitrust laws prohibit the parties from completing the merger until
after they have furnished certain information and materials to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and a
required waiting period has ended. The waiting period expired on March 1, 1998.
FINANCING (PAGE 30)
The merger subsidiaries have delivered to Regal copies of (i) commitment
letters to provide equity financing of $375 million in connection with the
merger from each of KKR and Hicks Muse, (ii) a commitment letter from the Bank
of Nova Scotia and Bank of America National Trust & Savings Association to
provide senior secured credit facilities of $780 million in the aggregate in
connection with the merger and (iii) a letter from Morgan Stanley & Co.
Incorporated to the effect that it was highly confident that it could arrange
for the sale of up to $335 million of senior subordinated notes of Regal in
connection with the merger. The commitment letters are subject to customary
conditions, and the highly confident letter does not constitute a commitment by
Morgan Stanley to place or purchase the senior subordinated notes.
RIGHTS OF SHAREHOLDERS WHO OBJECT TO THE MERGER (PAGE 22)
Shareholders of Regal are not entitled to any appraisal rights under
Tennessee law in connection with the merger. In addition, shareholders of Regal
are not entitled to any other rights under Tennessee law or otherwise in
connection with objecting to the merger, other than the right to vote against
the merger at the special meeting or to institute a
4
<PAGE> 10
lawsuit if they believe Regal or its directors violated any of their
obligations in connection with the merger.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 17)
A shareholder of Regal generally will recognize gain or loss in connection
with the merger in an amount equal to the difference between (a) the amount of
cash received in exchange for Regal common stock in connection with the merger
and (b) such shareholder's adjusted tax basis in such Regal common stock.
REGAL'S PLANS IF THE MERGER IS NOT CONSUMMATED (PAGE 22)
If the merger is not consummated, Regal intends to remain independent and
pursue its existing business plan for internal growth.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 38)
Regal has made forward-looking statements in this document that are subject
to risks and uncertainties. Forward-looking statements include information
concerning possible or assumed future results of operations of Regal as well as
statements preceded by, followed by or that include the words "believes",
"expects" or "anticipates" or similar expressions. You should understand that
certain important factors, in addition to those discussed elsewhere in this
document and in the documents which we incorporate by reference in this Proxy
Statement, could affect the actual future results of Regal and could cause those
results or trends to differ materially from those expressed in our
forward-looking statements. Shareholders are cautioned not to place undue
reliance on such statements which only speak as of the date hereof.
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary consolidated financial data set forth below as of and for each
of the fiscal years ended December 30, 1993, December 29, 1994, December 28,
1995, January 2, 1997 and January 1, 1998, are derived from the consolidated
financial statements of Regal. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the "Supplemental Consolidated Financial Statements and Notes"
thereto incorporated by reference herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------
DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1,
1993 1994 1995 1997 1998(1)
------------ ------------ ------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................. $214,359 $265,005 $309,022 $389,193 $479,097
Operating income..................... 22,147 28,412 41,110 58,196 67,870
Income before extraordinary item..... 8,716 12,702 17,953 25,817 35,199
Extraordinary item net of tax:
Gain (loss) on extinguishment of
debt............................ 190 (1,752) (448) (751) (10,020)
Net income........................... 8,906 10,950 17,505 25,066 25,179
OPERATING DATA(2):
Theatre locations.................... 160 195 206 223 256
Screens.............................. 1,110 1,397 1,616 1,899 2,306
Average screens per location......... 6.94 7.16 7.84 8.52 9.0
</TABLE>
<TABLE>
<CAPTION>
AS OF
JANUARY 1,
1998
----------
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................. $660,650
Total long-term debt, including current maturities........ 288,583
Total shareholders' equity................................ 306,575
Book value per share at period end........................ 8.49
</TABLE>
- ---------------
(1) For 1997, Regal had several nonrecurring items that were primarily related
to the acquisition of the business conducted by Cobb Theatres, L.L.C., which
was consummated during the third quarter of 1997. These nonrecurring items
were: (i) an extraordinary loss on debt extinguishment of $10,020,000 net of
tax; (ii) merger expenses of $7,789,000 ($5,429,000, after tax); (iii) an
impairment loss of long-lived assets under Statement of Financial Accounting
Standards No. 121 of $4,960,000 ($3,075,000, after tax); and (iv) a deferred
tax asset valuation allowance adjustment that reduced income taxes by
$2,309,000. In 1996, Regal had the following nonrecurring items: (i) an
extraordinary loss on debt extinguishment of $751,000 net of tax; and (ii)
after tax expenses related to mergers and dividends of $1,429,000.
(2) Theatre locations and screens are stated at the end of the respective
periods.
6
<PAGE> 12
MARKET PRICES OF REGAL COMMON STOCK
Regal's common stock is listed on the Nasdaq National Market under the
symbol "REGL". The following table sets forth, for the calendar quarters
indicated, the high and low sales prices for Regal common stock as reported on
the Nasdaq National Market, based on published financial sources, for the
periods indicated. The per share information presented below has been adjusted
to reflect a 50% stock dividend in December 1995 and September 1996.
<TABLE>
<CAPTION>
SALES PRICE
------------------
YEAR HIGH LOW
- ---- ------ ------
<S> <C> <C>
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
1997
First Quarter.......................................... $30.75 $23.50
Second Quarter......................................... 36.25 25.25
Third Quarter.......................................... 34.25 23.25
Fourth Quarter......................................... 28.88 20.75
1998
First Quarter.......................................... $31.19 $26.50
Second Quarter (through April 15)...................... $30.25 $29.75
</TABLE>
The closing trading price of Regal common stock on January 16, 1998, the
last trading day prior to the announcement by Regal of the merger, was $30.25,
and on April 15, 1998, the last trading day prior to the date of this Proxy
Statement, was $30.06.
As of March 31, 1998, the record date for the special meeting of
shareholders, there were approximately 402 holders of record of Regal common
stock (the number of holders does not include the number of shareholders whose
shares are held of record by a broker or clearing agency, but does include such
a brokerage house or clearing agency as one record holder).
Regal has not declared or paid a cash dividend on Regal common stock. It is
the present policy of the Regal Board to retain all earnings to support
operations and to finance expansion. Regal is restricted from the payment of
cash dividends without prior approval pursuant to its existing credit agreement.
7
<PAGE> 13
THE SPECIAL MEETING
DATE, PLACE AND TIME
The special meeting of shareholders (as it may be adjourned or postponed,
the "Special Meeting") of Regal Cinemas, Inc. ("Regal") will be held at 7132
Commercial Park Drive, Knoxville, Tennessee, on Monday, May 18, 1998, at 10:00
a.m., local time.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve the Agreement and Plan of Merger dated as of January 19, 1998 (the
"Merger Agreement"), among Regal, Screen Acquisition Corp., a Delaware
corporation ("KKR Merger Subsidiary"), and Monarch Acquisition Corp., a Delaware
corporation ("Hicks Muse Merger Subsidiary" and, together with KKR Merger
Subsidiary, the "Merger Subsidiaries"), pursuant to which, upon the terms and
subject to the conditions of the Merger Agreement, each Merger Subsidiary will
be merged with and into Regal (the "Merger") with Regal being the surviving
corporation (the "Surviving Corporation") and with each share of Regal's common
stock, no par value (the "Regal Common Stock"), outstanding immediately prior to
the effective time (the "Effective Time") of the Merger (other than shares of
Regal Common Stock held by Regal or either Merger Subsidiary) being converted
into the right to receive $31.00 in cash without interest (the "Merger
Consideration"). Accordingly, upon consummation of the Merger, the current
shares of Regal common stock will cease to represent ownership interests in
Regal.
The Board of Directors of Regal (the "Regal Board") has determined that the
consideration to be paid to Regal shareholders in the Merger is fair to such
holders and has adopted the Merger Agreement. The Regal Board has further
determined that the Merger is advisable and in the best interests of Regal, and
unanimously recommends that shareholders of Regal vote FOR approval of the
Merger Agreement.
RECORD DATE; QUORUM
The Regal Board has fixed the close of business on March 31, 1998 as the
record date (the "Record Date") for the Special Meeting. Only holders of record
of Regal Common Stock as of the Record Date will be entitled to notice of and to
vote at the Special Meeting. As of the Record Date, there were issued and
outstanding 36,119,028 shares of Regal Common Stock held by approximately 402
holders of record.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Regal Common Stock entitled to vote at the Special Meeting
is necessary to constitute a quorum.
REQUIRED VOTE
Under Tennessee law, the approval of the Merger Agreement will require the
affirmative vote of the holders at the close of business on the Record Date of a
majority of the outstanding shares of Regal Common Stock.
Holders of Regal Common Stock as of the Record Date are entitled to one
vote per share of Regal Common Stock on each matter to be considered at the
Special Meeting.
As of the Record Date, directors and executive officers of Regal and their
affiliates beneficially owned and were entitled to vote 2,852,295 shares of
Regal Common Stock, which represented 7.9% of the shares of Regal Common Stock
outstanding on the Record Date. Each director and executive officer has
indicated his present intention to vote, or cause to be voted, the Regal Common
Stock so owned by him for approval of the Merger Agreement.
VOTING OF PROXIES
All shares of Regal Common Stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, unless
such proxies previously have been revoked, will be voted at
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<PAGE> 14
the Special Meeting in the manner specified by the holder thereof. Proxies which
are so received but which do not contain voting instructions will be voted FOR
approval of the Merger Agreement.
Shareholders of Regal will not be entitled to present any matter for
consideration at the Special Meeting, and no business is to be acted upon at the
Special Meeting other than as set forth in the Notice of Special Meeting of
Shareholders accompanying this Proxy Statement.
Shares of Regal Common Stock represented at the Special Meeting by a
properly executed, dated and returned proxy will be treated as present at the
Special Meeting for purposes of determining a quorum, without regard to whether
the proxy is marked as casting a vote or abstaining. For voting purposes at the
Special Meeting, only shares affirmatively voted in favor of approval of the
Merger Agreement will be counted as favorable votes for such approval. Since
only the approval of the Merger Agreement will be voted upon at the Special
Meeting, Regal does not expect to receive any "broker nonvotes". A "broker
nonvote" occurs when a broker or other nominee holds shares of a beneficial
owner which are represented at the Special Meeting, but such broker or nominee
is not empowered to vote such shares on a particular proposal. Should any broker
nonvotes be received, however, they will have the same effect as votes against
approval of the Merger Agreement because they are not affirmative votes in favor
thereof.
The persons named as proxies by a shareholder may propose and vote for one
or more adjournments of the Special Meeting to permit further solicitations of
proxies in favor of approval of the Merger Agreement; however, no proxy that is
voted against the approval of the Merger Agreement will be voted in favor of any
such adjournment.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form does not preclude a shareholder
from voting in person. A shareholder may revoke a proxy at any time prior to its
exercise by submitting a signed written revocation to the Secretary of Regal, by
submitting a signed proxy bearing a later date or by appearing at the Special
Meeting and voting in person at the Special Meeting. No special form of
revocation is required. Attendance at the Special Meeting will not, in and of
itself, constitute revocation of a proxy.
SOLICITATION OF PROXIES
Regal will bear the cost of the solicitation of proxies from its
shareholders, including the costs of preparing, filing, printing and
distributing this Proxy Statement and any other solicitation materials that are
used. In addition to solicitation by mail, the directors, officers and employees
of Regal may solicit proxies from shareholders of Regal by telephone or telegram
or by other means of communication. Such directors, officers and employees will
not be additionally compensated but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Arrangements will
also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial owners
of stock held of record by such persons, and Regal will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in connection therewith.
In addition, Regal has retained Corporate Communications, Inc. to assist in
the solicitation of proxies by Regal for a fee of not more than $4,000 plus
reasonable out-of-pocket costs and expenses. Any questions or requests regarding
proxies or related materials may be directed to Corporate Communications, Inc.,
523 Third Avenue South, Nashville, Tennessee 37210; telephone: (615) 254-3376
(collect); facsimile: (615) 742-1657; E-mail: [email protected].
SHAREHOLDERS SHOULD NOT SEND REGAL COMMON STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IF THE MERGER AGREEMENT IS APPROVED BY THE SHAREHOLDERS AND THE
MERGER IS CONSUMMATED, TRANSMITTAL FORMS AND INSTRUCTIONS WILL BE SENT FOR THE
EXCHANGE OF SHARES OF REGAL COMMON STOCK FOR THE MERGER CONSIDERATION.
9
<PAGE> 15
THE PARTIES
REGAL
Regal operates multi-screen motion picture theatres, principally in the
eastern United States, and is currently the second largest exhibitor in North
America (based on number of motion picture theatre screens), operating 2,344
screens at 258 locations in 23 states.
Regal was incorporated under the laws of the State of Tennessee in November
1989. Regal's principal offices are located at 7132 Commercial Park Drive,
Knoxville, Tennessee 37918, and its telephone number is (423) 922-1123.
For a more detailed description of the business and properties of Regal,
see the descriptions thereof set forth in Regal's Annual Report on Form 10-K for
the fiscal year ended January 1, 1998, which is incorporated herein by
reference. See "Where You Can Find More Information".
MERGER SUBSIDIARIES, KKR AND HICKS MUSE
KKR Merger Subsidiary was organized solely for the purpose of entering into
the Merger Agreement and consummating the transactions contemplated thereby and
has not carried on any activities to date other than activities incident to its
formation and in connection with the transactions contemplated by the Merger
Agreement. KKR Merger Subsidiary is currently owned by KKR 1996 Fund L.P. (the
"KKR Fund"), a Delaware limited partnership, the general partner of which is KKR
Associates 1996 L.P., an affiliate of Kohlberg Kravis Roberts & Co. L.P.
("KKR"). KKR is a private investment firm headquartered in New York, New York
and Menlo Park, California.
Hicks Muse Merger Subsidiary was organized solely for the purpose of
entering into the Merger Agreement and consummating the transactions
contemplated thereby and has not carried on any activities to date other than
activities incident to its formation and in connection with the transactions
contemplated by the Merger Agreement. Hicks Muse Merger Subsidiary is currently
owned by an affiliate of Hicks, Muse, Tate & Furst Equity Fund III, L.P. (the
"Hicks Muse Fund" and, together with the KKR Fund, the "Funds"), a private
investment partnership organized at the direction of Hicks Muse Tate & Furst
Incorporated ("Hicks Muse") and its affiliates, and is managed by an affiliate
of Hicks Muse. Hicks Muse is a private investment firm with offices in Dallas,
New York, St. Louis and Mexico City that specializes in leveraged acquisitions,
recapitalizations and other principal investing activities.
The Merger Agreement permits the Merger Subsidiaries to assign their rights
under the Merger Agreement to any affiliate of either Merger Subsidiary, so long
as the assigning Merger Subsidiary remains obligated for the assignee's
performance of its obligations under the Merger Agreement.
THE MERGER
BACKGROUND OF THE MERGER
In October, 1997, KKR contacted Regal and requested an opportunity to meet
with Regal. On October 22, 1997, at a meeting held during an industry trade
show, representatives of KKR communicated to representatives of Regal that KKR
was interested in discussing with Regal the possibility of making an investment
in or acquiring Regal. At that time, Michael L. Campbell, Chairman, President
and Chief Executive Officer of Regal, indicated to KKR that he would convey
KKR's interest to the Regal Board. On November 3, 1997, Regal determined to
engage Goldman, Sachs & Co. ("Goldman Sachs") as its financial advisor in
connection with the possible sale of all or a portion of Regal. At that time,
the Regal Board directed Goldman Sachs to make initial contacts with a number of
potential financial and strategic acquirors to determine whether they had an
interest in exploring a possible business combination with Regal.
Pursuant to the Regal Board's direction, Goldman Sachs contacted eleven
potential financial acquirors and seven potential strategic acquirors to assess
their interest. During November, 1997, representatives of Regal met with and
provided information to six of such parties who had indicated their interest in
exploring discussions with Regal regarding a potential business combination and
provided additional information on an ongoing basis to those parties who
remained interested in considering a business combination with Regal.
10
<PAGE> 16
At the end of this initial round of discussions, the Regal Board authorized
Goldman Sachs to solicit indications of interest with respect to the kind of
business combination that such parties were interested in pursuing and the
potential values and types of consideration that would be received by Regal's
shareholders in connection with such a transaction. At that time, Regal received
preliminary indications of interest from several potential acquirors, two of
which were KKR and Hicks Muse.
After receipt of these indications of interest, Regal and its
representatives established times for each of the interested parties and their
prospective lenders to conduct a more extensive business due diligence
investigation of Regal. Regal also requested that prior to the submission of
final bids, counsel for the interested parties advise counsel for Regal of their
comments with respect to a draft merger agreement distributed to the potential
acquirors. The draft merger agreement did not specify any amount of
consideration to be paid in any proposed business combination or require any
particular transaction structure. Regal instead permitted potential acquirors to
propose the amount of consideration and transaction structure desired. Regal
did, however, indicate to each potential acquiror that proposals providing for
significant amounts of non-cash consideration would be at a disadvantage to
proposals containing all cash or predominantly cash consideration.
By December 19, 1997, all potential acquirors initially contacted by Regal
and its representatives, other than KKR and Hicks Muse, had responded and
indicated to Regal that they were not prepared to make a proposal to acquire
Regal that would provide an amount of consideration to Regal shareholders that
the Regal Board would find acceptable. On December 19, 1997, representatives of
KKR and Hicks Muse informed representatives of Regal that they would be willing
to offer an amount of consideration to Regal's shareholders that could be
expected to be acceptable to the Regal Board only in the context of a joint
KKR-Hicks Muse bid, which would then permit a combination of Regal with motion
picture exhibition businesses controlled or to be controlled by KKR and Hicks
Muse affiliates, thereby enabling them to achieve certain benefits of
consolidation. Hicks Muse's agreement to acquire control of OSCAR I Corporation,
the parent of United Artists Theatre Circuit, Inc., was terminated in February
1998. Neither the Merger nor the amount of consideration to be paid to Regal
shareholders in the Merger is conditioned on consummation of such acquisition by
Hicks Muse.
On December 20, 1997, counsel for KKR and Hicks Muse provided counsel for
Regal their comments with respect to the draft merger agreement proposed by
Regal, and on December 21, 1997, counsel for Regal, KKR and Hicks Muse discussed
those comments. On December 22, 1997, KKR and Hicks Muse made a joint proposal
to acquire Regal in an all cash transaction at a purchase price of $28 per share
of Regal Common Stock. On December 22, 1997, after discussions with senior
officers of Regal and with Goldman Sachs, the Regal Board rejected this joint
proposal.
Following this rejection, representatives of KKR and Hicks Muse requested
the opportunity to meet with Regal and its representatives again. On December
29, 1997, representatives of KKR and Hicks Muse met with representatives of
Regal in Knoxville, Tennessee. At this meeting, representatives of KKR and Hicks
Muse indicated their continuing interest in acquiring Regal. On January 5, 1998,
representatives of KKR and Hicks Muse indicated that they were willing to
increase the proposed purchase price to $30 per share in an all cash
transaction. On January 5, 1998, after consultation with senior officers of
Regal and with Goldman Sachs, the Regal Board determined to reject this
proposal. The Regal Board directed Goldman Sachs to communicate that rejection
to KKR and Hicks Muse but to indicate that Regal would consider a proposal by
KKR and Hicks Muse which offered greater value to Regal's shareholders. Later
that day, Goldman Sachs informed KKR and Hicks Muse of the Regal Board's
determination.
On January 9, 1998, representatives of KKR and Hicks Muse contacted
representatives of Regal and indicated they were interested in meeting again. On
January 12, 1998, representatives of KKR and Hicks Muse met with representatives
of Regal and indicated their continuing interest in acquiring Regal. On January
13, 1998, representatives of KKR and Hicks Muse proposed to acquire Regal in an
all cash transaction at a price of $30.75 per share of Regal Common Stock. On
January 14, 1998, representatives of Regal, at the direction of the Regal Board,
informed KKR and Hicks Muse that the Regal Board would be prepared to consider a
proposal at a price of $31 per share of Regal Common Stock, subject to
satisfactory resolution of issues relating to the proposed merger agreement, and
in particular the conditions to the closing of the Merger,
11
<PAGE> 17
the obligation of KKR and Hicks Muse to cause such conditions to be satisfied
and the no-solicitation and termination fee provisions. See "The Merger
Agreement -- Conditions to the Merger", "The Merger Agreement -- No
Solicitation", "The Merger Agreement -- Termination" and the "Merger
Agreement -- Fees and Expenses". Later that day, KKR and Hicks Muse increased
their proposal to $31 per share in cash. The Regal Board then authorized its
senior management, along with its legal and financial advisors, to negotiate the
terms of a definitive merger agreement for consideration by the Regal Board at a
meeting scheduled for January 18, 1998.
From January 15 through January 18, 1998, Regal and its representatives and
KKR and Hicks Muse and their representatives negotiated the terms of the Merger
Agreement. Throughout this period, Mr. Campbell and Goldman Sachs informed
members of the Regal Board of the status of these negotiations and consulted
with them on issues raised in such negotiations. During this period, KKR and
Hicks Muse insisted that the closing of the Merger (the "Closing") be
conditioned on (i) arrangements with certain members of management relating to
such persons' equity investments in, and continued employment with, Regal
following the Merger (see "-- Interests of Certain Persons in the Merger" and
"The Merger Agreement -- Conditions to the Merger") and (ii) such arrangements
becoming effective. In response to the insistence of KKR and Hicks Muse on this
point, the Regal Board authorized Mr. Campbell, Gregory Dunn, the Chief
Operating Officer of Regal, and Lewis Frazer III, the Chief Financial Officer of
Regal, to engage in negotiations with KKR and Hicks Muse regarding the principal
terms of their continued employment with Regal following the Merger in order to
lessen the risk of a failure of that condition to closing. Agreements containing
these terms were entered into by Messrs. Campbell, Dunn and Frazer on January
19, 1998.
On January 18, 1998, the Regal Board met to consider the Merger Agreement
and the transactions contemplated thereby, including the agreements to be
entered into with Messrs. Campbell, Dunn and Frazer. Members of Regal's senior
management and representatives of Cravath, Swaine & Moore and Bass, Berry & Sims
PLC, counsel to Regal, as well as Goldman Sachs, made presentations to the Regal
Board and discussed with the Regal Board their views and analyses of various
aspects of the proposed Merger. Goldman Sachs delivered its oral opinion
(subsequently confirmed in writing) to the Regal Board to the effect that as of
such date the Merger Consideration to be received by Regal shareholders pursuant
to the Merger Agreement is fair from a financial point of view to such holders.
See "-- Opinion of Goldman Sachs". The Regal Board reviewed and considered,
among other things, the matters described under "-- Reasons for the Merger and
Recommendation of the Regal Board". After a full discussion, the Regal Board, by
the unanimous vote of all directors present, resolved that the Merger is fair to
and in the best interest of Regal and its shareholders, adopted the Merger
Agreement and resolved to recommend that the shareholders of Regal vote to
approve the Merger Agreement. Regal and the Merger Subsidiaries executed the
Merger Agreement on January 19, 1998.
REASONS FOR THE MERGER AND RECOMMENDATION OF THE REGAL BOARD
At its meeting held on January 18, 1998, the Regal Board, by unanimous vote
of all directors present, (i) determined that the consideration to be paid to
Regal shareholders in the Merger is fair to such holders, (ii) adopted the
Merger Agreement and the transactions contemplated thereby, (iii) determined
that the terms of the Merger Agreement and the transactions contemplated thereby
are fair to and in the best interests of Regal and its shareholders and (iv)
resolved to recommend that Regal shareholders vote to approve the Merger
Agreement. In connection with considering the Merger Agreement and in reaching
the foregoing determination and recommendation, the Regal Board considered a
number of factors, including, without limitation, the following potentially
positive factors:
1. The relationship of the Merger Consideration to the historical trading
levels of Regal Common Stock, including the fact that the value of the Merger
Consideration on a per share basis represented a substantial premium over
recently prevailing market prices of Regal Common Stock (the closing trading
price of Regal Common Stock on December 31, 1997, was $27.88) and that the value
of the Merger Consideration represented a multiple of approximately 27.9 times
the 1997 earnings (before non-recurring charges) and 13.0 times the 1997 EBITDA
(as defined) per share of Regal Common Stock. See "Summary -- Market Prices of
Regal Common Stock";
12
<PAGE> 18
2. The current and prospective environment in which Regal operates and, in
particular, the competitive factors affecting the motion picture exhibition
industry, including competition for acquisitions of theatre chains and of sites
for new theatre development;
3. The trend in the motion picture exhibition industry toward the
development of megaplex theatres, which requires substantial capital
expenditures, and the fact that the continued building of megaplex theatres by
competitors of Regal may result in increased pressure on the profitability of
Regal's non-megaplex theatres;
4. The increasing dependence of Regal's results of operations on the
performance of films in their opening weeks of exhibition, during which film
companies typically charge a higher percentage of box office revenues as film
rental;
5. The fact that the Merger Agreement permits the Regal Board prior to the
Special Meeting to furnish information to, or to engage in negotiations with,
third parties and to terminate the Merger Agreement, in each case in response to
an unsolicited acquisition proposal, if the Regal Board determines that such
acquisition proposal is a "Superior Proposal" (as defined under "The Merger
Agreement -- No Solicitation" below); and the Regal Board's belief that
provisions of the Merger Agreement requiring the payment by Regal of a
termination fee of $28 million and out-of-pocket expenses of KKR and Hicks Muse
in connection with the Merger Agreement in an amount not to exceed $4 million in
the event of such a termination would not unreasonably discourage third parties
from making a Superior Proposal. See "The Merger Agreement -- No Solicitation";
"The Merger Agreement -- Termination"; and "The Merger Agreement -- Fees and
Expenses";
6. The fact that Regal (and Goldman Sachs on behalf of Regal) contacted a
substantial number of potential bidders in a process designed to elicit
third-party proposals to acquire Regal in the event the Regal Board determined
that Regal should engage in a business combination, and that the participants in
such process were afforded ample opportunity to submit such proposals to Regal;
7. The presentation of Goldman Sachs (including the assumptions and
methodologies underlying its analyses) made to the Regal Board and the opinion
of Goldman Sachs to the effect that, as of the date of such opinion, the Merger
Consideration to be received by Regal shareholders pursuant to the Merger
Agreement is fair from a financial point of view to such holders. See
" -- Opinion of Goldman Sachs";
8. The market prices and financial data related to companies engaged in the
motion picture exhibition industry and the prices and premiums paid in recent
acquisitions of motion picture exhibition companies;
9. The terms and conditions of the Merger Agreement and related documents,
including the absence of any such term or condition that in the view of the
Regal Board is unduly onerous or is likely to prevent the consummation of the
Merger. See "The Merger Agreement"; and
10. The strong financial condition and business reputation of KKR and Hicks
Muse, the experience and high rates of success of KKR and Hicks Muse in
structuring and completing transactions similar to the Merger, and the ability
of KKR and Hicks Muse to complete the Merger in a timely manner.
