<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------------
REGAL CINEMAS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
TENNESSEE 7830 62-1412720
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) No.)
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<TABLE>
<S> <C>
MICHAEL L. CAMPBELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
REGAL CINEMAS, INC.
7132 COMMERCIAL PARK DRIVE 7132 COMMERCIAL PARK DRIVE
KNOXVILLE, TENNESSEE 37918 KNOXVILLE, TENNESSEE 37918
(423) 922-1123 (423) 922-1123
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Telephone Number,
Including Area Code, of Registrants' Principal Including Area Code, of Agent For Service)
Executive Office)
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With a copy to:
JEREMY W. DICKENS
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT, SUITE 1300
DALLAS, TEXAS 75201
(214) 746-7700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is a compliance
with General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______
If this form is a post-effective amendment filed pursuant to the Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] _______
------------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
8 7/8% Senior Subordinated
Debentures due 2010........ $200,000,000 100% $200,000,000 $55,600
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Calculated in accordance with Rule 457(f) under the Securities Act of 1933,
as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THIS PROSPECTUS, DATED DECEMBER 30, 1998, IS SUBJECT TO COMPLETION AND
AMENDMENT.
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING AND UNREGISTERED
8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010
FOR
8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010
OF
REGAL CINEMAS, INC.
We hereby offer, upon the terms and conditions described in this
Prospectus, to exchange all of our outstanding and unregistered 8 7/8% Senior
Subordinated Debentures due 2010 ("Old Debentures") for our registered 8 7/8%
Senior Subordinated Debentures due 2010 ("Debentures"). The Old Debentures were
issued on December 16, 1998 and, as of the date of this Prospectus, an aggregate
principal amount of $200.0 million is outstanding. The terms of the Debentures
are identical to the terms of the Old Debentures except that the Debentures will
be registered under the Securities Act of 1933, as amended, and will not contain
any legends restricting their transfer. The Old Debentures and Debentures are
sometimes collectively referred to as the "Debentures." On May 27, 1998, we
issued $400.0 million aggregate principal amount of our 9 1/2% Senior
Subordinated Notes due 2008 (the "Existing Regal Notes"). On November 10, 1998,
we issued an additional $200.0 million of our 9 1/2% Senior Subordinated Notes
due 2008 (the "Tack-on Regal Notes"). The Existing Regal Notes and the Tack-on
Regal Notes, which are substantially similar and of equal ranking to the
Debentures, are sometimes collectively referred to as the "9 1/2% Regal Notes."
INFORMATION ABOUT THE DEBENTURES:
<TABLE>
<S> <C>
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* PLEASE CONSIDER THE FOLLOWING:
- The Debentures will mature on December 15, 2010.
- You should carefully review the Risk Factors
beginning on page 12 of this Prospectus. - We will pay interest on the Debentures semi-annually on June
15 and December 15 of each year beginning June 15, 1999, at
- Our offer to exchange Old Debentures for the rate of 8 7/8% per annum.
Debentures will be open until 5:00 p.m., New
York City time, on , 1999, unless we - We have the option to redeem all or a portion of the
extend the offer. Debentures on or after December 15, 2003 at certain rates
set forth on page 78 of this Prospectus.
- You should also carefully review the procedures
for tendering the Old Debentures beginning on page - We also have the option to redeem up to 35% of the original
68 of this Prospectus. aggregate principal amount of the Debentures on or prior to
December 15, 2001 with the net cash proceeds from a public
- If you fail to tender your Old Debentures, you equity offering.
will continue to hold unregistered securities and
your ability to transfer them could be adversely - The Debentures are unsecured obligations and are of equal
affected. ranking in right of payment to our other outstanding senior
subordinated indebtedness. The Debentures are subordinated
- No public market currently exists for the to our senior indebtedness. Please be advised that, as of
Debentures. We do not intend to list the October 1, 1998, after giving pro forma effect to the
Debentures on any securities exchange and, offering of the Old Debentures and the offering of the
therefore, no active public market is Tack-on Regal Notes, we had $548.1 million of senior
anticipated. indebtedness and $600.0 million of indebtedness of equal
ranking in right of payment to the Debentures.
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</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 3
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any reports, statements and other information we file at the SEC's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call 1-800-SEC-0330 for further information on the public
reference rooms. Our filings are also available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
http://www.sec.gov. Additional information about us is also available on our
website at http://www.regalcinemas.com.
We have filed a Registration Statement on Form S-4 to register with the SEC
the Debentures to be issued in exchange for the Old Debentures. This Prospectus
is part of that Registration Statement. As allowed by the SEC's rules, this
Prospectus does not contain all of the information you can find in the
Registration Statement or the exhibits to the Registration Statement. This
information is available to you without charge upon written or oral request.
Please make any such requests to D. Mark Monroe at Regal Cinemas, Inc., 7132
Commercial Park Drive, Knoxville, Tennessee 37918 (telephone: (423) 922-1123).
In order to obtain delivery of any requested materials before making an
investment decision in the Debentures, you must make your request by
, 1999.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN
THOSE CONTAINED HEREIN OR IN THE DOCUMENTS WE INCORPORATE HEREIN BY REFERENCE.
IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS ABOUT THESE MATTERS THAT IS
NOT DISCUSSED OR INCORPORATED IN THIS PROSPECTUS, YOU MUST NOT RELY ON THAT
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT
PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE DELIVERY OF THIS
PROSPECTUS OFFERED HEREBY DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN THAT THERE HAS
NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF. IT ALSO DOES NOT MEAN
THAT THE INFORMATION IN THIS PROSPECTUS OR IN THE DOCUMENTS WE INCORPORATE
HEREIN BY REFERENCE IS CORRECT AFTER THIS DATE.
i
<PAGE> 4
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements about our
financial condition, results of operations and business. These statements may be
made expressly in this document, or may be "incorporated by reference" to other
documents we have filed with the SEC. You can find many of these statements by
looking for words such as "believes," "expects," "anticipates," "estimates," or
similar expressions used in this Prospectus or incorporated herein.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by us in those statements include, among
others, the following:
- - our ability to license high-quality motion pictures from major studios and/or
independent producers;
- - our ability to secure financing for constructing new theatres and adding
screens to existing theatres;
- - our ability to successfully integrate our completed acquisitions;
- - the competitive nature of the motion picture exhibition businesses; and
- - our ability to pay interest and principal on a large amount of debt.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this Prospectus or, in the
case of documents incorporated by reference, the date of such document.
We do not undertake any responsibility to publicly release any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this Prospectus. Additionally, we don't undertake
any responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by the
forward-looking statements contained or incorporated by reference in this
Prospectus.
ii
<PAGE> 5
PROSPECTUS SUMMARY
This brief summary highlights selected information from the Prospectus. It
does not contain all of the information that is important to you. We urge you to
carefully read and review the entire Prospectus and the other documents to which
it refers to fully understand the terms of the Debentures and the exchange
offer. In this Prospectus, the "Company," "we," "us" and "our" refer to Regal
Cinemas, Inc. and its subsidiaries, unless the context requires otherwise. On
August 26, 1998, the Company acquired Act III Cinemas, Inc., which is sometimes
referred to herein as "Act III."
THE COMPANY
REGAL CINEMAS, INC.
7132 Commercial Park Drive
Knoxville, Tennessee 37918
(423) 922-1123
The Company is the largest motion picture exhibitor in the United States
based upon the number of screens in operation. We develop, acquire and operate
multiplex theatres primarily in mid-sized metropolitan markets, and growing
suburban areas of larger metropolitan markets, predominantly in the eastern and
northwestern United States. As of October 1, 1998 we had 385 theatres, with an
aggregate of 3,312 screens in 29 states. We primarily operate multiplex theatres
with an average of 8.6 screens per location, which we believe is among the
highest in our industry. We anticipate that future growth will result largely
from the development of new theatres, the addition of new screens to existing
theatres and strategic acquisitions of other theatre circuits.
For the twelve months ended October 1, 1998, without giving pro forma
effect to the Transactions (as defined on page 19), the Act III Combination (as
defined on page 20), the offering of the Old Debentures (sometimes referred to
herein as the "Original Offering") and the offering of the Tack-on Regal Notes
(sometimes referred to herein as the "Tack-on Offering"), we had revenues,
operating income and EBITDA of $590.0 million, $26.8 million and $136.1 million,
respectively. As a result of our focus on enhancing revenue, operating
efficiently and controlling costs, we have increased our EBITDA margins each
year, achieving what we believe are among the highest EBITDA margins in the
motion picture exhibition industry. For the five year period ended January 1,
1998, without giving effect to the Transactions, the Act III Combination, the
Original Offering or the Tack-on Offering, we had compound annual growth rates
in revenues, operating income and EBITDA of 23.4%, 39.6% and 38.3%,
respectively, and our EBITDA margins increased from 15.5% to 23.2%. In addition,
our new theatres built during fiscal years 1992 through 1996 have yielded a
return on invested capital of 29.6% (calculated as 1997 theatre cash flow
divided by cumulative capital expenditures for such theatres).
BUSINESS STRATEGY
Our operating strategy is to create a leading movie exhibition company with
a strong presence in mid-sized metropolitan markets. To do this, we have built
new multiplex theatres, acquired theatres from other companies and upgraded
theatres we already owned.
1
<PAGE> 6
We believe that owning a large number of quality theatre complexes allows us to
increase revenues while reducing operating costs.
Building New Theatres. We build large, state-of-the-art movie theatres
(generally with 14 to 18 screens) designed to attract numerous movie patrons.
All of our new theatres, as well as many of our older ones, feature wall-to-wall
screens, digital stereo surround-sound and plush stadium seating. Our multiplex
theatres enable us to show a large selection of films, stagger starting times
and serve concessions to our patrons more efficiently.
Acquiring Theatres. While we believe that a significant portion of our
future growth will come from the development of new theatres, we continue to
consider strategic acquisitions of theatres and theatre companies. In addition,
we may enter into joint ventures that could help us expand both domestically and
internationally.
Increasing Revenues and Reducing Operating Costs. Owning a large number of
quality theatres allows us to increase revenues by centralizing many of our
operating functions such as film licensing, concessions purchasing, advertising
and new theatre construction and design. Furthermore, our multiplex theatres
give us the ability to provide a broad range of other services to our patrons,
such as specialty cafes, video arcades and theatre rentals. We have also created
complementary theatre concepts like our FunScapes(TM) entertainment complexes
and have agreed to include IMAX(R) 3-D theatres in ten of our new multiplexes.
For a more detailed explanation of our business and business strategy, we
advise you to read the section entitled "Business" beginning on page 41.
USE OF PROCEEDS
The Company will not receive any cash from the exchange of the Debentures
for the Old Debentures. The net proceeds of the Original Offering were used to
repay all of the then outstanding indebtedness of the revolving line of credit
under our senior credit facilities and the excess was used for working capital
purposes.
2
<PAGE> 7
THE EXCHANGE OFFER
SECURITIES TO BE EXCHANGED... On December 16, 1998, we issued $200.0 million
aggregate principal amount of Old Debentures to
placement agents in a transaction exempt from
the registration requirements of the Securities
Act of 1933, as amended (sometimes referred to
herein as the "Securities Act"). The terms of
the Debentures and the Old Debentures are
substantially identical in all material
respects, except that the Debentures will be
freely transferable by their holders except as
otherwise provided herein. See "Description of
the Debentures" beginning on page 77.
THE EXCHANGE OFFER........... We are offering to exchange $1,000 principal
amount of Debentures for each $1,000 principal
amount of Old Debentures. As of the date hereof,
$200.0 million aggregate principal amount of Old
Debentures are outstanding.
Based on interpretations by the staff of the
SEC, as set forth in no-action letters issued to
certain third parties unrelated to us, we
believe that Debentures issued pursuant to the
exchange offer in exchange for Old Debentures
may be offered for resale, resold or otherwise
transferred by holders thereof (other than any
holder which is an "affiliate" of the Company
within the meaning of Rule 405 promulgated under
the Securities Act, or a broker-dealer who
purchased Old Debentures directly from us to
resell pursuant to Rule 144A or any other
available exemption promulgated under the
Securities Act), without compliance with the
registration and prospectus delivery
requirements of the Securities Act, provided
that such Debentures are acquired in the
ordinary course of such holders' business and
such holders have no arrangement with any person
to engage in a distribution of Debentures.
However, the SEC has not considered the exchange
offer in the context of a no-action letter and
we cannot be sure that the staff of the SEC
would make a similar determination with respect
to the exchange offer as in such other
circumstances. Furthermore, each holder, other
than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage
in, a distribution of such Debentures and has no
arrangement or understanding to participate in a
distribution of Debentures. Each broker-dealer
that receives Debentures for its own account
pursuant to the exchange offer must acknowledge
that it will comply with the
3
<PAGE> 8
prospectus delivery requirements of the
Securities Act in connection with any resale of
such Debentures. Broker-dealers who acquired Old
Debentures directly from us and not as a result
of market-making activities or other trading
activities may not rely on the staff's
interpretations discussed above or participate
in the exchange offer and must comply with the
prospectus delivery requirements of the
Securities Act in order to resell the Old
Debentures.
EXPIRATION DATE.............. The exchange offer will expire at 5:00 p.m., New
York City time, , 1999 or such later
date and time to which it is extended.
WITHDRAWAL................... The tender of the Old Debentures pursuant to the
exchange offer may be withdrawn at any time
prior to 5:00 p.m., New York City time, on
, 1999, or such later date and time to
which we extend the offer. Any Old Debentures
not accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as soon as practicable after the
expiration or termination of the exchange offer.
INTEREST ON THE DEBENTURES
AND THE OLD DEBENTURES....... Interest on the Debentures will accrue from the
date of the original issuance of the Old
Debentures or from the date of the last periodic
payment of interest on the Old Debentures,
whichever is later. No additional interest will
be paid on Old Debentures tendered and accepted
for exchange.
CONDITIONS TO THE EXCHANGE
OFFER...................... The exchange offer is subject to certain
customary conditions, certain of which may be
waived by us. See "The Exchange
Offer -- Conditions to the Exchange Offer"
beginning on page 75.
PROCEDURES FOR TENDERING OLD
DEBENTURES................. Each holder of the Old Debentures wishing to
accept the exchange offer must complete, sign
and date the letter of transmittal, or a copy
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver the letter of transmittal, or
the copy, together with the Old Debentures and
any other required documentation, to the
exchange agent at the address set forth herein.
Persons holding the Old Debentures through the
Depository Trust Company ("DTC") and wishing to
accept the exchange offer must do so pursuant to
the DTC's Automated Tender Offer Program, by
which each tendering participant will
4
<PAGE> 9
agree to be bound by the letter of transmittal.
By executing or agreeing to be bound by the
letter of transmittal, each holder will
represent to us that, among other things, (i)
the Debentures acquired pursuant to the exchange
offer are being obtained in the ordinary course
of business of the person receiving such
Debentures, whether or not such person is the
registered holder of the Old Debentures, (ii)
the holder is not engaging in and does not
intend to engage in a distribution of such
Debentures, (iii) the holder does not have an
arrangement or understanding with any person to
participate in the distribution of such
Debentures and (iv) the holder is not an
"affiliate," as defined under Rule 405
promulgated under the Securities Act, of the
Company.
We will accept for exchange any and all Old
Debentures which are properly tendered (and not
withdrawn) in the exchange offer prior to 5:00
p.m., New York City time, on , 1999.
The Debentures issued pursuant to the exchange
offer will be delivered promptly following the
expiration date. See "The Exchange
Offer -- Terms of the Exchange Offer" beginning
on page 70.
EXCHANGE AGENT............... IBJ Schroder Bank & Trust Company is serving as
exchange agent (sometimes referred to herein as
the "Exchange Agent") in connection with the
exchange offer.
FEDERAL INCOME TAX
CONSIDERATIONS............. The exchange of Old Debentures for Debentures
pursuant to the exchange offer should not
constitute a sale or an exchange for federal
income tax purposes. See "Certain Federal Income
Tax Considerations" beginning on page 105.
EFFECT OF NOT TENDERING...... Old Debentures that are not tendered or that are
tendered but not accepted will, following the
completion of the exchange offer, continue to be
subject to the existing restrictions upon
transfer thereof. We will have no further
obligation to provide for the registration under
the Securities Act of such Old Debentures.
5
<PAGE> 10
THE DEBENTURES
ISSUER....................... Regal Cinemas, Inc.
SECURITIES OFFERED........... $200.0 million principal amount of 8 7/8% Senior
Subordinated Debentures due 2010.
MATURITY..................... December 15, 2010.
INTEREST..................... The Debentures will bear interest at a rate of
8 7/8% per annum and will be payable
semi-annually on each June 15 and December 15,
commencing June 15, 1999.
OPTIONAL REDEMPTION.......... The Debentures are redeemable at our option, in
whole or in part, at any time on or after
December 15, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest.
In addition, at any time prior to December 15,
2001, we may redeem up to 35% of the aggregate
principal amount of the Debentures with the
proceeds of one or more Equity Offerings (as
defined on page 96), at the redemption price set
forth herein, plus accrued and unpaid interest;
provided that after any such redemption at least
$130.0 million aggregate principal amount of the
Debentures remains outstanding. See "Description
of the Debentures -- Optional Redemption"
beginning on page 78.
RANKING...................... The Debentures will be unsecured and rank junior
in right of payment to all our senior
indebtedness. The Debentures will be of equal
ranking in right of payment to all existing and
future of our senior subordinated indebtedness,
including the 9 1/2% Regal Notes. As of October
1, 1998, on a pro forma basis after giving
effect to the Original Offering and the Tack-on
Offering, we would have had approximately $548.1
million of senior indebtedness (excluding $500.0
million in unused commitments) and, not
including the Debentures, approximately $600.0
million of subordinated indebtedness
outstanding. See "Description of the Debentures"
beginning on page 77 and "Description of Certain
Indebtedness" beginning on page 64.
CHANGE OF CONTROL............ If a Change of Control (as defined on page 94)
occurs, we will be required to make an offer to
purchase the Debentures at a purchase price
equal to 101% of their principal amount on the
date of such purchase, plus accrued and unpaid
interest. See "Description of the
Debentures -- Change of Control" beginning on
page 78.
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<PAGE> 11
CERTAIN COVENANTS............ The indenture governing the Debentures
(sometimes referred to herein as the
"Indenture") contains certain provisions that,
among other things, limit our ability to incur
indebtedness, pay dividends, repurchase capital
stock, engage in transactions with stockholders
and affiliates and engage in mergers and
consolidations. However, these limitations are
subject to a number of important qualifications
and exceptions. If the Debentures attain
Investment Grade Status (as defined on page 97)
substantially all of such provisions shall cease
to apply. See "Description of the
Debentures -- Certain Covenants" beginning on
page 84.
USE OF PROCEEDS.............. The Company will not receive any cash from the
exchange of the Debentures for the Old
Debentures. The net proceeds of the Original
Offering were used to repay all of the then
outstanding indebtedness under the revolving
line of credit under our senior credit
facilities and the excess was used for working
capital purposes.
RISK FACTORS
We urge you to carefully review the Risk Factors beginning on page 12 for a
discussion of factors you should consider before exchanging your Old Debentures
for Debentures.
7
<PAGE> 12
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
We have summarized below the historical consolidated financial data of the
Company for the last five fiscal years and for the nine months ended October 1,
1998. The information should be read in conjunction with the "Selected
Historical Consolidated Financial Data" section on page 29, the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section on page 31 and our historical consolidated financial statements and
related notes included on pages F-1 through F-56 of this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------------------------------------- -----------------------
DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1,
1993 1994 1995 1997 1998 1997 1998
------------ ------------ ------------ ---------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Revenue:
Admissions................... $ 149.4 $ 185.2 $ 213.4 $ 266.0 $ 325.1 $ 237.6 $ 315.5
Concession sales............. 61.4 74.7 87.3 110.2 137.2 100.7 137.0
Other........................ 3.6 5.1 8.3 13.0 16.8 13.5 25.4
------- ------- ------- ------- ------- ------- -------
Total revenue............ 214.4 265.0 309.0 389.2 479.1 351.8 477.9
Costs and Expenses:
Operating expenses:
Film rental and
advertising.............. 82.8 101.0 115.4 145.2 178.2 129.9 170.4
Cost of concessions and
other.................... 8.8 9.9 11.4 15.1 16.6 15.6 21.6
Rent expense............... 28.0 32.5 34.5 41.4 53.7 39.2 56.7
Other expense.............. 49.0 60.4 71.2 86.4 102.8 74.8 107.0
General and administrative... 12.7 14.1 14.8 16.6 16.6 12.9 13.7
------- ------- ------- ------- ------- ------- -------
Total costs and expenses... 181.3 217.9 247.3 304.7 367.9 272.4 369.4
------- ------- ------- ------- ------- ------- -------
Sub-Total.................. 33.1 47.1 61.7 84.5 111.2 79.4 108.5
Depreciation and
amortization............... 11.0 13.6 19.4 24.7 30.5 21.5 35.5
Loss on impairment of
assets(1).................. -- -- -- -- 5.0 5.0 --
Merger expenses.............. -- 5.1 1.2 1.6 7.8 7.8 --
Recapitalization expenses.... -- -- -- -- -- -- 64.5
------- ------- ------- ------- ------- ------- -------
Operating income........... 22.1 28.4 41.1 58.2 67.9 45.1 8.5
Interest expense, net........ 6.5 7.2 10.3 12.2 13.2 8.7 32.0
Other (income) expense,
net........................ 1.8 -- .7 (.7) .4 .5 .5
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes and loss (gain) on
extraordinary item....... 13.8 21.2 30.1 46.7 54.3 35.9 (24.0)
Provision for income taxes... 5.1 8.5 12.2 20.8 19.1 12.1 .1
------- ------- ------- ------- ------- ------- -------
Income (loss) before loss
(gain) on extraordinary
item..................... 8.7 12.7 17.9 25.9 35.2 23.8 (24.1)
Loss (gain) on extraordinary
item....................... (.2) 1.8 .4 .8 10.0 10.0 11.9
------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $ 8.9 $ 10.9 $ 17.5 $ 25.1 $ 25.2 $ 13.8 $ (36.0)
======= ======= ======= ======= ======= ======= =======
</TABLE>
8
<PAGE> 13
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------------------------------------- -----------------------
DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1,
1993 1994 1995 1997 1998 1997 1998
------------ ------------ ------------ ---------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND OTHER FINANCIAL
DATA:
Cash flow provided by operating
activities................... $ 29.8 $ 36.5 $ 40.0 $ 67.5 $ 64.0 $ 25.2 $ 17.7
Cash flow used in investing
activities................... $ 20.8 $ 106.4 $ 112.6 $ 131.1 $ 202.3 $ 135.6 $ 161.2
Cash flow provided by financing
activities................... $ 7.3 $ 63.5 $ 69.8 $ 72.2 $ 139.6 $ 105.6 $ 140.3
EBITDA(2)...................... $ 33.1 $ 47.1 $ 61.7 $ 84.5 $ 111.2 $ 79.4 $ 108.5
EBITDAR(2)..................... $ 61.1 $ 79.6 $ 96.2 $ 125.9 $ 164.9 $ 118.6 $ 165.2
EBITDA margin(3)............... 15.5% 17.8% 20.0% 21.7% 23.2% 22.6% 22.7%
EBITDAR margin(3).............. 28.5% 30.0% 31.1% 32.4% 34.4% 33.7% 34.6%
Ratio of EBITDA to interest
expense(4)................... 4.7x 6.3x 5.8x 6.6x 8.0x 8.4x 3.3x
Ratio of EBITDAR to interest
and rent expense(4).......... 1.7x 2.0x 2.1x 2.3x 2.4x 2.4x 1.8x
Capital expenditures and
acquisitions................. $ 23.6 $ 108.6 $ 113.9 $ 143.7 $ 203.2 $ 113.6 $ 157.7
Ratio of earnings to fixed
charges(5)................... 1.8x 2.1x 2.2x 2.6x 2.5x 2.3x --
Deficiency of earnings to cover
fixed charges(5)............. -- -- -- -- -- -- $ 27.3
OPERATING DATA(6):
Theatre locations.............. 160 195 206 223 256 238 385
Screens........................ 1,110 1,397 1,616 1,899 2,306 2,111 3,312
Average screens per location... 6.9 7.2 7.8 8.5 9.0 8.9 8.6
Attendance (in thousands)...... 41,624 49,690 55,091 65,530 76,331 56,534 70,049
Average ticket price........... $ 3.59 $ 3.73 $ 3.87 $ 4.06 $ 4.26 $ 4.20 $ 4.50
Average concessions per
patron....................... $ 1.47 $ 1.50 $ 1.58 $ 1.68 $ 1.80 $ 1.78 $ 1.96
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 1, 1998
------------------------
ACTUAL ADJUSTED(7)
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 15.2 $ 125.2
Total assets.............................................. 1,591.2 1,701.1
Long-term obligations (including current maturities)...... 1,226.4 1,348.1
Stockholders' equity...................................... $ 239.9 $ 234.5
</TABLE>
- -------------------------
(1) Reflects non-cash charges for the impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of," which the Company adopted in 1995.
(2) EBITDA represents net income before interest expense, income taxes,
depreciation and amortization, other income (expense), extraordinary items
and non-recurring charges. This definition of EBITDA is consistent with that
included in the debt indentures governing the Debentures and the 9 1/2%
Regal Notes. EBITDAR represents EBITDA before rent expense. While EBITDA and
EBITDAR are not intended to represent cash flow from operations as defined
by generally accepted accounting principles ("GAAP") and should not be
considered as indicators of operating performance or alternatives to cash
flow (as measured by GAAP) as a measure of liquidity, they are included
herein to provide additional information with respect to the ability of the
Company to meet its future debt service, capital expenditure, rental and
working capital requirements.