The Regal Board also considered a number of potentially negative factors in
its consideration of the Merger Agreement, including, without limitation, the
following:
1. The risk that the Merger would not be consummated as a result of the
failure of any of the conditions to the Closing contained in the Merger
Agreement to be satisfied or waived. See "The Merger Agreement -- Conditions to
the Merger";
2. The potentially substantial amount of management time and effort that
would be required to consummate the Merger;
3. The Regal Board was aware of the stock prices, varying from $19 to $44
per share, that various research analysts had estimated for Regal Common Stock
in research reports dated from July 1997 to December 1997. Of these research
reports, one estimated a current target price below the $31 per share Merger
Consideration, one estimated a current target price range from $30 to $35 per
share and six estimated prices above the $31 per share Merger Consideration. Of
these six, four estimated twelve month
13
<PAGE> 19
target prices above the $31 per share Merger Consideration, one estimated a
twenty-four to thirty-six month target price above the $31 per share Merger
Consideration and one estimated a current private market value above the $31 per
share Merger Consideration. In connection with such estimated prices, the Regal
Board also considered the fact that such estimated prices are based on numerous
assumptions and subjective factors which may or may not be achieved and the fact
that such price estimates are not necessarily indicative of actual future
results;
4. The requirement in the Merger Agreement that Regal pay a termination fee
of $28 million and out-of-pocket expenses of KKR and Hicks Muse in connection
with the Merger Agreement in an amount not to exceed $4 million, in the event of
a termination by Regal to accept a Superior Proposal. See "The Merger
Agreement -- Fees and Expenses"; and
5. The fact that the Merger Subsidiaries do not have any material assets to
satisfy liabilities which could potentially arise from a breach of the Merger
Agreement.
In addition, in reaching its conclusions, the Regal Board considered, among
other things, the following:
1. The Regal Board's review with senior officers of Regal and its financial
and legal advisors of alternatives to the Merger, particularly the alternative
of adhering to Regal's existing business plan for independent internal growth
and, in this regard, the historical strength of Regal's existing operations and
Regal's ongoing development plan with respect to new theatres and the extent to
which certain of the factors described in this section pose risks to Regal's
ability to meet the business and financial goals contained in Regal's existing
business plan;
2. The commitments with respect to the equity financing for the Merger
received from KKR and Hicks Muse and with respect to the senior debt financing
for the Merger received from The Bank of Nova Scotia and Bank of America
National Trust & Savings Association, and the "highly confident" letter received
from Morgan Stanley & Co. Incorporated ("Morgan Stanley") with respect to the
subordinated debt financing for the Merger. See "The Merger
Agreement -- Financing"; and
3. The fact that certain senior officers of Regal had interests in the
Merger, as a result of conditions imposed by KKR and Hicks Muse, that were in
addition to the interests of holders of Regal Common Stock generally, the terms
of the agreements of such senior officers of Regal with KKR and Hicks Muse
relating to the equity, compensation and other employment arrangements of such
senior officers following the Merger, and the fact that such agreements resulted
from the insistence of KKR and Hicks Muse that the Merger be conditioned upon
the effectuation of certain such arrangements. The Regal Board also took into
account the fact that the Key Executives (as defined) would receive equity
interests in the Surviving Corporation or a company holding of all of the
Surviving Corporation's common stock in exchange for a portion of their equity
interests in Regal.
The foregoing discussion of factors considered by the Regal Board is not
intended to be exhaustive but is believed to include the material factors so
considered. The Regal Board did not quantify or assign relative weights to the
above factors. Rather, it viewed its position and recommendation as being based
on the total information presented to and considered by it. In addition,
individual members of the Regal Board may have given different weight to
different factors.
THE REGAL BOARD HAS ADOPTED THE MERGER AGREEMENT AND DETERMINED THAT THE
MERGER IS ADVISABLE AND IN THE BEST INTERESTS OF REGAL AND ITS SHAREHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF REGAL VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT.
OPINION OF GOLDMAN SACHS
On January 19, 1998, Goldman Sachs delivered its written opinion to the
Regal Board (confirming its oral opinion given to the Regal Board on January 18,
1998), that as of the date of such opinion, the Merger Consideration is fair
from a financial point of view to the holders of Regal Common Stock. Goldman
Sachs has consented to the disclosure of and reference to their opinion in this
Proxy Statement.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED JANUARY 19,
1998, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE
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<PAGE> 20
OPINION, IS ATTACHED HERETO AS ANNEX B TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. SHAREHOLDERS OF REGAL ARE URGED TO, AND
SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Annual Reports to Shareholders and Annual
Reports on Form 10-K of Regal for the five fiscal years ended January 2, 1997;
(iii) certain interim reports to shareholders and Quarterly Reports on Form 10-Q
of Regal; (iv) certain other communications from Regal to its shareholders; and
(v) certain internal financial analyses and forecasts for Regal prepared by its
management. In addition, Goldman Sachs reviewed the reported price and trading
activity for Regal Common Stock, compared certain financial and stock market
information for Regal with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the motion picture exhibition industry
specifically and in other industries generally and performed such other studies
and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and has assumed such accuracy and
completeness for purposes of rendering its opinion. In rendering its opinion,
Goldman Sachs took into account, with Regal's consent, management's views as to
the risks and uncertainties in achieving Regal's forecasts. In addition, Goldman
Sachs has not made an independent evaluation or appraisal of the assets and
liabilities of Regal or any of its subsidiaries, and Goldman Sachs has not been
furnished with any such evaluation or appraisal. The opinion of Goldman Sachs
referred to herein was provided for the information and assistance of the Regal
Board in connection with its consideration of the transaction contemplated by
the Merger Agreement, and such opinion does not constitute a recommendation as
to how any holder of shares of Regal Common Stock should vote with respect to
such transaction.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Regal
Board on January 19, 1998.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the
historical trading prices and volumes for shares of Regal Common Stock and
analyzed the consideration to be received by holders of shares of Regal
Common Stock pursuant to the Merger Agreement in relation to the closing
market price of such shares in the time periods referenced below. Such
analysis indicated that from January 16, 1997 to January 16, 1998, the
closing market price ranged from a low of $21.00 to a high of $35.75.
(ii) Present Value of Potential Future Share Prices. Goldman Sachs
performed an analysis of the present value at December 31, 1997 of the
potential share price of Regal Common Stock at December 31, 1998 as a
multiple of 1999 earnings per share ("EPS") using estimates from
Institutional Brokers Estimates System ("IBES"). IBES is a data service
that monitors and publishes compilations of earnings estimates by selected
research analysts regarding companies of interest to institutional
investors. Goldman Sachs analyzed these potential future share prices using
IBES forecasts for 1999 EPS of $1.91 per share of Regal Common Stock,
multiples ranging from 13.0x to 18.0x and discount rates ranging from 12.5%
to 17.5% (the "IBES Share Prices"). Such analysis indicated that the IBES
Share Prices ranged from a low of $21.13 to a high of $30.56.
In addition, Goldman Sachs analyzed the present value at December 31,
1997 of the potential share price of Regal Common Stock at December 31,
1998 as a multiple of estimated 1999 EPS using projected financial
information prepared by Regal's management. Due to the risks and
uncertainties associated with achieving Regal's projected future earnings,
including those related to industry fundamentals as well as Regal's ability
to build new theatres in the time frame set forth in management's
projections, in making its analysis, Goldman Sachs used estimated 1999 EPS
from Regal's management in amounts ranging from a low of $1.62 per share of
Regal Common Stock to a high of $2.70 per share (the "Management
Projections"). In calculating such potential future share prices based on
the Management Projections (the "Management Share Prices"), Goldman Sachs
used multiples ranging from 13.0x to 18.0x and a 15% discount rate. Such
analysis indicated that the Management Share Prices ranged from (a)
assuming estimated 1999 EPS of $1.62 is achieved, a low of $18.31 to a high
of $25.36; (b) assuming estimated 1999 EPS of $1.89 is achieved, a low of
$21.37 to a high of $29.58; (c) assuming
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<PAGE> 21
estimated 1999 EPS of $2.16 is achieved, a low of $24.42 to a high of
$33.81; (d) assuming estimated 1999 EPS of $2.43 is achieved, a low of
$27.47 to a high of $38.03 and (e) assuming estimated 1999 EPS of $2.70 is
achieved, a low of $30.52 to a high of $42.26.
(iii) Selected Transactions Analysis. Goldman Sachs reviewed selected
transactions in the motion picture exhibition industry since 1991, and it
also analyzed certain information relating to the following five most
recent transactions in the motion picture exhibition industry since June 1,
1997: WestStar Holdings Inc.'s acquisition of Cinamerica Theatres Limited
Partnership; Hicks Muse's acquisition of United Artists Theatre Circuit,
Inc.; KKR's acquisition of Act III Theaters Inc.; Sony Retail
Entertainment's acquisition of Cineplex Odeon Corp.; and Regal's
acquisition of Cobb Theatres, L.L.C. (the "Selected Transactions"). Such
analysis indicated that for the Selected Transactions aggregate
consideration (a) as a levered multiple of latest twelve months ("LTM")
revenues ranged from a low of 1.2x to a high of 2.7x, with an average of
1.8x, as compared to 3.1x for the Merger, (b) as a levered multiple of
theatre level cash flow ranged from a low of 7.2x to 9.9x, with an average
of 8.3x, as compared to 11.4x for the Merger, and (c) as a levered multiple
of LTM earnings before interest, taxes, depreciation and amortization
("EBITDA") ranged from a low of 8.0x to a high of 11.4x, with an average of
10.3x, as compared to 13.2x for the Merger.
(iv) Leveraged Buyout Analysis. Goldman Sachs performed a summary
theoretical leveraged buyout ("LBO") analysis using Regal's management
estimates, (including $45 million in transaction costs) and based on a
December 31, 1997 proposed capital structure. This proposed capital
structure consisted of senior debt, subordinated debt and common equity
levels of 2.7x, 1.8x and 4.7x, respectively, for an aggregate of 9.2x of
1998 estimated EBITDA. Goldman Sachs analyzed the implied equity returns
using terminal year 2002 EBITDA multiples ranging from 8.0x to 12.0x under
three case scenarios: (a) assuming that 100% of EBITDA is achieved in 1998
and 1999 and 25 theatres are built each year after 1999 (the "Aggressive
Case"); (b) assuming that 90% of managements' estimated EBITDA is achieved
in 1998 and 1999 and assuming that the 25 theatres built each year after
1999 are built at an incremental capital cost of $710,000 per theatre (the
"LBO Sensitivity Case One"); and (c) assuming that 80% of managements'
estimated EBITDA is achieved in 1998 and 1999 and assuming that the 25
theatres built each year after 1999 are built at an incremental capital
cost of $710,000 per theatre (the "LBO Sensitivity Case Two"). At a
purchase price of $31.00 per share of Regal Common Stock, such analysis
indicated implied equity returns ranging from 29.6% to 42.2% in the
Aggressive Case; 22.6% to 35.7% in LBO Sensitivity Case One; and 19.1% to
32.6% in LBO Sensitivity Case Two.
(v) Analysis of the Purchase Price. Goldman Sachs also prepared a
financial analysis of the Merger and calculated various multiples using
projected financial information from Regal and other financial information
prepared by Regal's management. Based upon a purchase price of $31.00 per
share of Regal Common Stock, 37.4 million shares of Regal Common Stock
outstanding, on a fully diluted basis, as of December 31, 1997 and net debt
of $283.3 million as of December 31, 1997, Goldman Sachs calculated an
enterprise value for the Merger of $1,442.7 million (the "Enterprise
Value"). Goldman Sachs compared the Enterprise Value as a multiple of (i)
revenue, (ii) theatre level cash flow and (iii) EBITDA. Such analysis
indicated that the Enterprise Value (i) as a multiple of estimated revenue,
was 3.1x and 2.1x for 1997 and 1998, respectively, (ii) as a multiple of
estimated theatre cash flow, was 11.5x and 8.0x for 1997 and 1998,
respectively and (iii) as a multiple of estimated EBITDA, was 13.2x and
8.9x for 1997 and 1998. Goldman Sachs also compared the $31.00 per share
purchase price as a multiple of estimated 1997 EPS and estimated 1998 EPS.
Such analysis indicated that the purchase price as a multiple of estimated
1997 EPS was 27.9x and as a multiple of estimated 1998 EPS was 19.0x.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses; however, it did not
consider the twelve month target prices of research analysts with respect to
Regal Common Stock referred to above since such price estimates are based on
numerous assumptions and subjective factors which may or may not be achieved and
such price estimates are not necessarily indicative of
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<PAGE> 22
actual future results. No company or transaction used in the above analyses as a
comparison is directly comparable to Regal or the contemplated transaction. The
analyses were prepared solely for purposes of Goldman Sachs' providing its
opinion to the Regal Board as to the fairness from a financial point of view of
the $31.00 per share in cash to be received by the holders of shares of Regal
Common Stock pursuant to the Merger Agreement and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of Regal,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast. As described above, Goldman Sachs'
opinion to the Regal Board was one of many factors taken into consideration by
the Regal Board in making its determination to approve the Merger Agreement. The
foregoing summary does not purport to be a complete description of the analysis
performed by Goldman Sachs and is qualified by reference to the written opinion
of Goldman Sachs set forth in Annex B hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Regal selected Goldman
Sachs as its financial advisor because it is a nationally recognized investment
banking firm that has substantial experience in transactions similar to the
Merger. Goldman Sachs is familiar with Regal, having provided certain investment
banking services to Regal, including having acted as lead manager in the
offering of 8 1/2% Senior Subordinated Notes due October 1, 2007, in September
1997, having acted as dealer manager for the Offer to Purchase for Cash all of
its Outstanding 10 5/8% Senior Secured Notes due 2002 in August 1997, and having
acted as its financial advisor in connection with, and participated in certain
of the negotiations leading to, the Merger Agreement.
Goldman Sachs also periodically provides investment banking services to KKR
and its affiliates and Hicks Muse and its affiliates, including for KKR and its
affiliates, having acted as lead manager in the offering of common stock for
AutoZone Incorporated in November 1997 and of common stock for Safeway Inc. in
December 1997, and for Hicks Muse, having acted as financial advisor in the sale
of Morningstar Group Inc. in November 1997 and having acted as co-manager in the
offering of Convertible Exchangeable Preferred Shares for Evergreen Media
Corporation in June 1997. Goldman Sachs may provide investment banking services
to KKR and Hicks Muse and their affiliates in the future. In addition, an
affiliate of Goldman Sachs is a co-investor with an affiliate of Hicks Muse in
Marcus Cable Company, L.P.
Pursuant to a letter agreement dated November 3, 1997 (the "Engagement
Letter"), Regal engaged Goldman Sachs to act as its financial advisor in
connection with the contemplated Merger. Pursuant to the terms of the Engagement
Letter, Regal has agreed to pay Goldman Sachs upon consummation of the Merger a
transaction fee of 0.45% of the aggregate consideration received up to and
including $30.00 per share of Regal Common Stock plus an increasing percentage
up to 2.25% of the amount by which the aggregate consideration received exceeds
$30.00 per share of Regal Common Stock. Regal has also agreed to reimburse
Goldman Sachs for its reasonable out-of-pocket expenses, including attorneys'
fees, and to indemnify Goldman Sachs against certain liabilities, including
certain liabilities under the federal securities laws. If the Merger is
consummated, the aggregate fees to be paid to Goldman Sachs in connection with
the Merger will be approximately $5.6 million.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material U.S. Federal income tax
consequences of the Merger to United States persons who hold their shares of
Regal Common Stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"). The discussion does not
address the tax consequences that might be relevant to Regal shareholders
entitled to special treatment under U.S. Federal income tax laws (including,
without limitation, dealers in securities or foreign currency, tax-exempt
entities, banks, trusts, insurance companies, persons that hold Regal Common
Stock as part of a straddle, a hedge against currency risk or a constructive
sale or conversion transaction, persons that have a
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<PAGE> 23
functional currency other than the U.S. dollar, investors in pass-through
entities and foreign persons, including foreign individuals, partnerships and
corporations). Nor does it discuss the tax consequences that might be relevant
to Regal shareholders that actually or constructively (applying the attribution
rules of Section 318 of the Code) will own Regal Common Stock after the Merger
or to Regal shareholders that acquired their Regal Common Stock through the
exercise or cancelation of employee stock options or otherwise as compensation.
This discussion also does not describe any tax consequences arising out of the
tax laws of any state, local or foreign jurisdiction.
The discussion is based upon the Code, final, temporary and proposed
Treasury regulations promulgated thereunder, judicial decisions and
administrative pronouncements, all as in effect on the date hereof and all of
which are subject to change, possibly with retroactive effect. Regal has not
sought and will not seek a ruling from the U.S. Internal Revenue Service (the
"IRS") with respect to U.S. Federal income tax consequences described below and
as a result, there can be no assurance that the IRS will not disagree with or
challenge any of the conclusions set forth herein.
The receipt of cash for shares of Regal Common Stock in the Merger will be
a taxable transaction for U.S. Federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign or other tax laws. As
a result, a Regal shareholder will recognize gain for Federal income tax
purposes in connection with the Merger in an amount equal to the excess of (a)
the amount of cash received in the Merger over (b) such shareholder's adjusted
tax basis in his or her Regal Common Stock. A Regal shareholder will recognize
loss for Federal income tax purposes as a result of the Merger in an amount
equal to the excess of (a) such shareholder's adjusted tax basis in his or her
Regal Common Stock over (b) the amount of cash received in the Merger. Any such
gain or loss recognized by a Regal shareholder will constitute capital gain or
loss, and will constitute long-term capital gain or loss if the underlying Regal
Common Stock has been held by such Regal shareholder for more than 12 months as
of the Effective Time. For noncorporate Regal shareholders, long-term capital
gain generally will be subject to U.S. Federal income tax at a maximum rate of
28% if the underlying Regal Common Stock has been held for more than 12 months
but not more than 18 months as of the Effective Time. If the underlying Regal
Common Stock has been held for more than 18 months as of the Effective Time,
however, any long-term capital gain recognized by a noncorporate Regal
shareholder generally will be subject to U.S. Federal income tax at a maximum
rate of 20%. There are limits on the deductibility of capital losses.
EACH REGAL SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN PERSONAL TAX
ADVISOR CONCERNING THE APPLICABILITY OF ANY FOREIGN LAWS AS WELL AS OTHER
FEDERAL, STATE AND LOCAL INCOME TAX CONSEQUENCES OF THE MERGER.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Regal Board, shareholders should
be aware that certain members of the Regal Board and certain executive officers
of Regal have certain interests in the Merger that are in addition to the
interests of Regal's shareholders generally.
Employment Agreements. Regal and each of Messrs. Campbell, Dunn and Frazer
have agreed that they will enter into employment agreements (the "Employment
Agreements") to be effective on or prior to the Effective Time in a form to be
mutually agreed. The Employment Agreements will have a three-year term (the
"Term").
Under the Employment Agreements, Mr. Campbell will serve as Chairman of the
Board of Directors and Chief Executive Officer, Mr. Dunn will serve as Chief
Operating Officer and Mr. Frazer will serve as Chief Financial Officer, of the
Surviving Corporation (or any other entity holding the operations of Regal and
certain other motion picture theatre exhibition companies controlled by
affiliates of KKR).
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<PAGE> 24
Set forth below is a chart showing such executives' base salaries and
bonuses for attaining specified target performance goals after the Merger. The
actual bonuses paid may be greater or less than such amounts depending on actual
performance.
<TABLE>
<CAPTION>
BASE
SALARY TARGET BONUS
-------- ------------
<S> <C> <C>
Mr. Campbell $500,000 140% of Base Salary
Mr. Dunn $325,000 100% of Base Salary
Mr. Frazer $275,000 100% of Base Salary
</TABLE>
Such executives also will be entitled to participate in all other benefit
programs applicable to senior executives of the Surviving Corporation.
Under the Employment Agreements, in the event such an executive's
employment is terminated by the Surviving Corporation without "Cause" or by the
executive with "Good Reason" (as each such term is defined in the applicable
Employment Agreement), such Executive will receive (i) cash severance equal to
the greater of two times his base salary or the base salary payable over the
remaining Term of the Employment Agreement, payable in installments over 24
months (or, if longer, the remaining Term of the Employment Agreement) and (ii)
continued participation in the Surviving Corporation's welfare benefit programs,
as applicable, during the period such Executive receives severance payments.
The Employment Agreements will also contain other customary provisions.
Equity Interests. Under the Merger Agreement, the obligation of the Merger
Subsidiaries to consummate the Merger is subject to (i) Mr. Campbell, Mr. Dunn,
Mr. Frazer and several other senior executive officers of Regal (the "Key
Executives") entering into certain equity-based incentive arrangements with
Regal and (ii) such arrangements becoming effective. Regal and each of the Key
Executives have entered into agreements with respect to such arrangements. Under
these arrangements, the Key Executives will receive immediately exercisable
options to purchase common stock of the Surviving Corporation (or a holding
company with respect thereto) and the Key Executives will not receive the cash
payment otherwise contemplated by the Merger Agreement for a portion of the
value of their existing equity interests in Regal as described below under
"-- Warrants and Stock Options". Mr. Campbell, Mr. Dunn and Mr. Frazer, the
three most senior officers of Regal, will receive cash payments for the value of
a portion of the options they hold to acquire Regal Common Stock of $0
(excluding $6,848,003 in respect of Regal Stock Options held by Mr. Campbell
that his former spouse has the right to receive under a pre-existing agreement
between them), $1,878,422 and $2,138,574, respectively. The aggregate cash
payments that all executive officers, directors and Key Executives of Regal will
receive for the options and warrants they hold to acquire Regal Common Stock is
$18,635,714. All of such cash payments are based on the difference between the
$31.00 per share merger consideration and the per share exercise prices of such
options and warrants. The portions of the Key Executives' existing equity
interests for which the Key Executives will not receive such cash payment are
called "Equity Interests". Mr. Campbell's Equity Interest would have a value, as
of the closing date of the Merger (the "Closing Date"), equal to 60% of the
aggregate value of the Regal Common Stock and Regal Stock Options (i.e., the
Merger Consideration less the applicable exercise price) currently held by Mr.
Campbell (such aggregate value calculated excluding $6,848,003 in respect of
Regal Stock Options held by Mr. Campbell that his former spouse has the right to
receive under a pre-existing agreement between them). The Equity Interests of
the other Key Executives would have a value as of the Closing Date equal to 50%
of the value of the outstanding Regal Stock Options currently held by them. Each
of the Key Executives will, like other Regal shareholders, receive cash in the
Merger for all shares of Regal Common Stock they currently own, so that their
respective Equity Interest in the Surviving Corporation will be comprised of the
applicable value of a portion of their Regal Stock Options, as set forth in the
table below. As part of his employment arrangements following the Merger, Mr.
Campbell has agreed to purchase shares of common stock of the Surviving
Corporation, which would represent approximately 0.3% of the outstanding common
stock after giving effect to such purchase, at a purchase price of $31.00 per
share (subject to customary antidilution and similar adjustments).
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<PAGE> 25
Each of the Key Executives also will be entitled to receive additional
options to purchase common stock of the Surviving Corporation (the "New
Options") that have an aggregate exercise price equal to 1.1 times the value
(determined as described in the preceding paragraph) of the Equity Interest of
that Key Executive (including, in Mr. Campbell's case, the shares of common
stock of the Surviving Corporation that he is required to purchase after the
Merger). Each New Option will have an exercise price equal to the per share cost
of the Regal Common Stock to the Funds (i.e., the $31.00 per share Merger
Consideration), so they will have no built in spread as of the date of grant.
Seventy-five percent of the New Options will become exercisable over a five-year
period and the remaining 25% of the New Options will become exercisable upon the
achievement of certain performance goals or, if those goals are not met, nine
years after the date of grant.
In considering the Merger, the Regal Board took into account the fact that
the Key Executives would receive equity interests in the Surviving Corporation
or a company holding all of the Surviving Corporation's common stock in exchange
for a portion of their equity interests in Regal. In this connection, the Regal
Board also took in account that KKR and Hicks Muse required the Key Executives
to agree to these arrangements as a condition to the Merger.
Warrants and Stock Options. As of the Record Date, certain of the
directors of Regal beneficially owned warrants ("Regal Warrants") to acquire an
aggregate of 158,455 shares of Regal Common Stock, and the directors and
executive officers of Regal had options ("Regal Stock Options") granted under
the 1993 Employee Stock Incentive Plan, the Regal Cinemas, Inc. Employee Stock
Option Plan, the Regal Cinemas, Inc. Participant Stock Option Plan or the 1993
Outside Directors' Stock Option Plan (collectively, the "Regal Stock Plans") to
acquire an aggregate of 2,117,225 shares of Regal Common Stock.
The Merger Agreement provides that Regal will offer (the "Regal Warrant
Offer") to purchase each Regal Warrant for a purchase price equal to the product
of (i) the difference between $31.00 and the per share exercise price of such
Regal Warrant and (ii) the number of shares of Regal Common Stock which may be
purchased pursuant to such Regal Warrant. The Regal Warrants were issued in
connection with Regal's financings prior to its initial public offering in 1993.
All of the Regal Warrants are currently exercisable.
The Merger Agreement provides that, unless otherwise agreed (as in the case
of the Key Executives), holders of Regal Stock Options will receive a cash
payment equal to the product (the "Regal Option Value") of (i) the difference
between the Merger Consideration and the applicable Regal Stock Option exercise
price and (ii) the number of shares of Regal Common Stock which may be purchased
pursuant to such Regal Stock Option.
The table below identifies (i) the cash payment to be received by each
director, executive officer and Key Executive of Regal at the Closing in respect
of the Regal Warrants and Regal Stock Options held thereby as of the Record Date
(assuming for this purpose that each such person who holds Regal Warrants
accepts the Regal Warrant Offer) and (ii) the value of the Regal Stock Options
(assuming for this purpose that the value of each Regal Stock Option is equal to
the Regal Option Value) held by each director, executive officer and Key
Executive of Regal for which such director, executive officer or Key Executive
will not receive a cash payment and which constitutes an Equity Interest as
described above under "-- Equity Interests". The Equity Interest in the
Surviving Corporation for each recipient will be granted in the form of options
to acquire common stock of the Surviving Corporation or a company holding all of
the Surviving Corporation's common stock, with an aggregate spread (based on a
value of $31.00 per share of Surviving Corporation common stock) equal to the
value of his or her Equity Interest shown below. In addition, each such person
will receive New Options (as described above under "-- Equity Interests") that
have an aggregate exercise price equal to 1.1 times the value of his or her
Equity Interest. Each New Option will have an exercise price equal to the per
share cost of the Regal Common Stock to the Funds (i.e., the $31.00 per share
Merger Consideration), so
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<PAGE> 26
they will have no built in spread as of the date of grant. The vesting schedule
for the New Options is described above under "-- Equity Interests".
<TABLE>
<CAPTION>
CASH PAYMENT VALUE OF
IN RESPECT OF REGAL STOCK
REGAL OPTIONS
WARRANTS AND CONSTITUTING
REGAL STOCK "EQUITY
NAME OPTIONS INTERESTS"
- ---- ------------- ------------
<S> <C> <C>
Michael L. Campbell.................................... $ 0(1) $ 7,178,003
Gregory W. Dunn........................................ $ 1,878,422 $ 1,878,422
Robert A. Engel........................................ $ 2,374,575 $ 0
Lewis Frazer III....................................... $ 2,138,574 $ 2,138,574
R. Neal Melton......................................... $ 2,065,565 $ 0
R. Keith Thompson...................................... $ 1,034,804 $ 1,034,804
Susan Seagraves(3)..................................... $ 734,550 $ 734,550
Philip D. Borack....................................... $ 782,394 $ 0
Michael E. Gellert..................................... $ 2,711,480(2) $ 0
J. David Grissom....................................... $ 2,186,163 $ 0
William H. Lomicka..................................... $ 1,136,810 $ 0
Herbert S. Sanger, Jr.................................. $ 163,133 $ 0
Jack Tyrrell........................................... $ 91,054 $ 0
J. E. Henry............................................ $ 674,274 $ 674,274
Robert J. Del Moro..................................... $ 663,916 $ 663,916
Total........................................ $18,635,714 $14,302,543
</TABLE>
- ---------------
(1) Excludes $6,848,003 in respect of Regal Stock Options held by Mr. Campbell
that his former spouse has the right to receive under a pre-existing
agreement between them.
(2) Includes a cash payment with respect to a Regal Warrant issued to Windcrest
Partners, of which Mr. Gellert is a general partner. See "Ownership of
Voting Securities".
(3) Ms. Seagraves is an executive officer of Regal but is not a "Key Executive"
as defined in the Merger Agreement. While she has not yet entered into a
written agreement to reduce her cash payment in respect of Regal Stock
Options and to receive Equity Interests with a value equal to such
reduction, it is anticipated that such an agreement will be entered into
prior to the consummation of the Merger. The table assumes that such an
agreement will be entered into prior to the consummation of the Merger.
Officers and Directors Indemnification; Insurance. In the Merger
Agreement, the Merger Subsidiaries and Regal have agreed that all rights to
indemnification and exculpation from liability for acts or omissions occurring
at or prior to the Effective Time and rights to advancement of expenses relating
thereto existing as of the date of the Merger Agreement in favor of the current
or former directors or officers of Regal and its subsidiaries (such persons,
"Indemnified Persons") as provided in their respective charters (or similar
constitutive documents) or by-laws and any existing indemnification agreements
or arrangements with Regal will survive the Merger and will not be amended,
repealed or otherwise modified in any manner that would adversely affect the
rights thereunder of any Indemnified Persons. The Merger Subsidiaries and Regal
have also agreed, subject to certain limitations, that the Surviving Corporation
will maintain, for a period of six years from the Effective Time, Regal's
current directors' and officers' liability insurance policy to the extent that
it provides coverage for events occurring at or prior to the Effective Time for
all Indemnified Persons.
REGULATORY FILINGS AND APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
and certain information have been given to the Antitrust Division of the U.S.
Department of Justice (the "Antitrust Division") and the FTC and waiting period
requirements have been satisfied. The waiting period expired on March 1, 1998.
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<PAGE> 27
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the Special Meeting, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger or seeking the divestiture of
substantial assets of Regal or its subsidiaries or the Merger Subsidiaries or
their affiliates.
In addition, state antitrust authorities may also bring legal action under
state antitrust laws. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of certain assets of Regal or
the Merger Subsidiaries or their affiliates. Private parties may also seek to
take legal action under the antitrust laws under certain circumstances. There
can be no assurance that a challenge to the Merger on antitrust grounds will not
be made or, if such a challenge is made, of the result thereof.
RIGHTS OF SHAREHOLDERS WHO OBJECT TO THE MERGER
Shareholders of Regal are not entitled to any appraisal rights under
Tennessee law in connection with the Merger. In addition, shareholders of Regal
who object to the Merger are not entitled to any other rights under Tennessee
law or otherwise in connection with the Merger, other than the right to vote
against the Merger at the Special Meeting or to institute a lawsuit if they
believe Regal or its directors violated any of their obligations in connection
with the Merger.
REGAL'S PLANS IF THE MERGER IS NOT CONSUMMATED
If the Merger is not consummated, Regal intends to continue to remain
independent and pursue its existing business plan for internal growth.
THE MERGER AGREEMENT
The following describes the material terms of the Merger Agreement. A copy
of the Merger Agreement is attached to this Proxy Statement as Annex A and is
incorporated herein by reference. The description of the Merger Agreement set
forth below is qualified in its entirety by reference thereto. Shareholders are
urged to read the Merger Agreement in its entirety.
GENERAL
At the Effective Time, each Merger Subsidiary will be merged with and into
Regal, the separate corporate existence of each Merger Subsidiary will cease and
Regal will continue as the Surviving Corporation. As a result of the Merger, the
Surviving Corporation will succeed to and assume all the rights and obligations
of each Merger Subsidiary in accordance with the Tennessee Business Corporation
Act and the Delaware General Corporation Law.
As soon as practicable on the Closing Date, which will be no later than the
second business day following the satisfaction or waiver of the conditions set
forth in the Merger Agreement, articles of merger and all other appropriate
documents (in any such case, the "Articles of Merger") will be filed by the
parties with the Secretary of State of the State of Tennessee and the Secretary
of State of the State of Delaware. The Merger will become effective upon the
filing of the Articles of Merger with the Secretary of State of the State of
Tennessee and the Secretary of State of the State of Delaware or at such time
thereafter as is provided in the Articles of Merger.
CONVERSION OF SECURITIES
At the Effective Time, each issued and outstanding share of Regal Common
Stock (other than shares owned by either Merger Subsidiary or Regal, which will
be canceled without payment) will be converted into the right to receive the
Merger Consideration from the Surviving Corporation following the Merger.
Pursuant to the Merger Agreement, each share of common stock, par value
$.01 per share, of KKR Merger Subsidiary and each share of common stock, par
value $.01 per share, of Hicks Muse Merger
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Subsidiary issued and outstanding immediately prior to the Effective Time will
be converted into common stock, no par value, of the Surviving Corporation.
EXCHANGE OF CERTIFICATES; PROCEDURES FOR EXCHANGE
Prior to the Effective Time, the Merger Subsidiaries will appoint a bank or
trust company that is reasonably satisfactory to Regal to act as paying agent
(the "Paying Agent") for the payment of the Merger Consideration. As of the
Effective Time, the Surviving Corporation will deposit with the Paying Agent,
for the benefit of the holders of shares of Regal Common Stock, cash in an
amount sufficient to pay the Merger Consideration (such cash being hereinafter
referred to as the "Exchange Fund").
As soon as reasonably practicable (and in any event no later than ten days)
after the Effective Time, the Surviving Corporation will cause the Paying Agent
to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of Regal
Common Stock (the "Certificates") whose shares were converted into the right to
receive the Merger Consideration a letter of transmittal and instructions for
use in effecting the surrender of the Certificates in exchange for the Merger
Consideration. The letter of transmittal will specify that delivery will be
effected, and risk of loss and title to a Certificate will pass, only upon
proper delivery of such Certificate to the Paying Agent. Each holder of record
of a Certificate will, upon surrender to the Paying Agent of such Certificate,
be entitled to receive in exchange therefor the amount of cash which the number
of shares of Regal Common Stock previously represented by such Certificate has
been converted into the right to receive pursuant to the Merger Agreement, and
the Certificate so surrendered will forthwith be canceled. In the event of a
transfer of ownership of Regal Common Stock which is not registered in the
transfer records of Regal, payment of the Merger Consideration may be made to a
person other than the person in whose name the Certificate so surrendered is
registered if, and only if, such Certificate is properly endorsed or otherwise
in proper form for transfer and the person requesting such payment pays any
transfer or other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of such Certificate
or establishes to the satisfaction of the Surviving Corporation that such tax
has been paid or is not applicable. Until surrendered, each Certificate will be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration. No interest will be paid
or will accrue on any cash payable to holders of Certificates pursuant to the
Merger Agreement.
All cash paid upon the surrender therefor of Certificates in accordance
with the terms of the Merger Agreement will be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Regal Common Stock
exchanged for cash theretofore represented by such Certificates. After the
Effective Time, there will be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Regal Common Stock
which were outstanding immediately prior to the Effective Time, and if after the
Effective Time such Certificates are presented to Regal for transfer, they will
be canceled against delivery for cash as provided in the Merger Agreement.
Any portion of the Exchange Fund which remains undistributed to the holders
of the Certificates for six months after the Effective Time will be delivered to
the Surviving Corporation, upon demand, and any holders of the Certificates who
have not theretofore complied with the exchange provisions of the Merger
Agreement may thereafter look only to the Surviving Corporation (as general
creditors thereof) for payment of their claim for Merger Consideration.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Regal with respect to Regal and its subsidiaries relating to, among other
things: (a) their corporate organization, existence and good standing and
similar corporate matters; (b) their capitalization; (c) the authorization,
execution, delivery and enforceability of the Merger Agreement; (d) the absence
of conflicts, violations and defaults under their charters or by-laws and
certain other agreements and documents; (e) the absence of required consents,
approvals, orders, or authorizations of, or registrations, declarations or
filings with, certain governmental entities relating to the Merger; (f) the
documents and reports filed with the Securities and Exchange
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Commission (the "SEC") and the accuracy and completeness of the information
contained therein; (g) this Proxy Statement and the documents prepared in
connection with Regal's obligation, if requested by the Merger Subsidiaries, to
commence an offer to purchase (the "Debt Tender Offer") all of Regal's 8 1/2%
Senior Subordinated Notes due 2007 (the "Regal Subordinated Notes") and the
accuracy and completeness of the information contained herein and therein; (h)
the absence of a Material Adverse Effect (as defined below) on Regal or certain
other material changes or events since October 2, 1997; (i) the existence of
necessary permits or approvals from certain governmental entities, the absence
of material pending or threatened litigation and compliance with applicable
laws; (j) filing of tax returns and payment of taxes; (k) the absence of
defaults under material contracts; (l) owned and leased real property matters;
(m) environmental matters; (n) labor matters; (o) benefit plans and other
matters relating to the Employee Retirement Income Security Act of 1974; (p)
information relating to subsidiaries; (q) the shareholder vote required to
approve the Merger; (r) the recommendation of the Regal Board with respect to
the Merger Agreement; (s) the inapplicability of the Tennessee Business
Combination Act to the Merger; (t) brokers' fees and expenses; and (u) the
receipt of an opinion of Goldman Sachs.
The Merger Agreement also contains various representations and warranties
of each Merger Subsidiary relating to, with respect to such Merger Subsidiary,
among other things, (a) its corporate organization, existence and good standing
and similar corporate matters; (b) its capitalization; (c) the authorization,
execution, delivery and enforceability of the Merger Agreement; (d) the absence
of conflicts, violations and defaults under its certificate of incorporation or
by-laws and certain other agreements and documents; (e) the absence of required
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with, certain governmental entities relating to the Merger; (f) this
Proxy Statement and the documents prepared in connection with the Debt Tender
Offer and the accuracy and completeness of the information contained herein and
therein; (g) the absence of subsidiaries; (h) brokers' fees and expenses; (i)
the ownership of Regal Common Stock; (j) the financing for the Merger; and (k)
the absence of a Material Adverse Effect on it since the date of the Merger
Agreement.
As used in the Merger Agreement and this Proxy Statement, the term
"Material Adverse Effect" means, when used in connection with Regal, any change,
effect, event, occurrence or development that is, or is reasonably likely to be,
materially adverse to the business, results of operations or financial condition
of Regal and its subsidiaries, taken as a whole, other than any change, effect,
event or occurrence relating to or arising out of (a) the economy or securities
markets in general, (b) the Merger Agreement or the transactions contemplated
thereby or the announcement thereof or (c) the motion picture exhibition
industry in general, and not specifically relating to Regal or its subsidiaries,
attributable solely to quarterly fluctuations in box office receipts based on
the available films; and the term "Material Adverse Effect" means, when used in
connection with either Merger Subsidiary, any change, effect, event, occurrence
or development that is, or is reasonably likely to be, materially adverse to its
ability to consummate the transactions contemplated hereby.
CONDUCT OF BUSINESS PENDING THE MERGER
Regal has agreed as to itself and its subsidiaries that (except as
expressly contemplated, required or permitted by the Merger Agreement or as set
forth in its disclosure schedule to the Merger Agreement), during the period
from the date of the Merger Agreement until the Effective Time, Regal and its
subsidiaries will carry on their respective businesses only in the usual,
regular and ordinary course consistent with past practice in all material
respects and use their reasonable best efforts to preserve intact their present
business organizations, maintain their rights and franchises, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers and others having business dealings with
them to the end that their goodwill and ongoing businesses will not be impaired
at the Effective Time.
Regal has further agreed as to itself and its subsidiaries that (except as
expressly contemplated, required or permitted by the Merger Agreement or as set
forth in its disclosure schedule to the Merger Agreement),
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during the period from the date of the Merger Agreement until the Effective
Time, Regal will not, nor will it permit any of its subsidiaries to:
(a) enter into any new line of business, or incur or commit to any
capital expenditures, or any obligations or liabilities in connection with
any capital expenditures, other than capital expenditures and obligations
or liabilities incurred or committed to that are either (i) contemplated in
Regal's current capital budget, a copy of which has been furnished to the
Merger Subsidiaries prior to the date of the Merger Agreement (the "Regal
Capital Budget"), or (ii) not in excess of $15,000,000 individually or in
the aggregate;
(b) (i) declare, set aside or pay any dividends on or make other
distributions in respect of any capital stock, (ii) adjust, split, combine
or reclassify any capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for capital stock or (iii) except pursuant to the Debt Tender
Offer and except as described under "-- Employee Benefits; Regal Equity
Plans", repurchase, redeem or otherwise acquire, or permit any subsidiary
to purchase or otherwise acquire, any shares of capital stock or any debt
securities, warrants or options, in each case issued by Regal or any of its
subsidiaries;
(c) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its or any of its subsidiaries' capital
stock of any class or any securities convertible into or exchangeable for,
or any rights, warrants or options to acquire, any of the foregoing, or any
other securities or equity equivalents (including stock appreciation
rights), or enter into any agreement with respect to any of the foregoing,
other than the issuance of Regal Common Stock upon the exercise of Regal
Stock Options or Regal Warrants that are outstanding on the date of the
Merger Agreement;
(d) amend or propose to amend the charter (or similar constitutive
documents) or by-laws of Regal or any of its subsidiaries;
(e) merge or consolidate with, or purchase an equity interest in or a
substantial portion of the assets of, any corporation, partnership,
association or other business organization or any division or business
thereof, if the aggregate amount of the consideration paid or transferred
by Regal in connection with all such transactions would exceed $15,000,000;
(f) sell, lease, mortgage, encumber or otherwise dispose of, any
material assets (including capital stock of subsidiaries);
(g) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of Regal or any of its subsidiaries or
guarantee any debt securities of others or enter into any "keep well" or
similar arrangement, other than revolving credit borrowings or borrowings
to fund capital expenditures described in clause (a) above, in each case
under Regal's existing credit agreement;
(h) take any action that would result in any of the representations
and warranties of Regal set forth in the Merger Agreement that are
qualified as to materiality being untrue, any of such representations and
warranties that are not so qualified being untrue in any material respect
or any of the conditions to the Merger set forth in the Merger Agreement
not being satisfied;
(i) change its fiscal year or its methods, principles or practices of
accounting in effect at October 2, 1997, except as required by changes in
generally accepted accounting principles ("GAAP"), or alter or change in
any material respect its practices and policies relating to the payment of
film costs, accrued liabilities or accounts payable or collection of box
office or concession revenues;
(j) (i) enter into, adopt, amend or terminate any Regal employee
benefit plan (a "Regal Benefit Plan") or any agreement, arrangement, plan
or policy between such party and one or more of its directors, officers or
employees, except for any such actions taken in the ordinary course of
business consistent with past practice, (ii) increase in any manner the
compensation or fringe benefits of any of its directors, officers or
employees or provide any other benefit not required by any plan and
arrangement as in effect as of the date of the Merger Agreement, except for
normal salary compensation increases,
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benefit changes or cash bonus awards made in the ordinary course of
business consistent with past practice, or (iii) create or amend the Regal
Stock Plans or grant any equity based award pursuant to any Regal Stock
Plan or otherwise;
(k) (i) except as set forth in clause (iii) below, pay, discharge or
satisfy any claims (including claims of shareholders), liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), except for the payment, discharge or satisfaction of
liabilities or obligations in the ordinary course of business consistent
with past practice or in accordance with their terms as in effect on the
date of the Merger Agreement, (ii) waive, release, grant, or transfer any
rights of material value or modify or change in any material respect any
existing license, lease, contract or other document, other than in the
ordinary course of business consistent with past practice, or (iii) settle
or compromise any litigation (whether or not commenced prior to the date of
the Merger Agreement) other than settlements or compromises of litigation
where the amount paid (after giving effect to insurance proceeds actually
received) in settlement or compromise does not exceed $1,000,000, provided
that the aggregate amount paid in connection with the settlement or
compromise of all such litigation matters does not exceed $5,000,000;
(l) enter into or commit to enter into, or assume, any operating or
capital lease, other than (i) any such lease contemplated by the Regal
Capital Budget or Regal's operating budget, a copy of which has been
provided to the Merger Subsidiaries prior to the date of the Merger
Agreement, or (ii) any such operating lease which is not material to Regal
and its subsidiaries, taken as a whole;
(m) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution,
consolidation, recapitalization or bankruptcy reorganization;
(n) enter into any collective bargaining agreement or any successor
collective bargaining agreement to any collective bargaining agreement;
(o) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of Regal's
affiliates, including, without limitation, any transactions, agreements,
arrangements or understandings with any affiliate or other person covered
under Item 404 of SEC Regulation S-K that would be required to be disclosed
under such Item 404 other than such transactions of the same general
nature, scope and magnitude as are disclosed in the documents required to
be filed with the SEC by Regal since January 1, 1995;
(p) make any material income tax election, amend any material tax
return or settle or compromise any material tax liability;
(q) liquidate, or cause to be liquidated, any of R.C. Cobb, Inc., Cobb
Theatres II, Inc. or Cobb Finance Corp. (the "Cobb Subsidiaries") or merge,
or cause to be merged, any of the Cobb Subsidiaries with and into another
corporation; or
(r) authorize any of, or commit or agree to take any of, the actions
described in clauses (a)-(q) above.
In addition, Regal will advise the Merger Subsidiaries of any change or
event which would cause or constitute a material breach of any of the
representations or warranties of Regal contained in the Merger Agreement. Regal
will file all reports required to be filed by it with the SEC or the Nasdaq
National Market between the date of the Merger Agreement and the Effective Time
and will deliver to the Merger Subsidiaries copies of all such reports promptly
after the same are filed.
Each Merger Subsidiary has agreed that, during the period from the date of
the Merger Agreement until the Effective Time, it will:
(a) not take any action that would result in any of its
representations and warranties set forth in the Merger Agreement that are
qualified as to materiality being untrue, any of such representations and
warranties that are not so qualified being untrue in any material respect
or any of the conditions to the Merger set forth in the Merger Agreement
not being satisfied; and
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(b) advise Regal of any change or event which would cause or
constitute a material breach of any of its representations or warranties
contained in the Merger Agreement or which it believes will result in any
of the debt or equity financing necessary for the consummation of the
Merger and the other transactions contemplated by the Merger Agreement not
being available to it prior to May 31, 1998 on terms comparable to those
set forth in the Financing Letters (as defined under "-- Financing").
CONDITIONS TO THE MERGER
The respective obligations of each Merger Subsidiary and Regal to effect
the Merger are subject to the satisfaction or waiver at or prior to the
Effective Time of the following conditions:
(a) the approval of the Merger Agreement by the affirmative vote of
the holders of a majority of the outstanding shares of Regal Common Stock;
(b) the waiting period applicable to the Merger under the HSR Act
having expired or been terminated (which occurred on March 1, 1998); and
(c) no temporary restraining order, preliminary or permanent
injunction or other order or decree issued by any governmental entity of
competent jurisdiction enjoining or otherwise preventing the consummation
of the Merger being in effect; provided, however, that each of such parties
has agreed to use reasonable best efforts to prevent the entry of any such
injunction or other order or decree and to cause any such injunction or
other order or decree that may be entered to be vacated or otherwise
rendered of no effect.
The obligation of each Merger Subsidiary to effect the Merger is also
subject to the satisfaction of the following conditions unless waived by such
Merger Subsidiary:
(a) the representations and warranties of Regal set forth in the
Merger Agreement (i) to the extent qualified by Material Adverse Effect
being true and correct, and (ii) to the extent not qualified by Material
Adverse Effect being true and correct, except that clause (ii) will be
deemed satisfied so long as any failures of such representations and
warranties to be true and correct do not individually or in the aggregate
have a Material Adverse Effect on Regal, in each of cases (i) and (ii), as
of the date of the Merger Agreement and as of the Closing Date as though
made on and as of the Closing Date, except as otherwise contemplated by the
Merger Agreement, and such Merger Subsidiary's receipt of a certificate to
such effect signed on behalf of Regal by its Chief Executive Officer or its
Chief Financial Officer;
(b) Regal having performed in all material respects all material
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date, and such Merger Subsidiary's receipt of a
certificate to such effect signed on behalf of Regal by its Chief Executive
Officer or Chief Financial Officer;
(c) such Merger Subsidiary's receipt of evidence, in form and
substance reasonably satisfactory to it, that such consents, approvals,
authorizations, qualifications and orders of governmental entities and
other third parties as are necessary in connection with the transactions
contemplated by the Merger Agreement have been obtained, other than those
the failure of which to be obtained, individually or in the aggregate,
would not have a Material Adverse Effect on Regal;
(d) there not being pending any suit, action or proceeding brought by
any governmental entity seeking to prohibit or limit in any material
respect the ownership or operation by Regal, such Merger Subsidiary or any
of their respective affiliates of a substantial portion of the business or
assets of Regal and its subsidiaries, taken as a whole, or to require any
such person to dispose of or hold separate any material portion of the
business or assets of Regal and its subsidiaries, taken as a whole, as a
result of the Merger or any of the other transactions contemplated by the
Merger Agreement or seeking to impose limitations on the ability of KKR or
Hicks Muse, as the case may be, or any of its affiliates to acquire or
hold, or exercise full rights of ownership of, any shares of Regal Common
Stock, including, without limitation, the right to vote Regal Common Stock
on all matters properly presented to the stockholders of Regal or seeking
to prohibit KKR or Hicks Muse, as the case may be, or any of its affiliates
from
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effectively controlling in any material respect a substantial portion of
the business or operations of Regal or its subsidiaries, in each case after
giving effect to any actions required to be taken pursuant to Regal's and
each Merger Subsidiary's obligations, among other things, to use all
reasonable best efforts to consummate and make effective the Merger, the
Debt Tender Offer and the other transactions contemplated by the Merger
Agreement;
(e) if the Merger Subsidiaries have requested Regal to commence a Debt
Tender Offer on or prior to the twenty-fifth business day prior to May 31,
1998, Regal having accepted for payment Regal Subordinated Notes with an
aggregate principal amount of not less than the minimum tender condition in
the Debt Tender Offer;
(f) the conditions to the other Merger Subsidiary's obligations having
been satisfied or waived by such other Merger Subsidiary, and such Merger
Subsidiary's receipt from such other Merger Subsidiary an officer's
certificate to such effect;
(g) the Key Executives having entered into definitive agreements
relating to their respective ongoing equity interests in Regal or an entity
controlling Regal after the Effective Time on terms and conditions
substantially consistent with the agreements or agreements in principle, as
the case may be, relating to such individuals delivered to Regal on the
date of the Merger Agreement or in the form attached to Regal's disclosure
schedule to the Merger Agreement or otherwise satisfactory to the Merger
Subsidiaries, and the equity investments contemplated by such agreements
having been effected contemporaneously with the Closing; and
(h) the Merger Subsidiaries receipt of the proceeds of financings on
the terms and conditions set forth in the Financing Letters described under
"-- Financing" or upon the terms and conditions which are, in the
reasonable judgment of the Merger Subsidiaries, substantially equivalent
thereto, and to the extent that any terms and conditions are not set forth
in such Financing Letters, on terms and conditions reasonably satisfactory
to the Merger Subsidiaries.