(3) Defined as EBITDA and EBITDAR as a percentage of total revenue.
(4) "Interest expense" means interest expense recorded during the related period
excluding interest income and amortization of deferred financing fees.
(5) For purposes of this calculation, "earnings" consist of net income (loss)
before income taxes and fixed charges, excluding any capitalized interest,
and "fixed charges" consist of interest expense, capitalized interest,
amortization of deferred financing costs and the component of rental expense
believed by the Company to be representative of the interest factor thereon.
(6) Operating theatres and screens represent the number of theatres and screens
operated at the end of the period.
(7) Adjusted to reflect the Original Offering and the Tack-on Offering.
9
<PAGE> 14
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
We have summarized below the unaudited combined pro forma financial
information of the Company for the year ended January 1, 1998 and for the nine
months ended October 1, 1998 to give pro forma effect to the Transactions, the
Act III Combination, the Original Offering and the Tack-on Offering. This
information should be read in conjunction with the unaudited pro forma
consolidated financial data beginning on page 22 of this Prospectus and in
conjunction with our historical consolidated financial statements and related
notes included on pages F-1 through F-56 of this Prospectus.
You should be aware that this pro forma information may not be indicative
of what actual results will be in the future or would have been for the periods
presented.
<TABLE>
<CAPTION>
NINE
YEAR MONTHS
ENDED ENDED
JANUARY 1, OCTOBER 1,
1998 1998
----------- -----------
(IN MILLIONS, EXCEPT FOR
PERCENTAGES, RATIOS AND
OPERATING DATA)
<S> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenue:
Admissions.............................................. $ 498.0 $ 442.9
Concession sales........................................ 215.4 197.4
Other................................................... 19.0 26.8
------- -------
Total revenue....................................... 732.4 667.1
Costs and Expenses:
Operating expenses:
Film rental and advertising........................... 271.4 237.7
Cost of concessions and other......................... 29.0 29.1
Rent expense.......................................... 69.4 71.9
Other expense......................................... 165.4 147.5
General and administrative.............................. 19.7 16.1
------- -------
Total costs and expenses............................ 554.9 502.3
------- -------
Sub-Total........................................... 177.5 164.9
Depreciation and amortization........................... 66.9 64.8
Loss on impairment of assets(1)......................... 5.0 --
Merger expenses......................................... 7.8 --
Recapitalization expenses............................... 25.9 64.9
------- -------
Operating income.................................... 71.9 35.2
Interest expense, net................................... 115.7 85.9
Other (income) expense.................................. (1.4) .5
------- -------
Loss before income taxes and loss on extraordinary
item.............................................. (42.4) (51.2)
Benefit from income taxes............................... (9.5) (8.5)
------- -------
Loss before extraordinary item.......................... $ (32.9) $ (42.7)
======= =======
</TABLE>
10
<PAGE> 15
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
JANUARY 1, OCTOBER 1,
1998 1998
---------- -----------
(IN MILLIONS, EXCEPT FOR
PERCENTAGES, RATIOS AND
OPERATING DATA)
<S> <C> <C>
OPERATING AND OTHER FINANCIAL DATA:
EBITDA(2)................................................. $ 177.5 $ 164.9
EBITDAR(2)................................................ $ 246.9 $ 236.8
EBITDA margin(3).......................................... 24.2% 24.7%
EBITDAR margin(3)......................................... 33.7% 35.5%
Ratio of EBITDA to interest expense(4).................... 1.5x 1.9x
Ratio of EBITDAR to interest and rent expense(4).......... 1.3x 1.5x
Deficiency of earnings to cover fixed charges(5).......... $ 45.1 $ 55.6
OPERATING DATA (6):
Theatre locations......................................... 388 385
Screens................................................... 3,132 3,312
Average screens per location.............................. 8.1 8.6
Attendance (in thousands)................................. 118,583 99,915
Average ticket price...................................... $ 4.20 $ 4.43
Average concessions per patron............................ $ 1.82 $ 1.98
</TABLE>
<TABLE>
<CAPTION>
AS OF
OCTOBER 1,
1998
-----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 125.2
Total assets.......................................................... 1,701.1
Long term obligations (including current maturities).................. 1,348.1
Stockholders' equity.................................................. $ 234.5
</TABLE>
- -------------------------
(1) Reflects non-cash charges for the impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of," which the Company adopted in 1995.
(2) EBITDA represents net income before interest expense, income taxes,
depreciation and amortization, other income (expense), extraordinary items
and non-recurring charges. This definition of EBITDA is consistent with that
included in the debt indentures governing the Debentures and the 9 1/2%
Regal Notes. EBITDAR represents EBITDA before rent expense. While EBITDA and
EBITDAR are not intended to represent cash flow from operations as defined
by GAAP and should not be considered as indicators of operating performance
or alternatives to cash flow (as measured by GAAP) as a measure of
liquidity, they are included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditure, rental and working capital requirements.
(3) Defined as EBITDA and EBITDAR as a percentage of total revenue.
(4) "Interest expense" means interest expense recorded during the related period
excluding interest income and amortization of deferred financing fees.
(5) For purposes of this calculation, "earnings" consist of net income (loss)
before income taxes and fixed charges, excluding any capitalized interest,
and "fixed charges" consist of interest expense, capitalized interest,
amortization of deferred financing costs and the component of rental expense
believed by the Company to be representative of the interest factor thereon.
(6) Operating theatres and screens represent the number of theatres and screens
operated at the end of the period.
11
<PAGE> 16
RISK FACTORS
In addition to the other information contained in this Prospectus, you
should carefully consider the following information about our business before
you exchange your Old Debentures for Debentures.
THERE ARE RISKS ASSOCIATED WITH FAILING TO EXCHANGE OLD DEBENTURES
Holders of Old Debentures who do not exchange their Old Debentures for
Debentures pursuant to the exchange offer will continue to be subject to
restrictions on transfer and exchange of their Old Debentures. In general, the
Old Debentures may not be offered or sold, unless they are registered under the
Securities Act and applicable state securities laws. After this exchange offer,
we do not anticipate registering any Old Debentures under the Securities Act.
Accordingly, the liquidity of the market for a holder's Old Debentures could be
adversely affected upon the completion of the exchange offer if a holder does
not participate. See "The Exchange Offer" beginning on page 68.
WE DEPEND ON MOTION PICTURE PRODUCTION AND PERFORMANCE AND ON OUR RELATIONSHIP
WITH FILM DISTRIBUTORS
Our ability to operate successfully depends upon a number of factors, the
most important of which are the availability and appeal of motion pictures, our
ability to license motion pictures and the performance of such motion pictures
in our markets. We mostly license first-run motion pictures. Poor performance
of, or disruption in the production of or access to, motion pictures by the
major studios and/or independent producers could hurt our business and results
of operations. Because film distributors usually release films that they
anticipate will be the most successful during the summer and holiday seasons,
poor performance of such films or disruption in the release of films during such
periods could hurt our results for those particular periods or for any fiscal
year.
Our business also depends on maintaining good relations with the major film
distributors that license films to our theatres. A deterioration in our
relationship with any of the nine major film distributors could affect our
ability to get commercially successful films and, therefore, could hurt our
business and results of operations. See "Business -- Film Licensing" beginning
on page 49.
In addition, in times of recession, attendance levels experienced by motion
picture exhibitors may be adversely effected. For example, revenues declined for
the industry in 1990 and 1991.
WE HAVE SIGNIFICANT EXPANSION PLANS
Our growth strategy involves constructing new theatres and adding new
screens to certain of our existing theatres. We seek to locate our theatres in
markets that we believe are underscreened or that are served by older theatre
facilities. At October 1, 1998 we had 53 new theatres with 833 screens under
construction and 46 new screens under construction at eight existing theatres.
We intend to develop approximately 250 to 300 screens during the fourth quarter
of 1998 and approximately 700 to 800 screens during 1999. We expect that the
money we will spend in connection with new theatre construction or renovations
to existing theatres will be approximately $125.0 million for the
12
<PAGE> 17
fourth quarter of 1998 and approximately $300.0 million during 1999. We expect
to get this money from cash flow from operations, asset sale proceeds and
borrowings under our senior credit facilities. There is no guarantee, however,
that we will generate enough cash flow from operations or proceeds from asset
sales or that our future borrowing capacity under our senior credit facilities
will be enough to cover our anticipated spending. In addition, we intend to
continue our expansion plans over the next several years. Any future theatre
development may require financing in addition to cash generated from operations,
asset sale proceeds and borrowings under the senior credit facilities. There is
no guarantee that such additional financing will be available on reasonable
terms, or at all.
Our ability to open theatres and complete screen expansions on a timely and
profitable basis is subject to many factors, some of which are beyond our
control. There is significant competition in the United States for site
locations from both theatre companies and other businesses. There is no
guarantee that we will be able to obtain adequate capital resources, acquire
attractive theatre sites, negotiate acceptable lease terms and build theatres
and complete screen expansions on a timely and cost-effective basis. There is
also no guarantee that we will be able to hire, train and retain skilled
managers and personnel. Finally, there can be no assurance that we will achieve
our planned expansion or that our new theatres will achieve targeted levels of
profitability.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITIONS
Our growth strategy may also involve us acquiring additional theatres
and/or theatre companies. There is substantial competition for attractive
acquisition candidates. There is no guarantee that we will be able to
successfully acquire quality theatres or theatre companies or be able to
integrate their operations into ours. There is also no guarantee that future
acquisitions will not affect our operating results, particularly right after an
acquisition while we are in the process of integrating operations. Moreover, our
strategy involves increasing net revenue while reducing operating expenses.
Although we believe that this plan is reasonable, there is no guarantee that we
will be able carry out our plans without delay or that our plan will result in
the increased profitability, cost savings or other benefits we expected. In
addition, the integration of acquired companies requires substantial attention
from our senior management, which may limit the amount of time available to be
devoted to our day-to-day operations or to our growth strategy. Finally,
expansion of our theatre circuit can be risky if we do not effectively manage
such growth and if we have to incur additional debt in connection with such
acquisitions.
WE OPERATE IN A COMPETITIVE ENVIRONMENT
The motion picture exhibition industry is very competitive. Theatres
operated by national and regional circuits and by smaller independent exhibitors
compete with our theatres. Many of our competitors have been around longer than
we have and may be better established in some of our existing and future
markets. Many of our competitors are growing just like we are which may cause
some markets to become over screened, which could hurt everybody's earnings.
Filmgoers are generally not brand conscious and usually choose a theatre based
on the films showing there.
We believe that the principal competitive factors in our industry are:
licensing terms; the seating capacity, location and reputation of an exhibitor's
theatres; the quality of
13
<PAGE> 18
projection and sound equipment at the theatres; and the exhibitor's ability and
willingness to promote the films. Failure to compete well in any of these
categories could hurt our business and results of operations.
In areas where real estate is readily available, it is hard to prevent
competing companies from opening theatres near one of ours, which may affect our
theatre. Competitors have also built or are planning to build theatres in
certain areas in which we operate, which may result in excess capacity in such
areas and hurt attendance and pricing at our theatres in such areas.
In addition, there are many other ways to view movies once the movies leave
the theatre, including cable television, video cassettes, satellite and
pay-per-view services. Creating new ways to watch movies (such as video on
demand) could hurt our business and results of operations. We also compete for
the public's leisure time and disposable income with all forms of entertainment,
including sporting events, concerts, live theatre and restaurants. See
"Business -- Competition" beginning on page 51.
WE DEPEND ON OUR SENIOR MANAGEMENT
Our success depends upon the continued contributions our senior management,
including Michael L. Campbell, our Chairman, President and Chief Executive
Officer. We currently have employment contracts with Mr. Campbell and other
senior executives, but we only maintain key-man life insurance for Mr. Campbell.
If we lost the services of Mr. Campbell it could hurt our business and
development. See "Management -- Executive Compensation -- Campbell and Dunn
Employment Agreements" beginning on page 60.
OUR QUARTERLY RESULTS OF OPERATIONS FLUCTUATE
Our revenues are usually seasonal because of the way the major film
distributors release films. Generally, the most marketable movies are released
during the summer and the Thanksgiving through year-end holiday season. An
unexpected hit film during other periods can alter the traditional trend. The
timing of movie releases can have a significant effect on our results of
operations, and our results one quarter are not necessarily the same as results
for the next quarter. The seasonality of our business, however, has lessened as
studios have begun to release major motion pictures somewhat more evenly
throughout the year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 31.
WE HAVE SUBSTANTIAL INDEBTEDNESS, LEASE COMMITMENTS AND LEVERAGE
We have a large amount of debt. As of October 1, 1998, on a pro forma basis
after giving effect to the Original Offering and the Tack-on Offering, we would
have had approximately $1.35 billion of indebtedness outstanding, with
approximately $500.0 million available for future borrowings under our senior
credit facilities. On the same pro forma basis, we would have had a deficiency
of earnings to cover fixed charges of $45.1 million for the year ended January
1, 1998 and $55.6 million for the nine months ended October 1, 1998. In
addition, we may incur more debt in the future, for things such as funding
future construction and acquisitions as part of our growth strategy. See
"Capitalization" beginning on page 21, "Description of the Debentures" beginning
on page 77 and "Description of Certain Indebtedness" beginning on page 64.
14
<PAGE> 19
Our high degree of leverage could have negative consequences for you and
for us, including, but not limited to, the following: (i) we will have to pay
our debt, which would reduce funds available for operations and future business
opportunities and increase our vulnerability to bad general economic and
industry conditions and competition; (ii) our ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
general corporate or other purposes, may be limited; (iii) our leveraged
position and the provisions in the indenture and the senior credit facilities
could limit our ability to compete, as well as our ability to expand, including
through acquisitions, and to make capital improvements; and (iv) our ability to
refinance the Debentures in order to pay them when they mature or upon a change
of control may be adversely affected. In addition, some of the debt under our
senior credit facilities bears interest at floating rates which makes our
operating results sensitive to fluctuations in interest rates. There can be no
guarantee that our future cash flow will be sufficient to meet our obligations
and commitments, and any such insufficiency could hurt our business.
For the nine month period ended October 1, 1998, our interest expense was
approximately $32.8 million, which would increase to $87.4 million on a pro
forma basis for such period assuming that the Transactions, the Act III
Combination, the Original Offering and the Tack-on Offering occurred on January
3, 1997. Accordingly, the Original Offering and the Tack-on Offering will
increase our interest expense. For 1998, the minimum amount we must pay under
our non-cancelable operating leases is $73.6 million. See "Unaudited Pro Forma
Consolidated Financial Data" beginning on page 22.
THERE IS NO GUARANTEE WE WILL BE ABLE TO SERVICE OUR DEBT
Our ability to make scheduled payments on our debt, or to refinance our
debt depends on our performance, which may be subject to economic, financial,
competitive and other factors beyond our control. Based upon our current
operations and anticipated growth, we believe that future cash flow from
operations, together with the available borrowings under our senior credit
facilities, will be adequate to meet our anticipated needs for capital
expenditures, interest payments and scheduled principal payments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" beginning on page 35. There can
be no guarantee, however, that our business will continue to generate sufficient
cash flow from operations in the future to service our debt and make necessary
capital expenditures. If this should occur, we may be required to refinance all
or a portion of our debt, including the Debentures, to sell assets or to obtain
additional financing. There can be no guarantee that any such refinancing would
be possible, that any assets could be sold (or, if sold, of the timing of such
sales and the amount of proceeds realized therefrom) or that additional
financing could be obtained on acceptable terms, if at all.
THE DEBENTURES ARE SUBORDINATED TO OTHER DEBT
The Debentures will be unsecured and rank junior in right of payment to all
our existing and future senior indebtedness and to all indebtedness and other
liabilities of our subsidiaries. As of October 1, 1998, on a pro forma basis
after giving effect to the Original Offering and the Tack-on Offering, we had
approximately $548.1 million of senior indebtedness outstanding (excluding
unused commitments of $500.0 million under our senior credit facilities),
including capital lease obligations and indebtedness of our
15
<PAGE> 20
subsidiaries to third parties of approximately $29.1 million (excluding
guarantees of our senior indebtedness). In addition, all of our indebtedness has
a final maturity date that is prior to the final maturity date of the
Debentures. Subject to certain limitations, the Indenture permits us to incur
additional indebtedness, including senior indebtedness, and permits our
subsidiaries to incur indebtedness. We may not pay principal of, premium, if
any, or interest on the Debentures or purchase, redeem or otherwise retire the
Debentures, if any principal, premium, or interest on any senior indebtedness is
not paid when due (whether at final maturity, upon scheduled installment,
acceleration or otherwise) unless such payment default has been cured or waived
or such senior indebtedness has been repaid in full. In addition, under certain
circumstances, if any non-payment default exists with respect to our senior
indebtedness, we may not make any payments on the Debentures for a specified
period of time, unless such default is cured or waived or such senior
indebtedness has been repaid in full. If we fail to make any payment on the
Debentures when due or within any applicable grace period, whether or not on
account of the payment blockage provisions referred to above, such failure would
constitute an event of default under the Indenture and would generally entitle
the holders of the Debentures to accelerate the maturity thereof. As a result of
the subordination provisions contained in the Indenture, in the event of a
liquidation or insolvency of the Company, our assets will be available to pay
obligations on the Debentures only after all senior indebtedness and
indebtedness and other liabilities of our existing subsidiaries (or any future
subsidiary) have been paid in full, and, therefore, there may not be sufficient
assets remaining to pay amounts due on any or all of the Debentures then
outstanding. See "Description of the Debentures -- Ranking and Subordination"
beginning on page 80 and "Description of Certain Indebtedness" beginning on page
64.
WE ARE SUBJECT TO RESTRICTIVE DEBT COVENANTS
The Indenture and our senior credit facilities contain certain covenants
that restrict, among other things, our ability to incur additional debt, pay
dividends or make certain types of payments, enter into certain transactions
with affiliates, merge or consolidate with any other person or sell all or
substantially all of our assets. In addition, the senior credit facilities
contain other limitations including restrictions on us prepaying debt, and also
require us to maintain specified financial ratios. Our ability to comply with
these financial ratios can be affected by events beyond our control and there
can be no guarantee that we will meet those tests. A breach of any of these
provisions could result in a default under the senior credit facilities, which
would allow the lenders to declare all amounts outstanding thereunder
immediately due and payable. If we were unable to pay those amounts, the lenders
could proceed against the collateral securing that debt. If the amounts
outstanding under the senior credit facilities were accelerated, there can be no
guarantee that the assets of the Company would be sufficient to repay the amount
in full. In addition, if a default occurs with respect to senior indebtedness,
the subordination provisions of such senior indebtedness would likely restrict
payments to holders of Debentures. See "Description of the Debentures -- Certain
Covenants" beginning on page 84 and "Description of Certain
Indebtedness -- Senior Credit Facilities" beginning on page 64.
16
<PAGE> 21
OUR RESTRICTIVE DEBT COVENANTS ARE LIMITED
Although the Indenture limits our ability to incur debt, there are a number
of significant qualifications. Moreover, the Indenture does not impose any
limitation on our ability to incur debt that is not considered "Indebtedness"
under the Indenture. If the Debentures attain Investment Grade Status,
substantially all the covenants in the Indenture, including those limiting our
ability to incur debt, pay dividends or make other distributions or engage in
transactions with affiliates, will cease to apply.
WE WOULD HAVE TO REPURCHASE THE DEBENTURES UPON A CHANGE OF CONTROL
If a Change of Control were to occur, we may be required to make an offer
to purchase all the outstanding Debentures at a price equal to 101% of their
principal amount, plus accrued and unpaid interest to the date of repurchase. In
such a situation, there can be no guarantee that we would have enough funds to
pay for all of the Debentures. If we were required to purchase the Debentures,
we would probably require third party financing; however, we cannot be sure we
would be able to obtain such financing on acceptable terms, if at all. In
addition, the senior credit facilities restrict our ability to repurchase the
Debentures, including pursuant to a Change of Control Offer. A Change of Control
will result in an event of default under the senior credit facilities and may
cause the acceleration of certain debt, in which case we would have pay in full
the senior credit facilities and any such senior indebtedness before
repurchasing the Debentures. See "Description of Certain Indebtedness -- Senior
Credit Facilities" beginning on page 64, "Description of the
Debentures -- Change of Control" beginning on page 78 and "Description of the
Debentures -- Ranking and Subordination" beginning on page 80.
THERE IS NO PUBLIC MARKET FOR THE DEBENTURES
There is no active trading market for the Debentures. We do not plan on
listing the Debentures on any securities exchange. Morgan Stanley & Co.
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation have told
us that they plan on making a market in the Debentures, but they do not have to
do so, and may discontinue such activities at any time. Accordingly, we cannot
determine the likelihood that an active market for the Debentures will develop,
the liquidity of any such market, the ability of holders to sell their
Debentures or the prices that they may obtain for their Debentures if sold.
Future trading prices for the Debentures will depend upon many factors,
including, among others, our operating results, the market for similar
securities and changing interest rates.
HICKS MUSE AND KKR EFFECTIVELY CONTROL THE COMPANY
Each of Hicks, Muse, Tate & Furst Incorporated (sometimes referred to
herein as "Hicks Muse") and Kohlberg Kravis Roberts & Co. L.P. (sometimes
referred to herein as "KKR") currently owns approximately 46.3% of the Company.
Therefore, if they vote together, Hicks Muse and KKR have the power to elect a
majority of the directors of the Company and exercise control over our business,
policies and affairs. The interests of Hicks Muse, KKR and the holders of the
Debentures may differ from each other. We have a stockholders agreement with KKR
and Hicks Muse, which requires us to obtain
17
<PAGE> 22
the approval of the board designees of each of Hicks Muse and KKR before the
Board of Directors may take any action. The stockholders agreement, however,
does not contain any "deadlock" resolution mechanisms.
THERE COULD BE ADVERSE CONSEQUENCES TO HOLDERS OF THE DEBENTURES IF A COURT
FINDS A FRAUDULENT CONVEYANCE
Various fraudulent conveyance laws have been passed for the protection of
creditors. These laws may be applied by a court to subordinate or avoid the
Debentures in favor of our other existing or future creditors.
If a court in a lawsuit on behalf of one of our unpaid creditors or a
representative of one of our creditors were to find that, at the time we issued
the Debentures, we: (i) intended to hinder, delay or defraud any existing or
future creditor or considered insolvency with the intent to favor one or more
creditors over others; or (ii) did not receive fair consideration or reasonably
equivalent value for issuing the Debentures and we, were insolvent, were made
insolvent by issuing the Debentures, were engaged or about to engage in a
business or transaction for which our remaining assets would be unreasonably
small to carry on our business or intended to take on, or believed that we would
take on, more debts than we could pay, such court could void our obligations
under the Debentures and void such transactions. On the other hand, in such an
event, claims of holders of such Debentures could be subordinated to claims of
our other creditors.
Based upon information currently available to us, we believe that the
Debentures are being incurred for proper purposes and in good faith. Also, we
are solvent and will continue to be solvent after giving effect to the issuance
of the Debentures, will have enough capital for carrying on its business after
the issuance of the Debentures and will be able to pay our debts.
18
<PAGE> 23
THE TRANSACTIONS
RECAPITALIZATION AND REFINANCINGS
On May 27, 1998, an affiliate of KKR and an affiliate of Hicks Muse merged
with and into the Company (the "Regal Merger"), with the Company continuing as
the surviving corporation. The consummation of the Regal Merger resulted in a
recapitalization (the "Recapitalization") of the Company. In the
Recapitalization, existing holders of the Company's common stock ("Common
Stock") received cash for their shares of Common Stock, and KKR, Hicks Muse, DLJ
Merchant Banking Partners II, L.P. and affiliated funds ("DLJ") and certain
members of the Company's management acquired the Company. In addition, in
connection with the Recapitalization, the Company cancelled options and
repurchased warrants held by certain directors, management and employees of the
Company (the "Option/Warrant Redemption"). The aggregate purchase price paid to
effect the Regal Merger and the Option/Warrant Redemption was approximately $1.2
billion.
The net proceeds of the offering of the Existing Regal Notes, initial
borrowings of $375.0 million under the Company's current senior credit facility
(as amended in connection with the Act III Combination, the "Senior Credit
Facilities") and $776.9 million in proceeds from the investment by KKR, Hicks
Muse, DLJ and management in the Company (the "Equity Investment") were used: (i)
to fund the cash payments required to effect the Regal Merger and the
Option/Warrant Redemption; (ii) to repay and retire the Company's then existing
senior credit facilities (the "Old Credit Facilities"); (iii) to repurchase all
$125.0 million aggregate principal amount of the Company's 8 1/2% Senior
Subordinated Notes due October 1, 2007 (the "Old Regal Notes"); and (iv) to pay
related fees and expenses.
The Company's Senior Credit Facilities provide for borrowings of up to
$1,019.0 million in the aggregate, consisting of $500.0 million under a
revolving credit facility (the "Revolving Credit Facility") and $519.0 million,
in the aggregate, under three separate term loan facilities. As of October 1,
1998, after giving pro forma effect to the Original Offering and the Tack-on
Offering, the Company would have had approximately $500.0 million available for
borrowing under the Senior Credit Facilities.
Prior to the Regal Merger, KKR held approximately 89% of Act III's
outstanding equity. Pursuant to the Regal Merger, KKR, Hicks Muse and DLJ
received $287.3 million, $437.3 million and $50.0 million, respectively, of the
Company's equity securities, consisting of a combination of Common Stock and the
Company's Series A Convertible Preferred Stock ("Preferred Stock"). In order to
equalize KKR's and Hicks Muse's equity interests in both the Company and Act
III, upon the closing of the Recapitalization, Hicks Muse exchanged $75.0
million of its equity interest in the Company for $75.0 million of KKR's equity
in Act III and Hicks Muse made an additional equity investment of approximately
$62.7 million in Act III. The proceeds of the Hicks Muse $62.7 million equity
investment were used to repay outstanding indebtedness under Act III's credit
facilities. On the seventh calendar day following the closing of the Regal
Merger, all outstanding shares of Preferred Stock were converted into shares of
Common Stock. The offering of the Existing Regal Notes, the initial borrowings
under the Senior Credit Facilities and the Equity Investment are referred to in
this Prospectus, collectively, as the "Financing." The Financing, the Regal
Merger, the Recapitalization and the transactions contemplated thereby,
including but not limited to, the application of the proceeds of the Financing,
are referred to in this Prospectus as the "Transactions."
19
<PAGE> 24
THE ACT III COMBINATION
On August 26, 1998, the Company acquired Act III (the "Act III Merger"). In
the Act III Merger, Act III became a wholly-owned subsidiary of the Company and
each share of Act III's outstanding common stock was converted into the right to
receive one share of the Company's Common Stock. In connection with the Act III
Merger, the Company amended its Senior Credit Facilities and borrowed $383.3
million thereunder to repay Act III's borrowings and accrued interest under Act
III's then existing credit facilities (the "Act III Bank Debt") and two senior
subordinated promissory notes, each in the aggregate principal amount of $75.0
million (the "Act III Notes"), which were owned by KKR and Hicks Muse. The
repayment of the Act III Bank Debt and the Act III Notes are referred to in this
Prospectus, together, as the "Act III Refinancing." The Act III Merger and the
Act III Refinancing are referred to in this Prospectus, together, as the "Act
III Combination." As a result of the Transactions and the Act III Combination,
KKR and Hicks Muse each owned approximately 46.3% of the Company's Common Stock,
with DLJ, management and other minority investors owning the remainder. The
Recapitalization and the Financing were not conditioned on the consummation of
the Act III Combination, and there existed no contractual arrangement (written,
verbal or otherwise) or obligation to enter into or complete the Act III
Combination.
TACK-ON OFFERING
On November 10, 1998, the Company issued $200.0 million aggregate principal
amount of 9 1/2% Senior Subordinated Notes due 2008 under the same indenture
governing the Existing Regal Notes. The proceeds of the Tack-on Offering were
used to repay and retire portions of the Senior Credit Facilities.
20
<PAGE> 25
USE OF PROCEEDS
The Company will not receive any proceeds from the exchange of the
Debentures for the Old Debentures. The net proceeds of the Original Offering
were used to repay all of the then outstanding indebtedness under the Revolving
Credit Facility and the excess proceeds were used for working capital purposes.
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
October 1, 1998 and the pro forma capitalization of the Company as adjusted to
give effect as of that date to the Original Offering and the Tack-on Offering.
This table should be read in conjunction with the "Transactions," the "Selected
Historical Consolidated Financial Data," the "Unaudited Pro Forma Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and Act III and the respective notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF OCTOBER 1, 1998
---------------------
ACTUAL PRO FORMA
-------- ---------
(IN MILLIONS)
<S> <C> <C>
Debt (including current maturities):
Senior Credit Facilities(1)............................ $ 797.3 $ 519.0
9 1/2% Regal Notes..................................... 400.0 600.0
Debentures............................................. -- 200.0
Other indebtedness(2).................................. 29.1 29.1
-------- --------
Total Debt..................................... 1,226.4 1,348.1
Stockholders' Equity..................................... 239.9 234.5
-------- --------
Total Capitalization........................... $1,446.3 $1,582.6
======== ========
</TABLE>
- -------------------------
(1) After giving pro forma effect to the Original Offering and the Tack-on
Offering, the Company would have had $500.0 million of available borrowing
capacity under the Senior Credit Facilities. See "Description of Certain
Indebtedness -- Senior Credit Facilities."
(2) Other indebtedness consists primarily of capitalized lease obligations and
includes current maturities of long-term debt.
21
<PAGE> 26
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data (the
"Unaudited Pro Forma Consolidated Financial Data") of the Company are based on
the unaudited and audited consolidated financial statements of the Company,
which are included elsewhere in this Prospectus, and have been prepared to give
effect to the Transactions, the Act III Combination, the Original Offering and
the Tack-on Offering, as though such transactions had occurred as of January 3,
1997, for the statement of income data, and as though the Original Offering and
the Tack-on Offering had occurred as of October 1, 1998, for the balance sheet
data. The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The pro forma statements
of income do not purport to present what the Company's results of operations
would actually have been had the Transactions, the Act III Combination, the
Original Offering and the Tack-on Offering, in fact, occurred on January 3,
1997, or to project the Company's results of operations for any future period.
The pro forma balance sheet data do not purport to present what the Company's
financial position actually would have been had the Original Offering and the
Tack-on Offering, in fact, occurred as of October 1, 1998, or to project the
Company's financial position at any future date. The Unaudited Pro Forma
Consolidated Financial Data set forth below should be read in conjunction with,
and are qualified in their entirety by, "The Transactions," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and Act III
and the respective notes thereto included elsewhere in this Prospectus. The
Recapitalization was treated as a non-taxable stock purchase for federal and
state income tax purposes and as a recapitalization for financial accounting
purposes. The Act III Combination was accounted for as a purchase applying the
provisions of Accounting Principles Board Opinion No. 16 ("APB 16").
22
<PAGE> 27
REGAL CINEMAS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 1, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
REGAL TACK-ON ORIGINAL CONSOLIDATED
HISTORICAL(1) OFFERING OFFERING PRO FORMA
------------- -------- -------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 15.2 $ 110.0(3) $ 125.2
Accounts receivable....................... 7.7 7.7
Prepaids and other current assets......... 16.2 16.2
Refundable income taxes................... 13.9 13.9
-------- ------- --------
Total current assets................. 53.0 110.0 163.0
Property and equipment, net.................. 1,082.0 1,082.0
Goodwill, net................................ 54.9 54.9
Excess purchase cost over net book value of
assets acquired........................... 341.9 341.9
Other assets................................. 59.4 $ (4.9)(2) 4.8(3) 59.3
-------- ------ ------- --------
Total assets......................... $1,591.2 $ (4.9) $ 114.8 $1,701.1
======== ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt...... $ .3 $ .3
Accounts payable.......................... 34.9 34.9
Accrued expenses.......................... 56.2 $ (6.0)(2) $ (.4)(3) 49.8
-------- ------ ------- --------
Total current liabilities............ 91.4 (6.0) (.4) 85.0
Long-term debt:
Credit facility........................... 797.3 (193.5) (84.8)(3) 519.0
Senior Subordinated Debt.................. 400.0 200.0 200.0(3) 800.0
Other long-term debt and capital lease
obligations............................. 28.8 28.8
Other liabilities............................ 33.8 33.8
-------- ------ ------- --------
Total liabilities.................... 1,351.3 .5 114.8 1,466.6
Stockholders' equity (deficit)............... 239.9 (5.4)(2) 234.5
-------- ------ ------- --------
Total liabilities and stockholders'
equity (deficit).................. $1,591.2 $ (4.9) $ 114.8 $1,701.1
======== ====== ======= ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
23
<PAGE> 28
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 1, 1998
(IN MILLIONS)
(1) The historical balance sheet of the Company as of October 1, 1998 includes
the effects of the Act III Combination which was accounted for as a
purchase, applying the provisions of APB 16. The purchase cost has been
preliminarily allocated to the acquired assets and liabilities of Act III
based on estimates of fair value as of the closing date as set forth in the
notes to the condensed consolidated financial statement included elsewhere
in this Prospectus.
(2) Adjustments reflect: (i) the issuance of the Tack-on Regal Notes in the
Tack-on Offering; (ii) the use of the proceeds to repay and retire portions
of the Senior Credit Facilities and accrued interest; and (iii) the net
write-off of deferred financing fees and the related tax benefit.
(3) Adjustments reflect: (i) the issuance of the Old Debentures in the Original
Offering; (ii) the use of the proceeds to repay the revolving line of credit
under the Senior Credit Facilities and accrued interest; (iii) the
capitalization of deferred financing fees; and (iv) residual cash for
working capital requirements.
24
<PAGE> 29
REGAL CINEMAS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED OCTOBER 1, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
REGAL THE ACT III ACT III TACK-ON ORIGINAL
HISTORICAL TRANSACTIONS HISTORICAL COMBINATION OFFERING SUBTOTAL OFFERING
---------- ------------ ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Admissions................... $315.5 $127.4 $442.9
Concession sales............. 137.0 60.4 197.4
Other........................ 25.4 1.4 26.8
------ ------ ------
Total revenue......... 477.9 189.2 667.1
Costs and Expenses:
Operating expenses:
Film rental and
advertising.............. 170.4 67.3 237.7
Cost of concessions and
other.................... 21.6 7.5 29.1
Rent expense............... 56.7 15.2 71.9
Other expense.............. 107.0 40.5 147.5
General and administrative... 13.7 6.1 $(3.8)(4) 16.0
------ ------ ----- ------
Total costs and
expenses............ 369.4 136.6 (3.8) 502.2
------ ------ ----- ------
Sub-Total............. 108.5 52.6 3.8 164.9
Depreciation and
amortization............... 35.5 21.4 7.9(5) 64.8
Recapitalization expenses.... 64.5(1) .4 64.9
------ ------ ----- ------
Operating income
(loss).............. 8.5 30.8 (4.1) 35.2
Interest expense............. 32.8 $ 21.0(2) 26.0 (3.1)(6) $ 2.4(8) 79.1 $ 8.3(9)
Interest income.............. (.8) (.7) (1.5)
Other, net................... .5 .5
------ ------ ------ ----- ----- ------ -----
Income (loss) before income
taxes and loss on
extraordinary item....... (24.0) (21.0) 5.5 (1.0) (2.4) (42.9) (8.3)
Provision for (benefit from)
income taxes............... .1 (8.2)(3) 1.0 2.7(3) (.9) (5.3) (3.2)(10)
------ ------ ------ ----- ----- ------ -----
Income (loss) before
extraordinary loss........... $(24.1) $(12.8) $ 4.5 $(3.7) $(1.5) $(37.6) $(5.1)
====== ====== ====== ===== ===== ====== =====
<CAPTION>
CONSOLIDATED
PRO FORMA
------------
<S> <C>
Revenue:
Admissions................... $442.9
Concession sales............. 197.4
Other........................ 26.8
------
Total revenue......... 667.1
Costs and Expenses:
Operating expenses:
Film rental and
advertising.............. 237.7
Cost of concessions and
other.................... 29.1
Rent expense............... 71.9
Other expense.............. 147.5
General and administrative... 16.0
------
Total costs and
expenses............ 502.2
------
Sub-Total............. 164.9
Depreciation and
amortization............... 64.8
Recapitalization expenses.... 64.9
------
Operating income
(loss).............. 35.2
Interest expense............. 87.4
Interest income.............. (1.5)
Other, net................... .5
------
Income (loss) before income
taxes and loss on
extraordinary item....... (51.2)
Provision for (benefit from)
income taxes............... (8.5)
------
Income (loss) before
extraordinary loss........... $(42.7)
======
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income.
25
<PAGE> 30
REGAL CINEMAS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS), CONTINUED
FOR THE YEAR ENDED JANUARY 1, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
REGAL THE ACT III ACT III TACK-ON ORIGINAL
HISTORICAL TRANSACTIONS HISTORICAL COMBINATION OFFERING SUBTOTAL OFFERING
---------- ------------ ---------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Admissions................ $325.1 $172.9 $498.0
Concession sales.......... 137.2 78.2 215.4
Other..................... 16.8 2.2 19.0
------ ------ ------
Total revenue....... 479.1 253.3 732.4
Costs and Expenses:
Operating expenses:
Film rental and
advertising........... 178.2 93.2 271.4
Cost of concessions and
other................. 16.6 12.4 29.0
Rent expense............ 53.7 15.7 69.4
Other expense........... 102.8 62.6 165.4
General and
administrative.......... 16.6 8.1 $(5.0)(4) 19.7
------ ------ ----- ------
Total costs and
expenses.......... 367.9 192.0 (5.0) 554.9
------ ------ ----- ------
Sub-Total........... 111.2 61.3 5.0 177.5
Depreciation and
amortization............ 30.5 25.9 10.5(5) 66.9
Loss on impairment of
assets.................. 5.0 5.0
Merger expenses........... 7.8 7.8
Recapitalization
expenses................ 25.9(7) 25.9
------ ------ ----- ------
Operating income
(loss)............ 67.9 9.5 (5.5) 71.9
Interest expense.......... 14.0 $ 57.7(2) 28.1 3.7(6) $ 3.2(8) 106.7 $11.1(9)
Interest income........... (.8) (1.3) (2.1)
Other (income) expense,
net..................... .4 (1.8) (1.4)
------ ------ ------ ----- ------ ------ -----
Income (loss) before
income taxes and loss
on extraordinary
item.................. 54.3 (57.7) (15.5) (9.2) (3.2) (31.3) (11.1)
Provision for (benefit
from) income taxes...... 19.1 (22.5)(3) (1.1) .5(3) (1.2) (5.2) (4.3)(10)
------ ------ ------ ----- ------ ------ -----
Income (loss) before
extraordinary item...... $ 35.2 $(35.2) $(14.4) $(9.7) $ (2.0) $(26.1) $(6.8)
====== ====== ====== ===== ====== ====== =====
<CAPTION>
CONSOLIDATED
PRO FORMA
------------
<S> <C>
Revenue:
Admissions................ $ 498.0
Concession sales.......... 215.4
Other..................... 19.0
-------
Total revenue....... 732.4
Costs and Expenses:
Operating expenses:
Film rental and
advertising........... 271.4
Cost of concessions and
other................. 29.0
Rent expense............ 69.4
Other expense........... 165.4
General and
administrative.......... 19.7
-------
Total costs and
expenses.......... 554.9
-------
Sub-Total........... 177.5
Depreciation and
amortization............ 66.9
Loss on impairment of
assets.................. 5.0
Merger expenses........... 7.8
Recapitalization
expenses................ 25.9
-------
Operating income
(loss)............ 71.9
Interest expense.......... 117.8
Interest income........... (2.1)
Other (income) expense,
net..................... (1.4)
-------
Income (loss) before
income taxes and loss
on extraordinary
item.................. (42.4)
Provision for (benefit
from) income taxes...... (9.5)
-------
Income (loss) before
extraordinary item...... $ (32.9)
=======
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income.
26
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN MILLIONS)
(1) The Regal historical income statement for the nine months ended October 1,
1998 includes non-recurring expenses directly related to the Transactions.
Such expenses relate principally to compensation expense incurred as the
result of the Option/ Warrant Redemption and professional fees.
(2) Adjusts interest expense to reflect interest expense and amortization of
deferred financing fees resulting from the Transactions on: (i) $375.0
million of borrowings under the Senior Credit Facilities; (ii) the $400.0
million from the offering of the Existing Regal Notes; and (iii) $1.3
million of capital lease obligations of the Company as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
OCTOBER 1, 1998 JANUARY 1, 1998
--------------- ---------------
<S> <C> <C>
Interest expense before amortization of
deferred financing fees..................... $ 50.9 $ 67.8
Amortization of deferred financing fees....... 2.9 3.9
Historical interest expense................... (32.8) (14.0)
------ ------
Net adjustment...................... $ 21.0 $ 57.7
====== ======
</TABLE>
The estimated weighted average interest rate of the Company's borrowings and
capital lease obligations is 8.7%.
(3) Reflects the tax effect of deductible adjustments at the Company's
effective income tax rate of 39%.
(4) Reflects reduced personnel costs realized as the result of the Act III
Combination.
(5) The pro forma adjustment to depreciation and amortization expense results
from the amortization of the excess purchase cost over book value of net
assets acquired in the Act III Combination. The excess purchase cost over
the book value of assets acquired has not been fully allocated to
individual assets or liabilities acquired. However, the Company believes a
portion will be allocated to property plant and equipment and identifiable
intangibles and the remainder, representing goodwill, will be amortized
over 40 years. Accordingly, a composite life of 35 years has been used.
(6) Adjusts interest expense to reflect interest expense resulting from the Act
III Combination on (i) additional borrowings under the Senior Credit
Facilities of approximately $375.0 million at 7.9% and (ii) non-recourse
debt and capital lease obligations of Act III which were not repaid in the
Act III Combination as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
OCTOBER 1, 1998 JANUARY 1, 1998
--------------- ---------------
<S> <C> <C>
Interest expense.............................. $ 22.9 $ 31.8
Historical interest expense................... (26.0) (28.1)
------ ------
Net adjustment...................... $ (3.1) $ 3.7
====== ======
</TABLE>
27
<PAGE> 32
A .125% change in the interest rate on variable rate indebtedness would
change annual pro forma interest expense by approximately $.6 million.
(7) The Act III historical income statement for the year ended December 31,
1997 includes non-recurring expenses resulting from the December 3, 1997
recapitalization transaction in which KKR acquired approximately 89% of Act
III. Such expenses include the settlement of options and professional fees.
(8) Reflects the net increase in interest expense resulting from the repayment
and retirement of portions of the Senior Credit Facilities with the net
proceeds of the Tack-on Offering.
(9) Reflects the net increase in interest expense resulting from the repayment
of the revolving line of credit under the Senior Credit Facilities with the
net proceeds of the Original Offering.
(10) Reflects the net tax effect of the increase in net interest expense
resulting from the Original Offering at the Company's effective income tax
rate of 39%.
28
<PAGE> 33
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data set forth below were
derived from the consolidated financial statements of the Company. The selected
historical consolidated financial data of the Company as of and for the years
ended December 28, 1995, January 2, 1997 and January 1, 1998 were derived from
the consolidated financial statements and the notes thereto of the Company,
which have been audited by PricewaterhouseCoopers LLP, independent auditors,
whose report, with respect to each of the years ended December 28, 1995, January
2, 1997 and January 1, 1998 and at January 2, 1997 and January 1, 1998, has been
included herein. The selected historical consolidated financial data set forth
below as of and for each of the nine month periods ended October 2, 1997 and
October 1, 1998 were derived from the unaudited consolidated financial
statements of the Company which, in the opinion of management, include all
adjustments (consisting only of normal, recurring adjustments) necessary for
fair presentation of the Company's consolidated results of operations and
financial condition for such periods. The operating results for the respective
nine month periods ended October 2, 1997 and October 1, 1998 are not necessarily
indicative of results to be expected for the full fiscal year. The selected
historical consolidated financial data set forth below should be read in
conjunction with, and are qualified in their entirety by, the "Unaudited Pro
Forma Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and Act III and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------------------------------------- -----------------------
DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1,
1993 1994 1995 1997 1998 1997 1998
------------ ------------ ------------ ---------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Revenue:
Admissions................... $ 149.4 $ 185.2 $ 213.4 $ 266.0 $ 325.1 $ 237.6 $ 315.5
Concession sales............. 61.4 74.7 87.3 110.2 137.2 100.7 137.0
Other........................ 3.6 5.1 8.3 13.0 16.8 13.5 25.4
------- ------- ------- ------- ------- ------- --------
Total revenue............ 214.4 265.0 309.0 389.2 479.1 351.8 477.9
Costs and Expenses:
Operating expenses:
Film rental and
advertising.............. 82.8 101.0 115.4 145.2 178.2 129.9 170.4
Cost of concessions and
other.................... 8.8 9.9 11.4 15.1 16.6 15.6 21.6
Rent expense............... 28.0 32.5 34.5 41.4 53.7 39.2 56.7
Other expense.............. 49.0 60.4 71.2 86.4 102.8 74.8 107.0
General and administrative... 12.7 14.1 14.8 16.6 16.6 12.9 13.7
------- ------- ------- ------- ------- ------- --------
Total costs and expenses... 181.3 217.9 247.3 304.7 367.9 272.4 369.4
------- ------- ------- ------- ------- ------- --------
Sub-Total.................. 33.1 47.1 61.7 84.5 111.2 79.4 108.5
Depreciation and
amortization............... 11.0 13.6 19.4 24.7 30.5 21.5 35.5
Loss on impairment of
assets(1).................. -- -- -- -- 5.0 5.0 --
Merger expenses.............. -- 5.1 1.2 1.6 7.8 7.8 --
Recapitalization expenses.... -- -- -- -- -- -- 64.5
------- ------- ------- ------- ------- ------- --------
Operating income........... 22.1 28.4 41.1 58.2 67.9 45.1 8.5
Interest expense, net........ 6.5 7.2 10.3 12.2 13.2 8.7 32.0
Other (income) expense,
net........................ 1.8 -- .7 (.7) .4 .5 .5
------- ------- ------- ------- ------- ------- --------
Income (loss) before income
taxes and loss (gain) on
extraordinary item....... 13.8 21.2 30.1 46.7 54.3 35.9 (24.0)
Provision for income taxes... 5.1 8.5 12.2 20.8 19.1 12.1 .1
------- ------- ------- ------- ------- ------- --------
Income (loss) before loss
(gain) on extraordinary
item..................... 8.7 12.7 17.9 25.9 35.2 23.8 (24.1)
Loss (gain) on extraordinary
item....................... (.2) 1.8 .4 .8 10.0 10.0 11.9
------- ------- ------- ------- ------- ------- --------
Net income (loss).............. $ 8.9 $ 10.9 $ 17.5 $ 25.1 $ 25.2 $ 13.8 $ (36.0)
======= ======= ======= ======= ======= ======= ========
</TABLE>
29
<PAGE> 34
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------------------------------------- -----------------------
DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1,
1993 1994 1995 1997 1998 1997 1998
------------ ------------ ------------ ---------- ---------- ---------- ----------
(IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND OTHER FINANCIAL
DATA:
Cash flow provided by operating
activities................... $ 29.8 $ 36.5 $ 40.0 $ 67.5 $ 64.0 $ 25.2 $ 17.7
Cash flow used in investing
activities................... $ 20.8 $ 106.4 $ 112.6 $ 131.1 $ 202.3 $ 135.6 $ 161.2
Cash flow provided by financing
activities................... $ 7.3 $ 63.5 $ 69.8 $ 72.2 $ 139.6 $ 105.6 $ 140.3
EBITDA(2)...................... $ 33.1 $ 47.1 $ 61.7 $ 84.5 $ 111.2 $ 79.4 $ 108.5
EBITDAR(2)..................... $ 61.1 $ 79.6 $ 96.2 $ 125.9 $ 164.9 $ 118.6 $ 165.2
EBITDA margin(3)............... 15.5% 17.8% 20.0% 21.7% 23.2% 22.6% 22.7%
EBITDAR margin(3).............. 28.5% 30.0% 31.1% 32.4% 34.4% 33.7% 34.6%
Ratio of EBITDA to interest
expense(4)................... 4.7x 6.3x 5.8x 6.6x 8.0x 8.4x 3.3x
Ratio of EBITDAR to interest
and rent expense(4).......... 1.7x 2.0x 2.1x 2.3x 2.4x 2.4x 1.8x
Capital expenditures and
acquisitions................. $ 23.6 $ 108.6 $ 113.9 $ 143.7 $ 203.2 $ 113.6 $ 157.7
Ratio of earnings to fixed
charges(5)................... 1.8x 2.1x 2.2x 2.6x 2.5x 2.3x --
Deficiency of earnings to cover
fixed charges(5)............. -- -- -- -- -- -- $ 27.3
OPERATING DATA(6):
Theatre locations.............. 160 195 206 223 256 238 385
Screens........................ 1,110 1,397 1,616 1,899 2,306 2,111 3,312
Average screens per location... 6.9 7.2 7.8 8.5 9.0 8.9 8.6
Attendance (in thousands)...... 41,624 49,690 55,091 65,530 76,331 56,534 70,049
Average ticket price........... $ 3.59 $ 3.73 $ 3.87 $ 4.06 $ 4.26 $ 4.20 $ 4.50
Average concessions per
patron....................... $ 1.47 $ 1.50 $ 1.58 $ 1.68 $ 1.80 $ 1.78 $ 1.96
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 16.3 $ 9.9 $ 7.0 $ 17.1 $ 18.4 $ 12.3 $ 15.2
Total assets................... $ 162.1 $ 252.6 $ 349.0 $ 488.8 $ 660.6 $ 583.7 $1,591.2
Long-term obligations
(including current
maturities).................. $ 73.5 $ 117.5 $ 188.5 $ 144.6 $ 288.6 $ 248.6 $1,226.4
Stockholders' equity........... $ 26.6 $ 88.1 $ 109.0 $ 279.3 $ 306.6 $ 294.7 $ 239.9
</TABLE>
- -------------------------
(1) Reflects non-cash charges for the impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
be Disposed of," which the Company adopted in 1995.
(2) EBITDA represents net income before interest expense, income taxes,
depreciation and amortization, other income (expense), extraordinary items
and non-recurring charges. This definition of EBITDA is consistent with that
included in the debt indentures governing the Debentures and the 9 1/2%
Regal Notes. EBITDAR represents EBITDA before rent expense. While EBITDA and
EBITDAR are not intended to represent cash flow from operations as defined
by GAAP and should not be considered as indicators of operating performance
or alternatives to cash flow (as measured by GAAP) as a measure of
liquidity, they are included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditure, rental and working capital requirements.
(3) Defined as EBITDA and EBITDAR as a percentage of total revenue.
(4) "Interest expense" means interest expense recorded during the related period
excluding interest income and amortization of deferred financing fees.
(5) For purposes of this calculation, "earnings" consist of net income (loss)
before income taxes and fixed charges, excluding any capitalized interest,
and "fixed charges" consist of interest expense, capitalized interest,
amortization of deferred financing costs and the component of rental expense
believed by the Company to be representative of the interest factor thereon.