The obligation of Regal to effect the Merger is also subject to the
satisfaction of the following conditions unless waived by Regal:
(a) the representations and warranties of each Merger Subsidiary set
forth in the Merger Agreement (i) to the extent qualified by Material
Adverse Effect being true and correct, and (ii) to the extent not qualified
by Material Adverse Effect being true and correct, except that clause (ii)
will be deemed satisfied so long as any failures of such representations
and warranties to be true and correct do not individually or in the
aggregate have a Material Adverse Effect on such Merger Subsidiary, in each
of cases (i) and (ii), as of the date of the Merger Agreement and as of the
Closing Date as though made on and as of the Closing Date, except as
otherwise contemplated by the Merger Agreement, and Regal's receipt of a
certificate to such effect signed on behalf of such Merger Subsidiary by a
director thereof who is an executive officer of the KKR Fund, in the case
of KKR Merger Subsidiary, or the Hicks Muse Fund, in the case of Hicks Muse
Merger Subsidiary;
(b) each Merger Subsidiary having performed in all material respects
all material obligations required to be performed by it under the Merger
Agreement at or prior to the Closing Date, and Regal's receipt of a
certificate to such effect signed on behalf of such Merger Subsidiary by a
director thereof; and
(c) the Merger Subsidiaries having caused a solvency letter as
described under "-- Solvency of Regal Following the Merger" to have been
delivered to Regal.
The Merger Agreement further provides that neither Regal nor either Merger
Subsidiary may rely on the failure of any condition described in this section to
be satisfied if such failure was caused by such party's failure to use all
reasonable best efforts to consummate the Merger and the other transactions
contemplated by the Merger Agreement.
The obligation of the Merger Subsidiaries to consummate the Merger is not
conditioned on the ability of Hicks Muse, KKR or their affiliates to engage in
subsequent transactions combining Regal with other motion picture exhibition
companies (including Act III Cinemas, Inc., which is currently controlled by
affiliates of
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KKR). Hicks Muse's agreement to acquire control of OSCAR I Corporation, the
parent of United Artists Theatre Circuit, Inc., was terminated in February 1998.
Neither the Merger nor the amount of consideration to be paid to Regal
shareholders in the Merger is conditioned on consummation of such acquisition by
Hicks Muse.
NO SOLICITATION
Regal has agreed that it will not, nor will it permit any of its
subsidiaries to, nor will it authorize or permit any officer, director or
employee of, or any investment banker, attorney or other advisor or
representative of, Regal or any of its subsidiaries to, directly or indirectly,
(i) solicit, initiate, encourage or knowingly facilitate the submission of any
Takeover Proposal (as defined below) or (ii) enter into or participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, any Takeover Proposal; provided, however, that prior to the
approval of the Merger Agreement by the shareholders of Regal, Regal may, in
response to a bona fide Takeover Proposal that constitutes a Superior Proposal
(as defined below) and that was made after the date of the Merger Agreement (and
not solicited by Regal after the date of the Merger Agreement) by any person,
and subject to Regal's obligations to notify the Merger Subsidiaries as
described below, (A) furnish information with respect to Regal and its
subsidiaries to such person and its representatives pursuant to a customary
confidentiality agreement and discuss such information with such person and its
representatives and (B) participate in negotiations regarding such Takeover
Proposal.
As used in the Merger Agreement and this Proxy Statement (except as
described under "-- Fees and Expenses"), the term "Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of 20% or more of the assets (based on the fair market
value thereof) of Regal and its subsidiaries, taken as a whole, other than the
transactions contemplated by the Merger Agreement, or of 20% or more of any
class of equity securities of Regal or any of its subsidiaries or any tender
offer or exchange offer (including by Regal or any of its subsidiaries) that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of Regal or any of its subsidiaries, or any merger,
consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving
Regal or any of its subsidiaries other than the transactions contemplated by the
Merger Agreement. Regal has also agreed, as of the date of the Merger Agreement,
to immediately cease and cause to be terminated any then existing activities,
discussions and negotiations conducted prior to the date of the Merger Agreement
with respect to any Takeover Proposal.
Except as described in this section, the Regal Board may not (i) withdraw
or modify, or publicly propose to withdraw or modify, in a manner adverse to the
Merger Subsidiaries, the approval or recommendation by the Regal Board of the
Merger or the Merger Agreement, (ii) approve or recommend, or propose publicly
to approve or recommend, any Takeover Proposal or (iii) cause or agree to cause
Regal to enter into any letter of intent, agreement in principle, acquisition
agreement or similar agreement related to any Takeover Proposal. Notwithstanding
the foregoing, if the Regal Board receives a Superior Proposal, the Regal Board
may, prior to the receipt of the approval of the Merger by the shareholders of
Regal and subject to compliance with the provisions described under "-- Fees and
Expenses", withdraw or modify its approval or recommendation of the Merger and
the Merger Agreement, approve or recommend a Superior Proposal or terminate the
Merger Agreement, but in each case only at a time that is at least five business
days after receipt by both Merger Subsidiaries of written notice advising them
that the Regal Board has resolved to accept a Superior Proposal if it continues
to be a Superior Proposal at the end of such five business day period. As used
in the Merger Agreement and this Proxy Statement, the term "Superior Proposal"
means any bona fide Takeover Proposal (which, for purposes of the provisions
described in the previous paragraph only, may be subject to a due diligence
condition), which proposal was not solicited by Regal after the date of the
Merger Agreement, made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than 50% of the shares
of Regal Common Stock then outstanding or all or substantially all the assets of
Regal and its subsidiaries and otherwise on terms which the Regal Board
determines in good faith (after consultation with a financial advisor of
nationally recognized reputation) to be more favorable to Regal's stockholders
than the Merger and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Regal Board, is reasonably
capable of being financed by such third party.
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<PAGE> 35
In addition to the obligations of Regal set forth in the preceding
paragraphs, Regal will promptly advise the Merger Subsidiaries orally and in
writing of any request for information or of any Takeover Proposal, the material
terms and conditions of such request or Takeover Proposal and the identity of
the person making any such request or Takeover Proposal and any determination by
the Regal Board that a Takeover Proposal is or may be a Superior Proposal. Regal
will keep both Merger Subsidiaries informed as to the status and material
details (including amendments or proposed amendments) of any such request or
Takeover Proposal.
None of the provisions described in this section prohibit Regal from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") or
from making any disclosure to Regal's stockholders if, in the good faith
judgment of the Regal Board after consultation with outside counsel, failure to
do so would be inconsistent with its obligations under applicable law.
ACCESS TO INFORMATION
Regal has further agreed that it will, and will cause each of its
subsidiaries to, afford to the other parties to the Merger Agreement and to its
officers, employees, accountants, counsel and other representatives (including
environmental consultants), reasonable access, during normal business hours
during the period prior to the Effective Time, to their respective properties,
books, records and personnel and, during such period, Regal will, and will cause
each of its subsidiaries to, furnish promptly to Merger Subsidiaries (a) a copy
of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of Federal or
state securities laws and (b) such other information concerning its business,
properties and personnel as the Merger Subsidiaries may reasonably request. Each
Merger Subsidiary will, and will cause its advisors and representatives who
receive nonpublic information regarding Regal to agree to, hold any such
information in confidence to the extent required by, and in accordance with, the
terms of the Confidentiality Agreement between Regal and KKR or Hicks Muse, as
the case may be.
REASONABLE BEST EFFORTS
Subject to the terms and conditions of the Merger Agreement, Regal and each
Merger Subsidiary will, and will cause its subsidiaries to, use all reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger, the Debt Tender Offer and the other
transactions contemplated by the Merger Agreement, including (i) the obtaining
of any necessary consent, authorization, order or approval of, or any exemption
by, any governmental entity and/or any other public or private third party which
is required to be obtained by such party or any of its subsidiaries in
connection with the Merger, the Debt Tender Offer and the other transactions
contemplated by the Merger Agreement (provided that Regal will not pay or agree
to pay any material amount to obtain a consent without the prior approval of the
Merger Subsidiaries, which approval will not be unreasonably withheld or
delayed), and the making or obtaining of all necessary filings and registrations
with respect thereto, (ii) the defending of any lawsuits or other legal
proceedings challenging the Merger Agreement, and (iii) the execution and
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, the Merger Agreement.
FINANCING
Prior to the execution of the Merger Agreement, the Merger Subsidiaries
delivered to Regal copies of (i) a commitment letter from KKR, dated as of
January 19, 1998, to provide equity financing in an amount of approximately $375
million to provide KKR Merger Subsidiary a portion of the funds necessary to
consummate the transactions contemplated by the Merger Agreement, (ii) a
commitment letter from the Hicks Muse Fund, dated as of January 19, 1998, to
provide equity financing in an amount of approximately $375 million to provide
Hicks Muse Merger Subsidiary a portion of the funds necessary to consummate the
transactions contemplated by the Merger Agreement, (iii) a commitment letter
from the Bank of Nova Scotia and Bank of America National Trust & Savings
Association, dated as of January 14, 1998, to provide senior
30
<PAGE> 36
secured credit facilities of $780 million in the aggregate to provide the Merger
Subsidiaries a portion of the funds necessary to consummate the transactions
contemplated by the Merger Agreement (each of the letters referred to in clauses
(i), (ii) and (iii), a "Commitment Letter") and (iv) a letter from Morgan
Stanley to the effect that Morgan Stanley was highly confident that it could
arrange, as a placement agent or underwriter, for the sale of up to $335 million
of senior subordinated notes (the "Senior Subordinated Notes") in connection
with the Merger through either a private sale and/or a public offering to
provide additional funds necessary to consummate the transactions contemplated
by the Merger Agreement (the "Highly Confident Letter", and collectively with
the Commitment Letters, the "Financing Letters").
The Commitment Letters are subject to customary conditions and the Highly
Confident Letter is not intended to, and does not, constitute a commitment or
undertaking by Morgan Stanley to place or purchase the Senior Subordinated
Notes.
In the Merger Agreement, Regal has agreed to, and to cause its subsidiaries
and its and their respective officers, employees, advisors and accountants to,
reasonably cooperate with the Merger Subsidiaries in connection with the
arrangement of any financing to be consummated prior to or contemporaneously
with the Closing in respect of the transactions contemplated by the Merger
Agreement, including participation in meetings, due diligence sessions, road
shows, the preparation of offering memoranda, private placement memoranda,
prospectuses and similar documents, comfort letters of accountants and legal
opinions, as may be reasonably requested by the Merger Subsidiaries. In
conjunction with the obtaining of any such financing, Regal agrees, at the
reasonable request of the Merger Subsidiaries, to call for prepayment or
redemption, or to prepay or redeem, or to attempt to renegotiate the terms of,
any then existing indebtedness of Regal; provided that no such prepayment or
redemption or call for prepayment or redemption or renegotiated terms will
actually be made or become effective (nor will Regal be required to incur any
liability in respect of any such prepayment or redemption or call therefor or
renegotiation thereof) prior to the Effective Time. In addition, the Merger
Subsidiaries have agreed to promptly inform Regal of all material developments
relating to arranging such financing.
SOLVENCY OF REGAL FOLLOWING THE MERGER
Each Merger Subsidiary has agreed to use its reasonable best efforts to
cause the valuation firm which will be delivering a solvency letter to the
financial institutions providing the debt financing for the Merger (or, if no
such letter will be provided thereto, a valuation firm reasonably acceptable to
Regal) to deliver to Regal on the Closing Date a letter addressed to the Regal
Board in form and substance reasonably satisfactory thereto as to the solvency
of Regal and its subsidiaries after giving effect to the Merger, the financing
arrangements contemplated by the Merger Subsidiaries with respect to the Merger
and the other transactions contemplated by the Merger Agreement.
In addition, each Merger Subsidiary has agreed for the benefit of the Regal
Board to take all actions necessary to ensure that immediately following the
Effective Time, the Surviving Corporation will be solvent for all purposes under
Federal bankruptcy and applicable state fraudulent transfer and fraudulent
conveyance laws.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval of the Merger Agreement by the
shareholders of Regal:
(a) by mutual written consent of the Merger Subsidiaries and Regal;
(b) by Regal or either Merger Subsidiary upon written notice to the
other parties:
(i) if any governmental entity of competent jurisdiction has issued
a permanent injunction or other order or decree enjoining or otherwise
preventing the consummation of the Merger or the Debt Tender Offer and
such injunction or other order or decree has become final and
nonappealable; provided that the party seeking to terminate the Merger
Agreement has used its reasonable best
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<PAGE> 37
efforts to prevent or contest the imposition of, or seek the lifting or
stay of, such injunction, order or decree;
(ii) unless the party seeking to terminate the Merger Agreement is
in material breach of its obligations under the Merger Agreement, if a
Merger Subsidiary or Regal breaches or fails to perform any of its
representations, warranties, covenants or other agreements under the
Merger Agreement, which breach or failure to perform (A) would give rise
to the failure of a condition to the Closing relating to its
representations and warranties or a condition to the Closing relating to
its covenants or other agreements and (B) is incapable of being cured by
the party so breaching or failing to perform or is not cured within 30
days after the terminating party gives written notice of such breach to
the other party and such a cure is not effected during such period;
(iii) if the Merger has not been consummated on or before May 31,
1998, unless the failure to consummate the Merger is the result of a
material breach of the Merger Agreement by the party seeking to
terminate the Merger Agreement; or
(iv) if, upon a vote at a duly held meeting of the shareholders of
Regal or any adjournment thereof, the approval of the Merger Agreement
by such shareholders is not obtained;
(c) by either Merger Subsidiary upon written notice to Regal:
(i) if the Regal Board or any committee thereof withdraws or
modifies in a manner adverse to the Merger Subsidiaries its approval or
recommendation of the Merger or the Merger Agreement, approves or
recommends any Takeover Proposal or resolves to do any of the foregoing;
or
(ii) if Regal enters into any agreement (other than a
confidentiality agreement in accordance with the provisions described
under "-- No Solicitation") with respect to a Superior Proposal or
resolves to do so; or
(d) by Regal, prior to the approval of the Merger Agreement by the
shareholders of Regal and subject to Regal's obligations described under
"-- Fees and Expenses", if the Regal Board receives a Superior Proposal,
but only at such time that is at least five business days after the receipt
by both Merger Subsidiaries of written notice advising them that the Regal
Board has resolved to accept such Superior Proposal and it continues to be
a Superior Proposal at the end of such five business day period.
FEES AND EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby will be paid by the party incurring such costs or expenses, except as
described below.
In the event that (i) the Merger Agreement is terminated by a Merger
Subsidiary as described in clause (c) under "-- Termination" above, (ii) the
Merger Agreement is terminated by Regal as described in clause (d) under
"-- Termination" above or (iii)(x) any person has made a bona fide Takeover
Proposal with respect to Regal after the date of the Merger Agreement and
thereafter the Merger Agreement is terminated by Regal as described in clause
(b)(iii) under "-- Termination" above or by either party as described in clause
(b)(iv) under "-- Termination" above and (y) within 12 months after such
termination a Takeover Agreement (as defined below) is executed by Regal or a
Takeover Transaction (as defined below) is consummated, then Regal will (A) pay
to the Merger Subsidiaries a fee (the "Termination Fee") of $28 million in the
aggregate for both Merger Subsidiaries (to be divided equally between the Merger
Subsidiaries) and (B) other than in the case of a termination described in
clause (b)(iv) under "-- Termination" above (which is addressed below),
reimburse the Merger Subsidiaries for the documented out-of-pocket fees and
expenses reasonably incurred thereby in connection with the Merger Agreement and
the transactions contemplated thereby (including those which may be incurred in
connection with enforcing the terms of these fee provisions) in an aggregate
amount for both Merger Subsidiaries, taken together, not in excess of $4 million
(the "Expenses"). For purposes of this paragraph, the term "Takeover
Transaction" means any transaction if a proposal to consummate such transaction
would constitute a Takeover Proposal, the term
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<PAGE> 38
"Takeover Agreement" means any letter of intent, agreement in principle,
acquisition agreement or similar agreement to consummate a Takeover Transaction
and the term "Takeover Proposal" has the meaning described under "-- No
Solicitation" above except that (1) references to "20%" in the definition of
such term contained in that section will be deemed to be references to "50%" and
(2) the term "Takeover Proposal" will only be deemed to refer to a transaction
involving Regal, or with respect to assets (including the shares of any
subsidiary), Regal and its subsidiaries taken as a whole. Notwithstanding the
immediately preceding sentence, if any bona fide Takeover Proposal (as defined
in this paragraph but without regard to clause (1) above) made by a person with
respect to Regal is made after the date of the Merger Agreement and Regal
accepts such proposal or any other Takeover Proposal (as defined in this
paragraph but without regard to clause (1) above) made by such person after the
termination of the Merger Agreement, then such accepted proposal will constitute
a "Takeover Proposal" for purposes of clause (iii) above.
In the event that the Merger Agreement is terminated by either party as
described in clause (b)(iv) under "-- Termination" above, then Regal will
reimburse the Merger Subsidiaries for the Expenses incurred to the date of
termination on the later of (i) the day that is two business days after such
termination and (ii) the day that is two business days after the delivery by the
Merger Subsidiaries to Regal of information relating to the Expenses. To the
extent the amount of the Expenses initially reimbursed as described in this
paragraph is less than $4 million the Merger Subsidiaries will be entitled to be
reimbursed for the Expenses, if any, thereafter incurred by them in connection
with enforcing their right to receive a Termination Fee pursuant to these fee
provisions, with such additional Expenses to be reimbursed concurrently with the
payment of any Termination Fee that may be due as described in clause (iii) of
the preceding paragraph (or, if later, two business days after the relevant
information relating to the Expenses is provided to Regal); provided that in no
event will the aggregate amount of the Expenses reimbursed to the Merger
Subsidiaries exceed $4 million.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto at any time
before or after approval of the Merger by the shareholders of Regal, provided
that after such approval, no amendment may be made which by law requires further
approval by such shareholders without such further approval. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties thereto.
At any time prior to the Effective Time, Regal or a Merger Subsidiary may,
to the extent legally allowed, (a) extend the time for the performance of any of
the obligations or other acts of the other party to the Merger Agreement, (b)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant thereto and (c) subject
to the provisions described in the preceding paragraph, waive compliance with
any of the agreements or conditions contained in the Merger Agreement. Any
agreement on the part of a party to the Merger Agreement to any such extension
or waiver will be valid only if set forth in a written instrument signed on
behalf of such party. The failure of any party to the Merger Agreement to assert
any of its rights under the Merger Agreement or otherwise will not constitute a
waiver of those rights.
EMPLOYEE BENEFITS; REGAL EQUITY PLANS
The Merger Agreement provides that following the Effective Time, the
Surviving Corporation will honor, or cause to be honored, all obligations under
employment agreements, Regal Benefit Plans and all other employee benefit plans,
programs, policies and arrangements of Regal in accordance with the terms
thereof. Nothing in the Merger Agreement prohibits the Surviving Corporation
from amending or terminating such agreements, programs, policies and
arrangements in accordance with the terms thereof and with applicable law.
The Merger Agreement also provides that, except as otherwise agreed by the
Merger Subsidiaries and the holders of Regal Stock Options with respect to such
options, as soon as practicable following the date of the Merger Agreement, the
Regal Board (or, if appropriate, any committee administering the Regal Stock
Plans) will adopt such resolutions or take other actions as may be required to
effect the cancelation of (A) all
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<PAGE> 39
outstanding Regal Stock Options and (B) all outstanding grants of Regal Common
Stock that are subject to a vesting requirement (the "Regal Restricted Stock")
in exchange for a cash payment equal to the following: (I) in the case of each
Regal Stock Option, the product of (x) the excess of the Merger Consideration
per share over the exercise price per share of Regal Common Stock subject to the
Regal Stock Option and (y) the number of shares of Regal Common Stock subject to
such Regal Stock Option and (II) in the case of each share of Regal Restricted
Stock, the Merger Consideration per share.
The Merger Agreement also provides that Regal will use reasonable efforts
to cooperate with the Merger Subsidiaries and to assist the Merger Subsidiaries
in entering into agreements with management personnel of Regal (other than the
Key Executives) to be designated by the Merger Subsidiaries in consultation with
the Chief Executive Officer of Regal (the "Designated Executives"), which
agreements will provide for the investment by such Designated Executives of
either 40% or 50% (depending on their respective positions) of the aggregate
value of the shares of Regal Common Stock (other than de minimis shareholdings)
and the unrealized gain on Regal Stock Options currently owned by the Designated
Executives in Regal or an entity controlling Regal after the Effective Time.
The Merger Agreement also provides that Regal will offer to purchase each
Regal Warrant for a purchase price equal to the product of (i) the differences
between $31.00 and the per share exercise price of such Regal Warrant and (ii)
the number of shares of Regal Common Stock which may be purchased pursuant to
such Regal Warrant.
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<PAGE> 40
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for
Regal as of and for each of its most recent five fiscal years. The consolidated
financial data for the most recent five fiscal years have been derived from
Regal's consolidated financial statements for such periods. This information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Regal's Supplemental
Consolidated Financial Statements and Notes thereto and Condensed Consolidated
Financial Statements and Notes thereto incorporated by reference herein.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED AND AT FISCAL YEAR END
--------------------------------------------------------------------
DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1,
1993 1994 1995 1997 1998
------------ ------------ ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues........................... $214,359 $265,005 $309,022 $389,193 $479,097
Operating income................... 22,147 28,412 41,110 58,196 67,870
Income before extraordinary item... 8,716 12,702 17,953 25,817 35,199
Extraordinary item net of tax:
Gain (loss) on extinguishment of
debt.......................... 190 (1,752) (448) (751) (10,020)
-------- -------- -------- -------- --------
Net income......................... 8,906 10,950 17,505 25,066 25,179
Dividends (Neighborhood and Georgia
State).......................... (739) (380) (433) (229) --
-------- -------- -------- -------- --------
Net income applicable to
common stock............... $ 8,167 $ 10,570 $ 17,072 $ 24,837 $ 25,179
======== ======== ======== ======== ========
Earnings per common share before
effects of extraordinary item:
Basic........................... $ 0.36 $ 0.43 $ 0.57 $ 0.76 $ 0.98
Diluted......................... 0.31 0.42 0.56 0.73 0.95
Earnings per common share:
Basic........................... 0.37 0.37 0.56 0.74 0.70
Diluted......................... 0.32 0.36 0.55 0.71 0.68
Weighted average shares and
equivalents outstanding:
Basic........................... 22,112 28,430 30,428 33,726 36,113
Diluted......................... 25,559 29,496 31,311 34,800 37,185
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets....................... $162,098 $252,630 $349,031 $488,825 $660,650
Long-term obligations, including
current maturities and
redeemable preferred stock...... 73,523 117,471 188,456 144,626 288,583
Total shareholders' equity.... 26,649 88,089 109,020 279,302 306,575
Book value per share at January 1,
1998............................ $ 8.49
</TABLE>
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<PAGE> 41
OWNERSHIP OF VOTING SECURITIES
The following table sets forth, as of March 31, 1998, information, with
respect to the beneficial ownership of shares of Regal Common Stock by (i) each
person known by Regal to beneficially own more than 5% of the outstanding Regal
Common Stock, (ii) each director of Regal, (iii) each of the Chief Executive
Officer and the five other most highly compensated executive officers of Regal,
(iv) the other executive officers of Regal, (v) each Key Executive and (vi) all
directors, executive officers and Key Executives of Regal as a group. Unless
otherwise indicated, each person or group has sole voting and investment power
with respect to such shares of Regal Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERS OWNERSHIP(1) CLASS
- ------------------------------------- ------------ ----------
<S> <C> <C>
Michael E. Gellert.......................................... 995,318(2) 2.7%
J. David Grissom............................................ 906, 999(3) 2.5%
Jack Tyrrell................................................ 107,829(4) *
Michael L. Campbell......................................... 1,174,319(5) 3.2%
R. Neal Melton.............................................. 617,599(6) 1.7%
Philip D. Borack............................................ 38,389(7) *
William H. Lomicka.......................................... 220,366(8) *
Herbert S. Sanger, Jr....................................... 32,000(9) *
Gregory W. Dunn............................................. 273,266(10) *
Lewis Frazer III............................................ 286,766(11) *
Robert A. Engel............................................. 226,781(12) *
R. Keith Thompson........................................... 152,926(13) *
Susan Seagraves............................................. 95,417(14) *
J. E. Henry................................................. 107,375(15) *
Robert J. Del Moro.......................................... 115,653(16) *
All directors, executive officers and Key Executives as a
group (15 persons)........................................ 5,351,003(17) 13.9%
</TABLE>
- ---------------
* less than one percent
(1) Pursuant to the rules of the SEC, certain shares of Regal Common Stock
which a beneficial owner has the right to acquire within 60 days of March
31, 1998, pursuant to the exercise of Regal Stock Options or Regal Warrants
are deemed to be outstanding for the purpose of computing the percentage of
ownership of such owner but are not deemed outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Mr. Gellert is a general partner of Windcrest Partners and, therefore, is
deemed to beneficially own the 861,170 shares of Regal Common Stock and the
76,316 shares of Regal Common Stock issuable upon the exercise of certain
Regal Warrants held by Windcrest Partners. Also includes 25,250 shares of
Regal Common Stock that would be acquired upon the exercise of Regal Stock
Options that may be exercisable within 60 days of March 31, 1998.