(6) Operating theatres and screens represent the number of theatres and screens
operated at the end of the period.
30
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the consolidated financial
statements of the Company and the respective notes thereto included elsewhere in
this Prospectus. The Company consummated the acquisitions of Neighborhood,
Georgia State and Cobb Theatres on April 17, 1995, May 30, 1996, and July 31,
1997, respectively. These three acquisitions have been accounted for as poolings
of interests. During May 1997, Neighborhood and Georgia State were merged with
and into the Company. On August 26, 1998, the Company consummated the
acquisition of Act III. See "Unaudited Pro Forma Consolidated Financial Data"
and the audited and unaudited consolidated financial statements, and notes
thereto, of the Company and Act III included elsewhere in this Offering
Memorandum.
BACKGROUND OF REGAL
The Company has achieved significant growth in theatres and screens since
its formation in November 1989. From its inception through October 1, 1998, the
Company has acquired 313 theatres (net of closed locations) with 2,326 screens,
developed 72 new theatres with 908 screens and added 78 new screens to existing
theatres. Theatres developed by the Company typically generate positive theatre
level cash flow within the first three months following commencement of
operation and reach a mature level of attendance within one to three years
following commencement of operation. Theatre closings have had no significant
effect on the operations of the Company.
RESULTS OF OPERATIONS
The Company's revenues are generated primarily from box office receipts and
concession sales. Additional revenues are generated by electronic video games
located adjacent to the lobbies of certain of the Company's theatres, and by
on-screen advertisements, rebates from concession vendors and revenues from the
Company's six entertainment centers which are adjacent to theatre complexes.
Direct theatre costs consist of film rental costs, cost of concessions and
theatre operating expenses. Film rental costs are related to the popularity of a
film and the length of time since the film's release and generally decline as a
percentage of admission revenues the longer a film has been released. Because
certain concession items, such as fountain drinks and popcorn, are purchased in
bulk and not pre-packaged for individual servings, the Company is able to
improve its margins by negotiating volume discounts. Theatre operating expenses
consist primarily of theatre labor and occupancy costs. At October 1, 1998,
approximately 37.3% of the Company's employees were paid at the federal minimum
wage and, accordingly, the minimum wage largely determines the Company's labor
costs for those employees. Future increases in minimum wage requirements or
legislation requiring additional employer funding of health care, among other
things, may increase theatre operating expenses as a percentage of total
revenues.
31
<PAGE> 36
The following table sets forth for the fiscal periods indicated the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of income (loss):
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
----------------------------------------------------------------
FOR THE NINE MONTHS
FOR THE FISCAL YEAR ENDED ENDED
-------------------------------------- -----------------------
DECEMBER 28, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1,
1995 1997 1998 1997 1998
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue:
Admissions.................. 69.1% 68.4% 67.9% 67.6% 66.0%
Concession sales............ 28.2 28.3 28.6 28.6 28.7
Other operating revenue..... 2.7 3.3 3.5 3.8 5.3
----- ----- ----- ----- -----
Total revenue....... 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Film rental and
advertising.............. 37.3 37.3 37.1 36.9 35.6
Cost of concessions and
other.................... 3.7 3.9 3.5 4.5 4.5
Theatre operating
expenses................. 34.2 32.8 32.7 32.4 34.3
General and administrative
expenses................. 4.8 4.3 3.5 3.7 2.9
Depreciation and
amortization............. 6.3 6.3 6.4 6.1 7.4
Merger expenses............. .4 .4 1.6 2.2 --
Recapitalization expenses... -- -- -- -- 13.5
Loss on impairment of
assets................... -- -- 1.0 1.4 --
----- ----- ----- ----- -----
Total operating
expenses.......... 86.7 85.0 85.8 87.2 98.2
----- ----- ----- ----- -----
Operating income.............. 13.3 15.0 14.2 12.8 1.8
Other income (expense):
Interest expense............ (3.5) (3.3) (2.9) (2.7) (6.9)
Interest income............. .1 .2 .2 .2 .2
Other....................... (.2) (.2) (.1) (.1) (.1)
----- ----- ----- ----- -----
Income (loss) before taxes and
extraordinary loss.......... 9.7 12.1 11.4 10.2 (5.0)
Provision for income taxes.... 3.9 5.4 4.0 3.4 .1
----- ----- ----- ----- -----
Income (loss) before
extraordinary loss.......... 5.8 6.7 7.4 6.8 (5.1)
Extraordinary loss:
Loss on extinguishment of
debt..................... .1 .2 2.1 2.9 2.4
----- ----- ----- ----- -----
Net income (loss)............. 5.7% 6.5% 5.3% 3.9% (7.5)%
===== ===== ===== ===== =====
</TABLE>
32
<PAGE> 37
NINE MONTHS ENDED OCTOBER 1, 1998 AND OCTOBER 2, 1997
Total Revenues. Total revenues for the nine months ended October 1, 1998
increased by 35.9% to $477.9 million from $351.8 million in the comparable 1997
period. This increase was due to a 23.9% increase in attendance attributable
primarily to the net addition of 1,201 screens in the last 12 months (834 of
which are attributable to the Act III merger). Of the $126.1 million net
increase in revenues for the period, a $5.6 million decrease was attributed to
theatres previously operated by the Company, $45.9 million increase was
attributed to theatres acquired by the Company, and $85.8 million increase was
attributed to new theatres constructed by the Company. Average ticket prices
increased 7.1% during the period, reflecting an increase in ticket prices and a
greater proportion of larger market theatres in the 1998 period than in the same
period in 1997. Average concession sales per customer increased 10.1% for the
period, reflecting both an increase in consumption and, to a lesser degree, an
increase in concession prices.
Direct Theatre Costs. Direct theatre costs increased by 37.1% to $355.6
million for the nine months ended October 1, 1998 from $259.5 million in the
comparable 1997 period. Direct theatre costs as a percentage of total revenues
increased to 74.4% in the 1998 period from 73.8% in the 1997 period. The
increase of direct theatre costs as a percentage of total revenues was primarily
attributable to higher theatre operating expenses as a percentage of total
revenues.
General and Administrative Expenses. General and administrative expenses
increased by 6.2% to $13.7 million for the nine months ended October 1, 1998
from $12.9 million in the comparable 1997 period. As a percentage of total
revenues, general and administrative expenses decreased to 2.9% in the 1998
period from 3.7% in the 1997 period.
Depreciation and Amortization. Depreciation and amortization expense
increased for the nine months ended October 1, 1998 by 64.9% to $35.5 million
from $21.5 million in the comparable 1997 period. This increase was primarily
the result of theatre property additions associated with the Company's expansion
efforts, increased debt amortization costs, and the Act III Combination.
Operating Income. Operating income for the nine months ended October 1,
1998 decreased to $8.5 million, or 1.8% of total revenues, from $45.0 million,
or 12.8% of total revenues, in the comparable 1997 period. Before nonrecurring
expenses associated with the Recapitalization, operating income for the nine
month period ended October 1, 1998 was $73.0 million or 15.3% of total revenues.
Interest Expense. Interest expense increased for the nine months ended
October 1, 1998 by 247.2% to $32.8 million from $9.5 million in the comparable
1997 period. The increase was primarily due to higher average borrowings
outstanding associated with the Recapitalization of the Company.
Income Taxes. The provision for income taxes for the nine months ended
October 1, 1998 was $0 million as compared to $12.1 million in the 1997 period.
The effective tax rate was .1% in the 1998 period as compared to 33.7% in the
1997 period as the 1998 period reflected certain recapitalization, merger and
amortization expenses which were not deductible for tax purposes.
Net Income (Loss). The net income (loss) for the nine months ended October
1, 1998 was $(36.0) million as compared to $13.8 million income in the 1997
period. Net income before nonrecurring and extraordinary items was $24.4 million
or 5.1% of total
33
<PAGE> 38
revenues in the nine months ended October 1, 1998 as compared to $30.0 million
or 8.5% of total revenues in the 1997 period.
FISCAL YEARS ENDED JANUARY 1, 1998 AND JANUARY 2, 1997
Total Revenues. Total revenues increased in 1997 by 23.1% to $479.1 million
from $389.2 million in 1996. This increase was due to a 16.5% increase in
attendance attributable primarily to the net addition of 407 screens in 1997. Of
the $89.9 million increase for 1997, $30.3 million was attributed to theatres
previously operated by the Company, $23.5 million was attributed to theatres
acquired by the Company, and $36.1 million was attributed to new theatres
constructed by the Company. Average ticket prices increased 4.9% during the
period, reflecting an increase in ticket prices and a greater proportion of
larger market theatres in 1997 than in the same period in 1996. Average
concession sales per customer increased 7.1% for the period, reflecting both an
increase in consumption and, to a lesser extent, an increase in concession
prices.
Direct Theatre Costs. Direct theatre costs in 1997 increased by 21.9% to
$351.3 million from $288.1 million in 1996. Direct theatre costs as a percentage
of total revenues decreased to 73.3% in 1997 from 74.0% in 1996. The decrease in
direct theatre costs as a percentage of total revenues was primarily
attributable to lower concession costs as a percentage of total revenues.
General and Administrative Expenses. General and administrative expenses
increased in 1997 by .2% to $16.6 million from $16.5 million in 1996,
representing administrative costs associated with the 1997 theatre openings and
projects under construction. As a percentage of total revenues, general and
administrative expenses decreased to 3.5% in 1997 from 4.3% in 1996.
Depreciation and Amortization. Depreciation and amortization expense
increased in 1997 by 23.6% to $30.5 million from $24.7 million in 1996. This
increase was primarily the result of theatre property additions associated with
the Company's expansion efforts.
Operating Income. Operating income for 1997 increased by 16.1% to $67.8
million, or 14.2% of total revenues, from $58.2 million, or 15.0% of total
revenues, in 1996. Before the $12.7 million and $1.6 million of nonrecurring
merger expenses and SFAS 121 impairment charges for 1997 and 1996, respectively,
operating income was 16.8% and 15.4% of total revenues.
Interest Expense. Interest expense increased in 1997 by 8.7% to $14.0
million from $12.8 million in 1996. The increase was primarily due to higher
average borrowings outstanding.
Income Taxes. The provision for income taxes decreased in 1997 by 8.2% to
$19.1 million from $20.8 million in 1996. The effective tax rate was 35.2% in
1997 as compared to 44.7% in 1996 as each period reflected certain merger
expenses which were not deductible for tax purposes and 1997 reflected a $2.3
million benefit associated with a deferred tax asset valuation allowance
adjustment related to Cobb Theatres.
Net Income. Net income in 1997 increased by 1.4% to $25.2 million from
$25.1 million in 1996. Before nonrecurring merger expenses and extraordinary
items, net income was $41.4 million and $27.0 million for 1997 and 1996,
respectively, reflecting a 53.2% increase.
34
<PAGE> 39
FISCAL YEARS ENDED JANUARY 2, 1997 AND DECEMBER 28, 1995
Total Revenues. Total revenues increased in 1996 by 25.9% to $389.2 million
from $309.0 million in 1995. This increase was due to a 19.0% increase in
attendance attributable primarily to the net addition of 277 screens in 1996. Of
the $80.1 million increase for 1996, $38.5 million was attributed to theatres
previously operated by the Company, $25.2 million was attributed to theatres
acquired by the Company, and $16.4 million was attributed to new theatres
constructed by the Company. Average ticket prices increased 4.9% during the
period, reflecting an increase in ticket prices and a greater proportion of
larger market theatres in 1996 than in the same period in 1995. Average
concession sales per customer increased 6.3% for the period, reflecting both an
increase in consumption and, to a lesser extent, an increase in concession
prices.
Direct Theatre Costs. Direct theatre costs in 1996 increased by 23.9% to
$288.1 million from $232.5 million in 1995. Direct theatre costs as a percentage
of total revenues decreased to 74.0% in 1996 from 75.2% in 1995. The decrease of
direct theatre costs as a percentage of total revenues was primarily
attributable to better monitoring and control of costs at the Company's
theatres, and, to a lesser extent, to a decrease in occupancy expense as a
percentage of total revenues, reflecting a higher mix of owned versus leased
properties.
General and Administrative Expenses. General and administrative expenses
increased in 1996 by 11.7% to $16.6 million from $14.8 million in 1995,
representing administrative costs associated with the 1996 theatre openings and
projects under construction. As a percentage of total revenues, general and
administrative expenses decreased to 4.3% in 1996 from 4.8% in 1995.
Depreciation and Amortization. Depreciation and amortization expense
increased in 1996 by 27.6% to $24.7 million from $19.4 million in 1995. This
increase was primarily the result of theatre property additions associated with
the Company's expansion efforts.
Operating Income. Operating income for 1996 increased by 41.6% to $58.2
million, or 15.0% of total revenues, from $41.1 million, or 13.3% of total
revenues, in 1995. Before the $1.6 million and $1.2 million of nonrecurring
merger expenses for 1996 and 1995, respectively, operating income was 15.4% and
13.7% of total revenues.
Interest Expense. Interest expense increased in 1996 by 20.4% to $12.8
million from $10.7 million in 1995. The increase was primarily due to higher
average borrowings outstanding.
Income Taxes. The provision for income taxes increased in 1996 by 70.7% to
$20.8 million from $12.2 million in 1995. The effective tax rate was 44.7% in
1996 as compared to 40.5% in 1995 due to the nondeductibility of certain merger
costs incurred in 1996.
Net Income. Net income in 1996 increased by 43.2% to $25.1 million from
$17.5 million in 1995. Before nonrecurring merger expenses and extraordinary
items, net income was $27.0 million and $19.0 million for 1996 and 1995,
respectively, reflecting a 42.1% increase.
LIQUIDITY AND CAPITAL RESOURCES
Substantially all of the Company's revenues are derived from cash box
office receipts and concession sales. Film rental fees are ordinarily paid to
distributors 15 to 45 days following receipt of admission revenues. The Company
thus has an operating cash "float"
35
<PAGE> 40
which partially finances its operations, reducing the Company's needs for
external sources of working capital.
The Company's capital requirements have arisen principally in connection
with acquisitions of existing theatres, new theatre openings and the addition of
screens to existing theatres and have historically been financed with equity
(including equity issued in connection with acquisitions and public offerings),
debt and internally generated cash. The Company's Senior Credit Facilities
provide for borrowings of up to $1,019.0 million in the aggregate and consist of
a Term A Loan (as defined herein) in the amount of $240.0 million, a Term B Loan
(as defined herein) in the amount of $144.0 million, a Term C Loan (as defined
herein) in the amount of $135.0 million and the Revolving Credit Facility, which
permits the Company to borrow up to $500.0 million on a revolving basis. As of
October 1, 1998, after giving pro forma effect to the Original Offering and the
Tack-on Offering, the Company had $500.0 million of capacity available under the
Revolving Credit Facility. Under the Senior Credit Facilities, the Company is
required to comply with certain financial and other covenants. The loans under
the Senior Credit Facilities bear interest at either a base rate (referred to as
"Base Rate Loans") or adjusted LIBOR rate (referred to as "LIBOR Rate Loans")
plus, in each case, an applicable margin determined depending upon the Company's
Total Leverage Ratio (as defined in the Senior Credit Facilities). See
"Description of Certain Indebtedness -- Senior Credit Facilities."
During 1995 and 1996, the Company effected four acquisitions (including two
acquisitions accounted for as poolings of interests). The aggregate
consideration paid in connection with such acquisitions was $283.0 million in
cash, the issuance of 3,169,522 shares of Common Stock and the assumption of
approximately $13.0 million of debt.
On June 10, 1996, the Company completed a public offering of 4,312,500
shares of the Company's Common Stock at $30.83 per share. The total proceeds to
the Company from the offering were approximately $126.5 million, net of the
underwriting discount and other expenses of $6.5 million and were used to repay
amounts outstanding under the Company's then existing revolving credit facility.
On May 9, 1997, the Company completed the purchase of assets consisting of
an existing five theatres with 32 screens, four theatres with 52 screens under
development, and a seven screen addition to an existing theatre from Magic
Cinemas LLC, an independent theatre company with operations in New Jersey and
Pennsylvania. The consideration paid was approximately $24.5 million in cash.
On July 31, 1997, the Company consummated the acquisition of the business
conducted by Cobb Theatres ("Cobb Theatres Acquisition"). The aggregate
consideration paid by the Company was 2,837,594 shares of its Common Stock. The
acquisition has been accounted for as a pooling of interests. The Company
recognized certain one time charges totaling approximately $5.4 million (net of
tax) in its quarter ended October 2, 1997, relating to merger expenses and
severance payments. In connection with the Cobb Theatres Acquisition, the
Company assumed approximately $110.0 million of liabilities, including $85.0
million of outstanding Senior Secured Notes (the "Cobb Notes"). The Company has
repurchased all but $70,000 principal amount of the Cobb Notes. The Company
initially financed the purchase price of the Cobb Notes with borrowings under a
short-term credit facility (the "Bank Tender Facility"). The Company recognized
an
36
<PAGE> 41
extraordinary charge totaling approximately $10.0 million (net of tax) in its
quarter ended October 2, 1997, relating to the purchase of the Cobb Notes.
On September 24, 1997, the Company consummated the offering of $125.0
million aggregate principal amount of 8 1/2% Senior Subordinated Notes due
October 1, 2007. A portion of the proceeds from such offering were used to repay
amounts borrowed under the Bank Tender Facility. The balance of the proceeds
were used to repay amounts outstanding under the Company's former bank revolving
credit facility.
On November 14, 1997, the Company completed the purchase of assets
consisting of an existing 10 theatres with 78 screens from Capitol Industries,
Inc. (known as RC Theatres), an independent theatre company with operations in
Virginia. The consideration paid was approximately $24.0 million in cash. At
January 2, 1997, the Company anticipated that it would spend $125.0 million to
$150.0 million to develop and renovate theatres during 1997, of which the
Company had approximately $58.1 million in contractual commitments for
expenditures. The actual capital expenditures for fiscal 1997 were $178.1
million.
On May 27, 1998, an affiliate of KKR and an affiliate of Hicks Muse merged
with and into the Company, with the Company continuing as the surviving
corporation of the merger. The consummation of the Regal Merger resulted in a
recapitalization of the Company. In the Recapitalization, the Company's existing
holders of Common Stock received cash for their shares of Common Stock, and KKR,
Hicks Muse, DLJ and certain members of the Company's management acquired the
Company. In addition, in connection with the Recapitalization, the Company
cancelled options and repurchased warrants held by certain directors, management
and employees of the Company. The aggregate purchase price paid to effect the
Regal Merger and the Option/Warrant Redemption was approximately $1.2 billion.
In connection with the Recapitalization, the Company made an offer to
purchase (the "Tender Offer") all $125.0 million aggregate principal amount of
the Old Regal Notes. In conjunction with the Tender Offer, the Company also
solicited consents to eliminate substantially all of the covenants contained in
the indenture relating to the Old Regal Notes. The purchase price paid by the
Company for the Old Regal Notes was approximately $139.5 million, including a
premium of approximately $14.5 million.
The net proceeds from the sale of the Existing Regal Notes, initial
borrowings of $375.0 million under the Senior Credit Facilities and $776.9
million in proceeds from the Equity Investment were used: (i) to fund the cash
payments required to effect the Regal Merger and the Option/Warrant Redemption;
(ii) to repay and retire the Old Credit Facilities; (iii) to repurchase the Old
Regal Notes; and (iv) to pay related fees and expenses.
On August 26, 1998, the Company acquired Act III. In the Act III Merger,
Act III became a wholly-owned subsidiary of the Company and each share of Act
III's outstanding common stock was converted into the right to receive one share
of the Company's Common Stock. In connection with the Act III Merger, the
Company amended its Senior Credit Facilities and borrowed $383.3 million
thereunder to repay the Act III Bank Debt and the Act III Notes, which were
owned by KKR and Hicks Muse.
On November 10, 1998, the Company issued $200.0 million aggregate principal
amount of 9 1/2% Senior Subordinated Notes due 2008 under the same indenture
governing
37
<PAGE> 42
the Existing Regal Notes. The proceeds of the Tack-on Offering were used to
repay and retire portions of the Senior Credit Facilities.
On December 16, 1998, the Company issued $200.0 million aggregate principal
amount of 8 7/8% Senior Subordinated Debentures due 2010. The proceeds of the
Original Offering were used to repay all of the then outstanding indebtedness
under the Revolving Credit Facility and the excess was used for working capital
purposes.
Interest payments on the 9 1/2% Regal Notes and the Debentures and interest
payments and amortization with respect to the Senior Credit Facilities represent
significant liquidity requirements for the Company. On a pro forma basis, after
giving effect to the Transactions, the Act III Combination, the Original
Offering and the Tack-on Offering, the Company had interest expense of
approximately $87.4 million for the nine month period ended October 1, 1998. In
addition, for 1998, the minimum amount required to be paid under the Company's
non-cancelable operating leases is $73.6 million.
At October 1, 1998, the Company had 53 new theatres with 833 screens and 46
screens at eight existing locations under construction. The Company intends to
develop approximately 250 to 300 screens during the fourth quarter of 1998 and
approximately 700 to 800 screens during 1999. The Company expects that the
capital expenditures in connection with its development plan will aggregate
approximately $125.0 million for the fourth quarter of 1998 and approximately
$300.0 million during 1999. As of October 1, 1998, the Company had approximately
$350.0 million in contractual commitments for capital expenditures. The Company
believes that its capital needs for completion of theatre construction and
development will be satisfied by available credit under the Senior Credit
Facilities, internally generated cash flow and available cash including any
excess cash from the proceeds of the Original Offering.
Based on the current level of operations and anticipated future growth
(both internally generated as well as through acquisitions), the Company
anticipates that its cash flow from operations, together with borrowings under
the Senior Credit Facilities should be sufficient to meet its anticipated
requirements for working capital, capital expenditure, interest payments and
scheduled principal payments. The Company's future operating performance and
ability to service or refinance the Notes and to extend or refinance the Senior
Credit Facilities will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond the Company's
control.
The 9 1/2% Regal Notes, the Debentures and the Senior Credit Facilities
impose certain restrictions on the Company's ability to make capital
expenditures and limit the Company's ability to incur additional indebtedness.
Such restrictions could limit the Company's ability to respond to market
conditions, to provide for unanticipated capital investments or to take
advantage of business or acquisition opportunities. The covenants contained in
the Senior Credit Facilities and/or the indentures governing the Debentures and
the 9 1/2% Regal Notes also, among other things, limit the ability of the
Company to dispose of assets, repay indebtedness or amend other debt
instruments, pay distributions, enter into sale and leaseback transactions, make
loans or advances and make acquisitions. See "Description of the Debentures" and
"Description of Certain Indebtedness -- Senior Credit Facilities."
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<PAGE> 43
INFLATION; ECONOMIC DOWNTURN
The Company does not believe that inflation has had a material impact on
its financial position or results of operations. In times of recession,
attendance levels experienced by motion picture exhibitors may be adversely
affected. For example, revenues declined for the industry in 1990 and 1991.
SEASONALITY
The Company's revenues have been seasonal, coinciding with the timing of
releases of motion pictures by the major distributors. Generally, the most
marketable motion pictures have been released during the summer and the
Thanksgiving through year-end holiday season. The unexpected emergence of a hit
film during other periods can alter the traditional trend. The timing of such
releases can have a significant effect on the Company's results of operations,
and the results of one quarter are not necessarily indicative of results for the
next quarter. The seasonality of motion picture exhibition, however, has become
less pronounced in recent years as studios have begun to release major motion
pictures somewhat more evenly throughout the year.
YEAR 2000
Until recently computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
Thus the programs were unable to properly distinguish between the year 1900 and
the year 2000. This is frequently referred to as the "Year 2000 Problem." In
1997, the Company initiated a company-wide Year 2000 project to address this
problem. Utilizing both internal and external resources, the Company is in the
process of defining, assessing and converting, or replacing, various programs
and hardware to make them Year 2000 compatible. The Year 2000 Problem goes
beyond the Company's internal computer systems and requires coordination with
clients, vendors, government entities and other third parties to assure that
their systems and related interface are compliant. The Company's total Year 2000
remediation cost is not expected to exceed $100,000.
The Company believes that with minor modifications, the Year 2000 problem
will not pose significant operational problems for its computer systems.
However, if such modifications and conversions are not made, or are not
completed in a timely fashion, the Year 2000 problem could have a material
impact on the operations and financial results of the Company.
The costs of the project and the manner in which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated.
NEW ACCOUNTING PRONOUNCEMENTS
During fiscal 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, and SFAS No. 131, Disclosures About Segment of an
Enterprise and Related Information. SFAS No. 130 requires disclosure of
comprehensive income and its components in a
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<PAGE> 44
company's financial statements and is effective for fiscal years beginning after
December 15, 1997, with restatement of all prior periods shown. The Company
adopted SFAS No. 130 in the first quarter of 1998. There is no difference
between comprehensive income and net income as reported by the Company for all
periods shown. SFAS No. 131 requires new disclosures of segment information in a
company's financial statements and is effective for fiscal years beginning after
December 15, 1997, with restatement of all prior periods shown. Adoption of SFAS
No. 131 did not have a material impact on the Company's consolidated financial
statements.
On June 15, 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative and Financial Instruments and Hedging Activities.
SFAS No. 133 establishes a new model for accounting for derivatives and hedging
activities based on these fundamental principles: (i) derivatives represent
assets and liabilities that should be recognized at fair value on the balance
sheet; (ii) derivative gains and losses do not represent liabilities or assets
and, therefore, should not be reported on the balance sheet as deferred credits
or deferred debits and (iii) special hedge accounting should be provided only
for transactions that meet certain specified criteria, which include a
requirement that the change in the fair value of the derivative be highly
effective in offsetting the change in the fair value or cash flows of the hedged
item. This Statement is effective for fiscal years beginning after June 15,
1999. The Company is currently evaluating the effect that SFAS No. 133 will have
on the Company's consolidated financial statements. The Company does not expect
the adoption of SFAS No. 133 to have a material effect on the Company's
consolidated financial statements.