(3) Includes 58,682 shares of Regal Common Stock issuable upon the exercise of
certain Regal Warrants; 10,125 shares of Regal Common Stock held by
Longview Foundation, a not for profit corporation for which Mr. Grissom
serves as President; and 25,250 shares of Regal Common Stock that would be
acquired upon the exercise of Regal Stock Options that may be exercisable
within 60 days of March 31, 1998. Mr. Grissom disclaims beneficial
ownership of the shares of Regal Common Stock held by Longview Foundation.
Does not include certain shares of Regal Common Stock owned by Mr.
Grissom's wife of which Mr. Grissom disclaims beneficial ownership.
(4) Includes 11,750 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998. Does not include certain shares of Regal Common Stock
owned by Mr. Tyrell's wife, of which he disclaims beneficial ownership.
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<PAGE> 42
(5) Includes 897,214 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998. Mr. Campbell's former spouse has the right to receive
$6,848,003 in respect of such Regal Stock Options held by Mr. Campbell
under a pre-existing agreement between them. Of the 897,214 Regal Stock
Options owned by Mr. Campbell, 150,000 of such options have an exercise
price in excess of the $31.00 per share Merger Consideration and therefore
will have no value if the Merger is consummated.
(6) Includes 130,951 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998. 48,750 of the 130,951 Regal Stock Options owned by Mr.
Melton will be canceled if the Merger is consummated.
(7) Includes 1,375 shares of Regal Common Stock held by Mr. Borack's daughter
and 37,014 shares of Regal Common Stock that would be acquired upon the
exercise of Regal Stock Options that may be exercisable within 60 days of
March 31, 1998.
(8) Includes 23,457 shares of Regal Common Stock issuable upon the exercise of
certain Regal Warrants and 25,250 shares of Regal Common Stock that would
be acquired upon the exercise of Regal Stock Options that may be
exercisable within 60 days of March 31, 1998.
(9) Includes 16,875 shares of Regal Common Stock held for the benefit of Mr.
Sanger by The Trust Co. of Knoxville, Inc., trustee for Wagner, Myers &
Sanger, P.C. Money Purchase Pension Plan, and 15,125 shares of Regal Common
Stock that would be acquired upon the exercise of Regal Stock Options that
may be exercisable within 60 days of March 31, 1998.
(10) Includes 269,718 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998; 704 shares of Regal Common Stock held by Mr. Dunn's
spouse for the benefit of his two children; and 1,105 shares of Regal
Common Stock held by his spouse. Of the 269,718 Regal Stock Options owned
by Mr. Dunn, 50,000 of such options have an exercise price in excess of the
$31.00 per share Merger Consideration and therefore will have no value if
the Merger is consummated.
(11) Includes 285,143 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998. Of the 285,143 Regal Stock Options owned by Mr. Frazer,
50,000 of such options have an exercise price in excess of the $31.00 per
share Merger Consideration and therefore will have no value if the Merger
is consummated.
(12) Includes 149,496 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998 and 505 shares Regal Common Stock held by his spouse.
56,250 of the 149,496 Regal Stock Options owned by Mr. Engel will be
canceled if the Merger is consummated.
(13) Includes 150,064 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998. Of the 150,064 Regal Stock Options owned by Mr.
Thompson, 30,000 of such options have an exercise price in excess of the
$31.00 per share Merger Consideration and therefore will have no value if
the Merger is consummated.
(14) Includes 95,000 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998.
(15) Includes 107,375 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998. Of the 107,375 Regal Stock Options owned by Mr. Henry,
15,000 of such options have an exercise price in excess of the $31.00 per
share Merger Consideration and therefore will have no value if the Merger
is consummated.
(16) Includes 115,513 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998. Of the 115,513 Regal Stock Options owned by Mr. Del
Moro, 20,000 of such options have an exercise price in excess of the $31.00
per share Merger Consideration and therefore will have no value if the
Merger is consummated.
(17) Includes 2,340,113 shares of Regal Common Stock that would be acquired upon
the exercise of Regal Stock Options that may be exercisable within 60 days
of March 31, 1998 and 158,455 shares of Regal Common Stock issuable upon
the exercise of outstanding Regal Warrants.
37
<PAGE> 43
CERTAIN PENDING LITIGATION
As of the date of this Proxy Statement, Regal is aware of four lawsuits
that have been filed by alleged shareholders of Regal relating to the Merger.
Three of the lawsuits were filed in the Circuit Court for Knox County in
Knoxville, Tennessee (the "Knoxville Complaints"). The remaining lawsuit was
filed in the Chancery Court for Davidson County, in Nashville, Tennessee (the
"Nashville Complaint"). The four lawsuits have been ordered to be consolidated
into a single lawsuit in the Circuit Court for Knox County in Knoxville,
Tennessee. Each of the lawsuits names Regal, its directors, KKR and Hicks Muse
as defendants. The plaintiff in each lawsuit seeks to represent a putative class
of all public holders of Regal Common Stock.
The complaints allege, among other things, that the directors of Regal
breached their fiduciary duties to Regal and/or Regal's public shareholders by
approving the Merger. The Knoxville Complaints seek, among other things,
preliminary injunctive relief prohibiting consummation of the Merger as
presently proposed and permanent injunction relief requiring the Regal Board to
obtain a higher price for the shares to be converted as part of the Merger
and/or to inquire of parties other than KKR and Hicks Muse regarding the same.
The Nashville Complaint seeks, among other things, preliminary and permanent
injunctive relief prohibiting consummation of the Merger and a declaration that
the directors have breached their fiduciary duties by approving the Merger. The
complaints also seek unspecified damages, attorneys's fees and other relief.
Regal intends to contest these actions vigorously.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement includes "forward-looking statements" within the
meaning of various provisions of the Securities Act of 1933 and the Exchange
Act. All statements, other than statements of historical facts, included in this
Proxy Statement that address activities, events or developments that Regal
expects or anticipates will or may occur in the future, including such things as
future capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of Regal's and its subsidiaries' business and operations,
plans, references to future success and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by Regal in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. However, whether actual future
results and developments will conform with Regal's expectations and predictions
is subject to a number of risks and uncertainties, including the significant
considerations discussed in this Proxy Statement; general economic, market or
business conditions; the opportunities (or lack thereof) that may be presented
to and pursued by Regal and its subsidiaries; competitive actions by other
motion picture exhibition companies; changes in laws or regulations; and other
factors, many of which are beyond the control of Regal and its subsidiaries.
Consequently, all of the forward-looking statements made in this Proxy Statement
are qualified by these cautionary statements and there can be no assurance that
the actual results or developments anticipated by Regal will be realized or,
even if substantially realized, that they will have the expected consequences to
or effects on Regal and its subsidiaries or their business or operations.
The cautionary statements contained or referred to in this section should
be considered in connection with any subsequent written or oral forward-looking
statements that may be issued by Regal or persons acting on its behalf. Regal
does not undertake any obligation to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Regal at January 1, 1998, and
January 2, 1997, and for each of the three years in the period ended January 1,
1998, incorporated by reference herein have been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated in their report thereon incorporated
by reference herein and is incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing.
38
<PAGE> 44
The report of Coopers & Lybrand L.L.P., with respect to Regal's
consolidated financial statements makes reference to the fact that separate
financial statements of Cobb Theatres, L.L.C., including the Consolidated
Balance Sheet as of December 31, 1996, and the Consolidated Statements of Income
and Cash Flows for the year ended December 31, 1996, were audited by Ernst &
Young L.L.P., independent auditors, as stated in their report dated July 2,
1997. The report of Coopers & Lybrand L.L.P., with respect to Regal's
consolidated financial statements, also makes reference to the fact that
separate financial statements of Cobb Theatres, L.L.C., including Consolidated
Statements of Income, Members' Equity and Cash Flows for each of the two years
in the period ended August 31, 1996, were audited by Ernst & Young LLP,
independent auditors, as stated in their report dated October 23, 1996. The
financial statements of Cobb Theatres L.L.C. referred to above, audited by Ernst
& Young, LLP, are included in the consolidated financial statements of Regal in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
SHAREHOLDER PROPOSALS
Proposals submitted by shareholders of Regal for presentation at the 1998
Annual Meeting of Shareholders, to be held if the Merger has not been
consummated prior thereto, must have been received by the Secretary of Regal not
later than November 28, 1997, for inclusion in the proxy statement and form of
proxy relating to the 1998 Annual Meeting of Shareholders.
WHERE YOU CAN FIND MORE INFORMATION
Regal files annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information that the companies file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at (800) SEC-0330 for further information on the public reference rooms. Regal
public filings are also available to the public from commercial document
retrieval services and at the Internet World Wide Web site maintained by the SEC
at "http://www.sec.gov". Reports, proxy statements and other information
concerning Regal also may be inspected at the offices of the National
Association of Securities Dealers, 1735 K Street, Washington, D.C., 20006.
The SEC allows Regal to "incorporate by reference" information into this
Proxy Statement, which means that Regal can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this Proxy
Statement, except for any information superseded by information contained
directly in the Proxy Statement. This Proxy Statement incorporates by reference
the documents set forth below that Regal has previously filed with the SEC.
These documents contain important information about Regal and its financial
condition.
<TABLE>
<CAPTION>
REGAL SEC FILINGS (FILE NO. 0-21772) PERIOD
- ------------------------------------ ------
<S> <C>
Annual Report on Form 10-K........... Fiscal year ended January 1, 1998
Current Report on Form 8-K........... Dated January 20, 1998.
</TABLE>
Regal incorporates by reference additional documents that Regal may file
with the SEC between the date of this Proxy Statement and the date of the
Special Meeting. These include periodic reports, such as Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as
proxy statements.
39
<PAGE> 45
If you are a shareholder, Regal may have sent you some of the documents
incorporated by reference, but you can obtain any of them through Regal, or the
SEC or the SEC's Internet World Wide Web site described above. Documents
incorporated by reference are available from Regal without charge, excluding all
exhibits unless specifically incorporated by reference as exhibits in this Proxy
Statement. Shareholders may obtain documents incorporated by reference in this
Proxy Statement by requesting them in writing or by telephone from Regal at the
following address:
REGAL CINEMAS, INC.
Attention: Lewis Frazer III
7132 Commercial Park Drive
Knoxville, Tennessee 37918
(423) 922-1123
If you would like to request documents from Regal, please do so by May 11,
1998 to receive them before the Special Meeting. If you request any incorporated
documents from us we will mail them to you by first class mail, or other equally
prompt means, within one business day of receipt of your request.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING.
REGAL HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT
IS DATED APRIL 16, 1998. YOU SHOULD NOT ASSUME THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING
OF THIS PROXY STATEMENT TO SHAREHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE
CONTRARY.
40
<PAGE> 46
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERMS PAGE
- ----- ----
<S> <C>
Aggressive Case............................................. 16
Antitrust Division.......................................... 21
Articles of Merger.......................................... 22
Cause....................................................... 19
Certificates................................................ 23
Closing..................................................... 12
Closing Date................................................ 19
Cobb Subsidiaries........................................... 26
Code........................................................ 17
Commitment Letter........................................... 31
Debt Tender Offer........................................... 24
Designated Executives....................................... 34
EBITDA...................................................... 16
Effective Time.............................................. 8
Employment Agreements....................................... 18
Engagement Letter........................................... 17
Enterprise Value............................................ 16
EPS......................................................... 15
Equity Interests............................................ 19
Exchange Act................................................ 30
Exchange Fund............................................... 23
Expenses.................................................... 32
Financing Letters........................................... 31
Funds....................................................... 10
FTC......................................................... 21
GAAP........................................................ 25
Goldman Sachs............................................... 10
Good Reason................................................. 19
Hicks Muse.................................................. 10
Hicks Muse Fund............................................. 10
Hicks Muse Merger Subsidiary................................ 8
Highly Confident Letter..................................... 31
HSR Act..................................................... 21
IBES........................................................ 15
IBES Share Prices........................................... 15
Indemnified Persons......................................... 21
IRS......................................................... 18
Key Executives.............................................. 19
KKR......................................................... 10
KKR Fund.................................................... 10
KKR Merger Subsidiary....................................... 8
Knoxville Complaints........................................ 38
LBO......................................................... 16
LBO Sensitivity Case One.................................... 16
LBO Sensitivity Case Two.................................... 16
LTM......................................................... 16
Management Projections...................................... 15
Management Share Prices..................................... 15
Material Adverse Effect..................................... 24
Merger...................................................... 8
</TABLE>
41
<PAGE> 47
<TABLE>
<CAPTION>
TERMS PAGE
- ----- ----
<S> <C>
Merger Agreement............................................ 8
Merger Consideration........................................ 8
Merger Subsidiaries......................................... 8
Morgan Stanley.............................................. 14
Nashville Complaint......................................... 38
New Options................................................. 20
Paying Agent................................................ 23
Record Date................................................. 8
Regal....................................................... 8
Regal Benefit Plan.......................................... 25
Regal Board................................................. 8
Regal Capital Budget........................................ 25
Regal Common Stock.......................................... 8
Regal Option Value.......................................... 20
Regal Restricted Stock...................................... 34
Regal Stock Options......................................... 20
Regal Stock Plans........................................... 20
Regal Subordinated Notes.................................... 24
Regal Warrant Offer......................................... 20
Regal Warrants.............................................. 20
SEC......................................................... 24
Selected Transactions....................................... 16
Senior Subordinated Notes................................... 31
Special Meeting............................................. 8
Superior Proposal........................................... 29
Surviving Corporation....................................... 8
Takeover Agreement.......................................... 33
Takeover Proposal........................................... 29
Takeover Transaction........................................ 32
Term........................................................ 18
Termination Fee............................................. 32
</TABLE>
42
<PAGE> 48
ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 19, 1998
AMONG
REGAL CINEMAS, INC.,
SCREEN ACQUISITION CORP.
AND
MONARCH ACQUISITION CORP.
================================================================================
<PAGE> 49
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger.................................................. A-1
SECTION 1.02. Closing..................................................... A-1
SECTION 1.03. Effective Time.............................................. A-1
SECTION 1.04. Effects of the Merger....................................... A-2
SECTION 1.05. Articles of Incorporation and By-laws....................... A-2
SECTION 1.06. Directors................................................... A-2
SECTION 1.07. Officers.................................................... A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock..................................... A-2
SECTION 2.02. Exchange of Certificates.................................... A-3
SECTION 2.03. The Debt Offer.............................................. A-4
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Company............... A-5
SECTION 3.02. Representations and Warranties of the Holdcos............... A-12
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Covenants of the Company.................................... A-14
SECTION 4.02. Covenants of Holdcos........................................ A-16
SECTION 4.03. No Solicitation............................................. A-16
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Proxy Statement.......................... A-17
SECTION 5.02. Access to Information....................................... A-18
SECTION 5.03. Company Stockholders Meeting................................ A-18
SECTION 5.04. Reasonable Best Efforts..................................... A-18
SECTION 5.05. Benefits Matters............................................ A-19
SECTION 5.06. Stock-Based Compensation.................................... A-19
SECTION 5.07. Fees and Expenses........................................... A-19
SECTION 5.08. Indemnification, Exculpation and Insurance.................. A-20
SECTION 5.09. Financing................................................... A-21
SECTION 5.10. Transfer Taxes.............................................. A-21
SECTION 5.11. Resignation of Directors.................................... A-21
SECTION 5.12. Solvency at Closing......................................... A-21
SECTION 5.13. Investment by Management Personnel.......................... A-21
SECTION 5.14. Company Warrants............................................ A-21
</TABLE>
<PAGE> 50
CONTENTS, PAGE 2
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation To Effect the
Merger...................................................... A-21
SECTION 6.02. Conditions to Obligation of the Holdcos To Effect the
Merger...................................................... A-22
SECTION 6.03. Conditions to Obligation of the Company To Effect the
Merger...................................................... A-23
SECTION 6.04. Frustration of Closing Conditions........................... A-23
ARTICLE VII
TERMINATION AND AMENDMENT
SECTION 7.01. Termination................................................. A-23
SECTION 7.02. Effect of Termination....................................... A-24
SECTION 7.03. Amendment................................................... A-24
SECTION 7.04. Extension; Waiver........................................... A-24
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver... A-24
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties............... A-25
SECTION 8.02. Notices..................................................... A-25
SECTION 8.03. Definitions; Interpretation................................. A-26
SECTION 8.04. Counterparts................................................ A-27
SECTION 8.05. Entire Agreement; No Third-Party Beneficiaries; Rights of
Ownership................................................... A-27
SECTION 8.06. Governing Law............................................... A-27
SECTION 8.07. Publicity................................................... A-27
SECTION 8.08. Assignment.................................................. A-27
SECTION 8.09. Enforcement................................................. A-27
SECTION 8.10. Several Obligations......................................... A-28
</TABLE>
<PAGE> 51
AGREEMENT AND PLAN OF MERGER dated as of January 19, 1998 (this
"Agreement"), among REGAL CINEMAS, INC., a Tennessee corporation (the
"Company"), SCREEN ACQUISITION CORP., a Delaware corporation ("Holdco I"), and
MONARCH ACQUISITION CORP., a Delaware corporation ("Holdco II", and together
with Holdco I, the "Holdcos").
WHEREAS the respective Boards of Directors of each Holdco and the Company
have approved the mergers of each Holdco with and into the Company (together,
the "Merger"), upon the terms and subject to the conditions set forth in this
Agreement, whereby each issued and outstanding share of common stock, no par
value, of the Company ("Company Common Stock") not owned by either Holdco or by
the Company will be converted into the right to receive $31.00 in cash;
WHEREAS all of the issued and outstanding common stock, par value $.01 per
share, of Holdco I ("Holdco I Common Stock") is owned by KKR 1996 Fund L.P. (the
"KKR Fund") or an affiliate thereof;
WHEREAS all of the issued and outstanding common stock, par value $.01 per
share, of Holdco II ("Holdco II Common Stock" and, together with Holdco I Common
Stock, "Holdco Common Stock") is owned by Hicks, Muse, Tate & Furst Equity Fund
III, L.P. (the "HMTF Fund" and, together with the KKR Fund, the "Funds") or an
affiliate thereof;
WHEREAS the Merger requires the approval of this Agreement by the
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock (the "Company Stockholder Approval"); and
WHEREAS the Holdcos and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Tennessee Business
Corporation Act (the "TBCA") and the Delaware General Corporation Law (the
"DGCL"), each Holdco shall be merged with and into the Company at the Effective
Time (as defined in Section 1.03). Following the Merger, the separate corporate
existence of each Holdco shall cease and the Company shall continue as the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of each Holdco in accordance with the TBCA
and the DGCL. If a Holdco shall assign its rights under this Agreement as
permitted by Section 8.08, then the parties hereto shall enter into a reasonable
and appropriate amendment to this Agreement to reflect such assignment and the
substitution of the assignee as Holdco I or Holdco II, respectively, for
purposes of this Agreement.
SECTION 1.02. Closing. Unless this Agreement shall have been terminated
and the transactions contemplated herein abandoned pursuant to Section 7.01, and
subject to the satisfaction or waiver of the conditions set forth in Article VI,
the closing of the Merger (the "Closing") will take place at 10:00 a.m. on a
date to be specified by the parties, which shall be no later than the second
business day following the satisfaction or waiver of all the conditions set
forth in Article VI which by their terms are capable of being satisfied prior to
the Closing (the "Closing Date"), at the offices of Cravath, Swaine & Moore,
Worldwide Plaza, 825 Eighth Avenue, New York, NY 10019, unless another time,
date or place is agreed to by the parties hereto.
SECTION 1.03. Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on the Closing Date, articles of merger and all other
appropriate documents (in any such case, the "Articles of Merger") shall be duly
prepared, executed, acknowledged and filed by the parties in accordance with the
<PAGE> 52
relevant provisions of the TBCA and the DGCL with the Secretary of State of the
State of Tennessee and the Secretary of State of the State of Delaware,
respectively. The Merger shall become effective upon the filing of the Articles
of Merger with the Secretary of State of the State of Tennessee and the
Secretary of State of the State of Delaware or at such time thereafter as is
provided in the Articles of Merger (the time the Merger becomes effective being
hereinafter referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 21-108 of the TBCA and Section 259 of the DGCL.
SECTION 1.05. Articles of Incorporation and By-laws. (a) The charter of
the Company as in effect immediately prior to the Effective Time shall be the
charter of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
(b) The by-laws of the Company as in effect immediately prior to the
Effective Time shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.06. Directors. The directors of each Holdco at the Effective
Time shall be the directors of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
SECTION 1.07. Officers. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Company, either Holdco
or the holders of Company Common Stock or any shares of capital stock of either
Holdco:
(a) Cancelation of Certain Stock. Each share of Company Common Stock
that is owned by either Holdco or by the Company (other than those held in
connection with the Company Stock Plans (as defined in Section 3.01(b))
shall automatically be canceled and retired and shall cease to exist and no
consideration shall be delivered in exchange therefor.
(b) Conversion of Company Common Stock. Each issued and outstanding
share of Company Common Stock (other than shares to be canceled in
accordance with Section 2.01(a)) shall be converted into the right to
receive from the Surviving Corporation following the Merger an amount in
cash equal to $31.00 (the "Merger Consideration").
(c) Cancelation and Retirement of Company Common Stock. All shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares referred to in Section 2.01(a), which
shall be canceled and retired in connection therewith) shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of
Company Common Stock shall cease to have any rights with respect thereto
except the right to receive the Merger Consideration, without interest
thereon.
(d) Holdco I Capital Stock. Each share of Holdco I Common Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of Common Stock of the Surviving Corporation, no
par value ("Surviving Corporation Common Stock").
(e) Holdco II Capital Stock. Each share of Holdco II Common Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of Surviving Corporation Common Stock.
A-2
<PAGE> 53
SECTION 2.02. Exchange of Certificates. (a) Paying Agent. Prior to the
Effective Time, the Holdcos shall appoint a bank or trust company that is
reasonably satisfactory to the Company to act as paying agent (the "Paying
Agent") for the payment of the Merger Consideration. As of the Effective Time,
the Surviving Corporation shall deposit with the Paying Agent, for the benefit
of the holders of shares of Company Common Stock, cash in an amount sufficient
to pay the Merger Consideration required to be paid pursuant to Section 2.01 in
exchange for outstanding shares of Company Common Stock (such cash being
hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable (and in any
event no later than ten days) after the Effective Time, the Surviving
Corporation shall cause the Paying Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates")
whose shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.01(b) (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Paying Agent
and which shall be in customary form and contain customary provisions) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Each holder of record of a Certificate shall, upon
surrender to the Paying Agent of such Certificate, be entitled to receive in
exchange therefor the amount of cash which the number of shares of Company
Common Stock previously represented by such Certificate has been converted into
the right to receive pursuant to Section 2.01(b), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of Company Common Stock which is not registered in the transfer records of the
Company, payment of the Merger Consideration may be made to a person (as defined
in Section 8.03) other than the person in whose name the Certificate so
surrendered is registered if, and only if, such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
as contemplated by this Section 2.02, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration which the holder thereof has the right to
receive in respect of such Certificate pursuant to this Article II. No interest
shall be paid or will accrue on any cash payable to holders of Certificates
pursuant to the provisions of this Article II.
(c) No Further Ownership Rights in Company Common Stock. All cash paid
upon the surrender therefor of Certificates in accordance with the terms of this
Article II shall be deemed to have been paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock exchanged for cash theretofore
represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by the Company on such shares of Company Common Stock which remain unpaid
at the Effective Time, and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of
Company Common Stock which were outstanding immediately prior to the Effective
Time, and if after the Effective Time such Certificates are presented to the
Company for transfer, they shall be canceled against delivery for cash as
provided in this Article II.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to the Surviving Corporation, upon demand,
and any holders of the Certificates who have not theretofore complied with this
Article II shall thereafter look only to the Surviving Corporation (as general
creditors thereof) for payment of their claim for Merger Consideration.
(e) No Liability. None of the Company, either Holdco, the Surviving
Corporation or the Paying Agent shall be liable to any person in respect of any
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Certificate shall
not have been surrendered prior to two years after the Effective Time (or
immediately prior to such earlier date on which any Merger Consideration would
otherwise escheat to or become the property of any Governmental Entity (as
defined in Section 3.01(c)), any such Merger Consideration shall, to the extent
permitted by applicable law,
A-3
<PAGE> 54
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(f) Investment of Exchange Fund. The Paying Agent shall invest any cash
included in the Exchange Fund as directed by the Surviving Corporation, provided
that such investment shall be in (i) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof and having maturities of not more than one month from
the date of investment, (ii) certificates of deposit, eurodollar time deposits
and bankers' acceptances with maturities not exceeding one month and overnight
bank deposits with any commercial bank, depository institution or trust company
incorporated or doing business under the laws of the United States of America,
any state thereof or the District of Columbia, provided that such commercial
bank, depository institution or trust company has, at the time of investment,
(A) capital and surplus exceeding $250,000,000 and (B) outstanding short-term
debt securities which are rated at least A-1 by Standard & Poor's Rating Group
Division of The McGraw-Hill Companies, Inc. or at least P-1 by Moody's Investors
Services, Inc., (iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clauses (i) and (ii)
above entered into with any financial institution meeting the qualifications
specified in clause (ii) above, (iv) commercial paper having a rating in the
highest rating categories from Standard & Poor's Rating Group Division of The
McGraw-Hill Companies, Inc. or Moody's Investors Services, Inc. and in each case
maturing within one month from the date of investment and (v) money market
mutual or similar funds having assets in excess of $1,000,000,000. Any interest
and other income resulting from such investments shall be paid to the Surviving
Corporation.
(g) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
and customary amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Paying Agent shall deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect thereto.
(h) Withholding Rights. The Surviving Corporation shall be entitled to
deduct and withhold from the consideration otherwise payable to any holder of
Company Common Stock pursuant to this Agreement such amounts as may be required
to be deducted and withheld with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or under any provision
of state, local or foreign tax law.
SECTION 2.03. The Debt Offer. (a) Provided that this Agreement shall not
have been terminated in accordance with Section 7.01, the Company shall, as soon
as practicable after receiving a written request (the "Debt Offer Request") by
both Holdcos to do so (but in no event earlier than 20 days after the date
hereof), commence an offer to purchase all of the Company's 8 1/2% Senior
Subordinated Notes due 2007 (the "Subordinated Notes") on the terms set forth in
Section 2.03 of the Company Disclosure Schedule (as defined in Section 3.01) and
such other customary terms and conditions as are reasonably acceptable to the
Holdcos (the "Debt Offer"). The Company shall waive any of the conditions to the
Debt Offer and make any other changes in the terms and conditions of the Debt
Offer as may be reasonably requested by both Holdcos, and the Company shall not,
without the Holdcos' prior consent, waive any condition to the Debt Offer, make
any changes to the terms and conditions of the Debt Offer set forth in Section
2.03 of the Disclosure Schedule or make any other changes to the terms and
conditions of the Debt Offer. Notwithstanding anything in this Agreement,
including the immediately preceding sentence, to the contrary, (i) the Holdcos
shall not request that the Company make any change to the terms or conditions of
the Debt Offer which decreases the price per Subordinated Note payable in the
Debt Offer, changes the form of consideration payable in the Debt Offer (other
than by adding consideration) or imposes conditions to or changes any of the
terms of the Debt Offer in any manner that is adverse to holders of the
Subordinated Notes or which would be reasonably likely to prevent or materially
delay the Closing (it being agreed that a request by the Holdcos that the
Company waive any condition in whole or in part at any time and from time to
time in its sole discretion shall not be deemed to be adverse to any holder of
Subordinated Notes), in any such case unless such change was previously approved
by the Company in writing, and the Company shall not be required to make any
such
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change and (ii) the Company shall not be required to accept for payment or pay
for any Subordinated Notes prior to the Closing.
(b) Promptly following the date of this Agreement, the Company shall
prepare, subject to advice and comments of the Holdcos, an offer to purchase the
Subordinated Notes (or portions thereof) and forms of the related letter of
transmittal (the "Letter of Transmittal") (collectively, the "Offer to
Purchase"), as well as all other information and exhibits required in connection
therewith (collectively, the "Offer Documents"). All mailings to the holders of
Subordinated Notes in connection with the Debt Offer shall be subject to the
prior review, comment and approval (which will not be unreasonably withheld) of
the Holdcos. The Company will use its reasonable best efforts to cause the Offer
Documents to be mailed to the holders of the Subordinated Notes as promptly as
practicable following commencement of the Debt Offer in accordance with Section
2.03(a). The Company agrees promptly to correct any information in the Offer
Documents that shall be or have become false or misleading in any material
respect.
(c) The Company covenants and agrees that if a Debt Offer Request has been
made on or prior to the twenty-fifth business day prior to May 31, 1998, subject
to the terms and conditions of this Agreement, including but not limited to the
conditions to the Debt Offer, on the Closing Date it will accept for payment the
Subordinated Notes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Company. Except as set
forth in the Company SEC Documents (as defined in Section 3.01(d)) filed and
publicly available prior to the date hereof (the "Company Filed SEC Documents")
or on the Disclosure Schedule delivered by the Company to each Holdco prior to
the execution of this Agreement (the "Company Disclosure Schedule"), the Company
represents and warrants to each Holdco as follows:
(a) Organization and Authority. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
organization, has all requisite corporate, company or partnership power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted and is duly qualified and in good standing
in each jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification necessary, except
where the failure thereof, individually or in the aggregate, would not have
a material adverse effect (as defined in Section 8.03(a)) on the Company.
The Company has made available to the Holdcos complete and correct copies
of its charter and by-laws and the charter and by-laws (or other
organizational documents) of each of its subsidiaries, in each case as
amended to the date of this Agreement.
(b) Capital Structure. The authorized capital stock of the Company
consists of 100,000,000 shares of Company Common Stock and 1,000,000 shares
of preferred stock, no par value, of the Company ("Company Preferred
Stock", and together with the Company Common Stock, the "Company Capital
Stock"). At the close of business on January 16, 1998, (A) 36,115,774
shares of Company Common Stock were outstanding, of which 8,375 shares
constituted shares of Company Restricted Stock (as defined in Section
5.06(a)), (B) no shares of Company Preferred Stock were outstanding, (C)
options to acquire 4,096,414 shares of Company Common Stock from the
Company pursuant to the 1993 Employee Stock Incentive Plan, the Regal
Cinemas, Inc. Employee Stock Option Plan, the Regal Cinemas, Inc.
Participant Stock Option Plan, and the 1993 Outside Directors Stock Option
Plan of the Company (the "Company Stock Plans") were outstanding, and (D)
warrants (the "Company Warrants") to acquire 158,455 shares of Company
Common Stock from the Company were outstanding. Other than as set forth
above, at the close of business on January 16, 1998, there were outstanding
no shares of Company Capital Stock or options, warrants or other rights to
acquire Company Capital Stock from the Company. Since January 16, 1998, (x)
there have been no issuances by the Company of shares of Company Capital
Stock other than issuances of shares of Company Common Stock pursuant to
the
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exercise of Company Stock Options (as defined in Section 5.06) outstanding
as of January 16, 1998, or the exercise of Company Warrants and (y) there
have been no issuances by the Company of options, warrants or other rights
to acquire capital stock from the Company except as expressly permitted by
this Agreement. No bonds, debentures, notes or other indebtedness having
the right to vote (or convertible into or exchangeable for securities
having the right to vote) on any matters on which stockholders of the
Company may vote are issued or outstanding. All outstanding shares of
Company Common Stock are, and any shares of Company Common Stock which may
be issued upon the exercise of Company Stock Options or Company Warrants
when issued will be, duly authorized, validly issued, fully paid and
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances, pledges or security interests (collectively, "Liens") and not
subject to preemptive rights. Other than as set forth above, and except for
this Agreement, the Company Stock Plans, the Company Stock Options and the
Company Warrants, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements or undertakings of any kind to which
the Company or any subsidiary of the Company is a party or by which the
Company or any subsidiary of the Company is bound obligating the Company or
any subsidiary of the Company to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other
equity or voting securities of the Company or of any subsidiary of the
Company or obligating the Company or any subsidiary of the Company to
issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement or undertaking. There are no outstanding
obligations of the Company or any of its subsidiaries to repurchase, redeem
or otherwise acquire any shares of capital stock of the Company or any of
its subsidiaries and, to the knowledge of the executive officers of the
Company, as of the date hereof, no irrevocable proxies have been granted
with respect to shares of Company Common Stock or equity of subsidiaries of
the Company. Section 3.01(b) of the Company Disclosure Schedule sets forth
all of the indebtedness for borrowed money or capitalized lease obligations
of the Company and its subsidiaries outstanding as of the date hereof
except for such indebtedness or capital leases with an aggregate principal
or capitalized amount not in excess of $2,000,000 individually or
$10,000,000 in the aggregate.
(c) Authorization. The Company has all requisite corporate power and
authority to enter into this Agreement and, subject to obtaining the
Company Stockholder Approval with respect to the Merger, to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, subject to obtaining the Company Stockholder Approval with respect
to the Merger. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer and other similar laws from time to time in
effect. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict
with, or result in any breach or violation of, or default (with or without
notice or lapse of time or both) under, or result in the termination of, or
accelerate the performance required by, or give rise to a right of
termination, cancelation or acceleration of any obligation under, or the
creation of a Lien pursuant to, (i) any provision of the charter (or
similar organizational documents) or by-laws of the Company or any
subsidiary of the Company or (ii) subject to obtaining or making the
consents, approvals, orders, authorizations, registrations, declarations
and filings referred to in the following sentence, any loan or credit
agreement, note, mortgage, indenture, lease, Company Benefit Plan (as
defined in Section 3.01(m)) or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or any
subsidiary of the Company or their respective properties or assets, in any
case under this clause (ii) which would, individually or in the aggregate,
have a material adverse effect on the Company. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental authority
or instrumentality (a "Governmental Entity") is required by or with respect
to the Company or any subsidiary of the Company in connection with the
execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby, the failure of
which to be
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obtained or made would, individually or in the aggregate, have a material
adverse effect on the Company or would prevent or materially delay the
consummation of the transactions contemplated hereby, except for (A) the
filing with the SEC of (i) a proxy statement relating to the consideration
of the Company Stockholder Approval at a meeting (the "Company Stockholders
Meeting") of the stockholders of the Company duly called and convened to
consider the approval of this Agreement (such proxy statement as amended or
supplemented from time to time, the "Proxy Statement") and (ii) such
reports under the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder (the "Exchange Act"), as may
be required in connection with this Agreement and the Merger, the Debt
Offer and the other transactions contemplated hereby, (B) the filing of the
Articles of Merger with the Secretary of State of the State of Tennessee
and appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business, (C) filings required
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR
Act"), (D) filings necessary to satisfy the applicable requirements of
state securities or "blue sky" laws and (E) those required under the rules
and regulations of the Nasdaq National Market ("Nasdaq") (collectively, the
"Required Filings").
(d) SEC Documents; Financial Statements. The Company has filed and
made available to the Holdcos a true and complete copy of each report,
schedule, registration statement and definitive proxy statement required to
be filed by the Company with the SEC since January 1, 1995 (the "Company
SEC Documents"). As of their respective dates, the Company SEC Documents
complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, applicable to such Company SEC
Documents. None of the Company SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Company
SEC Documents comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis ("GAAP")
during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC, or for normal year-end adjustments) and fairly present in
all material respects the consolidated financial position of the Company
and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods
then ended. Except as set forth in the Company Filed SEC Documents
(including any item accounted for in the financial statements contained in
the Company Filed SEC Documents or set forth in the notes thereto), as of
October 2, 1997, neither the Company nor any of its subsidiaries had, and
since such date neither the Company nor any of such subsidiaries has
incurred, any claims, liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, would have a material adverse effect on the Company (other than
claims, liabilities or obligations contemplated by this Agreement or
expressly permitted to be incurred pursuant to this Agreement).
(e) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i)
the Proxy Statement will, at the date it is first mailed to stockholders of
the Company or at the time of the Company Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (ii) the Offer Documents will, at the time the Offer
Documents or any amendments or supplements thereto are first published,
sent or given to holders of Subordinated Notes, as the case may be, or at
the time the Debt Offer is consummated, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that
in each case no representation or warranty is made by the Company with
respect to statements made or incorporated by reference therein based on
information supplied by either Holdco specifically for inclusion or
incorporation by reference therein. The Proxy Statement will comply as to
form in all material respects with the requirements of the Exchange Act,
except that in each case no representation
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or warranty is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied by either
Holdco specifically for inclusion or incorporation by reference therein.
(f) Absence of Certain Changes or Events. Since October 2, 1997, (i)
the Company and its subsidiaries have conducted their businesses only in
the ordinary course of business consistent with past practice in all
material respects, (ii) there has not occurred any change, effect, event,
occurrence or development that, individually or in the aggregate, would
have a material adverse effect on the Company and (iii) the Company has not
changed its fiscal year or its methods, principles or practices of
accounting in effect at October 2, 1997, except as required by changes in
GAAP, or altered or changed in any material respect its practices and
policies relating to the payment of film costs, accrued liabilities or
accounts payable or collection of box office or concession revenues.
(g) Compliance with Laws; Litigation. The Company and its
subsidiaries hold all permits, licenses, variances, exemptions,
authorizations, orders and approvals of all Governmental Entities (the
"Company Permits") that are required for them to own, lease or operate
their properties and assets and to carry on their businesses as presently
conducted, and there has occurred no default under any such Company Permit,
except for the lack of any Company Permit or for defaults under any Company
Permit which lack or default would not have a material adverse effect on
the Company. Except as disclosed in the Company Filed SEC Documents, the
Company and its subsidiaries are in compliance with all applicable
statutes, laws, ordinances, rules, orders and regulations of any
Governmental Entity except for any such noncompliance which would not have
a material adverse effect on the Company. As of the date hereof, there is
no suit, action or proceeding pending or, to the knowledge of the executive
officers of the Company or any subsidiary of the Company, threatened,
against the Company or any subsidiary of the Company that would,
individually or in the aggregate, have a material adverse effect on the
Company, nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against the Company or
any subsidiary of the Company having a material adverse effect on the
Company.
(h) Taxes. (i) (A) The Company and its subsidiaries have filed, or
have caused to be filed on their behalf, all tax returns required to be
filed by them (collectively, "Company Returns"), and as of the time of
filing, all the Company Returns were complete and accurate except to the
extent that any failure to file or any inaccuracies in any filed Company
Returns would not have a material adverse effect on the Company, (B) the
Company and its subsidiaries have paid or the Company has made adequate
reserves in its financial statements included in the Company Filed SEC
Documents (other than reserves for deferred income taxes established to
reflect differences between book basis and tax basis of assets and
liabilities) for all taxes payable by the Company and its subsidiaries
except to the extent that any failure to pay or reserve would not have a
material adverse effect on the Company, (C) the Company and its
subsidiaries have made or the Company will make provision in its financial
statements for all taxes payable for any periods that end before the
Effective Time for which no Company Returns have yet been filed and for any
periods that begin before the Effective Time and end after the Effective
Time to the extent such taxes are attributable to the portion of any such
period ending at the Effective Time except to the extent that any failure
to make such provision would not have a material adverse effect on the
Company, (D) neither the Company nor any subsidiary has requested any
extension of time within which to file or send any Company Return, which
Company Return has not since been filed or sent, except to the extent that
any such request for an extension would not have a material adverse effect
on the Company, (E) no deficiency for any taxes has been proposed, asserted
or assessed in writing against the Company or any of its subsidiaries
except to the extent that any such deficiency would not have a material
adverse effect on the Company, (F) the Federal income tax returns of the
Company or any consolidated group to which it belongs have been examined by
and settled with the United States Internal Revenue Service (the "IRS") for
all years through 1994, (G) no claim for unpaid taxes has become a lien or
encumbrance of any kind against the property of the Company or any of its
subsidiaries or is being asserted against the Company or any of its
subsidiaries except to the extent that any such lien or encumbrance would
not have, individually or in the aggregate, a material adverse effect on
the Company,
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(H) neither the Company nor any of its subsidiaries is a party to or is
otherwise bound by (or has any assets bound by) any tax sharing agreement,
tax indemnity obligation or similar agreement or arrangement, (I) neither
the Company nor any of its subsidiaries has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in section 897(c)(1)(A)(ii) of
the Code and (J) each of the Company and its subsidiaries has duly and
timely withheld from employee salaries, wages and other compensation and
paid over to the appropriate tax authorities all taxes required to be so
withheld and paid over for all periods for which the statutory period of
limitations for the assessment of tax has not yet expired except to the
extent that any failure to so withhold and pay over would not have a
material adverse effect on the Company.
(ii) For the purpose of this Agreement, the term (A) "tax" (including,
with correlative meaning, the terms "taxes" and "taxable") shall include,
except where the context otherwise requires, all Federal, state, local,
provincial and foreign income, profits, franchise, gross receipts, payroll,
sales, use, property, withholding, excise, occupancy and other taxes of any
nature whatsoever, together with all interest, penalties and additions
imposed with respect to such amounts and (B) "tax return" shall mean all
Federal, state, local, provincial and foreign tax returns, declarations,
statements, reports, schedules, forms and information returns and any
amended tax return relating to taxes.
(i) Certain Agreements. Neither the Company nor any of its
subsidiaries is in default under any material agreement, commitment, lease
or other instrument to which it or any of its properties is subject, and
there has not occurred any event that, with the giving of notice or the
lapse of time or both, would constitute such a default by the Company or
any of its subsidiaries or, to the knowledge of the executive officers of
the Company, a default thereunder by any other party thereto, except in all
cases where such defaults, individually or in the aggregate, would not have
a material adverse effect on the Company. Neither the Company nor any of
its subsidiaries is a party to any contract (other than leases) containing
any covenant restricting its ability to conduct its business as currently
conducted except for any such covenants that would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. Neither the
Company nor any of its subsidiaries is in breach in any material respect
under its charter, by-laws or other organizational documents.
(j) Properties. (i) Owned Real Property. Section 3.01(j)(i) of the
Company Disclosure Schedule sets forth a list of all material real property
owned by the Company or any of its subsidiaries (collectively, the "Owned
Real Property"). Except as disclosed in Section 3.01(j)(i) of the Company
Disclosure Schedule, each of the Company and its subsidiaries has good,
valid and marketable title to the Owned Real Property free of all Liens, in
each case except, individually or in the aggregate, as would have a
material adverse effect on the Company. Except as set forth in Section
3.01(j)(i) of the Company Disclosure Schedule, there are no outstanding
contracts for the sale of any of the Owned Real Property, except those
contracts relating to property the value in respect of which does not
exceed $5,000,000 individually or $15,000,000 in the aggregate.
(ii) Leased Real Property. Section 3.01(j)(ii) of the Company
Disclosure Schedule sets forth a list of all leases and subleases (the
"Real Property Leases") of the Company with respect to all material real
property which is leased or subleased by the Company or its subsidiaries
(the "Leased Real Property"; the Owned Real Property and the Leased Real
Property collectively, the "Real Property"). Pursuant to the Real Property
Leases, the Company and its subsidiaries hold good and valid leasehold
title to the Leased Real Property, in each case in accordance with the
provisions of the applicable Real Property Lease and free of all Liens, in
each case except, individually or in the aggregate, as would not have a
material adverse effect on the Company. Each of the Real Property Leases is
enforceable against the Company and, to the knowledge of the Company,
against the other party thereto, in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditor's
rights and to general equity principles and except for such failures to be
enforceable as would not, individually or in the aggregate, have a material
adverse effect on the Company. Other than such exceptions which would not
have a material adverse effect on the Company, all Real Property Leases are
in full force and effect and grant in all respects the leasehold estates or
rights of occupancy or use they purport to grant.
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(k) Environmental Matters. Except as disclosed in the Company Filed SEC
Documents, and except for items referred to below that would not, individually
or in the aggregate, have a material adverse effect on the Company:
(i) the Company and its subsidiaries hold and to the best knowledge of
the Company are in compliance with all Environmental Permits, and the
Company and its subsidiaries are otherwise in compliance with all
Environmental Laws;
(ii) none of the Company or its subsidiaries has received any
Environmental Claim, and none of the Company or its subsidiaries is aware
after reasonable inquiry, of any threatened Environmental Claim against the
Company or any of its subsidiaries;
(iii) none of the Company or its subsidiaries has entered into or
agreed to any consent decree, order or agreement under any Environmental
Law, and none of the Company or its subsidiaries is subject to any
judgment, decree or order relating to compliance with any Environmental Law
or to investigation, cleanup, remediation or removal of regulated
substances under any Environmental Law;
(iv) except in compliance with all applicable Environmental Laws there
are no (A) underground storage tanks, (B) polychlorinated biphenyls, (C)
ureaformaldehyde insulation, (D) sumps, (E) surface impoundments, (F)
landfills, or (G) Hazardous Materials present at any facility currently
owned, leased or operated by the Company or any of its subsidiaries that
would give rise to liability of the Company or any of its subsidiaries
under any Environmental Laws; and
(v) Hazardous Materials have not been generated, transported, treated,
stored, disposed of, released or threatened to be released at, on, from or
under any of the properties or facilities currently owned, leased or
operated by the Company or any of its subsidiaries in violation of any
Environmental Laws nor have Hazardous Materials been released at or from
any properties or facilities currently owned, leased or operated by the
Company or any of its subsidiaries.
For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" means any written notice, claim, demand, action,
suit, complaint, proceeding or other communication by any person alleging
liability or potential liability (including without limitation liability or
potential liability or investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property damage, personal injury,
fines or penalties) arising out of, relating to, based on or resulting from
(A) the presence, discharge, emission, release or threatened release of any
Hazardous Materials at any location, whether or not owned, leased or
operated by the Company or any of its subsidiaries or (B) circumstances
forming the basis of any violation or alleged violation of any
Environmental Law or Environmental Permit or (C) otherwise relating to
obligations or liabilities under any Environmental Laws.
"Environmental Laws" means all applicable federal, state and local
statutes, rules, regulations, ordinances, orders, decrees and other legally
binding requirements relating to contamination, pollution or protection of
human health or the environment, including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act, the
Solid Waste Disposal Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Emergency Planning and Community-Right-to-Know
Act, the Safe Drinking Water Act and the Occupational Safety and Health Act
(to the extent it regulates occupational exposure to Hazardous Materials),
all as amended, and comparable state laws.
"Environmental Permits" means all permits, licenses, registrations and
other governmental authorizations required under Environmental Laws for the
Company and its subsidiaries to conduct their operations and businesses.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum products, asbestos and asbestos-containing
materials, pollutants, contaminants and forces, including electromagnetic
fields, regulated pursuant to or forming the basis of liability under any
Environmental Law.
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(l) Labor Matters. As of the date hereof, (i) to the knowledge of the
Company there are no representation or certification proceedings, or petitions
seeking a representation proceeding pending or threatened to be brought or filed
with the National Labor Relations Board or any other labor relations tribunal or
authority and (ii) to the knowledge of the Company there are no organizing
activities or strikes involving the Company or any of its subsidiaries with
respect to any group of employees of the Company or its subsidiaries, in each
case that would be expected, individually or in the aggregate, to have a
material adverse effect on the Company.
(m) Benefit Plans. (i) Section 3.01(m) of the Company Disclosure Schedule
sets forth a true and complete list of all "employee benefit plans" (as defined
in Section 3(3) of ERISA) and all other compensation bonus, pension, profit
sharing, deferred compensation, stock ownership, stock purchase, stock option,
phantom stock, retirement, employment, change-in-control, welfare, collective
bargaining, severance, disability, death benefit, hospitalization and medical
plans, agreements, arrangements or understandings that are maintained or
contributed to (or previously contributed to) for the benefit of any current or
former employee, officer or director of the Company or any of its subsidiaries
and with respect to which the Company or any of its subsidiaries would
reasonably be expected to have direct or contingent liability (the "Company
Benefit Plans"). The Company has heretofore delivered or made available to the
Holdcos true and complete copies of all Company Benefit Plans and, with respect
to each Company Benefit Plan, true and complete copies of the following
documents: the most recent actuarial report, if any; the most recent annual
report, if any; any related trust agreement, annuity contract or other funding
instrument, if any; the most recent determination letter, if any; and the most
recent summary plan description, if any.
(ii) Except as disclosed in Section 3.01(m) of the Company Disclosure
Schedule: (A) none of the Company Benefit Plans is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA or is otherwise subject to
Title IV of ERISA; (B) none of the Company Benefit Plans promises or
provides retiree medical or life insurance benefits to any person; (C)
neither the Company nor any of its subsidiaries has any obligation to adopt
or has taken any corporate action to adopt, any new Company Benefit Plan
or, except as required by law, to amend any existing Company Benefit Plan;
(D) each Company Benefit Plan has been administered in compliance with its
terms and the applicable provisions of ERISA, the Code and all other
applicable laws, rules and regulations except for any failures to so
administer any Company Benefit Plan as would not have a material adverse
effect on the Company; (E) each Company Benefit Plan that is intended to be
qualified within the meaning of Section 401(a) of the Code is so qualified
and has received a favorable determination letter as to its qualification
and, to the Company's knowledge, nothing has occurred that would be
reasonably likely to cause the loss of such qualification; (F) neither the
Company nor any entity required to be treated as a single employer with the
Company under Section 414 of the Code has any unsatisfied liability under
Title IV of ERISA that would have a material adverse effect on the Company;
(G) other than funding obligations and benefits claims payable in the
ordinary course, no event has occurred and no circumstance exists with
respect to any Company Benefit Plan that could give rise to any liability
that would have a material adverse effect on the Company, whether directly
or by reason of its affiliation with any entity required to be treated as a
single employer with the Company under Section 414 of the Code; (H) as of
the date hereof there are no pending or, to the knowledge of the executive
officers of the Company, threatened investigations, claims or lawsuits in
respect of any Company Benefit Plan that would have a material adverse
effect on the Company; (I) no amount payable pursuant to a Company Benefit
Plan or any other plan, contract or arrangement of the Company would be
considered an "excess parachute payment" under Section 280G of the Code;
and (J) except as provided in Section 5.06(a) of this Agreement, no Company
Benefit Plan exists that could result in the payment to any current or
former employee, officer or director of the Company of any money or other
property or accelerate or provide any other rights or benefits as a result
of the transactions contemplated by this Agreement whether or not such
payment would constitute a parachute payment within the meaning of Section
280G of the Code.