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<PAGE> 45
BUSINESS
THE COMPANY
The Company is the largest motion picture exhibitor in the United States
based upon the number of screens in operation. At October 1, 1998, the Company
operated 385 theatres, with an aggregate of 3,312 screens in 29 states. The
Company operates primarily multiplex theatres and has an average of 8.6 screens
per location, which management believes is among the highest in the industry and
which compares favorably to an average of approximately 6.2 screens per location
for the five largest North American motion picture exhibitors at May 1, 1997.
Since its inception in November 1989, the Company has achieved substantial
growth in revenues and EBITDA. For the twelve months ended October 1, 1998,
without giving pro forma effect to the Transactions, the Act III Combination,
the Original Offering and the Tack-on Offering, the Company had revenues,
operating income and EBITDA of $590.0 million, $26.8 million and $136.1 million,
respectively. As a result of the Company's focus on revenue enhancements,
operating efficiencies and strict cost controls, the Company has increased its
EBITDA margins each year, achieving what management believes are among the
highest EBITDA margins in the motion picture exhibition industry. For the five
year period ended January 1, 1998, the Company, without giving effect to the
Transactions, the Act III Combination, the Original Offering and the Tack-on
Offering, had compound annual growth rates in revenues, operating income and
EBITDA of 23.4%, 39.6% and 38.3%, respectively, and the Company's EBITDA margins
increased from 15.5% to 23.2%.
The Company develops, acquires and operates multiplex theatres primarily in
mid-sized metropolitan markets and suburban growth areas of larger metropolitan
markets, predominantly in the eastern and northwestern United States. The
Company seeks to locate theatres in markets that it believes are underscreened
or served by older theatre facilities. The Company also seeks to locate each
theatre where it will be the sole or leading exhibitor within a particular
geographic film licensing zone. Management believes that at October 1, 1998,
approximately 75% of the Company's screens were located in film licensing zones
in which the Company was the sole exhibitor.
From its inception through October 1, 1998, the Company has grown by
acquiring a net of 313 theatres with 2,326 screens, constructing 72 theatres
with 908 screens and adding 78 screens to existing theatres. This strategy has
served to establish and enhance the Company's presence in selected geographic
markets. The Company anticipates that its future growth will result largely from
the development of new theatres, the addition of new screens to existing
theatres and strategic acquisitions of other theatre circuits. At October 1,
1998, the Company had 53 new theatres with 833 screens under construction and 46
new screens under construction at eight existing theatres. In addition, on the
same pro forma basis, the Company had entered into leases in connection with its
plans to develop an additional 30 theatres with 461 screens. The Company has
historically achieved substantial returns on invested capital for newly built
theatres. The Company's theatres built during fiscal years 1992 through 1996
yielded a return on invested capital of 29.6% (calculated as 1997 theatre cash
flow divided by cumulative capital expenditures for such theatres).
On August 26, 1998, the Company acquired Act III, the ninth largest motion
picture exhibitor in the United States based on number of screens in operation.
As of August 26,
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1998, Act III operated 130 theatres, with an aggregate of 835 screens,
strategically located in concentrated areas throughout the Pacific Northwest,
Texas and Nevada. The Company has acquired ten other theatre circuits during the
last four years, including Cobb Theatres, Georgia State Theatres and Litchfield
Theatres. These acquisitions have enabled the Company to become the leading
operator in certain of its markets and to improve its market concentration in
the eastern and northwestern United States. Through the integration of these
acquisitions, the Company has achieved (or, in the case of the recently
completed Act III Combination, is beginning to realize) economies of scale by
consolidating purchasing, operating and other administrative functions. The
Company continues to consider strategic acquisitions of complementary theatres
or theatre companies. In addition, the Company may enter into joint ventures,
which could serve as a platform for both domestic and international expansion.
BUSINESS STRATEGY
Operating Strategy
Management believes that the following are the key elements of the
Company's operating strategy:
Multiplex Theatres. Management believes that the Company's multiplex
theatres promote increased attendance and maximize operating efficiencies
through reduced labor costs and improved utilization of theatre capacity. The
Company's multiplex theatres enable it to offer a diverse selection of films,
stagger movie starting times, increase management's flexibility in determining
the number of weeks that a film will run and the size of the auditorium in which
it is shown and more efficiently serve patrons from common concessions and other
support facilities. The Company further believes that the development of
multiplex theatres allows it to achieve an optimal relationship between the
number of screens (generally 14 to 18) and the size of the auditoriums (100 to
500 seats). The Company's multiplex theatres are designed to increase the
profitability of the theatres by maximizing the revenue per square foot
generated by the facility and reducing the cost per square foot of constructing
and operating the theatres.
Cost Control. The Company's cost control programs have resulted in an
increase in its EBITDA margins, which management believes are among the highest
in the motion picture exhibition industry. Management's focus on cost control
extends from a theatre's initial development to its daily operation. Management
believes that it is able to reduce construction and operating costs by designing
prototype theatres adaptable to a variety of locations and by actively
supervising all aspects of construction. In addition, through the use of
detailed management reports, the Company closely monitors labor scheduling,
concession yields and other significant operating expenses. A significant
component of theatre management's compensation is based on controlling operating
expenses at the theatre level.
Revenue Enhancements. The Company strives to enhance revenue growth
through: (i) the addition of specialty cafes within certain theatre lobbies
serving non-traditional concessions; (ii) the sale of screen slide and rolling
stock advertising time prior to scheduled movies; (iii) the marketing and
advertising of certain theatres in its circuit; (iv) the addition of
state-of-the-art video arcades; and (v) the rental of theatres to organizations
during non-peak hours.
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Patron Satisfaction/Quality Control. The Company emphasizes patron
satisfaction by providing convenient locations, comfortable seating, spacious
neon-enhanced lobby and concession areas and a wide variety of film selections.
The Company's theatre complexes feature clean, modern auditoriums with high
quality projection and digital stereo surround-sound systems. As of October 1,
1998, approximately 89% of the Company's theatres were equipped with digital
surround-sound systems. The Company is adding stadium seating to certain of its
existing theatres and expects that all of its new theatres will feature stadium
seating. The Company believes that all of these features serve to enhance its
patrons' movie-going experience and help build patron loyalty. In addition, the
Company promotes patron loyalty through specialized marketing programs for its
theatres and feature films. To maintain quality and consistency within the
Company's theatres, the Company conducts regular inspections of each theatre and
operates a "mystery shopper" program.
Integration of Acquisitions. The Company has acquired 11 theatre circuits
during the last four years. Management believes that acquisitions provide the
opportunity for the Company to increase revenue growth while realizing joint
operating efficiencies through the integration of operations. In this regard,
the Company believes it has achieved (or, in the case of the recently completed
Act III Combination, believes it will achieve) cost savings through the
consolidation of its purchasing function, the centralization of certain other
operating functions and the uniform application of the most successful cost
control strategies of the Company and its acquisition targets.
Centralized Corporate Decision Making/Decentralized Operations. The Company
centralizes many of its functions through its corporate office, including film
licensing, concessions purchasing and new theatre construction and design. The
Company also devotes significant resources to training its theatre managers.
These managers are responsible for most aspects of a theatre's day-to-day
operations and implement cost controls at the theatre level, including the close
monitoring of payroll, concession and advertising expenses.
Marketing. The Company actively markets its theatres through grand opening
promotions, including "VIP" preopening parties, newspaper and radio advertising,
television commercials in certain markets and promotional activities, such as
live music, spotlights and skydivers, which frequently generate media coverage.
The Company also utilizes special marketing programs for specific films and
concession items. The Company seeks to develop patron loyalty through a number
of marketing programs such as a free summer children's film series,
cross-promotion ticket redemptions and promotions within local communities.
Performance-Based Compensation Packages. The Company maintains an incentive
program for its corporate personnel, district managers and theatre managers that
links employees' compensation to profitability. The Company believes that its
incentive program, which consists of cash bonuses and stock options, aligns the
employees' interests with those of the Company's shareholders.
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Growth Strategy
Management believes that the following characteristics are the key elements
of the Company's growth strategy:
Develop New Multiplex Theatres in Existing and Target Markets. The Company
develops multiplex theatres with generally 14 to 18 screens, in both its
existing markets and in other mid-sized metropolitan markets and suburban growth
areas of larger metropolitan markets in the United States. Management seeks to
locate its theatres in areas that are underscreened or that are served by aging
theatre facilities. The Company seeks to identify new geographical markets that
present opportunities for expansion and growth and, when identified, targets
these geographical markets for future development. At October 1, 1998, the
Company had 53 new theatres with 833 screens under construction. In addition,
the Company has entered into leases in connection with its plans to develop an
additional 30 theatres with 461 screens. The Company's theatres built during
fiscal years 1992 through 1996 yielded a return on invested capital of 29.6%
(calculated as 1997 theatre cash flow divided by cumulative capital expenditures
for such theatres).
Add New Screens and Upgrade Existing Theatres. To enhance profitability and
to maintain competitiveness at existing theatres, the Company continues to add
additional screens and upgrade its existing theatres, including by adding
stadium seating to certain existing theatres. The Company believes that through
the addition of screens and the upgrade of its facilities it can leverage the
favorable real estate location of certain of its theatres and thereby improve
its operating margins at those theatres. By upgrading certain existing theatres
the Company is able to create barriers to entry in the markets served by those
theatres. At October 1, 1998, the Company had 46 new screens under construction
at eight existing theatre facilities and anticipates that it will add a total of
60 to 70 screens to certain of its existing theatres by the end of 1999. The
addition of screens to existing theatres is designed not to disrupt operations
at the theatres.
Acquire Theatres. While management believes that a significant portion of
its future growth will come through the development of new theatres, the Company
will continue to consider strategic acquisitions of complementary theatres or
theatre companies. In addition, the Company may enter into joint ventures, which
could serve as a platform for both domestic and international expansion. On
August 26, 1998, the Company acquired Act III, the ninth largest motion picture
exhibitor in the United States based on number of screens in operation. The
Company currently has no letters of intent or other written agreements for any
specific acquisitions or joint ventures.
Develop Complementary Theatre Concepts. To complement the Company's theatre
development, as of October 1, 1998, it had opened six FunScapes(TM)
entertainment complexes and had two additional FunScapes(TM) under construction.
The Company may seek to develop additional FunScapes(TM) at strategic locations.
The Company has also signed an agreement to include IMAX(R) 3-D theatres in ten
of its new multiplex theatres over the next five years, the first of which
opened in Chicago in November 1998. Management believes that the Company's
theatres with IMAX(R) 3-D will draw higher traffic levels than its other
theatres by attracting patrons during non-peak hours and expanding its customer
base in certain markets.
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INDUSTRY OVERVIEW
The domestic motion picture exhibition industry is currently comprised of
approximately 360 exhibitors, 122 of which operate ten or more total screens. At
May 1, 1997, the five largest exhibitors operated approximately 37% of the total
screens in operation with no one exhibitor operating more than 10% of the total
screens. From 1986 through 1997, the net number of screens in operation in the
United States increased from approximately 22,000 to approximately 31,000, and
admissions revenues increased from approximately $3.8 billion to approximately
$6.4 billion. The motion picture exhibition industry continues to grow despite
the emergence of competing film distribution channels. Since 1991, the industry
has experienced significant growth with attendance increasing at a 3.3% compound
annual rate. This growth is principally attributed to an increase in the supply
of first-run, big budget films, increased investment in advertising and
promotion by studios, the investment by leading exhibitors in appealing, modern
multiplex theatres to replace aging locations and the moderate price of movies
relative to other out-of-home entertainment options.
In an effort to realize greater operating efficiencies, operators of
multi-theatre circuits have emphasized the development of larger multiplex
complexes. Typically, multiplexes have six or more screens per theatre, although
in some instances multiplexes may have as many as 30 screens in a single
theatre. The multi-screen format provides numerous benefits for theatre
operators, including allowing facilities (concession stands and restrooms) and
operating costs (lease rentals, utilities and personnel) to be spread over a
larger base of screens and patrons. Multiplexes have varying seating capacities
(typically from 100 to 500 seats) that allow for multiple show times of the same
film and a variety of films with differing audience appeal to be shown, and
provide the flexibility to shift films to larger or smaller auditoriums
depending on their popularity. To limit crowd congestion and maximize the
efficiency of floor and concession staff, the starting times of films at
multiplexes are staggered. Certain trends in the theatre exhibition industry
favor larger, better capitalized companies, creating an environment for new
construction and consolidation. Foremost among these trends is larger exhibitors
actively seeking and building multiplexes or megaplexes. Moreover, many smaller
theatre owners who operate older cinemas without state-of-the-art stadium
seating and projection and sound equipment may not have the capital required to
maintain or upgrade their circuits. The growth of the number of screens, strong
domestic consumer demand, and growing foreign theatrical and domestic and
foreign ancillary revenue opportunities have led to an increase in the volume of
major film releases. The greater number of screens has allowed films to be
produced for and marketed to specific audience segments (e.g., horror films for
teenagers) without using capacity required for mainstream product.
The greater number of screens has also prompted distributors to increase
promotion of new films. Not only are there more films in the market at any given
time, but the multiplex format allows for much larger simultaneous national
theatrical release. In prior years a studio might have released 1,000 prints of
a major film, initially releasing the film only in major markets, and gradually
releasing it in smaller cities and towns nationwide. Today studios might release
over 4,000 prints of a major film and can open it nationally in one weekend.
These national openings have made up-front promotion of films critical to
attract audiences and stimulate word-of-mouth advertising.
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Motion pictures are generally made available through various distribution
methods at various dates after the theatrical release date. The release dates of
motion pictures in these other "distribution windows" begin four to six months
after the theatrical release date with video cassette rentals, followed
generally by off-air or cable television programming including pay-per-view
services, pay television, other basic cable and broadcast network syndicated
programming. These new distribution windows have given producers the ability to
generate a greater portion of a film's revenues through channels other than
theatrical release. This increased revenue potential after a film's initial
domestic release has enabled major studios and certain independent producers to
increase film production and theatrical advertising. The additional
non-theatrical revenue has also permitted producers to incur higher individual
film production and marketing costs. The total cost of producing and
distributing a picture averaged approximately $53.4 million in 1997 compared
with approximately $17.5 million in 1986, while the average cost to advertise
and promote a picture averaged approximately $19.2 million in 1997 as compared
with $5.4 million in 1986. These higher costs have further enhanced the
importance of a large theatrical release. Distributors strive for a successful
opening run at the theatre to establish a film and substantiate the film's
revenue potential both internationally and through other release windows. The
value of home video and pay cable distribution agreements frequently depends on
the success of a film's theatrical release. Furthermore, the studios' revenue-
sharing percentage and ability to control who views the product within each of
the distribution windows generally declines as one moves farther from the
theatrical release window. As theatrical distribution remains the cornerstone of
a film's financial success, it is the primary distribution window for the
public's evaluation of films and motion picture promotion.
Management expects that the overall supply of films will continue to
increase, although there can be no assurance that any such increase will occur.
There has also been an increase in the number of major studios and reissues of
films as well as an increased popularity of films made by independent producers.
From January 1994 through December 1997, the number of large budget films and
the level of marketing support provided by the production companies has
increased, as evidenced by the increase in average production costs and average
advertising costs per film of approximately 55.8% and 38.7%, respectively.
THEATRE OPERATIONS
The Company is the largest motion picture exhibitor in the United States
based upon the number of screens in operation. The Company develops, acquires
and operates primarily multiplex theatres in mid-size metropolitan markets and
suburban growth areas of larger metropolitan markets predominately in the
eastern and northwestern United States.
For the nine month period ended October 1, 1998, after giving pro forma
effect to the Act III Combination, the Company generated 62.8% of its revenues
from theatres in six states. The following table sets forth the number of
theatres and screens owned and
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<PAGE> 51
operated by the Company, providing certain operating data for the six states
where the Company has its largest presence.
<TABLE>
<CAPTION>
NUMBER NUMBER PERCENT OF
OF OF TOTAL
STATE THEATRES SCREENS THEATRE REVENUE
----- -------- ------- ---------------
<S> <C> <C> <C>
Florida.................................. 69 745 20.3%
Washington............................... 45 289 10.9
Oregon................................... 47 244 9.5
Virginia................................. 36 260 8.2
Ohio..................................... 35 299 7.1
Texas.................................... 23 203 6.8
Other.................................... 130 1,272 37.2
--- ----- -----
Total.......................... 385 3,312 100.0%
=== ===== =====
</TABLE>
Multiplex theatres enable the Company to offer a wide selection of films
attractive to a diverse group of patrons residing within the drawing area of a
particular theatre complex. Varied auditorium seating capacities within the same
theatre enable the Company to exhibit films on a more cost effective basis for a
longer period of time by shifting films to smaller auditoriums to meet changing
attendance levels. In addition, operating efficiencies are realized through the
economies of having common box office, concession, projection, lobby and rest
room facilities, which enable the Company to spread certain costs, such as
payroll, advertising and rent, over a higher revenue base. Staggered movie
starting times also reduce staffing requirements, reduce lobby congestion and
contribute to more desirable parking and traffic flow patterns.
The Company has designed prototype theatres, adaptable to a variety of
locations, which management believes result in construction and operating cost
savings. The Company's multiplex theatre complexes, which typically contain
auditoriums ranging from 100 to 500 seats each, feature wall-to-wall screens,
digital stereo surround-sound, multi-station concessions, computerized ticketing
systems, plush stadium seating with cup holders, neon-enhanced interiors and
exteriors and video game areas adjacent to the theatre lobby.
The Company's real estate department includes leasing and site selection,
construction supervision and property management. By utilizing a network of
contingent real estate brokers, the Company is able to service a wide geographic
region without incurring incremental staffing costs. The Company also closely
monitors the construction of its theatres to ensure that they will open on time
and remain on budget. The property management department ensures that ongoing
occupancy costs are reviewed for accuracy and compliance with the terms of the
lease.
In addition to leasing and site selection, the Company's central corporate
office coordinates film buying, concession purchasing, advertising and financial
and accounting activities.
The Company's theatre operations are under the supervision of its Chief
Operating Officer and are divided into three geographic divisions, each of which
is headed by a Vice President supervising several district theatre supervisors.
The district theatre supervisors are responsible for implementing Company
operating policies and supervising the managers of the individual theatres, who
are responsible for most of the day-to-day operations of the
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Company's theatres. The Company seeks theatre managers with experience in the
motion picture exhibition industry and requires all new managers to complete a
training program at designated training theatres. The program is designed to
encompass all phases of theatre operations, including the Company's philosophy,
management strategy, policies, procedures and operating standards.
Management closely monitors the Company's operations and cash flow through
daily reports generated from computerized box office terminals located in each
theatre. These reports permit the Company to maintain an accurate and immediate
count of admissions by film title and show times and provide management with the
information necessary to effectively and efficiently manage the Company's
theatre operations. Additionally, daily payroll data is input at in-theatre
terminals which allows the regular monitoring of payroll expenses. In addition,
the Company has a quality assurance program to maintain clean, comfortable and
modern facilities. Management believes that operating a theatre circuit
consisting primarily of modern multiplex theatres also enhances the Company's
ability to license commercially successful films from distributors. To maintain
quality and consistency within the Company's theatre circuit, the district
supervisors regularly inspect each theatre and the Company operates a "mystery
shopper" program, which involves unannounced visits by unidentified customers
who report on the quality of service, film presentation and cleanliness at
individual theatres. The Company has an incentive compensation program for
theatre level management which rewards managers for controlling theatre level
operating expenses while complying with the Company's operating standards.
In addition to revenues from box office admissions, the Company receives
revenues from concession sales and video games located adjacent to the theatre
lobby. Concession sales constituted 28.6% of total revenues for fiscal 1997. The
Company emphasizes prominent and appealing concession stations designed for
rapid and efficient service. Although popcorn, candy and soft drinks remain the
best selling concession items, the Company's theatres offer a wide range of
concession choices. The Company continually seeks to increase concession sales
through optimizing product mix, introducing special promotions from time to time
and training employees to cross sell products. In addition to traditional
concession stations, select existing theatres and theatres currently under
development feature specialty concession cafes serving items such as cappuccino,
fruit juices, cookies and muffins, soft pretzels and yogurt. Management
negotiates directly with manufacturers for many of its concession items to
ensure adequate supplies and to obtain competitive prices.
The Company relies upon advertisements including movie schedules published
in newspapers to inform its patrons of film selections and show times. Newspaper
advertisements are typically displayed in a single grouping for all of the
Company's theatres located in the newspapers's circulation area. Multimedia
advertising campaigns for major film releases are organized and financed
primarily by the film distributors.
The Company actively markets its theatres through grand opening promotions,
including "VIP" preopening parties, newspaper and radio advertising, television
commercials in certain markets and promotional activities such as live music,
spotlights and skydivers, which frequently generate media coverage. The Company
also utilizes special marketing programs for specific films and concession
items. The Company seeks to develop
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<PAGE> 53
patron loyalty through a number of marketing programs such as free summer
children's film series, cross-promotion ticket redemptions and promotions within
local communities.
As of October 1, 1998, the Company operated 26 theatres with an aggregate
of 176 screens, which exhibit second-run movies and charge lower admission
prices (typically $1.00 to $2.00). These movies are the same high quality
features shown at all of the Company's theatres. The terminology second-run is
an industry term for the showing of movies after the film has been shown for
varying periods of time at other theatres. The Company believes that the
increased attendance resulting from lower admission prices and the lower film
rental costs of second-run movies compensate for the lower admission prices and
slightly higher operating costs as a percentage of admission revenues at the
Company's discount theatres. The design, construction and equipment in the
Company's discount theatres are of the same high quality as its first-run
theatres. The Company's discount theatres generate theatre level cash flows
similar to the Company's first-run theatres.
FILM LICENSING
The Company licenses films from distributors on a film-by-film and
theatre-by-theatre basis. The Company negotiates directly with film
distributors. Prior to negotiating for a film license, the Company evaluates the
prospects for upcoming films. Criteria considered for each film include cast,
director, plot, performance of similar films, estimated film rental costs and
expected Motion Picture Association of America rating. Successful licensing
depends greatly upon the exhibitor's knowledge of trends and historical film
preferences of the residents in markets served by each theatre, as well as on
the availability of commercially successful motion pictures.
Films are licensed from film distributors owned by major film production
companies and from independent film distributors that generally distribute films
for smaller production companies. Film distributors typically establish
geographic film licensing zones and allocate each available film to one theatre
within that zone. Film zones generally encompass a radius of three to five miles
in metropolitan and suburban markets, depending primarily upon population
density. As of October 1, 1998, the Company believes that approximately 75% of
its screens were located in film licensing zones in which such theatres were the
sole exhibitors, permitting the Company to exhibit many of the most commercially
successful films in these zones.
In film zones where the Company is the sole exhibitor, the Company obtains
film licenses by selecting a film from among those offered and negotiating
directly with the distributor. In film zones where there is competition, a
distributor will either require the exhibitors in the zone to bid for a film or
will allocate its films among the exhibitors in the zone. When films are
licensed under the allocation process, a distributor will select an exhibitor,
who then negotiates film rental terms directly with the distributor. Over the
past several years, distributors have generally used the allocation rather than
bidding process to license their films. When films are licensed through a
bidding process, exhibitors compete for licenses based upon economic terms. The
Company currently does not bid for films in any of its markets, although it may
be required to do so in the future. Although the Company predominantly licenses
first-run films, if a film has substantial remaining potential following its
first-run, the Company may license it for a second-run. Film distributors
establish second-run availability on a national or market-by-market basis after
the release from first-run theatres.
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<PAGE> 54
Film licenses entered into in either a negotiated or bidding process
typically specify rental fees based on the higher of a gross receipts formula or
a theatre admissions revenue formula. Under a gross receipts formula, the
distributor receives a specified percentage of box office receipts, with the
percentage declining over the term of the film run. First-run film rental fees
may begin at up to 70% of admission revenues and gradually decline to as low as
30% over a period of four weeks or more. Second-run film rental fees typically
begin at 35% of admission revenues and often decline to 30% after the first
week. Under a theatre admissions revenue formula, the distributor receives a
specified percentage of the excess of admission revenues over a negotiated
allowance for theatre expenses. In addition, the Company is occasionally
required to pay non-refundable guarantees of film rental fees or to make
refundable advance payments of film rental fees or both in order to obtain a
license for a film. Rental fees actually paid by the Company generally are
adjusted subsequent to the exhibition of a film in a process known as
settlement. The commercial success of a film relative to original distributor
expectations is the primary factor taken into account in the settlement process;
secondarily, the past performance of other films in a specific theatre is a
factor. To date, the settlement process has not resulted in material adjustments
in the film rental fees accrued by the Company.
The Company's business is dependent upon the availability of marketable
motion pictures, its relationships with distributors and its ability to obtain
commercially successful films. Many distributors provide quality first-run
movies to the motion picture exhibition industry; however, according to industry
reports, eight distributors accounted for approximately 94% of industry
admission revenues during 1997, and 46 of the top 50 grossing films. No single
distributor dominates the market. Disruption in the production of motion
pictures by the major studios and/or independent producers, the lack of
commercial success of motion pictures or the Company's inability to otherwise
obtain motion pictures for exhibition would have a material adverse effect upon
the Company's business. The Company licenses films from each of the major
distributors and believes that its relationships with distributors are good.