(n) Subsidiaries. The Company has previously made available to the Holdcos
a list of all the subsidiaries of the Company as of the date of this Agreement
and their respective jurisdictions of organization. All the shares of capital
stock of each of the subsidiaries of the Company are duly authorized and issued,
fully
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paid and nonassessable and (except for directors' qualifying shares, if any) are
owned by the Company or another subsidiary of the Company free and clear of all
Liens. Except for the capital stock of its subsidiaries, the Company does not
own, directly or indirectly, any capital stock or other ownership interest in
any person.
(o) Vote Required. The Company Stockholder Approval is the only vote of
the holders of any class or series of the Company's securities necessary to
approve this Agreement and the transactions contemplated hereby (assuming for
purposes of this representation the accuracy of the representations contained in
Section 3.02(g)).
(p) Board Recommendation. On the date hereof, the Board of Directors of
the Company, at a meeting duly called and held, by the unanimous vote of the
directors present at such meeting, (i) determined that this Agreement and the
Merger and the other transactions contemplated hereby are fair to and in the
best interests of the stockholders of the Company, (ii) adopted this Agreement
and approved the Merger and (iii) resolved to recommend that the holders of
shares of Company Common Stock approve this Agreement.
(q) Tennessee Business Combination Act. Assuming the accuracy of the
representation and warranty of each Holdco contained in Section 3.02(g), the
approval of the Merger by the Board of Directors of the Company referred to in
Section 3.01(p) constitutes approval of the Merger for purposes of the TBCA and
represents all the actions necessary to ensure that Part 2 of Chapter 35 of the
TBCA does not apply to the Merger.
(r) Brokers. No broker, investment banker, financial advisor or other
person, other than Goldman Sachs & Co., the fees and expenses of which will be
paid by the Company, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. The Company's arrangements with Goldman Sachs & Co. have been
disclosed to the Holdcos prior to the date hereof.
(s) Opinion of Financial Advisor. The Company has received the opinion of
Goldman, Sachs & Co., dated as of the date hereof, to the effect that the
consideration to be received by holders of Company Common Stock in the Merger is
fair to such holders from a financial point of view.
SECTION 3.02. Representations and Warranties of the Holdcos. Except as set
forth on the Disclosure Schedules delivered by each Holdco to the Company prior
to the execution of this Agreement (each, a "Holdco Disclosure Schedule"), each
Holdco represents and warrants to the Company, severally and not jointly, and as
to itself only, as follows:
(a) Organization and Authority. Holdco is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted and is duly qualified and in good standing
in each jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification necessary, except
where the failure thereof would not have a material adverse effect on
Holdco.
(b) Capital Structure. The authorized capital stock of Holdco I
consists of 100 shares of Holdco I Common Stock; the authorized capital
stock of the Holdco II consists of 1,000 shares of Holdco II Common Stock;
and all of the authorized shares of common stock of Holdco I and 100 shares
of common stock of Holdco II have been issued, are fully paid and
nonassessable and are owned by the KKR Fund, in the case of the Holdco I
Common Stock, or the HMTF Fund, in the case of the Holdco II Common Stock,
or an affiliate of either thereof.
(c) Authorization. Holdco has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Holdco. This
Agreement has been duly executed and delivered by Holdco and constitutes a
valid and binding obligation of Holdco. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any breach or violation of, or
default (with or without notice or lapse of time or
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both) under, or result in the termination of, or accelerate the performance
required by, or give rise to a right of termination, cancelation or
acceleration of any obligation under, or the creation of a Lien pursuant
to, (i) any provision of the certificate of incorporation (or similar
constitutive documents) or by-laws of Holdco or (ii) subject to obtaining
or making the consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in the following sentence, any loan or
credit agreement, note, mortgage, indenture, lease or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Holdco or any subsidiary of Holdco or their respective properties or
assets, in any case under this clause (ii) which would have a material
adverse effect on Holdco. No consent, approval, order or authorization of,
or registration, declaration or filing with, any Governmental Entity is
required by or with respect to Holdco or any subsidiary of Holdco in
connection with the execution and delivery of this Agreement by Holdco or
the consummation by Holdco of the transactions contemplated hereby, the
failure of which to be obtained or made would have a material adverse
effect on Holdco, except for the Required Filings.
(d) Information Supplied. None of the information supplied or to be
supplied by Holdco for inclusion or incorporation by reference in (i) the
Proxy Statement will, at the date it is first mailed to stockholders of the
Company or at the time of the Company Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (ii) the Offer Documents will, at the time the Offer
Documents or any amendments or supplements thereto are first published,
sent or given to noteholders, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading,
except that in each case no representation or warranty is made by Holdco
with respect to statements made or incorporated by reference therein based
on information supplied by the Company or the other Holdco specifically for
inclusion or incorporation by reference therein.
(e) Subsidiaries. Holdco does not own, directly or indirectly, any
capital stock or other ownership interest in any person.
(f) Brokers. No broker, investment banker, financial advisor or other
person, other than Kohlberg Kravis Roberts & Co., in the case of Holdco I,
or Hicks, Muse & Co. Partners, L.P., in the case of Holdco II, the fees and
expenses of which will be paid by such Holdco, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Holdco.
(g) Ownership of Company Common Stock. Neither Holdco or Fund nor any
affiliate or associate (as such terms are defined under the Exchange Act)
thereof beneficially owns, directly or indirectly, any shares of Company
Common Stock or is a party to any agreement, arrangement or understanding
(other than this Agreement) for the purpose of acquiring, holding, voting
or disposing of any shares of Company Common Stock.
(h) Financing. Prior to the execution of this Agreement, Holdco has
delivered to the Company (A) a true and complete copy of each commitment
letter relating to the provision by The Bank of Nova Scotia and Bank of
America National Trust & Savings Association of all senior debt financing
required in connection with the Merger and all agreements, arrangements or
undertakings related to such commitment letters to which either Holdco or
either Fund or any affiliate thereof is a party and all schedules, annexes,
exhibits or other attachments to any thereof; (B) a true and complete copy
of each commitment letter relating to the provision by the Fund that is
affiliated with each Holdco of not less than $375 million of common equity
financing in connection with the Merger and all agreements, arrangements or
undertakings related to such commitment letters to which Holdco or such
Fund or any affiliate thereof is a party and all schedules, annexes,
exhibits or other attachments to any thereof; and (C) a "highly confident"
letter from Morgan Stanley & Co. Incorporated relating to the arrangement
of subordinated debt financing in connection with the transactions
contemplated hereby; in each case other than such documents relating solely
to fee arrangements in connection with such letters.
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(i) Absence of Certain Changes. Since the date hereof, there has not
occurred a material adverse effect on Holdco.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Covenants of the Company. During the period from the date of
this Agreement until the Effective Time, the Company agrees as to itself and its
subsidiaries that (except as expressly contemplated, required or permitted by
this Agreement or as set forth in the Company Disclosure Schedule):
(a) Ordinary Course. The Company and its subsidiaries shall carry on
their respective businesses only in the usual, regular and ordinary course
consistent with past practice in all material respects and use their
reasonable best efforts to preserve intact their present business
organizations, maintain their rights and franchises, keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their goodwill and ongoing businesses shall not
be impaired at the Effective Time. The Company shall not, nor shall it
permit any of its subsidiaries to, enter into any new line of business, or
incur or commit to any capital expenditures, or any obligations or
liabilities in connection with any capital expenditures, other than capital
expenditures and obligations or liabilities incurred or committed to that
are either (i) contemplated in the Company's current capital budget, a copy
of which has been furnished to the Holdcos prior to the date hereof (the
"Capital Budget") or (ii) not in excess of $15,000,000 individually or in
the aggregate.
(b) Dividends; Changes in Stock. The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it propose to, (i) declare,
set aside or pay any dividends on or make other distributions in respect of
any capital stock, (ii) adjust, split, combine or reclassify any capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for capital stock or (iii)
except for the Debt Offer and the purchase of Subordinated Notes, and
subject to Section 5.06 hereof, repurchase, redeem or otherwise acquire, or
permit any subsidiary to purchase or otherwise acquire, any shares of
capital stock or any debt securities, warrants or options, in each case
issued by the Company or any of its subsidiaries.
(c) Issuance of Securities. The Company shall not, nor shall it
permit any of its subsidiaries to, issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its or any of its
subsidiaries' capital stock of any class or any securities convertible into
or exchangeable for, or any rights, warrants or options to acquire, any of
the foregoing, or any other securities or equity equivalents (including
stock appreciation rights), or enter into any agreement with respect to any
of the foregoing, other than the issuance of Company Common Stock upon the
exercise of Company Stock Options or Company Warrants that are outstanding
on the date of this Agreement.
(d) Governing Documents. The Company shall not amend or propose to
amend, nor shall it permit any of its subsidiaries to amend, the charter
(or similar constitutive documents) or by-laws of the Company or any of its
subsidiaries.
(e) No Acquisitions. The Company shall not, nor shall it permit any
of its subsidiaries to, merge or consolidate with, or purchase an equity
interest in or a substantial portion of the assets of, any corporation,
partnership, association or other business organization or any division or
business thereof, if the aggregate amount of the consideration paid or
transferred by the Company in connection with all such transactions would
exceed $15,000,000.
(f) No Dispositions. The Company shall not, nor shall it permit any
of its subsidiaries to, sell, lease, mortgage, encumber or otherwise
dispose of, any material assets (including capital stock of subsidiaries).
(g) Indebtedness. The Company shall not, nor shall it permit any of
its subsidiaries to, incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities
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or warrants or rights to acquire any debt securities of the Company or any
of its subsidiaries or guarantee any debt securities of others or enter
into any "keepwell" or similar arrangement, other than revolving credit
borrowings or borrowings to fund capital expenditures contemplated by
Section 4.01(a), in each case under the Company's existing credit
agreement.
(h) Other Actions. The Company shall not, nor shall it permit any of
its subsidiaries to, take any action that would result in any of the
representations and warranties of the Company set forth in this Agreement
that are qualified as to materiality being untrue, any of such
representations and warranties that are not so qualified being untrue in
any material respect or any of the conditions to the Merger set forth in
Article VI not being satisfied.
(i) Advice of Changes; Filings. The Company shall advise the Holdcos
of any change or event which would cause or constitute a material breach of
any of the representations or warranties of the Company contained herein.
The Company shall file all reports required to be filed by it with the SEC
or Nasdaq between the date of this Agreement and the Effective Time and
shall deliver to the Holdcos copies of all such reports promptly after the
same are filed.
(j) Accounting Methods. The Company shall not change its fiscal year
or its methods, principles or practices of accounting in effect at October
2, 1997, except as required by changes in GAAP, or alter or change in any
material respect its practices and policies relating to the payment of film
costs, accrued liabilities or accounts payable or collection of box office
or concession revenues.
(k) Compensation; Benefit Plans. Neither the Company nor any of its
subsidiaries will (i) enter into, adopt, amend or terminate any Company
Benefit Plan or any other employee benefit plan or any agreement,
arrangement, plan or policy between such party and one or more of its
directors, officers or employees, except for any such actions taken in the
ordinary course of business consistent with past practice, (ii) increase in
any manner the compensation or fringe benefits of any of its directors,
officers or employees or provide any other benefit not required by any plan
and arrangement as in effect as of the date hereof, except for normal
salary compensation increases, benefit changes or cash bonus awards made in
the ordinary course of business consistent with past practice or (iii)
create or amend any Company Stock Plan or grant any equity based award
pursuant to any Company Stock Plan or otherwise.
(l) Discharges or Waivers of Claims. The Company shall not, nor shall
it permit any of its subsidiaries to, (i) except as set forth in clause
(iii) below, pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction of liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as
in effect on the date hereof, (ii) waive, release, grant, or transfer any
rights of material value or modify or change in any material respect any
existing license, lease, contract or other document, other than in the
ordinary course of business consistent with past practice, (iii) settle or
compromise any litigation (whether or not commenced prior to the date of
this Agreement) other than settlements or compromises of litigation where
the amount paid (after giving effect to insurance proceeds actually
received) in settlement or compromise does not exceed $1,000,000, provided
that the aggregate amount paid in connection with the settlement or
compromise of all such litigation matters shall not exceed $5,000,000.
(m) Leases and Lease Commitments. The Company shall not, nor shall it
permit any of its subsidiaries to, enter into or commit to enter into, or
assume, any operating or capital lease, other than (i) any such lease
contemplated by the Capital Budget or the Company's operating budget, a
copy of which has been provided to the Holdcos prior to the date hereof or
(ii) any such operating lease which is not material to the Company and its
subsidiaries, taken as a whole.
(n) Liquidation Plan, Etc. The Company shall not, nor shall it permit
any of its subsidiaries to, adopt a plan of complete or partial liquidation
or resolutions providing for or authorizing such a liquidation or a
dissolution, consolidation, recapitalization or bankruptcy reorganization.
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(o) Collective Bargaining Agreements. The Company shall not, nor
shall it permit any of its subsidiaries to, enter into any collective
bargaining agreement or any successor collective bargaining agreement to
any collective bargaining agreement.
(p) Affiliate Transactions. The Company shall not, nor shall it
permit any of its subsidiaries to, engage in any transaction with, or enter
into any agreement, arrangement, or understanding with, directly or
indirectly, any of the Company's affiliates, including, without limitation,
any transactions, agreements, arrangements or understandings with any
affiliate or other person covered under Item 404 of SEC Regulation S-K that
would be required to be disclosed under such Item 404 other than such
transactions of the same general nature, scope and magnitude as are
disclosed in the Company Filed SEC Documents.
(q) Tax Matters. The Company and its subsidiaries shall not make any
material income tax election, amend any material tax return or settle or
compromise any material tax liability.
(r) Cobb Subsidiaries. The Company shall not liquidate, or cause to
be liquidated, any of R.C. Cobb, Inc., Cobb Theatres II, Inc. or Cobb
Finance Corp. (the "Cobb Subsidiaries") and shall not merge, or cause to be
merged, any of the Cobb Subsidiaries with and into another corporation.
(s) No General Authorization, Etc. The Company shall not, nor shall
it permit any of its subsidiaries to, authorize any of, or commit or agree
to take any of, the foregoing actions.
SECTION 4.02. Covenants of Holdcos. During the period from the date of
this Agreement until the Effective Time, each Holdco agrees that:
(a) Other Actions. It shall not take any action that would result in
any of its representations and warranties set forth in this Agreement that
are qualified as to materiality being untrue, any of such representations
and warranties that are not so qualified being untrue in any material
respect or any of the conditions to the Merger set forth in Article VI not
being satisfied.
(b) Advice of Changes. It shall advise the Company of any change or
event which would cause or constitute a material breach of any of its
representations or warranties contained herein or which it believes will
result in any of the debt or equity financing necessary for the
consummation of the Merger and the other transactions contemplated hereby
not being available to it on terms comparable to those set forth in the
letters referred to in Section 3.02(h) prior to May 31, 1998.
SECTION 4.03. No Solicitation. (a) The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any officer,
director or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit, initiate, encourage or knowingly facilitate the
submission of any takeover proposal or (ii) enter into or participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, any takeover proposal; provided, however, that prior to the
receipt of the Company Stockholder Approval the Company may, in response to a
bona fide takeover proposal that constitutes a superior proposal (as defined in
Section 4.03(b)) and that was made after the date hereof (and not solicited by
the Company after the date hereof) by any person, and subject to compliance with
Section 4.03(c), (A) furnish information with respect to the Company and its
subsidiaries to such person and its representatives pursuant to a customary
confidentiality agreement and discuss such information with such person and its
representatives and (B) participate in negotiations regarding such takeover
proposal. For purposes of this Agreement (except as set forth in Section
5.07(b)), the term "takeover proposal" means any inquiry, proposal or offer from
any person relating to any direct or indirect acquisition or purchase of 20% or
more of the assets (based on the fair market value thereof) of the Company and
its subsidiaries, taken as a whole, other than the transactions contemplated by
this Agreement, or of 20% or more of any class of equity securities of the
Company or any of its subsidiaries or any tender offer or exchange offer
(including by the Company or any of its subsidiaries) that if consummated would
result in any person beneficially owning 20% or more of any class of equity
securities of the Company or any of its subsidiaries, or any merger,
consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries other than the transactions contemplated by
this Agreement. The Company will
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immediately cease and cause to be terminated any existing activities,
discussions and negotiations conducted heretofore with respect to any takeover
proposal.
(b) Except as set forth in this Section 4.03, the Board of Directors of the
Company shall not (i) withdraw or modify, or publicly propose to withdraw or
modify, in a manner adverse to the Holdcos, the approval or recommendation by
such Board of Directors of the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any takeover proposal or
(iii) cause or agree to cause the Company to enter into any letter of intent,
agreement in principle, acquisition agreement or similar agreement related to
any takeover proposal. Notwithstanding the foregoing, if the Board of Directors
of the Company receives a superior proposal, such Board of Directors may, prior
to the receipt of the Company Stockholder Approval and subject to compliance
with Section 5.07(b), withdraw or modify its approval or recommendation of the
Merger and this Agreement, approve or recommend a superior proposal or terminate
this Agreement, but in each case only at a time that is at least five business
days after receipt by both Holdcos of written notice advising them that the
Board of Directors of the Company has resolved to accept a superior proposal if
it continues to be a superior proposal at the end of such five business day
period. For purposes of this Agreement, the term "superior proposal" means any
bona fide takeover proposal (which, for purposes of Section 4.03(a) only, may be
subject to a due diligence condition), which proposal was not solicited by the
Company after the date hereof, made by a third party to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, more than
50% of the shares of Company Common Stock then outstanding or all or
substantially all the assets of the Company and its subsidiaries and otherwise
on terms which the Board of Directors of the Company determines in good faith
(after consultation with a financial advisor of nationally recognized
reputation) to be more favorable to the Company's stockholders than the Merger
and for which financing, to the extent required, is then committed or which, in
the good faith judgment of such Board of Directors, is reasonably capable of
being financed by such third party.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) above, the Company promptly shall advise the Holdcos orally and in
writing of any request for information or of any takeover proposal, the material
terms and conditions of such request or takeover proposal and the identity of
the person making any such request or takeover proposal and any determination by
the Board of Directors of the Company that a takeover proposal is or may be a
superior proposal. The Company will keep both Holdcos informed as to the status
and material details (including amendments or proposed amendments) of any such
request or takeover proposal.
(d) Nothing contained in this Section 4.03 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders if, in the good faith judgment of the Board of Directors
of the Company after consultation with outside counsel, failure to do so would
be inconsistent with its obligations under applicable law.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Proxy Statement. As soon as practicable
following the date of this Agreement, the Company shall prepare and file with
the SEC the Proxy Statement. Each Holdco will cooperate with the Company in
connection with the preparation of the Proxy Statement, including furnishing to
the Company all information regarding the Funds and their affiliates as may be
required to be disclosed therein. The Company will use its reasonable best
efforts to cause the Proxy Statement to be mailed to the Company's stockholders
as promptly as practicable after the date hereof. No filing of, or amendment or
supplement to, the Proxy Statement will be made by the Company without providing
the Holdcos the opportunity to review and comment thereon and to approve the
same, provided that such approvals shall not be unreasonably withheld. The
Company will advise the Holdcos, promptly after it receives notice thereof, of
any request by the SEC for amendment of the Proxy Statement or comments thereon
and responses thereto or requests by the SEC for additional information. If at
any time prior to the Effective Time any information relating to the Company or
the Holdcos, or any of their respective affiliates, officers or directors,
should be
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discovered by the Company or either Holdco which should be set forth in an
amendment or supplement to the Proxy Statement, so that the Proxy Statement
would not include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of the Company.
SECTION 5.02. Access to Information. The Company shall, and shall cause
each of its subsidiaries to, afford to the other parties hereto and to its
officers, employees, accountants, counsel and other representatives (including
environmental consultants), reasonable access, during normal business hours
during the period prior to the Effective Time, to their respective properties,
books, records and personnel and, during such period, the Company shall, and
shall cause each of its subsidiaries to, furnish promptly to the other party
hereto (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of Federal or state securities laws and (b) such other information concerning
its business, properties and personnel as the Holdcos may reasonably request.
Each Holdco will, and will cause its advisors and representatives who receive
nonpublic information regarding the Company to agree to, hold any such
information in confidence to the extent required by, and in accordance with, the
terms of the Confidentiality Agreement between the Company and Kohlberg Kravis
Roberts & Co., L.P. or Hicks, Muse, Tate & Furst, Incorporated, as the case may
be (the "Confidentiality Agreements").
SECTION 5.03. Company Stockholders Meeting. The Company shall, as promptly
as practicable after the date hereof, (a) duly call, give notice of, convene and
hold the Company Stockholders Meeting for the purpose of obtaining the Company
Stockholder Approval and (b) subject to Section 4.03, through its Board of
Directors, recommend to its stockholders that they grant the Company Stockholder
Approval.
SECTION 5.04. Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each of the Company and each Holdco shall, and
shall cause its subsidiaries to, use all reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger, the Debt Offer and the other transactions contemplated
by this Agreement, including (i) the obtaining of any necessary consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity and/or any other public or private third party which is required to be
obtained by such party or any of its subsidiaries in connection with the Merger,
the Debt Offer and the other transactions contemplated by this Agreement
(provided that the Company shall not pay or agree to pay any material amount to
obtain a consent without the prior approval of the Holdcos, which approval shall
not be unreasonably withheld or delayed), and the making or obtaining of all
necessary filings and registrations with respect thereto, (ii) the defending of
any lawsuits or other legal proceedings challenging this Agreement, and (iii)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
(b) The Company agrees to, and to cause its subsidiaries and its and their
respective officers, employees, advisors and accountants to, reasonably
cooperate with the Holdcos in connection with the arrangement of any financing
to be consummated prior to or contemporaneously with the Closing in respect of
the transactions contemplated by this Agreement, including participation in
meetings, due diligence sessions, road shows, the preparation of offering
memoranda, private placement memoranda, prospectuses and similar documents,
comfort letters of accountants and legal opinions, as may be reasonably
requested by the Holdcos. In conjunction with the obtaining of any such
financing, the Company agrees, at the reasonable request of the Holdcos, to call
for prepayment or redemption, or to prepay or redeem, or to attempt to
renegotiate the terms of, any then existing indebtedness of the Company;
provided that no such prepayment or redemption or call for prepayment or
redemption or renegotiated terms shall actually be made or become effective (nor
shall the Company be required to incur any liability in respect of any such
prepayment or redemption or call therefor or renegotiation thereof) prior to the
Effective Time. The Holdcos will promptly inform the Company of all material
developments relating to arranging such financing.
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(c) Each Holdco shall use its reasonable best efforts to cause a valuation
firm referred to in Section 6.03(c) to deliver to the Company the letter
referred to in such Section 6.03(c).
SECTION 5.05. Benefits Matters. Following the Effective Time, the
Surviving Corporation shall honor, or cause to be honored, all obligations under
employment agreements, Company Benefit Plans and all other employee benefit
plans, programs, policies and arrangements of the Company in accordance with the
terms thereof. Nothing herein shall be construed to prohibit the Surviving
Corporation from amending or terminating such agreements, programs, policies and
arrangements in accordance with the terms thereof and with applicable law.
SECTION 5.06. Stock-Based Compensation. (a) Except as otherwise agreed by
the Holdcos and the holders of options under Company Stock Plans with respect to
such options, as soon as practicable following the date of this Agreement, the
Board of Directors of the Company (or, if appropriate, any committee
administering the Company Stock Plans) shall adopt such resolutions or take
other actions as may be required to effect the cancelation of (A) all
outstanding options granted pursuant to the Company Stock Plans to purchase
Company Common Stock (the "Canceled Options") and (B) all outstanding grants of
Company Common Stock that are subject to a vesting requirement (the "Company
Restricted Stock") in exchange for a cash payment equal to the following: (I) in
the case of each Canceled Option, the product of (x) the excess of the Merger
Consideration per share over the exercise price per share of the Company Common
Stock subject to the Canceled Option and (y) the number of shares of Company
Common Stock subject to such Canceled Option and (II) in the case of each share
of Company Restricted Stock, the Merger Consideration per share.
(b) The Company shall continue to sponsor the Company Stock Plans after the
Effective Time or shall adopt a new stock plan after the Effective Time.
(c) All amounts payable pursuant to Section 5.06(a) shall be subject to any
required withholding of taxes and shall be paid without interest.
SECTION 5.07. Fees and Expenses. (a) Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs or expenses, except as provided in Section 5.07.