From year to year, the revenues attributable to individual distributors will
vary widely depending upon the number and quality of films each distributes. The
Company believes that in 1997 no single distributor accounted for more than 21%
of the films licensed by the Company, or films producing more than 21% of the
Company's admission revenues.
COMPLEMENTARY CONCEPTS
FunScapes(TM). To complement the Company's theatre development, the Company
developed and operates its FunScapes(TM) entertainment complexes in certain
locations which are designed to increase both the drawing radius for patrons and
patron spending by offering a wider array of entertainment options at a single
destination. As of October 1, 1998, the Company operated FunScapes(TM) in
Chesapeake, Virginia; Rochester, New York; Syracuse, New York; Brandywine,
Delaware; and Fort Lauderdale, Florida. Each complex includes a 13 to 16 screen
theatre and a 50,000 to 70,000 square foot family entertainment center, which
generally features a 36-hole, tropical-themed miniature golf course, a
children's soft play and exercise area, laser tag, video batting cages, a video
golf course, virtual reality games, a high-tech video arcade and party rooms. A
food court connects the theatres to the entertainment center and features
nationally recognized brand name pizza, taco, sandwich and dessert restaurants.
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<PAGE> 55
Each theatre and entertainment center totals approximately 95,000 to
140,000 square feet and management believes the facility is a comprehensive
entertainment destination. The Company currently has two additional
FunScapes(TM) under construction and may seek to develop additional
FunScapes(TM) at strategic locations. The $6.0 million to $10.0 million
estimated cost of construction of an entertainment center is comparable to the
cost of constructing the adjacent theatre complex.
IMAX(R) 3-D Theatres. The Company recently signed an agreement to include
IMAX(R) 3-D theatres in ten new multiplex theatre projects over the next five
years, the first of which opened in Chicago in November 1998. Management
believes that the Company's theatres with IMAX(R) 3-D, which will contain highly
automated projection systems and specialized sound systems, will draw higher
traffic levels than theatres without them, allow the Company to attract patrons
during non-peak hours and expand its customer base in certain markets.
COMPETITION
The motion picture exhibition industry is fragmented and highly
competitive, particularly in film licensing, attracting patrons and finding new
theatre sites. Theatres operated by national and regional circuits and by
smaller independent exhibitors compete with the Company's theatres. The Company
believes that the principal competitive factors in the motion picture exhibition
industry include: licensing terms; the seating capacity, location and reputation
of an exhibitor's theatres; the quality of projection and sound equipment at the
theatres; and the exhibitor's ability and willingness to promote the films.
In those areas where real estate is readily available, there are few
barriers preventing competing companies from opening theatres near one of the
Company's existing theatres, which may have a material adverse effect on the
Company's theatre. In addition, competitors have built or are planning to build
theatres in certain areas in which the Company operates, which may result in
excess capacity in such areas and adversely affect attendance and pricing at the
Company's theatres in such areas.
In addition, alternative motion picture exhibition delivery systems,
including cable television, video cassettes, satellite and pay-per-view
services, exist for the exhibition of filmed entertainment in periods subsequent
to the theatrical release. The expansion of such delivery systems (such as video
on demand) could have a material adverse effect upon the Company's business and
results of operations. The Company also competes for the public's leisure time
and disposable income with all forms of entertainment, including sporting
events, concerts, live theatre and restaurants.
MANAGEMENT INFORMATION SYSTEMS
The Company has a significant commitment to its management information
systems, some of which have been developed internally. The point of sale
terminals within each theatre provide comprehensive information to the corporate
office by 8:00 a.m. each morning. These daily management reports address all
aspects of theatre operations, including concession sales, fraud detection and
film booking. Payroll information is gathered daily from theatres through the
use of automated time keeping systems, enabling a daily comparison of actual to
budgeted labor for each theatre. The Company's systems allow it to properly
schedule and manage its hourly workforce. A corporate help desk is
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<PAGE> 56
also available to monitor and resolve any processing problems that might arise
in the theatres.
PROPERTIES
As of October 1, 1998, the Company operated 243 of its 385 theatres
pursuant to lease agreements, owned the land and buildings for 99 theatres and
operated 43 locations pursuant to ground leases. Of the 385 theatres operated by
the Company as of October 1, 1998, 313 were acquired as existing theatres and 72
have been developed by the Company.
The majority of the Company's leased theatres are subject to lease
agreements with original terms of 20 years or more and, in most cases, renewal
options for up to an additional ten years. The renewal options generally provide
for increased rent. These leases provide for minimum annual rentals. Under
certain conditions, further rental payments may be based on a percentage of
revenues above specified amounts. A significant majority of the leases are net
leases, which require the Company to pay the cost of insurance, taxes and a
portion of the lessor's operating costs.
The Company's corporate office is located in approximately 50,000 square
feet of space in Knoxville, Tennessee, which the Company acquired in 1994. The
Company believes that these facilities are adequate for its operations.
EMPLOYEES
As of October 1, 1998, the Company employed 11,326 persons, of which 1,614
were full-time and 9,712 were part-time employees. Of the Company's employees,
as of the same date and on the same pro forma basis, 357 were corporate
personnel, 1,770 were theatre management personnel and the remainder were hourly
theatre personnel. Film projectionists at 16 of the Company's theatres in the
Seattle, Washington; Las Vegas, Nevada; and the Cleveland and Youngstown, Ohio
markets are represented by the International Alliance of Theatrical Stage
Employees and Moving Picture Machine Operators of the United States and Canada
pursuant to collective bargaining agreements. These collective bargaining
agreements expire over various periods through March 2000. The Company's
expansion into new markets may increase the number of employees represented by
unions. The Company considers its employee relations to be good.
REGULATION
The distribution of motion pictures is in large part regulated by federal
and state antitrust laws and has been the subject of numerous antitrust cases.
The Company has never been a party to any of such cases, but the manner in which
it can license films is subject to consent decrees resulting from these cases.
Consent decrees bind certain major film distributors and require the films of
such distributors to be offered and licensed to exhibitors, including the
Company, on a theatre-by-theatre basis. Consequently, exhibitors cannot assure
themselves of a supply of films by entering into long-term arrangements with
major distributors, but must negotiate for licenses on a film-by-film and
theatre-by-theatre basis.
The Company believes that it is in substantial compliance with all current
applicable regulations relating to accommodations for the disabled. The Company
intends to comply
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<PAGE> 57
with future regulations in this regard, and the Company does not currently
anticipate that compliance will require the Company to expend substantial funds.
The Company's theatre operations are also subject to federal, state and
local laws governing such matters as wages, working conditions, citizenship, and
health and sanitation requirements and licensing. At October 1, 1998,
approximately 37.3% of the Company's employees were paid at the federal minimum
wage and, accordingly, the minimum wage largely determines the Company's labor
costs for those employees.
LEGAL PROCEEDINGS
From time to time the Company is involved in routine litigation and
proceedings in the ordinary course of business. The Company does not have any
litigation that management believes is likely to have a material adverse effect
upon the Company.
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<PAGE> 58
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are the directors and executive officers of the
Company. Certain information relating to the directors and executive officers,
which has been furnished to the Company by the individuals named, is set forth
below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael L. Campbell... 44 Chairman, President, Chief Executive Officer and Director
Gregory W. Dunn....... 39 Executive Vice President and Chief Operating Officer
R. Keith Thompson..... 36 Senior Vice President Real Estate and Construction
D. Mark Monroe........ 36 Vice President, Acting Chief Financial Officer and
Treasurer
Susan Seagraves....... 41 Vice President, Corporate Controller and Assistant
Secretary
David Deniger......... 53 Director
Thomas O. Hicks....... 52 Director
Henry R. Kravis....... 54 Director
Michael J. Levitt..... 40 Director
John R. Muse.......... 47 Director
Alexander Navab, 32 Director
Jr..................
Clifton S. Robbins.... 40 Director
George R. Roberts..... 55 Director
</TABLE>
Michael L. Campbell founded the Company in November 1989 and has served as
Chairman of the Board, President and Chief Executive Officer since inception.
Prior thereto, Mr. Campbell was the Chief Executive Officer of Premiere Cinemas
Corporation ("Premiere"), which he co-founded in 1982, and served in such
capacity until Premiere was sold in October 1989. Mr. Campbell serves on the
Executive Committee of the Board of Directors of the National Association of
Theatre Owners.
Gregory W. Dunn has served as Executive Vice President and Chief Operating
Officer since 1995. From 1991 to 1995, Mr. Dunn was Vice President Marketing and
Concessions. From 1989 to 1991, Mr. Dunn was the Purchasing and Operations
Manager for Goodrich Quality Theaters, a Grand Rapids, Michigan based theatre
chain. From 1986 to 1989, he was a film buyer for Tri-State Theatre Service,
Inc.
R. Keith Thompson has served as Senior Vice President Real Estate and
Construction since February 1993. Prior thereto, he served as Vice President
Finance since joining the Company in 1991. From June 1984 to July 1991, Mr.
Thompson was a Vice President of Corporate Lending at PNC Commercial
Corporation.
D. Mark Monroe is a certified public accountant and has served as Acting
Chief Financial Officer since October 1, 1998 and as Vice President and
Treasurer since November 1997. From September 1995 to October 1997, Mr. Monroe
served as the
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<PAGE> 59
Director of Accounting Projects. From 1992 to 1995, Mr. Monroe was a manager
with Pershing, Yoakley and Associates, a regional accounting and consulting
firm. From 1986 to 1991, Mr. Monroe was with Ernst & Young LLP.
Susan Seagraves has served as Vice President and Corporate Controller since
January 1994 when she joined the Company and as Assistant Secretary since May
1997. Ms. Seagraves is a certified public accountant, a certified management
accountant and a fellow of health care management. From 1990 through 1993, Ms.
Seagraves was an adjunct faculty member of Tusculum College and Bristol
University.
David Deniger became a director of the Company upon the closing of the
Regal Merger. Mr. Deniger is a Managing Director and principal of Hicks Muse.
Mr. Deniger is also General Partner, President and CEO of Olympus Real Estate
Corporation. Prior to forming Olympus Real Estate Corporation with Hicks Muse,
Mr. Deniger was a founder and served as President and Chief Executive Officer of
GE Capital Realty Group, Inc. ("GECRG"), a wholly owned subsidiary of General
Electric Capital Corporation organized to underwrite, acquire and manage real
estate equity investments made by GE Capital and its co-investors. Prior to
forming GECRG, Mr. Deniger was President and CEO of FGB Realty Advisors, a
wholly owned subsidiary of MacAndrews & Forbes Financial Service Group. Mr.
Deniger also serves as Chairman of the Board of the Arnold Palmer Golf
Management Company and Park Plaza International.
Thomas O. Hicks became a director of the Company upon the closing of the
Regal Merger. Mr. Hicks has been Chairman and Chief Executive Officer of Hicks
Muse since co-founding the firm in 1989. Prior to forming Hicks Muse, Mr. Hicks
co-founded Hicks & Haas Incorporated in 1983 and served as its Co-Chairman and
Co-Chief Executive Officer through 1989. Mr. Hicks also serves as a director of
Berg Electronics Corp., Capstar Broadcasting Corporation, Chancellor Media
Corporation, Cooperative Computing, Inc., CorpGroup Limited, Group MVS, S.A. de
C.V., Home Interiors & Gifts, Inc., International Home Foods, Inc., LIN
Television Corporation, Olympus Real Estate Corporation, Sybron International
Corporation, Triton Energy Limited and Viasystems Group, Inc.
Henry R. Kravis became a director of the Company upon the closing of the
Regal Merger. He is a managing member of KKR & Co. L.L.C., the limited liability
company which serves as the general partner of KKR. He is also a director of
Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds Collection,
Ltd., Bruno's, Inc., Evenflo & Spalding Holdings Corporation, The Gillette
Company, IDEX Corporation, KinderCare Learning Centers, Inc., KSL Recreation
Group, Inc., Newsquest Capital plc, Owens-Illinois, Inc., Owens-Illinois Group,
Inc., PRIMEDIA, Inc., Randall's Food Markets, Inc., Reltec Corporation, Safeway,
Inc., Sotheby's Holdings Inc., Union Texas Petroleum Holdings, Inc. and World
Color Press, Inc.
Michael J. Levitt became a director of the Company upon the closing of the
Regal Merger. Mr. Levitt is a Managing Director and principal of Hicks Muse.
Before joining Hicks Muse, Mr. Levitt was a Managing Director and Deputy Head of
Investment Banking with Smith Barney Inc. from 1993 through 1995. From 1986
through 1993, Mr. Levitt was with Morgan Stanley & Co. Incorporated, most
recently as a Managing Director responsible for the New York based Financial
Entrepreneurs Group. Mr. Levitt also serves as a director of Capstar
Broadcasting Corporation, Chancellor Media
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<PAGE> 60
Corporation, Group MVS, S.A. de C.V., International Home Foods, Inc., LIN
Television Corporation and Sunrise Television Corp.
John R. Muse became a director of the Company upon the closing of the Regal
Merger. Mr. Muse is Chief Operating Officer and co-founder of Hicks Muse. Prior
to the formation of Hicks Muse in 1989, Mr. Muse headed the investment/merchant
banking activities of Prudential Securities for the southwestern region of the
United States from 1984 to 1989. Prior to joining Prudential Securities, Mr.
Muse served as Senior Vice President and a director of Schneider, Bernet &
Hickman, Inc. in Dallas from 1979 to 1983 and was responsible for the company's
investment banking activities. Mr. Muse is a director of Arena Brands, Inc.,
Arnold Palmer Golf Management Co., Coho Energy, Inc., Glass's Group,
International Home Foods, Inc., LIN Television Corporation, Lucchese, Inc.,
Olympus Real Estate Corporation, Suiza Foods Corporation and Sunrise Television
Corp.
Alexander Navab, Jr. became a director of the Company upon the closing of
the Regal Merger. He has been an executive of KKR and a limited partner of KKR
Associates since 1993. From 1991 to 1993, Mr. Navab was an associate at James D.
Wolfensohn, Inc. He is also a director of Borden, Inc., KSL Recreation Group,
Inc., Newsquest Capital plc, Reltec Corporation and World Color Press, Inc.
Clifton S. Robbins became a director of the Company upon the closing of the
Regal Merger. He was a General Partner of KKR from January 1, 1995 until January
1, 1996 when he became a member of the limited liability company which serves as
the general partner of KKR. Prior thereto, he was an executive thereof. Mr.
Robbins is a director of AEP Industries, Inc., Borden, Inc., IDEX Corporation,
KinderCare Learning Center, Inc. and Newsquest Capital plc.
George R. Roberts became a director of the Company upon the closing of the
Regal Merger. He is a managing member of KKR & Co. L.L.C., the limited liability
company which serves as the general partner of KKR. He is also a director of
Accuride Corporation, Amphenol Corporation, Borden, Inc., The Boyds Collection,
Ltd., Bruno's, Inc., Evenflo & Spalding Holdings Corporation, IDEX Corporation,
KinderCare Learning Centers, Inc., KSL Recreation Group, Inc., Owens-Illinois,
Inc., Owens-Illinois Group, Inc., PRIMEDIA, Inc., Randall's Food Markets, Inc.,
Reltec Corporation, Safeway Inc., Union Texas Petroleum Holdings, Inc. and World
Color Press, Inc.
COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company consists of nine members, including
four directors designated by KKR and four directors designated by Hicks Muse.
Directors of the Company are elected annually by the stockholders to serve
during the ensuing year or until their respective successors are duly elected
and qualified. See "Certain Transactions -- KKR/Hicks Muse Stockholders
Agreement."
COMPENSATION OF DIRECTORS
Each director of the Company who is not also an officer or employee of the
Company receives a fee of $40,000 per year. Directors of the Company are
entitled to reimbursement
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<PAGE> 61
of their reasonable out-of-pocket expenses in connection with their travel to
and attendance at meetings of the Board of Directors of the Company or
committees thereof.
LIMITATION ON DIRECTOR'S LIABILITY
Article 8 of the Amended and Restated Charter (the "Charter") of the
Company and its Restated Bylaws provide that the Company shall indemnify against
liability, and advance expenses to, any present or former director or officer of
the Company to the fullest extent allowed by the Tennessee Business Corporation
Act, as amended from time to time, or any subsequent law, rule or regulation
adopted in lieu thereof. Additionally, the Charter provides that no director of
the Company shall be personally liable to the Company or any of its shareholders
for monetary damages for breach of any fiduciary duty except for liability
arising from (i) any breach of a director's duty of loyalty to the Company or
its shareholders, (ii) acts or omissions not in good faith or which involved
intentional misconduct or a knowing violation of law, (iii) any unlawful
distributions or (iv) receiving any improper personal benefit. The Company has
entered into indemnification agreements with certain of the Company's directors
and executive officers. The effect of these provisions is to eliminate the
rights of the Company and its shareholders (through shareholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of his or her fiduciary duty as a director (including breaches
resulting from grossly negligent behavior), except in the situations described
above. Directors' and officers' liability insurance has also been obtained by
the Company, the effect of which is to indemnify certain directors and officers
of the Company against certain damages and expenses because of certain claims
made against them caused by their negligent act, error or omission.
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<PAGE> 62
EXECUTIVE COMPENSATION
The following table provides information as to annual, long-term or other
compensation during the last three fiscal years for the Company's Chief
Executive Officer and each of the Company's other executive officers whose
salary and bonus exceeded $100,000 during fiscal 1997 (collectively the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ---------------
SECURITIES
UNDERLYING
FISCAL YEAR SALARY($) BONUS($)(1) OPTIONS/SARS(#)
----------- --------- ----------- ---------------
<S> <C> <C> <C> <C>
Michael L. Campbell............. 1997 $241,500 $671,941 190,000
Chairman, President and Chief 1996 209,463 716,988 150,000
Executive Officer 1995 179,236 441,252 112,500
Gregory W. Dunn................. 1997 $125,000 $135,000 60,000
Executive Vice President and 1996 115,358 130,000 52,500
Chief Operating Officer 1995 87,536 75,000 61,875
Lewis Frazer III(2)............. 1997 $120,000 $120,000 60,000
Former Executive Vice
President, 1996 108,413 124,950 45,000
Chief Financial Officer and
Secretary 1995 84,804 70,000 56,250
R. Keith Thompson............... 1997 $110,000 $ 70,000 40,000
Senior Vice President Real
Estate 1996 95,568 60,000 30,000
and Construction 1995 77,033 50,000 22,500
Robert A. Engel(2).............. 1997 $ 95,000 $ 50,000 --
Former Senior Vice President 1996 85,540 55,000 30,000
Film and Advertising 1995 77,033 45,000 22,500
</TABLE>
- -------------------------
(1) For fiscal years 1997 and 1996, reflects cash bonus earned in fiscal 1997
and 1996, respectively, and paid the following fiscal year. For fiscal year
1995, reflects bonuses earned in the fiscal year indicated and paid in the
following fiscal year one-half in cash and one-half in restricted stock
purchased in the name of the executive officer. Shares of restricted stock
vested on January 2, 1997, one year after the grant date. Restricted stock
was awarded as follows: Mr. Campbell -- 10,227 shares for fiscal 1995; Mr.
Dunn -- 1,738 shares for fiscal 1995; Mr. Frazer -- 1,623 shares for fiscal
1995; Mr. Thompson -- 1,159 shares for fiscal 1995; and Mr. Engel -- 1,042
shares for fiscal 1995. Such shares for fiscal 1995 represent the total
aggregate holdings of restricted stock by the Named Executive Officers for
fiscal 1995 and had a fair market value of approximately $192,574, $32,727,
$30,561, $21,824 and $19,621, for Messrs. Campbell, Dunn, Frazer, Thompson
and Engel, respectively, based on a price of $18.83, the closing price of
the Common Stock on The Nasdaq Stock Market on December 28, 1995 (as
adjusted for a three-for-two stock split in September 1996). Dividends are
paid on all restricted shares to the same extent as on any other shares of
Common Stock.
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<PAGE> 63
(2) As of October 1, 1998, Messrs. Frazer and Engel were no longer employed by
the Company.
The following table summarizes certain information regarding stock options
issued to the Named Executive Officers during fiscal 1997. No stock appreciation
rights have been granted by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK APPRECIATION
OPTIONS EMPLOYEES EXERCISE OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#)(1) 1997 ($/SHARE) DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael L. Campbell.. 150,000 14.90% $31.875 08/08/07 $3,006,885 $7,620,069
40,000 3.97 22.75 11/07/07 572,290 1,450,303
Gregory W. Dunn...... 50,000 4.97 31.875 08/08/07 1,002,295 2,540,023
10,000 .99 22.75 11/07/07 143,072 362,575
Lewis Frazer
III(3)............. 50,000 4.97 31.875 08/08/07 1,002,295 2,540,023
10,000 .99 22.75 11/07/07 143,072 362,575
R. Keith Thompson.... 30,000 2.98 31.875 08/08/07 601,377 1,524,013
10,000 .99 22.75 11/07/07 143,072 362,575
Robert A. Engel(3)... -- -- -- -- -- --
</TABLE>
- -------------------------
(1) All options were granted pursuant to the 1993 Employee Stock Incentive Plan
(the "Plan"), have a term of ten years, and vest in one-third increments
annually beginning August 8, 2000 and November 7, 2000, respectively. After
the Recapitalization, the options issued pursuant to the Plan not redeemed
in the Option/Warrant Redemption were converted into options for shares of
the Company's Common Stock after the Merger.
(2) Potential realizable value is calculated from a base stock price of $22.75
and $31.875, the exercise prices of the options granted.
(3) As of October 1, 1998, Messrs. Frazer and Engel were no longer employed by
the Company.
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<PAGE> 64
The following table summarizes certain information with respect to stock
options exercised by the Named Executive Officers pursuant to the Company's
stock option plans.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS HELD AT MONEY OPTIONS HELD AT
SHARES JANUARY 1, 1998(#) JANUARY 1, 1998(1)($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael L. Campbell... -- -- 222,357 674,857 $4,966,121 $6,724,840
Gregory W. Dunn...... -- -- 42,749 226,969 943,477 2,126,744
Lewis Frazer
III(2)............. -- -- 50,203 234,940 1,084,520 2,457,802
R. Keith Thompson.... 3,677 $69,530 23,954 126,110 530,282 1,164,124
Robert A. Engel(2)... -- -- 59,701 89,795 1,403,604 1,202,416
</TABLE>
- -------------------------
(1) Reflects the market value of the underlying securities at exercise or at
$27.875, the closing price on The Nasdaq Stock Market on December 31, 1997,
less the exercise price.
(2) As of October 1, 1998, Messrs. Frazer and Engel were no longer employed by
the Company.
CAMPBELL AND DUNN EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Campbell
and Dunn pursuant to which they respectively serve as Chief Executive Officer
and Chief Operating Officer of the Company. The terms of the employment
agreements commenced upon the closing of the Regal Merger and continue for three
years. The employment agreements provide for initial base salaries of $500,000
and $325,000 per year for Messrs. Campbell and Dunn, respectively. Messrs.
Campbell and Dunn are entitled to receive annual target bonuses of 140% and
100%, respectively, of their base salaries based upon the achievement by the
Company of certain EBITDA and other performance targets set by the board of
directors of the Company. The employment agreements also provide that the
Company will supply Messrs. Campbell and Dunn with other customary benefits
generally made available to other senior executives of the Company. Each of the
employment agreements also contains a noncompetition and no-raid provision
pursuant to which each of Messrs. Campbell and Dunn has agreed, subject to
certain exceptions, that during the term of his employment agreement and for one
year thereafter, he will not compete with the Company or its theatre affiliates
and will not solicit or hire certain employees of the Company. Each of the
employment agreements also contains severance provisions providing for the
termination of employment of Messrs. Campbell and Dunn by the Company under
certain circumstances in which Messrs. Campbell and Dunn will be entitled to
receive severance payments equal to the greater of (i) two times their
respective annual base salaries and (ii) the balance of their respective base
salaries over the then remaining employment term, in either case payable over 24
months (or if longer, the remaining balance of the employment term) and
continuation of health, life, disability and other similar welfare plan
benefits.
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CERTAIN TRANSACTIONS
The following is a summary description of the principal terms of the
following agreements and is subject to and qualified in its entirety by
reference to the full text of such agreements, which are filed as exhibits to
the Registration Statement of which this Prospectus is a part.
KKR/HICKS MUSE STOCKHOLDERS AGREEMENT
Concurrently with the consummation of the Regal Merger, the Company entered
into a stockholder agreement with Hicks Muse and KKR (the "KKR/Hicks Muse
Stockholders Agreement"). Among other things, the KKR/Hicks Muse Stockholders
Agreement provides that each of Hicks Muse and KKR has the right to appoint an
equal number of directors to the Board of Directors of the Company, subject to
maintaining specified ownership thresholds. The number of directors appointed by
KKR and Hicks Muse together shall constitute a majority of the Board of
Directors. The KKR/Hicks Muse Stockholders Agreement further provides that Hicks
Muse and KKR will amend the Company's bylaws to provide that no action may be
validly taken at a meeting of the Board of Directors unless a majority of the
Board of Directors, a majority of the directors designated by Hicks Muse and a
majority of the directors designated by KKR have approved such action.
The KKR/Hicks Muse Stockholders Agreement provides that neither Hicks Muse
nor KKR may transfer its shares of Common Stock to a person other than its
respective affiliates for a period of five years following the closing date of
the Regal Merger. In addition, the KKR/Hicks Muse Stockholders Agreement
provides KKR and Hicks Muse with certain registration rights and limits the
ability of either KKR or Hicks Muse to separately acquire motion picture
exhibition assets in excess of a specified amount without first offering the
other the right to participate in such acquisition opportunity.
DLJ STOCKHOLDERS AGREEMENT
Concurrently with the consummation of the Regal Merger, the Company, Hicks
Muse, KKR and DLJ entered into a stockholders agreement (the "DLJ Stockholders
Agreement"). Under the DLJ Stockholders Agreement, DLJ has the right to
participate pro rata in certain sales of Common Stock by KKR and Hicks Muse, and
KKR and Hicks Muse have the right to require DLJ to participate pro rata in
certain sales by KKR and Hicks Muse. The DLJ Stockholders Agreement also grants
DLJ stockholders certain registration and pre-emptive rights.
CERTAIN FEES
Each of KKR and Hicks Muse received a fee for negotiating the
Recapitalization and arranging the financing therefor, plus the reimbursement of
their respective expenses in connection therewith, and from time to time, each
of KKR and Hicks Muse may receive customary investment banking fees for services
rendered to the Company in connection with divestitures, acquisitions and
certain other transactions. In addition, KKR and Hicks Muse have agreed to
render management, consulting and financial services to the Company for an
aggregate annual fee of $1.0 million.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The following table and the accompanying footnotes set forth, as of
December 9, 1998, the beneficial ownership of the Common Stock of the Company by
(i) each person who is known to the Company to own beneficially more than 5% of
the Common Stock, (ii) each director and Named Executive Officer of the Company
and (iii) all directors and executive officers as a group. Unless noted
otherwise, the address for each executive officer is in care of the Company at
7132 Commercial Park Drive, Knoxville, Tennessee 37918.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) OF CLASS(1)
------------------------------------ ----------- -----------
<S> <C> <C>
5% STOCKHOLDERS:(1)
Hicks Muse Parties(2)................................. 100,000,000 46.3
c/o Hicks, Muse, Tate & Furst Incorporated
200 Crescent Court
Suite 1600
Dallas, Texas 75201
KKR 1996 GP L.L.C.(3)................................. 100,000,000 46.3
c/o Kohlberg Kravis Roberts & Co. L.P.
9 West 57th Street
Suite 4200
New York, New York 10019
OFFICERS AND DIRECTORS:
David Deniger......................................... --
Thomas O. Hicks....................................... --
Henry R. Kravis....................................... --
Michael J. Levitt..................................... --
John R. Muse.......................................... --
Alexander Navab, Jr................................... --
Clifton S. Robbins.................................... --
George R. Roberts..................................... --
Michael L. Campbell................................... 2,368,350 1.1
Gregory W. Dunn....................................... 498,654 *
Lewis Frazer III...................................... --
Robert A. Engel, Jr................................... --
R. Keith Thompson..................................... 272,769 *
All directors and executive officers as a group (15
persons)............................................ 3,227,620 1.5
</TABLE>
- -------------------------
* Represents less than 1.0% of class.
(1) The amounts and percentage of Common Stock beneficially owned are reported
on the basis of regulations of the Commission governing the determination of
beneficial ownership of securities. Under the rules of the Commission, a
person is deemed to be a "beneficial owner" of a security if that person has
or shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment
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<PAGE> 67
power," which includes the power to dispose of or to direct the disposition
of such security. A person is also deemed to be a beneficial owner of any
securities of which that person has a right to acquire beneficial ownership
within 60 days. Under these rules, more than one person may be deemed a
beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which he has no economic interest.
(2) Includes shares owned of record by Regal Equity Partners, L.P. ("Regal
Partners"), a limited partnership whose sole general partner is TOH/Ranger,
LLC ("Ranger LLC"). Mr. Hicks is the sole member and director of Ranger LLC
and, accordingly, may be deemed to be the beneficial owner of the Common
Stock held directly or indirectly by Regal Partners. John R. Muse, Charles
W. Tate, Jack D. Furst, Lawrence D. Stuart, Jr. and Michael J. Levitt are
officers of Ranger LLC and as such may be deemed to share with Mr. Hicks the
power to vote or dispose of the Common Stock held by Regal Partners. Each of
Messrs. Hicks, Muse, Tate, Furst, Stuart and Levitt disclaims beneficial
ownership of the Common Stock not respectively owned of record by him.
(3) KKR 1996 GP L.L.C. is the sole general partner of KKR Associates 1996 L.P.
KKR Associates 1996 L.P., a limited partnership, is the sole general partner
of KKR 1996 Fund L.P., a limited partnership formed at the direction of KKR,
and possesses sole voting and investment power with respect to such shares.
KKR 1996 GP L.L.C. is a limited liability company, the managing members of
which are Henry R. Kravis and George R. Roberts, and the other members of
which are Robert I. MacDowell, Paul E. Raether, Michael W. Michelson,
Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Clifton S. Robbins,
Scott M. Stuart and Edward A. Gilhuly. Messrs. Kravis, Roberts and Robbins
are directors of the Company. Mr. Alexander Navab, Jr. is a limited partner
of KKR Associates 1996 L.P. and is also a director of the Company. Each of
such individuals may be deemed to share beneficial ownership of the shares
shown as beneficially owned by KKR 1996 GP L.L.C. Each of such individuals
disclaims beneficial ownership of such shares.
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<PAGE> 68
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITIES
Concurrently with the consummation of the Regal Merger, the Company entered
into the Senior Credit Facilities. In connection with the Act III Combination,
the Company amended the Senior Credit Facilities to increase its borrowing
capacity thereunder. In addition, the Company used the net proceeds of the
Original Offering and the Tack-on Offering to repay, and in the case of the
Tack-on Offering, retire, portions of the Senior Credit Facilities. The
following is a summary description of the principal terms of the Senior Credit
Facilities and is subject to and qualified in its entirety by reference to the
Senior Credit Facilities, a copy of which is filed as an Exhibit to the
Registration Statement of which this Prospectus is a part. Capitalized terms
used in this section but not otherwise defined in this Prospectus shall have the
meanings ascribed to them in the Senior Credit Facilities.
General. The Senior Credit Facilities are provided by a syndicate of banks
and other financial institutions (the "Lenders") for which The Bank of Nova
Scotia ("Scotiabank") acts as administrative agent (the "Administrative Agent"),
BancAmerica Robertson Stephens ("BARS") acts as the syndication agent (the
"Syndication Agent"), The Chase Manhattan Bank ("Chase") acts as documentation
agent, and Scotiabank, BARS and Chase acts as the arrangers. The Senior Credit
Facilities provide for borrowings of up to $500.0 million (such amount declining
as described below) under the Revolving Credit Facility and for borrowings of up
to an aggregate of $519.0 million under three term loan facilities (the "Term
Facilities"). The proceeds of the Loans (as defined herein) are available for
acquisitions and for general corporate purposes, including for working capital
needs. The Senior Credit Facilities may be amended at any time, including to
increase the amount thereof, in accordance with the terms thereof.
Revolving Credit Facility. The Revolving Credit Facility provides for
borrowings of up to $500.0 million (the "Revolving Loans"). On the fourth, fifth
and sixth anniversaries of the closing date of the Regal Merger, the commitment
amount under the Revolving Credit Facility will be permanently reduced to $460.0
million, $400.0 million and $300.0 million, respectively. In addition, an
aggregate of $460.0 million of the Revolving Loans are available in the form of
Letters of Credit and Swing Line Loans. The Revolving Credit Facility is
available on a revolving basis ending on the seventh anniversary of the closing
date of the Regal Merger.
Term Facilities. Under the Senior Credit Facilities, there are three Term
loan facilities as follows: (i) a seven-year Term loan facility (the "Term A
Facility"); (ii) an eight-year Term loan facility (the "Term B Facility"); and
(iii) a nine-year Term loan facility (the "Term C Facility"). The Term A
Facility was made available in a borrowing on the closing date of the Regal
Merger and an additional borrowing in connection with the Act III Combination to
the Company pursuant to which Term loans ("Term A Loans") were made. As of
October 1, 1998, there was $240.0 million outstanding under the Term A Facility.
Once repaid, Term A Loans may not be reborrowed. Term A Loans amortize in annual
installments totaling 1% for years one through six and 94% for year seven. The
final maturity for all Term A Loans is the seventh anniversary of the closing
date of the Regal Merger. The Term B Facility was made available in a borrowing
on the closing date of the Regal Merger and an additional borrowing in
connection with the
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<PAGE> 69
Act III Combination to the Company pursuant to which Term loans ("Term B Loans")
were made. As of October 1, 1998, there was $144.0 million outstanding under the
Term B Facility. Once repaid, Term B Loans may not be reborrowed. Term B Loans
amortize in annual installments totaling 1% for years one through seven and 93%
for year eight. The final maturity for all Term B Loans is the eighth
anniversary of the closing date of the Regal Merger. The Term C Facility was
made available in a single borrowing on the closing date of the Regal Merger to
the Company pursuant to which Term loans ("Term C Loans" and together with the
Revolving Loans, the Term A Loans and the Term B Loans, the "Loans") were made.
As of October 1, 1998, there was $135.0 million outstanding under the Term C
Facility. Once repaid, Term C Loans may not be reborrowed. Term C Loans amortize
in annual installments totaling 1% for years one through eight and 92% for year
nine. The final maturity for all Term C Loans is the ninth anniversary of the
closing date of the Regal Merger.
Interest. The Loans bear interest at the Administrative Agent's alternate
base rate or reserve adjusted LIBOR rate plus, in each case, the applicable
margins set forth below, determined in accordance with the Company's Total
Leverage Ratio.
<TABLE>
<CAPTION>
REVOLVING LOANS AND
TERM A LOANS
TOTAL ----------------------
LEVERAGE RATIO LIBOR RATE BASE RATE
- ----------------------------------------------- ---------- ---------
<S> <C> <C>
Greater than or equal to 5.5:1 2.250% 1.000%
Greater than or equal to 5.0:1 Less than 5.5:1 2.000% .750%
Greater than or equal to 4.5:1 Less than 5.0:1 1.625% .375%
Greater than or equal to 4.0:1 Less than 4.5:1 1.375% .125%
Greater than or equal to 3.5:1 Less than 4.0:1 1.125% .000%
Greater than or equal to 3.0:1 Less than 3.5:1 .875% .000%
Less than 3.0:1 .625% .000%
</TABLE>
<TABLE>
<CAPTION>
TERM B LOANS TERM C LOANS
TOTAL ---------------------- ----------------------
LEVERAGE RATIO LIBOR RATE BASE RATE LIBOR RATE BASE RATE
- ----------------------------------------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Greater than or equal to 5.5:1 2.500% 1.250% 2.750% 1.500%
Greater than or equal to 4.5:1 Less than 5.5:1 2.250% 1.000% 2.500% 1.250%
Less than 4.5:1 2.000% .750% 2.250% 1.000%
</TABLE>
Interest periods for LIBOR Rate Loans shall be, at the Company's option, one,
two, three or six months or, if available, nine or twelve months, and shall be
payable on the last business day of the applicable interest period therefor (or,
if earlier, on each third-month date following the commencement of such interest
period). Interest on Base Rate Loans shall be payable quarterly in arrears.
Optional and Mandatory Prepayments. Outstanding Loans are voluntarily
payable without penalty; provided, however, that LIBOR rate breakage costs, if
any, shall be for the account of the Company. Mandatory prepayments will be
required from 100% of net cash proceeds from the sale of assets other than in
the course of ordinary business (subject to certain exceptions) to the extent
such proceeds are not reinvested in the business of the Company and its
subsidiaries within 18 months after receipt. Mandatory prepayments shall be
applied pro rata among the Term Facilities and shall be applied to scheduled
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<PAGE> 70
amortization payments in a manner to be agreed upon by the Administrative Agent,
the Syndication Agent and the Company.
Fees. Commencing on the closing date of the Regal Merger, a non-refundable
fee (the "Commitment Fee") is accruing on the daily average unused portion of
the commitment amount of the Revolving Credit Facility (whether or not then
available), payable quarterly in arrears and on the final maturity date of the
Revolving Credit Facility (whether by stated maturity or otherwise). The
Commitment Fee will be determined and adjusted, in a range from .425% to .200%
per annum, in increments based upon the Total Leverage Ratio of the Company.
Security. The Senior Credit Facilities are secured by a first-priority
pledge of (i) the common stock of all existing and future direct domestic
subsidiaries of the Company and (ii) 65% of the common stock of all direct
material foreign subsidiaries of the Company, with certain exceptions.
Guarantees. The Company's payment obligations under the Senior Credit
Facilities are guaranteed on a senior basis by all direct and indirect U.S.
subsidiaries of the Company, with certain exceptions.
Covenants. The Senior Credit Facilities contain financial covenants
pursuant to which the Company must maintain a minimum fixed charge coverage
ratio and a maximum senior leverage ratio. In addition, the Senior Credit
Facilities contain covenants pertaining to the management and operation of the
Company and its subsidiaries. The Senior Credit Facilities also subject the
Company and its subsidiaries to restrictions on the incurrence of additional
debt and contingent obligations, the making of dividends or similar
distributions, the sale of assets or similar transfers other than in the
ordinary course of business, the making of certain acquisitions and investments,
the consummation of mergers and consolidations, and entering into certain
transactions with affiliates.
Events of Default. The Senior Credit Facilities contain customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, cross-defaults to certain other indebtedness, certain events
of bankruptcy and insolvency, ERISA events, judgment defaults, actual or
asserted invalidity of any security interest and change of control.
9 1/2% REGAL NOTES
Concurrently with the consummation of the Regal Merger, the Company issued
$400.0 million aggregate principal amount of 9 1/2% Senior Subordinated Notes
due 2008 pursuant to an indenture dated as of May 27, 1998, by and between the
Company and IBJ Schroder Bank & Trust Company, as Trustee. On November 10, 1998,
the Company issued $200.0 million aggregate principal amount of 9 1/2% Senior
Subordinated Notes due 2008 under the same indenture governing the Existing
Regal Notes. Except with respect to redemption premiums and redemption dates,
maturity, interest rate and interest payment dates, the terms of the 9 1/2%
Regal Notes are substantially identical to, and rank pari passu with, the
Debentures.
The 9 1/2% Regal Notes are unsecured, senior subordinated obligations of
the Company and will mature on June 1, 2008. Interest on the 9 1/2% Regal Notes
accrues at a rate of 9 1/2% per annum and is payable in cash semi-annually on
June 1 and December 1 of each
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<PAGE> 71
year, commencing December 1, 1998, to the holders of record of 9 1/2% Regal
Notes at the close of business on the May 15 and November 15, respectively,
immediately preceding such interest payment date.
The 9 1/2% Regal Notes may be redeemed at any time on or after June 1,
2003, in whole or in part, at the option of the Company, at the redemption
prices (expressed as a percentage of the principal amount thereof on the
applicable redemption date) set forth below, plus accrued and unpaid interest,
if any, to the redemption date, if redeemed during the 12-month period beginning
on June 1 of each of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................ 104.750%
2004........................................................ 103.167
2005........................................................ 101.583
2006 and thereafter......................................... 100.000
</TABLE>
In addition, prior to June 1, 2001, the Company may, at its option, use the
net cash proceeds of one or more Equity Offerings to redeem up to 35% of the
principal amount of the 9 1/2% Regal Notes at a redemption price equal to
109.50% of the principal amount thereof plus accrued and unpaid interest to the
redemption date; provided, however, that after any such redemption, at least 65%
of the aggregate principal amount of the 9 1/2% Regal Notes issued under the
indenture governing the 9 1/2% Regal Notes would remain outstanding immediately
after giving effect to such redemption.
The indenture governing the 9 1/2% Regal Notes provides that, upon the
occurrence of a Change of Control, each holder will have the right to require
that the Company purchase all or a portion of such holder's 9 1/2% Regal Notes
in cash at a purchase price equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase.
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<PAGE> 72
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Debentures were sold by the Company on December 16, 1998 in the
Original Offering. In connection with that placement, the Company entered into
the Registration Rights Agreement, which requires that the Company file the
Registration Statement under the Securities Act with respect to the Debentures
and, upon the effectiveness of that Registration Statement, offer to the holders
of the Old Debentures the opportunity to exchange their Old Debentures for a
like principal amount of Debentures, which will be issued without a restrictive
legend and which generally may be reoffered and resold by the holder without
registration under the Securities Act. Following the completion of the Exchange
Offer (except as set forth in the paragraph immediately below), holders of Old
Debentures not tendered will not have any further registration rights and those
Old Debentures will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Debentures could be
adversely affected upon consummation of the Exchange Offer.
In order to participate in the Exchange Offer, a holder must represent to
the Company, among other things, that (i) the Debentures acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving the Debentures, (ii) neither the holder nor any such other
person is engaging in or intends to engage in a distribution of the Debentures,
(iii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the
Debentures and (iv) neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated under the Securities Act, of
the Company. Pursuant to the Registration Rights Agreement if (i) the Company
determines that it is not permitted to effect the Exchange Offer as contemplated
hereby because of any applicable law or Commission policy, or (ii) any holder of
Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer (a) that it is prohibited by law or
Commission policy from participating in the Exchange Offer, (b) that it may not
resell the Debentures acquired by it in the Exchange Offer to the public without
delivering a prospectus and that this Prospectus is not appropriate or available
for such resales, or (c) that it is a broker-dealer and owns Old Debentures
acquired directly from the Company or an affiliate of the Company, the Company
is required to file a "shelf" registration statement for a continuous offering
pursuant to Rule 415 under the Securities Act in respect of the Old Debentures.
For purposes of the foregoing, "Transfer Restricted Securities" means each Old
Debenture until (i) the date on which such Old Debenture has been exchanged for
a Debenture in the Exchange Offer, (ii) the date on which such Old Debenture has
been electively registered under the Securities Act and disposed of in
accordance with such "shelf" registration statement, (iii) the date on which
such Old Debenture is sold pursuant to Rule 144 under circumstances in which any
legend borne by such Old Debenture relating to restrictions on transferability
thereof, under the Securities Act or otherwise, is removed or such Old Debenture
is eligible to be sold pursuant to paragraph (k) of Rule 144, or (iv) such Old
Debenture shall cease to be outstanding. Other than as set forth in this
paragraph, no holder will have the right to participate in the "shelf"
registration statement nor otherwise require that the Company register such
holder's shares of Old Debentures under the Securities Act. See "-- Procedures
for Tendering."
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<PAGE> 73
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Company, the Company believes
that, with the exceptions set forth below, the Debentures issued pursuant to the
Exchange Offer in exchange for Old Debentures may be offered for resale, resold
and otherwise transferred by any person receiving such Debentures, whether or
not such person is the registered holder (other than any such holder or such
other person which is (i) an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, (ii) a broker-dealer that purchased such Old
Debentures directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (iii) a person
participating in the distribution of the Debentures) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the Debentures are acquired in the ordinary course of business of the
holder or such other person and neither the holder nor such other person has an
arrangement or understanding with any person to participate in the distribution
of such Debentures. Holders of Old Debentures accepting the Exchange Offer will
represent to the Company in the Letter of Transmittal that such conditions have
been met. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Debentures cannot rely on this
interpretation by the Commission's staff and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives Debentures for
its own account in exchange for Old Debentures, where such Old Debentures were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Debentures. See "Plan of Distribution."
Each broker-dealer that receives Debentures for its own account pursuant to
the Exchange Offer must acknowledge that it acquired the Old Debentures as a
result of market-making activities or other trading activities and will deliver
a prospectus in connection with any resale of such Debentures. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer for 180 days following the date of this Prospectus in connection
with resales of Debentures received in exchange for Old Debentures where such
Old Debentures were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Letter of Transmittal states that by
acknowledging and delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
Except as aforesaid, this Prospectus may not be used for an offer to
resell, resale or other retransfer of Debentures.
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Debentures in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction.
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "-- Purpose and Effect" above), holders of Old Debentures
not tendered will not have any further registration rights and those Old
Debentures will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for a
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<PAGE> 74
holder's Old Debentures could be adversely affected upon completion of the
Exchange Offer if the holder does not participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Debentures validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount of
Debentures in exchange for each $1,000 principal amount of outstanding Old
Debentures accepted in the Exchange Offer. Holders may tender some or all of
their Old Debentures pursuant to the Exchange Offer. However, Old Debentures may
be tendered only in integral multiples of $1,000 in principal amount.
The form and terms of the Debentures are substantially the same as the form
and terms of the Old Debentures except that the Debentures have been registered
under the Securities Act and will not bear legends restricting their transfer.
The Debentures will evidence the same debt as the Old Debentures and will be
issued pursuant to, and entitled to the benefits of, the Indenture pursuant to
which the Old Debentures were issued.
As of , 1999, Old Debentures representing $200.0 million
aggregate principal amount were outstanding and there was one registered holder,
a nominee of DTC. This Prospectus, together with the Letter of Transmittal, is
being sent to such registered holder and to others believed to have beneficial
interests in the Old Debentures. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old
Debentures when, as, and if the Company has given oral or written notice thereof
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Debentures from the Company. If any
tendered Old Debentures are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Debentures will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Debentures in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Debentures pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1999, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. In order to extend the Exchange
Offer, the Company will notify the Exchange Agent and each registered holder of
any extension by oral or written
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<PAGE> 75
notice prior to 9:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date. The Company reserves the right, in its
sole discretion, (i) to delay accepting any Old Debentures, to extend the
Exchange Offer or, if any of the conditions set forth under "-- Conditions to
Exchange Offer" shall not have been satisfied, to terminate the Exchange Offer,
by giving oral or written notice of such delay, extension or termination to the
Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Debentures may tender the Old Debentures in the
Exchange Offer. Except as set forth under "-- Book-Entry Transfer," to tender in
the Exchange Offer a holder must complete, sign, and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In
addition, (i) certificates for such Old Debentures must be received by the
Exchange Agent along with the Letter of Transmittal prior to the Expiration
Date, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Debentures, if that procedure is available, into the
Exchange Agent's account at DTC (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below. To be tendered effectively,
the Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth under "-- Exchange Agent" prior to 5:00
p.m., New York City time, on the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD DEBENTURES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD DEBENTURES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Debentures are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Debentures, either make appropriate arrangements to register ownership of
the Old Debentures in the beneficial owner's name or obtain a
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<PAGE> 76
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless Old Debentures tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration Instruction"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Debentures listed therein, the Old Debentures must
be endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old
Debentures.
If the Letter of Transmittal or any Old Debentures or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company of their authority to so act must be submitted with
the Letter of Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Debentures will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Old Debentures not properly tendered or any Old Debentures the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Debentures. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Debentures must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Debentures, neither the
Company, the Exchange Agent, nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Debentures will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Debentures received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Debentures that remain outstanding after the
Expiration Date or, as set forth under "-- Conditions to the Exchange Offer," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Debentures in the open market, in
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<PAGE> 77
privately negotiated transactions, or otherwise. The terms of any such purchases
or offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Debentures acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such
Debentures, whether or not such person is the registered holder, (ii) neither
the holder nor any such other person is engaging in or intends to engage in a
distribution of such Debentures, (iii) neither the holder nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such Debentures and (iv) neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Company.
In all cases, issuance of Debentures for Old Debentures that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Debentures or a
timely Book-Entry Confirmation of such Old Debentures into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal (or, with respect to the DTC and its
participants, electronic instructions in which the tendering holder acknowledges
its receipt of and agreement to be bound by the Letter of Transmittal), and all
other required documents. If any tendered Old Debentures are not accepted for
any reason set forth in the terms and conditions of the Exchange Offer or if Old
Debentures are submitted for a greater principal amount than the holder desires
to exchange, such unaccepted or non-exchanged Old Debentures will be returned
without expense to the tendering holder thereof (or, in the case of Old
Debentures tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such nonexchanged Old Debentures will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration or termination of the Exchange Offer.
Each broker-dealer that receives Debentures for its own account in exchange
for Old Debentures, where such Old Debentures were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Debentures. See "Plan of Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Debentures at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Debentures being tendered
by causing the Book-Entry Transfer Facility to transfer such Old Debentures into
the Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Old Debentures may be effected through book-entry transfer
at the Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof,
with any required signature guarantees and any other required documents, must,
in any case other than as set forth in the following paragraph, be transmitted
to and received by the Exchange Agent at the address set forth under
"-- Exchange Agent" on or prior to
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<PAGE> 78
5:00 p.m., New York City time, on the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Debentures through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Debentures desires to tender such Old
Debentures and the Old Debentures are not immediately available, or time will
not permit such holder's Old Debentures or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if (i)
the tender is made through an Eligible Institution, (ii) prior to the Expiration
Date, the Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
Notice of Guaranteed Delivery, substantially in the form provided by the Company
(by telegram, telex, facsimile transmission, mail or hand delivery), setting
forth the name and address of the holder of Old Debentures and the amount of Old
Debentures tendered, stating that the tender is being made thereby and
guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Debentures, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Old Debentures, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal, are received by the Exchange Agent within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Debentures may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Debentures to be effective, a written
or (for DTC participants) electronic ATOP transmission notice of withdrawal must
be received by the Exchange Agent at its address set forth under "-- Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Debentures to be withdrawn (the "Depositor"), (ii) identify the Old
Debentures to be withdrawn (including the certificate number or numbers and
principal amount of such Old Debentures), (iii) be signed by the holder in the
same manner as the original signature on the Letter of Transmittal by which such
Old Debentures were tendered (including any required
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<PAGE> 79
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee register the transfer of such Old Debentures into the name of
the person withdrawing the tender, and (iv) specify the name in which any such
Old Debentures are to be registered, if different from that of the Depositor.
All questions as to the validity, form, and eligibility (including time of
receipt) of such notices will be determined by the Company, whose determination
shall be final and binding on all parties. Any Old Debentures so withdrawn will
be deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Debentures which have been tendered for exchange but
which are not exchanged for any reason will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender, or termination of the Exchange Offer. Properly withdrawn Old
Debentures may be retendered by following one of the procedures under
"-- Procedures for Tendering" at any time on or prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue Debentures in exchange
for, any Old Debentures and may terminate or amend the Exchange Offer if at any
time before the acceptance of such Old Debentures for exchange or the exchange
of the Debentures for such Old Debentures, the Company determines that the
Exchange Offer violates applicable law, any applicable interpretation of the
staff of the Commission or any order of any governmental agency or court of
competent jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Company will not accept for exchange any Old Debentures
tendered, and no Debentures will be issued in exchange for any such Old
Debentures, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. In any such event the Company is required to make every
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the Registration Statement at the earliest possible moment.
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EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions, requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery before
4:30 p.m.:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing Window,
Attn: Reorganization Dept. SC-1
</TABLE>
By Facsimile (for Eligible Institutions):
(212) 858-2611
For Information or
Confirmation by Telephone:
(212) 858-2103
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.)
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be $1.0
million, which includes fees and expenses of the Exchange Agent, accounting,
legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Debentures for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register Debentures in the name of, or request that Old
Debentures not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
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DESCRIPTION OF THE DEBENTURES
GENERAL
The Debentures are to be issued under the Indenture between the Company and
IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"), a copy of which
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The following summary of certain provisions of the Indenture and the
Debentures does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Indenture (including
the definitions of certain terms therein and those terms made a part thereof by
reference to the Trust Indenture Act of 1939, as amended) and the Debentures.
Capitalized terms used herein and not otherwise defined shall have the meanings
given to them in the Indenture. Except with respect to redemption premiums and
redemption dates, maturity, interest rate and interest payment dates, the terms
of the Debentures are substantially identical to, and will be pari passu with,
the 9 1/2% Regal Notes. For definitions of certain terms used in this section,
see "-- Certain Definitions" below. For purposes of this summary, the term
"Company" refers only to Regal Cinemas, Inc. and not to any of its Subsidiaries.
Principal of, premium, if any, and interest on the Debentures will be
payable, and the Debentures may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the corporate trust office of the Trustee in New York, New
York), except that, at the option of the Company, payment of interest may be
made by check mailed to the address of each holder as such address appears in
the Debenture Register.
The Debentures will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as a Paying Agent and the Registrar for the Debentures. The
Debentures may be presented for registration of transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. The Company may change any Paying Agent and Registrar without notice to
holders of the Debentures.
Subject to the covenants described below under "Certain Covenants" and
applicable law, the Company may issue additional Debentures under the Indenture.
The Debentures offered hereby and any additional Debentures subsequently issued
would be treated as a single class for all purposes under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Debentures offered hereby in the principal amount of $200.0 million
will be unsecured, senior subordinated obligations of the Company and will
mature on December 15, 2010. Interest on the Debentures will accrue at a rate of
8 7/8% per annum and will be payable in cash semi-annually on each June 15 and
December 15, commencing June 15, 1999 to the holders of record of Debentures at
the close of business on the June 1 and December 1, respectively, immediately
preceding such interest payment date. Interest on the Debentures will accrue
from the most recent interest payment date to which interest has been paid or,
if no interest has been paid, from the date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
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OPTIONAL REDEMPTION
The Debentures may be redeemed at any time on or after December 15, 2003,
in whole or in part, at the option of the Company, at the redemption prices
(expressed as a percentage of the principal amount thereof on the applicable
redemption date) set forth below, plus accrued and unpaid interest, if any, to
the redemption date, if redeemed during the 12-month period beginning on
December 15 of each of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003........................................................ 104.438%
2004........................................................ 103.328
2005........................................................ 102.219
2006........................................................ 101.109
2007 and thereafter......................................... 100.000
</TABLE>
In addition, prior to December 15, 2001, the Company may, at its option,
use the net cash proceeds of one or more Equity Offerings to redeem up to 35% of
the principal amount of the Debentures at a redemption price equal to 108.875%
of the principal amount thereof plus accrued and unpaid interest to the
redemption date; provided, however, that after any such redemption, at least 65%
of the aggregate principal amount of the Debentures issued under the Indenture
would remain outstanding immediately after giving effect to such redemption. Any
such redemption will be required to occur on or prior to the date that is 90
days after the receipt by the Company of the proceeds of an Equity Offering. The
Company shall effect such redemption on a pro rata basis.
SELECTION AND NOTICE
If less than all of the Debentures are to be redeemed at any time,
selection of Debentures for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Debentures are listed or, in the absence of such requirements or if
the Debentures are not so listed, on a pro rata basis, by lot or by such other
method as the Trustee shall deem fair and appropriate, provided that no such
Debentures of $1,000 principal amount or less shall be redeemed in part. Notice
of redemption shall be mailed by first-class mail at least 30 but not more than
60 days before the redemption date to each holder of Debentures to be redeemed
at its registered address. If any Debenture is to be redeemed in part only, the
notice of redemption that relates to such Debenture shall state the portion of
the principal amount thereof to be redeemed. A new Debenture in principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon cancellation of the original Debenture. On and after the redemption
date, interest ceases to accrue on Debentures or portions thereof called for
redemption.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
each holder will have the right to require that the Company purchase all or a
portion of such holder's Debentures in cash pursuant to the offer described
below (the "Change of Control
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<PAGE> 83
Offer"), at a purchase price equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase.
The Indenture provides that, prior to the giving of the notice referred to
below, but in any event within 30 days following the date on which the Company
becomes aware that a Change of Control has occurred, if the purchase of the
Debentures would violate or constitute a default under any other Indebtedness of
the Company, then the Company shall, to the extent needed to permit such
purchase of Debentures, either (i) repay all such Indebtedness and terminate all
commitments outstanding thereunder or (ii) obtain the requisite consents, if
any, under such Indebtedness to permit the purchase of the Debentures as
provided below. The Company will first comply with the covenant in the preceding
sentence before it will be required to make the Change of Control Offer or
purchase the Debentures pursuant to the provisions described below.
Within 30 days following the date on which the Company becomes aware that a
Change of Control has occurred, the Company must send, by first-class mail
postage prepaid, a notice to each holder of Debentures, which notice shall
govern the terms of the Change of Control Offer. Such notice shall state, among
other things, the purchase date, which must be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, other than as may be required
by law (the "Change of Control Payment Date"). Holders electing to have any
Debentures purchased pursuant to a Change of Control Offer will be required to
surrender such Debentures to the U.S. Paying Agent and the Registrar for the
Debentures at the address specified in the notice prior to the close of business
on the business day prior to the Change of Control Payment Date. The Company
will not be required to make a Change of Control Offer pursuant to this covenant
if a third party makes a Change of Control Offer in compliance with this
covenant and repurchases all Debentures validly tendered and not withdrawn under
such Change of Control Offer.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act, to the extent applicable in connection with the purchase of
Debentures pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in the Indenture by virtue thereof.
The Change of Control covenant will not apply in the event of (a) changes
in a majority of the board of directors of the Company and (b) certain
transactions with Permitted Holders (including Hicks Muse, KKR, their respective
officers and directors and their respective Affiliates). In addition, the Change
of Control covenant is not intended to afford holders of Debentures protection
in the event of certain highly leveraged transactions, reorganizations,
restructurings, mergers and other similar transactions that might adversely
affect the holders of Debentures, but would not constitute a Change of Control.
The Company could, in the future, enter into certain transactions including
certain recapitalizations of the Company, that would not constitute a Change of
Control with respect to the Change of Control repurchase feature of the
Debentures, but would increase the amount of Indebtedness outstanding at such
time. However, the Indenture contains limitations on the ability of the Company
to incur additional Indebtedness and to engage in certain mergers,
consolidations and sales of assets, whether or not a Change of Control is
involved, subject, in each case, to limitations and qualifications. See
"-- Certain
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<PAGE> 84
Covenants -- Limitation on Incurrence of Additional Indebtedness and Issuance of
Capital Stock" and "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets" below.
With respect to the sale of "all or substantially all" the assets of the
Company, which would constitute a Change of Control for purposes of the
Indenture, the meaning of the phrase "all or substantially all" varies according
to the facts and circumstances of the subject transaction, has no clearly
established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company and,
therefore, it may be unclear whether a Change of Control has occurred and
whether the Debentures should be subject to a Change of Control Offer.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Senior Credit Facilities. Future
Senior Indebtedness of the Company and its Subsidiaries may also contain
prohibitions of certain events that would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Debentures could cause a default under such Senior Indebtedness,
even if the Change of Control itself does not, due to the financial effect of
such repurchase on the Company. Finally, the Company's ability to pay cash to
the holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases. Even if sufficient
funds were otherwise available, the terms of the Senior Credit Facilities may
prohibit the Company's prepayment of Debentures prior to their scheduled
maturity. Consequently, if the Company is not able to prepay the Indebtedness
under the Senior Credit Facilities and any other Senior Indebtedness containing
similar restrictions or obtain the requisite consents, as described above, the
Company will be unable to fulfill its repurchase obligations if holders of
Debentures exercise their repurchase rights following a Change of Control,
thereby resulting in a default under the Indenture.
None of the provisions in the Indenture relating to a purchase of
Debentures upon a Change of Control is waivable by the board of directors of the
Company. Without the consent of each holder of Debentures affected thereby,
after the mailing of the notice of a Change of Control Offer, no amendment to
the Indenture may, directly or indirectly, affect the Company's obligation to
purchase the outstanding Debentures or amend, modify or change the obligation of
the Company to consummate a Change of Control Offer or waive any default in the
performance thereof or modify any of the provisions of the definitions with
respect to any such offer.
RANKING AND SUBORDINATION
The payment of the principal of, premium (if any), and interest on the
Debentures, any liquidated damages ("Additional Amounts") under the Registration
Rights Agreement (as defined herein) and all other Obligations with respect to
the Debentures, is subordinated in right of payment, to the extent set forth in
the Indenture, to the payment in full in cash of all existing and future Senior
Indebtedness of the Company, and is pari passu in right of payment with the
9 1/2% Regal Notes; provided, however, payment from the money or the proceeds of
U.S. Government Obligations held in any defeasance trust
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<PAGE> 85
described under "-- Satisfaction and Discharge of Indenture; Defeasance" below
is not subordinate to any Senior Indebtedness or subject to the restrictions
described herein. The Debentures will also be effectively subordinated to all
existing and future liabilities (including the guarantees of the Company's
obligations under the Senior Credit Facilities, trade payables and tort claims)
of the subsidiaries of the Company. As of October 1, 1998 on a pro forma basis
after giving effect to the Original Offering and the Tack-on Offering, the
Company had approximately $548.1 million of Senior Indebtedness outstanding
(excluding unused commitments of $500.0 million under the Senior Credit
Facilities), including capital lease obligations and indebtedness of the
Company's subsidiaries to third parties of approximately $29.1 million
(excluding guarantees of Senior Indebtedness of the Company). Although the
Indenture contains limitations on the amount of additional Indebtedness that the
Company and its subsidiaries may incur, under certain circumstances the amount
of such additional Indebtedness could be substantial and, in any case, all or a
portion of such Indebtedness may be Senior Indebtedness and may be secured. See
"-- Certain Covenants -- Limitation on Incurrence of Additional Indebtedness and
Issuance of Capital Stock."
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Debentures in accordance with the provisions of the Indenture. The
Debentures will in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company, including the 9 1/2% Regal Notes. The
Company has agreed in the Indenture that it will not incur, directly or
indirectly, any Indebtedness that is subordinate or junior in ranking in any
respect to Senior Indebtedness unless such Indebtedness is Senior Subordinated
Indebtedness or is contractually subordinated in right of payment to Senior
Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinate or junior to Secured Indebtedness merely because it is unsecured,
nor is any Indebtedness deemed to be subordinate or junior to other Indebtedness
merely because it matures after such other Indebtedness. Secured Indebtedness is
not deemed to be Senior Indebtedness merely because it is secured.
The Company may not pay principal of, premium (if any) or interest on or
Additional Amounts or other Obligations with respect to, the Debentures or make
any deposit pursuant to the provisions described under "-- Satisfaction and
Discharge of Indenture; Defeasance" below and may not otherwise redeem, purchase
or retire any Debentures (collectively, "pay the Debentures") if (i) any Senior
Indebtedness is not paid when due or (ii) any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms unless, in either case, the default has been cured
or waived and/or any such acceleration has been rescinded or such Senior
Indebtedness has been paid; provided, however, that the Company may pay the
Debentures without regard to the foregoing if the Company and the Trustee
receive written notice approving such payment from the Representative of the
Senior Indebtedness with respect to which either of the events set forth in
clause (i) or (ii) of the immediately preceding sentence has occurred and is
continuing. During the continuance of any default (other than a default
described in clause (i) or (ii) of the preceding sentence) with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Debentures (except that holders of the
Debentures may receive (i) Qualified Capital Stock issued by the Company to pay
interest on the Debentures or issued in exchange for
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<PAGE> 86
the Debentures, (ii) securities substantially identical to the Debentures issued
by the Company in payment of interest accrued thereon or (iii) securities issued
by the Company which are subordinated to Senior Indebtedness at least to the
same extent as the Debentures and having a Weighted Average Life to Maturity at
least equal to the remaining Weighted Average Life to Maturity of the
Debentures) for a period (a "Payment Blockage Period") commencing upon the
receipt by the Trustee (with a copy to the Company) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) because
the default giving rise to such Blockage Notice has been cured or waived or is
no longer continuing or (iii) because such Designated Senior Indebtedness has
been repaid in full). Notwithstanding the provisions described in the
immediately preceding sentence, but subject to the provisions of the first
sentence of this paragraph and the provisions of the immediately succeeding
paragraph, the Company may resume payments on the Debentures after the end of
such Payment Blockage Period. Not more than one Blockage Notice may be given,
and not more than one payment Blockage Period may occur, in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness (other than the agent under the Senior Credit
Facilities), the agent under the Senior Credit Facilities may give another
Blockage Notice within such period. In no event, however, may the total number
of days during which any Payment Blockage Period or Payment Blockage Periods is
in effect exceed 179 days in the aggregate during any 360-consecutive-day
period. No nonpayment default that existed or was continuing on the date of
delivery of any Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Blockage Notice unless such default shall have been cured or
waived for a period of not less than 90 consecutive days. The failure of the
Company to pay principal when due or to pay interest on the Debentures for more
than 30 days after the scheduled payment therefor as a result of the occurrence
of a Payment Blockage Period shall nevertheless constitute an Event of Default
under the Indenture.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization or bankruptcy of or
similar proceeding relating to the Company or its property, an assignment for
the benefit of creditors or any marshalling of the Company's assets and
liabilities, the holders of Senior Indebtedness will be entitled to receive
payment in full in cash of the Senior Indebtedness before the holders of the
Debentures are entitled to receive any payment or distribution, and until the
Senior Indebtedness is paid in full in cash, any payment or distribution to
which holders of the Debentures would be entitled but for the subordination
provisions of the Indenture will be made to holders of the Senior Indebtedness
as their interests may appear (except that holders of the Debentures may receive
(i) Qualified Capital Stock issued by the Company to pay interest on the
Debentures or issued in exchange for the Debentures, (ii) securities
substantially identical to the Debentures issued by the Company in payment of
interest accrued thereon or (iii) securities issued by the Company which are
subordinated to Senior Indebtedness at least to the same extent as the
Debentures and having a Weighted Average Life to Maturity at least equal to the
remaining Weighted Average Life to Maturity of the Debentures). If a
distribution is made to the Trustee or to holders of the
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Debentures that, due to the subordination provisions of the Indenture, should
not have been made to them, the Trustee or such holders are required to hold it
in trust for the holders of Senior Indebtedness and pay it over to them as their
interests may appear.
If payment of the Debentures is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the Representative (if any) of
any issue of Designated Senior Indebtedness which is then outstanding; provided,
however, that the Company and the Trustee shall be obligated to notify such a
Representative (other than with respect to the Senior Credit Facilities) only if
such Representative has delivered or caused to be delivered an address for the
service of such a notice to the Company and the Trustee (and the Company and the
Trustee shall be obligated only to deliver the notice to the address so
specified). If a notice is required pursuant to the immediately preceding
sentence, the Company may not pay the Debentures (except payment (i) in
Qualified Capital Stock issued by the Company to pay interest on the Debentures
or issued in exchange for the Debentures, (ii) in securities substantially
identical to the Debentures issued by the Company in payment of interest accrued
thereon or (iii) in securities issued by the Company which are subordinated to
the Senior Indebtedness at least to the same extent as the Debentures and have a
Weighted Average Life to Maturity at least equal to the remaining Weighted
Average Life to Maturity of the Debentures), until five Business Days after the
respective Representative of the Designated Senior Indebtedness receives notice
(at the address specified in the preceding sentence) of such acceleration and,
thereafter, may pay the Debentures only if the subordination provisions of the
Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture, in
the event of liquidation or insolvency, creditors of the Company who are holders
of Senior Indebtedness may recover more, ratably, than the holders of the
Debentures, and creditors of the Company who are not holders of Senior
Indebtedness (including holders of the Debentures) may recover less, ratably,
than holders of Senior Indebtedness. In addition, subject to the "Merger,
Consolidation and Sale of Assets" covenant, the Indenture does not prohibit the
sale, transfer or other disposition of assets of the Company to its
Subsidiaries. In the event of any such transfer or contribution, holders of the
Debentures will be effectively subordinated to the claims of creditors of such
Restricted Subsidiaries with respect to such assets.
FALL-AWAY EVENT
The Company's and its Restricted Subsidiaries' obligations to comply with
the provisions of the Indenture described below under the captions "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness and Issuance of
Capital Stock," "-- Limitation on Layering," "-- Limitation on Restricted
Payments," "Merger, Consolidation and Sale of Assets" and "-- Limitations on
Transactions with Affiliates" will terminate if and when the Debentures achieve
Investment Grade Status (a "Fall-away Event"); provided, however, that the
Company's and its Restricted Subsidiaries' obligations to comply with such
provisions shall be reinstated as to future events if the Debentures cease to be
of Investment Grade Status, subject to the terms, conditions and obligations set
forth in the Indenture. As a result, upon the occurrence of a Fall-away Event
the Debentures will be entitled to substantially no covenant protection.
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CERTAIN COVENANTS
The Indenture provides that all of the following restrictive covenants will
be applicable to the Company unless and until a Fall-away Event occurs. In such
event, the Company will be released from its obligations to comply with the
restrictive covenants described below as well as the related events of default
under the Debentures and the Indenture.
Limitation on Incurrence of Additional Indebtedness and Issuance of Capital
Stock. The Indenture provides that: (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (other than Permitted Indebtedness) and the Company will not issue
any Disqualified Capital Stock and its Restricted Subsidiaries will not issue
any Preferred Stock (except Preferred Stock issued to the Company or a
Restricted Subsidiary of the Company so long as it is so held); provided,
however, that the Company and its Restricted Subsidiaries may incur Indebtedness
or issue shares of such Capital Stock if, in either case, the Company's Leverage
Ratio at the time of incurrence of such Indebtedness or the issuance of such
Capital Stock, as the case may be, after giving pro forma effect to such
incurrence or issuance as of such date and to the use of proceeds therefrom is
less than 7:1.
(b) The Company will not incur or suffer to exist, or permit any of its
Restricted Subsidiaries to incur or suffer to exist, any Obligations with
respect to an Unrestricted Subsidiary that would violate the provisions set
forth in the definition of Unrestricted Subsidiary.
(c) For purposes of determining compliance with this covenant, in the event
that an item of Permitted Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness or is entitled to be incurred pursuant
to the first paragraph of this covenant, the Company shall, in its sole
discretion, classify such item of Indebtedness in any manner that complies with
this covenant and such item of Indebtedness will be treated as having been
incurred pursuant to only one of the clauses of the definition of Permitted
Indebtedness or pursuant to the first paragraph hereof except as otherwise set
forth in clause (v) of the definition of Permitted Indebtedness. Accrual of
interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
Limitation on Layering. The Indenture provides that the Company will not
incur any Indebtedness if such Indebtedness is subordinate or junior in ranking
in any respect to any Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is contractually subordinated in right of payment
to all Senior Subordinated Indebtedness (including the Debentures).
Limitation on Restricted Payments. The Indenture provides that (a) the
Company will not, and will not cause or permit any of its Restricted
Subsidiaries, to, directly or
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indirectly, make any Restricted Payment if at the time of such Restricted
Payment and immediately after giving effect thereto:
(i) a Default or Event of Default shall have occurred and be continuing; or
(ii) the Company is not able to incur $1.00 of additional Indebtedness
under the first paragraph of the "Limitation on Incurrence of Additional
Indebtedness and Issuance of Capital Stock" covenant; or
(iii) the aggregate amount of Restricted Payments made subsequent to the
Issue Date (the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined by the board of
directors of the Company in good faith) exceeds the sum of (a) (x) 100% of
Consolidated EBITDA of the Company accrued subsequent to May 27, 1998 to
the most recent date for which financial information is available to the
Company (taken as one accounting period), less (y) 1.75 times Consolidated
Interest Expense for the same period, plus (b) 100% of the aggregate net
proceeds, including the fair market value of property other than cash as
determined by the board of directors of the Company in good faith, received
subsequent to the Issue Date by the Company from any Person (other than a
Restricted Subsidiary of the Company) from the issuance and sale subsequent
to the Issue Date of Qualified Capital Stock of the Company (excluding (i)
any net proceeds from issuances and sales financed directly or indirectly
using funds borrowed from the Company or any Restricted Subsidiary of the
Company, until and to the extent such borrowing is repaid, but including
the proceeds from the issuance and sale of any securities convertible into
or exchangeable for Qualified Capital Stock to the extent such securities
are so converted or exchanged and including any additional proceeds
received by the Company upon such conversion or exchange, (ii) any net
proceeds received from issuances and sales that are used to consummate a
transaction described in clause (2) of paragraph (b) below and (iii) any
net cash proceeds received from the issuance and sale of Designated
Preferred Stock), plus (c) without duplication of any amount included in
clause (iii)(b) above, 100% of the aggregate net proceeds, including the
fair market value of property other than cash (valued as provided in clause
(iii)(b) above), received by the Company as a capital contribution
subsequent to the Issue Date, plus (d) the greater of (i) $100 million and
(ii) 15% of the Total Assets of the Company and its consolidated
Subsidiaries as determined in accordance with GAAP as of the date of the
most recently prepared internal balance sheet of the Company.
(b) Notwithstanding the foregoing, these provisions will not prohibit: (1)
the payment of any dividend or the making of any distribution within 60 days
after the date of its declaration if such dividend or distribution would have
been permitted on the date of declaration; (2) (A) the purchase, redemption or
other acquisition or retirement of any Capital Stock of the Company or any
warrants, options or other rights to acquire shares of any class of such Capital
Stock ("Retired Capital Stock") either (x) solely in exchange for shares of
Qualified Capital Stock or other warrants, options or rights to acquire
Qualified Capital Stock or (y) through the application of the net proceeds of a
substantially concurrent sale for cash (other than to a Restricted Subsidiary of
the Company) of shares of Qualified Capital Stock or warrants, options or other
rights to acquire Qualified Capital Stock or (z) in the case of Disqualified
Capital Stock, solely in exchange for, or through the application of the net
proceeds of a substantially concurrent
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sale for cash (other than to a Restricted Subsidiary of the Company) of,
Disqualified Capital Stock (in each case "Refunding Capital Stock") and (B) the
declaration and payment of dividends on Refunding Capital Stock in an aggregate
amount per year no greater than the aggregate amount of dividends per annum that
could have been paid on such Retired Capital Stock pursuant to this covenant
(other than this clause (b)(2)(B)) immediately prior to such retirement;
provided, however, that at the time of the declaration of any such dividends, no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof; (3) payments made pursuant to any merger,
consolidation or sale of assets effected in accordance with the "Merger,
Consolidation and Sale of Assets" covenant; provided, however, that no such
payment may be made pursuant to this clause (3) unless, after giving pro forma
effect to such transaction (and the incurrence of any Indebtedness in connection
therewith and the use of the proceeds thereof), the Company would be able to
incur $1.00 of additional Indebtedness under the first paragraph of the
"Limitation on Incurrence of Additional Indebtedness and Issuance of Capital
Stock" covenant; (4)(A) the declaration and payment of dividends to holders of
any class or series of Designated Preferred Stock (other than Disqualified
Capital Stock) issued after the Issue Date or (B) the declaration and payment of
dividends on Refunding Capital Stock in excess of the dividends declarable and
payable thereon pursuant to clause (2)(B) above; provided, however, in either
case, after giving effect to such issuance or declaration on a pro forma basis,
the Company and its Restricted Subsidiaries would be able to incur $1.00 of
Indebtedness under the first paragraph of the "Limitation on Incurrence of
Additional Indebtedness and Issuance of Capital Stock" covenant; (5) repurchases
of warrants, options or rights to acquire Capital Stock deemed to occur upon
exercise of warrants, options or rights to acquire Capital Stock if such
warrants, options or rights represent a portion of the exercise price of such
warrants, options or rights; (6) the declaration and payment of dividends to
holders of any class or series of Disqualified Capital Stock or the declaration
and payment of dividends to holders of Preferred Stock of Restricted
Subsidiaries, in each case, issued in accordance with the covenant entitled
"-- Incurrence of Additional Indebtedness and Issuance of Capital Stock"; (7)
commencing on the six month anniversary of the Issue Date, a Restricted Payment
to pay for the repurchase, retirement or other acquisition or retirement for
value of Equity Interests of the Company in existence on the Issue Date and
which are not held by KKR, Hicks Muse or any of their respective affiliates on
the Issue Date (including any Capital Stock issued in respect of such Capital
Stock as a result of a stock split, recapitalization, merger, combination,
consolidation or otherwise, but excluding any