(b) In the event that (i) this Agreement is terminated by a Holdco pursuant
to Section 7.01(c), (ii) this Agreement is terminated by the Company pursuant to
Section 7.01(d) or (iii)(x) any person shall have made a bona fide takeover
proposal with respect to the Company after the date hereof and thereafter this
Agreement is terminated by the Company pursuant to Section 7.01(b)(iii) or by
either party pursuant to Section 7.01(b)(iv) and (y) within 12 months after such
termination a takeover agreement (as defined below) is executed by the Company
or a takeover transaction (as defined below) is consummated, then the Company
shall (A) pay to the Holdcos a fee (the "Termination Fee") of $28,000,000 in the
aggregate for both Holdcos (to be divided equally between the Holdcos) and (B)
other than in the case of a termination pursuant to Section 7.01(b)(iv) (which
is addressed in paragraph (c) below), reimburse the Holdcos for the documented
out-of-pocket fees and expenses reasonably incurred thereby in connection with
this Agreement and the transactions contemplated hereby (including those which
may be incurred in connection with enforcing the terms of this Section 5.07) in
an aggregate amount for both Holdcos, taken together, not in excess of
$4,000,000 (the "Expenses"). The Company shall pay the Termination Fee to the
Holdcos promptly (and in any event within two business days) following a
termination referred to in clause (i) above, concurrently with or prior to a
termination referred to in clause (ii) above or promptly (and in any event
within two business days) after the first to occur of the execution of a
takeover agreement or the consummation of a takeover transaction referred to in
clause (iii) above. The Company shall reimburse the Expenses to the Holdcos
concurrently with, prior to or after the payment of the Termination Fee but in
no event prior to the delivery by the Holdcos to the Company of a reasonably
detailed statement of the Expenses and any supporting documentation reasonably
requested by the Company (the "Expense Information"). For purposes of this
Section 5.07(b), the term "takeover transaction" shall mean any transaction if a
proposal to consummate such transaction would constitute a takeover proposal,
the term "takeover agreement" shall mean any letter of
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intent, agreement in principle, acquisition agreement or similar agreement to
consummate a takeover transaction and the term "takeover proposal" shall have
the meaning assigned to such term in Section 4.03 except that (1) references to
"20%" in the definition of such term contained in Section 4.03 shall be deemed
to be references to "50%" and (2) the term "takeover proposal" shall only be
deemed to refer to a transaction involving the Company, or with respect to
assets (including the shares of any subsidiary), the Company and its
subsidiaries taken as a whole. Notwithstanding the immediately preceding
sentence, if any bona fide takeover proposal (as defined in this Section 5.07(b)
but without regard to clause (1) above) made by a person with respect to the
Company is made after the date hereof and the Company accepts such proposal or
any other takeover proposal (as defined in this Section 5.07(b) but without
regard to clause (1) above) made by such person after the termination of this
Agreement, then such accepted proposal shall constitute a "takeover proposal"
for purposes of Section 5.07(b)(iii).
(c) In the event that this Agreement is terminated by either party pursuant
to Section 7.01(b)(iv), then the Company shall reimburse the Holders for the
Expenses incurred to the date of termination on the later of (i) the day that is
two business days after such termination and (ii) the day that is two business
days after the delivery by the Holdcos to the Company of the Expense
Information. To the extent the amount of Expenses initially reimbursed pursuant
to this paragraph (c) is less than $4,000,000, the Holdcos shall be entitled to
be reimbursed for Expenses, if any, thereafter incurred by them in connection
with enforcing their right to receive a Termination Fee pursuant to this Section
5.07, with such additional Expenses to be reimbursed concurrently with the
payment of any Termination Fee that may be due pursuant to clause (iii) of
paragraph (b) above (or, if later, two business days after the relevant Expense
Information is provided to the Company); provided that in no event shall the
aggregate amount of Expenses reimbursed pursuant to this paragraph (c) exceed
$4,000,000.
SECTION 5.08. Indemnification, Exculpation and Insurance. (a) The Holdcos
and the Company agree that all rights to indemnification and exculpation from
liability for acts or omissions occurring at or prior to the Effective Time and
rights to advancement of expenses relating thereto now existing in favor of the
current or former directors or officers of the Company and its subsidiaries
(such persons, "Indemnified Persons") as provided in their respective charter
(or similar constitutive documents) or by-laws and any existing indemnification
agreements or arrangements of the Company shall survive the Merger and shall not
be amended, repealed or otherwise modified in any manner that would in any
manner adversely affect the rights thereunder of any such Indemnified Persons.
The parties hereto agree that the Surviving Corporation shall maintain, for a
period of six years from the Effective Time, the Company's current directors'
and officers' insurance and indemnification policy to the extent that it
provides coverage for events occurring at or prior to the Effective Time (the
"D&O Insurance") for all Indemnified Persons so long as the annual premium
therefor would not be in excess of 250% (the "Maximum Premium") of the premium
payable with respect to the D&O Insurance for 1997 which the Company represents
and warrants was $65,000; provided, however, that the Surviving Corporation may,
in lieu of maintaining such existing D&O Insurance as provided above, cause
comparable coverage to be provided under any policy issued by an insurer
substantially comparable to the insurer with respect to the existing D&O
Insurance, so long as the terms thereof are no less advantageous to the
Indemnified Parties than the existing D&O Insurance. If the existing D&O
Insurance expires, is terminated or canceled during such six-year period, the
Surviving Corporation will use its reasonable best efforts to cause to be
obtained as much D&O Insurance as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium, on terms
and conditions no less advantageous in any material respect than the existing
D&O Insurance.
(b) The parties hereto agree that the provisions of this Section 5.08 are
(i) intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party and each Indemnified Party's heirs and representatives and
(ii) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by contract or
otherwise.
(c) The parties hereto agree that in the event that the Surviving
Corporation or any of its successors or assigns (i) consolidates with or merges
into any other person and is not the continuing or surviving corporation or
entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and in each
such case, proper provision will be made by such person so that the
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successors and assigns of the Surviving Corporation assume the obligations of
the parties hereto and the Surviving Corporation set forth in this Section 5.08.
SECTION 5.09. Financing. Each Holdco shall use its reasonable best efforts
to obtain the debt and equity financing necessary to consummate the Merger.
SECTION 5.10. Transfer Taxes. All state, local, foreign or provincial
sales, use, real property transfer, stock transfer or similar taxes (including
any interest or penalties with respect thereto, but not including any
shareholder-level taxes based upon net income) attributable to the Merger shall
be timely paid by the Company.
SECTION 5.11. Resignation of Directors. Prior to the Effective Time, the
Company shall deliver to each Holdco evidence satisfactory to such Holdco of the
resignation of all directors of the Company, effective at the Effective Time.
SECTION 5.12. Solvency at Closing. Each Holdco agrees for the benefit of
the directors of the Company to take all actions necessary to ensure that
immediately following the Effective Time the Surviving Corporation will be
solvent for all purposes under federal bankruptcy and applicable state
fraudulent transfer and fraudulent conveyance laws.
SECTION 5.13. Investment by Management Personnel. The Company shall use
reasonable efforts to cooperate with the Holdcos and to assist the Holdcos in
entering into agreements with management personnel of the Company (other than
the individuals listed on Section 6.02(g) of the Company Disclosure Schedule) to
be designated by the Holdcos in consultation with the Chief Executive Officer of
the Company (the "Designated Executives"), which agreements will provide for the
investment by such Designated Executives of either 40% or 50% (depending on
their respective positions) of the aggregate value of the shares of Company
Common Stock (other than de minimis shareholdings) and the unrealized gain on
stock options currently owned by the Designated Executives in the Company or an
entity controlling the Company after the Effective Time.
SECTION 5.14. Company Warrants. The Company shall offer to purchase each
Company Warrant for a purchase price equal to the product of (i) $31.00 minus
the per share exercise price of such Company Warrant and (ii) the number of
shares of Company Common Stock which may be purchased pursuant to such Company
Warrant.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Effective Time of the
following conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval
shall have been obtained.
(b) HSR Act. Any waiting period applicable to the Merger under the
HSR Act shall have expired or been terminated.
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order or
decree issued by any Governmental Entity of competent jurisdiction
enjoining or otherwise preventing the consummation of the Merger shall be
in effect; provided, however, that each of the parties shall use reasonable
best efforts to prevent the entry of any such injunction or other order or
decree and to cause any such injunction or other order or decree that may
be entered to be vacated or otherwise rendered of no effect.
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SECTION 6.02. Conditions to Obligation of the Holdcos To Effect the
Merger. The obligation of each Holdco to effect the Merger is subject to the
satisfaction of the following conditions unless waived by such Holdco:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement (i) to the extent
qualified by material adverse effect shall be true and correct, and (ii) to
the extent not qualified by material adverse effect shall be true and
correct, except that this clause (ii) shall be deemed satisfied so long as
any failures of such representations and warranties to be true and correct
do not individually or in the aggregate have a material adverse effect on
the Company, in each of cases (i) and (ii), as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by this Agreement, and such
Holdco shall have received a certificate to such effect signed on behalf of
the Company by its Chief Executive Officer or its Chief Financial Officer.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all material obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
such Holdco shall have received a certificate to such effect signed on
behalf of the Company by its Chief Executive Officer or Chief Financial
Officer.
(c) Consents, etc. Such Holdco shall have received evidence, in form
and substance reasonably satisfactory to it, that such consents, approvals,
authorizations, qualifications and orders of Governmental Entities and
other third parties as are necessary in connection with the transactions
contemplated hereby have been obtained, other than those the failure of
which to be obtained, individually or in the aggregate, would not have a
material adverse effect on the Company.
(d) No Litigation. There shall not be pending any suit, action or
proceeding brought by any Governmental Entity seeking to prohibit or limit
in any material respect the ownership or operation by the Company, such
Holdco or any of their respective affiliates of a substantial portion of
the business or assets of the Company and its subsidiaries, taken as a
whole, or to require any such person to dispose of or hold separate any
material portion of the business or assets of the Company and its
subsidiaries, taken as a whole, as a result of the Merger or any of the
other transactions contemplated by this Agreement or seeking to impose
limitations on the ability of KKR or HMTF, as the case may be, or any of
its affiliates to acquire or hold, or exercise full rights of ownership of,
any shares of Company Common Stock, including, without limitation, the
right to vote the Company Common Stock on all matters properly presented to
the stockholders of the Company or seeking to prohibit KKR or HMTF, as the
case may be, or any of its affiliates from effectively controlling in any
material respect a substantial portion of the business or operations of the
Company or its subsidiaries, in each case after giving effect to any
actions required to be taken pursuant to Section 5.04.
(e) Debt Offer. If a Debt Offer Request shall have been made on or
prior to the twenty-fifth business day prior to May 31, 1998, the Company
shall have accepted for payment Subordinated Notes with an aggregate
principal amount of not less than the minimum tender condition in the Debt
Offer.
(f) Other Holdco. The conditions to the other Holdco's obligations
shall have been satisfied or waived by such other Holdco, and such Holdco
shall have received from such other Holdco a certificate to such effect
signed by a director thereof who shall also be an executive officer of the
applicable Fund.
(g) Certain Agreements. The individuals listed in Section 6.02(g) of
the Company Disclosure Schedule shall have entered into definitive
agreements relating to their respective ongoing equity interests in the
Company or an entity controlling the Company after the Effective Time on
terms and conditions substantially consistent with the agreements or
agreements in principle, as the case may be, relating to such individuals
delivered to the Company on the date hereof or in the form attached as
Annex 6.02(g) to the Company Disclosure Schedule or otherwise satisfactory
to the Holdcos, and the equity investments contemplated by such agreements
shall have been effected contemporaneously with the Closing.
(h) Financing. The Holdcos shall have received the proceeds of
financings on the terms and conditions set forth in the letters referred to
in Section 3.02(h) or upon the terms and conditions which
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are, in the reasonable judgment of the Holdcos, substantially equivalent
thereto, and to the extent that any terms and conditions are not set forth
in the letters referred to in Section 3.02(h), on terms and conditions
reasonably satisfactory to the Holdcos.
SECTION 6.03. Conditions to Obligation of the Company To Effect the
Merger. The obligation of the Company to effect the Merger is subject to the
satisfaction of the following conditions unless waived by the Company:
(a) Representations and Warranties. The representations and
warranties of each Holdco set forth in this Agreement (i) to the extent
qualified by material adverse effect shall be true and correct, and (ii) to
the extent not qualified by material adverse effect shall be true and
correct, except that this clause (ii) shall be deemed satisfied so long as
any failures of such representations and warranties to be true and correct
do not individually or in the aggregate have a material adverse effect on
such Holdco, in each of cases (i) and (ii), as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by this Agreement, and the
Company shall have received a certificate to such effect signed on behalf
of such Holdco by a director thereof who shall also be an executive officer
of the KKR Fund, in the case of Holdco I, or the HMTF Fund, in the case of
Holdco II.
(b) Performance of Obligations of Holdcos. Each Holdco shall have
performed in all material respects all material obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate to such effect signed on
behalf of such Holdco by a director thereof.
(c) Solvency Letter. The Holdcos shall have caused the valuation firm
which has delivered a solvency letter to the financial institutions
providing the debt financing for the Merger (or, if no such letter has been
provided thereto, a valuation firm reasonably acceptable to the Company) to
have delivered to the Company a letter addressed to its Board of Directors
in form and substance reasonably satisfactory thereto as to the solvency of
the Company and its subsidiaries after giving effect to the Merger, the
financing arrangements contemplated by the Holdcos with respect to the
Merger and the other transactions contemplated hereby.
SECTION 6.04. Frustration of Closing Conditions. Neither Holdco nor the
Company may rely on the failure of any condition set forth in Section 6.01, 6.02
or 6.03, as the case may be, to be satisfied if such failure was caused by such
party's failure to use all reasonable best efforts to consummate the Merger and
the other transactions contemplated by this Agreement.
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Company Stockholder
Approval is received:
(a) by mutual written consent of the Holdcos and the Company;
(b) by either Holdco or the Company upon written notice to the other
party:
(i) if any Governmental Entity of competent jurisdiction shall have
issued a permanent injunction or other order or decree enjoining or
otherwise preventing the consummation of the Merger or the Debt Offer
and such injunction or other order or decree shall have become final and
nonappealable; provided that the party seeking to terminate this
Agreement pursuant to this clause (i) shall have used its reasonable
best efforts to prevent or contest the imposition of, or seek the
lifting or stay of, such injunction, order or decree;
(ii) unless the party seeking to terminate this Agreement is in
material breach of its obligations hereunder, if the Company or a Holdco
breaches or fails to perform any of its representations, warranties,
covenants or other agreements hereunder, which breach or failure to
perform (A) would
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give rise to the failure of a condition set forth in Section 6.02(a) or
6.02(b) in the case of such a breach or failure to perform on the part
of the Company or 6.03(a) or 6.03(b) in the case of such a breach or
failure to perform on the part of a Holdco and (B) is incapable of being
cured by the party so breaching or failing to perform or is not cured
within 30 days after the terminating party gives written notice of such
breach to the other party and such a cure is not effected during such
period;
(iii) if the Merger shall not have been consummated on or before
May 31, 1998, unless the failure to consummate the Merger is the result
of a material breach of this Agreement by the party seeking to terminate
this Agreement; or
(iv) if, upon a vote at a duly held Company Stockholders Meeting or
any adjournment thereof, the Company Stockholder Approval shall not have
been obtained;
(c) by either Holdco upon written notice to the Company:
(i) if the Board of Directors of the Company or any committee
thereof shall have withdrawn or modified in a manner adverse to the
Holdcos its approval or recommendation of the Merger or this Agreement,
approved or recommended any takeover proposal or resolved to do any of
the foregoing; or
(ii) if the Company shall have entered into any agreement (other
than a confidentiality agreement in accordance with Section 4.03(a))
with respect to a superior proposal or shall have resolved to do so; or
(d) by the Company pursuant to Section 4.03(b) prior to the receipt of
the Company Stockholder Approval.
SECTION 7.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or a Holdco as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, and, except to the
extent that such termination results from the wilful and material breach by a
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement, there shall be no liability or obligation on the part
of either Holdco or the Company, except with respect to Section 3.01(r), Section
3.02(f), the second sentence of Section 5.02, Section 5.07, this Section 7.02
and Article VIII, which provisions shall survive such termination.
SECTION 7.03. Amendment. This Agreement may be amended by the parties
hereto at any time before or after the Company Stockholder Approval is received,
provided that after receipt of the Company Stockholder Approval, no amendment
shall be made which by law requires further approval by such stockholders
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other party
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) subject to
the proviso of Section 7.03, waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require, in the case of the Company,
action by its Board of Directors or the duly authorized committee of its Board
of Directors to the extent permitted by law.
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ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.02. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation) or sent by overnight or same-day courier
(providing proof of delivery) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to the Company, to:
Wagner, Myers & Sanger, P.C.
1801 Plaza Tower
Knoxville, Tennessee 37929
Attention: Herbert S. Sanger, Jr., Esq.
Facsimile: (423) 524-5731;
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238
Attention: F. Mitchell Walker, Jr., Esq.
Facsimile: (615) 742-2775; and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Robert I. Townsend, III., Esq.
Facsimile: (212) 474-3700; and
(b) if to Holdco I, to:
Screen Acquisition Corp.
c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street
Suite 4200
New York, New York 10019
Attention: Clifton S. Robbins
Facsimile: (212) 750-0003
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Charles I. Cogut, Esq.
Facsimile: (212) 455-2502; and
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(c) if to Holdco II, to:
Monarch Acquisition Corp.
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
Attention: Lawrence D. Stuart, Jr.
Facsimile: (214) 740-7313
with copies to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10151
Attention: Stephen E. Jacobs, Esq.
Facsimile: (212) 310-8007
and
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Attention: Jeremy W. Dickens, Esq.
Facsimile: (214) 746-7777.
SECTION 8.03. Definitions; Interpretation. (a) As used in this Agreement:
(i) unless otherwise expressly provided herein, an "affiliate" of any
person means another person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, such first person, where "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities,
by contract or otherwise;
(ii) "business day" means any day on which banks are not required or
authorized to close in the City of New York;
(iii) "material adverse effect" means, when used in connection with the
Company, any change, effect, event, occurrence or development that is, or
is reasonably likely to be, materially adverse to the business, results of
operations or financial condition of the Company and its subsidiaries,
taken as a whole, other than any change, effect, event or occurrence
relating to or arising out of (A) the economy or securities markets in
general, (B) this Agreement or the transactions contemplated hereby or the
announcement thereof or (C) the movie exhibitor industry in general, and
not specifically relating to the Company or its subsidiaries, attributable
solely to quarterly fluctuations in box office receipts based on the
available films; "material adverse effect" means, when used in connection
with either Holdco, any change, effect, event, occurrence or development
that is, or is reasonably likely to be, materially adverse to its ability
to consummate the transactions contemplated hereby;
(iv) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity; and
(v) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are not such voting
interests, more than 50% of the equity interests of which) is owned
directly or indirectly by such first person.
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(b) When a reference is made in this Agreement to Articles, Sections,
Exhibits or Schedules, such reference shall be to an Article, Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. The term "or" when used in
this Agreement is not exclusive. All terms defined in this Agreement shall have
the defined meanings when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms. Any agreement, instrument or statute defined or referred to
herein or in any agreement or instrument that is referred to herein means such
agreement, instrument or statute as from time to time amended, modified or
supplemented, including (in the case of agreements or instruments) by waiver or
consent and (in the case of statutes) by succession of comparable successor
statutes and references to all attachments thereto and instruments incorporated
therein. References to a person are also to its permitted successors and
assigns.
SECTION 8.04. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party.
SECTION 8.05. Entire Agreement; No Third-Party Beneficiaries; Rights of
Ownership. This Agreement, together with the Confidentiality Agreement, (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and of the Confidentiality Agreement, provided that the
Confidentiality Agreement shall survive the execution and delivery of this
Agreement, and (b) other than Sections 5.08 and 5.12 of this Agreement, is not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder.
SECTION 8.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to any principles of conflicts of law of such State, except that provisions of
this Agreement relating to the Merger shall be governed by and construed in
accordance with the laws of the State of Tennessee or the State of Delaware to
the extent required thereunder.
SECTION 8.07. Publicity. Except as otherwise permitted by this Agreement
or required by law or the rules of the Nasdaq, so long as this Agreement is in
effect, neither the Company nor either Holdco shall, or shall permit any of its
affiliates to, issue or cause the publication of any press release or other
public announcement or statement with respect to this Agreement or the
transactions contemplated hereby without first obtaining the consent of the
other parties hereto. The parties agree that the initial press release to be
issued with respect to the transactions contemplated by this Agreement shall be
in the form heretofore agreed to by the parties.
SECTION 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties, and any such assignment that is not
so consented to shall be null and void; provided that either Holdco may assign
its rights hereunder to any of its affiliates or any affiliate of the other
Holdco, but no such assignment shall relieve such Holdco of its obligations
hereunder. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
SECTION 8.09. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of New York or in any New York state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal court located in the State of New York
A-27
<PAGE> 78
or any New York state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement and (b)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court.
SECTION 8.10. Several Obligations. The representations, warranties,
covenants and obligations of each Holdco under this Agreement are several and
not joint.
IN WITNESS WHEREOF, the Company, Holdco I and Holdco II have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first above written.
REGAL CINEMAS, INC.,
by /s/ Michael L. Campbell
------------------------------------
Name: Michael L. Campbell
Title: Chairman, President
and Chief Executive Officer
SCREEN ACQUISITION CORP.,
by /s/ Clifton S. Robbins
------------------------------------
Name: Clifton S. Robbins
Title: President
MONARCH ACQUISITION CORP.,
by /s/ Patrick K. McGee
------------------------------------
Name: Patrick K. McGee
Title: Vice President
A-28
<PAGE> 79
Annex B
[Goldman, Sachs & Co. Letterhead]
PERSONAL AND CONFIDENTIAL
January 19, 1998
Board of Directors
Regal Cinemas, Inc.
732 Commercial Park Drive
Knoxville, TN 37918
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders of the outstanding shares of Common Stock, no par value per share
(the "Shares"), of Regal Cinemas, Inc. (the "Company") of the $31.00 per Share
in cash to be received by such holders pursuant to the Agreement and Plan of
Merger, dated as of January 19, 1998, among Screen Acquisition Corp., a
wholly-owned subsidiary of KKR 1995 Fund L.P., and Monarch Acquisition Corp., a
wholly-owned subsidiary of Hicks, Muse, Tate & Furst Equity Fund III, (together,
the "Buyer"), and the Company (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having provided certain investment banking services to the Company
including having acted as lead manager in the offering of 8-1/2% Senior
Subordinated Notes due October 1, 2007, in September 1997, having acted as
Dealer Manager for the Offer to Purchase for Cash all of its Outstanding 10-5/8%
Senior Secured Notes due 2002 in August 1997, and having acted as its financial
advisor in connection with, and participated in certain of the negotiations
leading to, the Agreement.
Goldman, Sachs & Co. also periodically provides investment banking services
to Kolhberg Kravis Roberts & Co. and its affiliates ("KKR") and Hicks, Muse,
Tate & Furst Incorporated and its affiliates ("Hicks Muse"), including for
KKR, having acted as lead manager in the offering of common stock for
AutoZone Incorporated in November 1997 and of common stock for Safeway Inc.
in December 1997, and for Hicks Muse, having acted as financial advisor in
the sale of Morningstar Group Inc. in November 1997 and having acted as
co-manager in the offering of Convertible Exchangeable Preferred Shares for
Evergreen Media Corporation in June 1997. Goldman, Sachs & Co. may provide
investment banking services to KKR and Hicks Muse and its subsidiaries in
the future. In
<PAGE> 80
addition, an affiliate of Goldman, Sachs & Co. is a co-investor with an
affiliate of Hicks Muse in Marcus Cable Company, L.P.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five fiscal years ended January 2, 1997; certain interim reports
to stockholders and Quarterly Reports on Form 10-Q of the Company; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management. In
addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the movie exhibitor industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and completeness
for purposes of rendering this opinion. In rendering our opinion, we took into
account, with your consent, management's views as to the risks and uncertainties
in achieving the Company forecasts. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and we have not been furnished with any such evaluation or
appraisal. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $31.00 per
share in cash to be received by the holders of Shares pursuant to the Agreement
is fair from a financial point of view to such holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
- -------------------------
GOLDMAN, SACHS & CO.
B-2
<PAGE> 81
DETACH HERE
PROXY
REGAL CINEMAS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON MAY 18, 1998.
The undersigned hereby appoints Michael L. Campbell and Lewis Frazer III or
either of them, as proxies of the undersigned (collectively, the "Proxies"),
with full power of substitution, to vote all shares of the undersigned at the
Special Meeting of Shareholders of Regal Cinemas, Inc. to be held at 7132
Commercial Park Drive, Knoxville, Tennessee, on Monday, May 18, 1998, at 10:00
a.m., local time, and any postponement or adjournment thereof as follows:
CONTINUED AND TO BE SIGNED ON REVERSE SIDE.
SEE REVERSE SIDE SEE REVERSE SIDE
DETACH HERE
[X] Please mark votes as in this example.
<TABLE>
<S> <C> <C> <C> <C>
1. Approval of the Agreement and Plan of Merger dated as of January 19, 1998
(the "Merger Agreement"), among Regal Cinemas, Inc., a Tennessee FOR AGAINST ABSTAIN
corporation, Screen Acquisition Corp., a Delaware corporation, and Monarch [ ] [ ] [ ]
Acquisition Corp., a Delaware corporation:
</TABLE>
The Board of Directors
recommends a vote FOR the Merger
Agreement.
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT [ ]
IMPORTANT: Please date and sign
this proxy below.
Your shares will be voted in
accordance with your
instructions. If no choice is
specified, this proxy will be
voted FOR the approval of the
Merger Agreement, and in the
discretion of the Proxies on
other matters which may properly
come before the meeting or any
postponement or adjournment
thereof.
PLEASE SIGN BELOW AND RETURN
PROMPTLY
Please sign exactly as your name
appears at left. If registered
in the names of two or more
persons, each should sign.
Executors, administrators,
trustees, guardians, attorneys,
and corporate officers should
state their full titles.
Signature: ____________ Date: ___________ Signature: ___________ Date: ________
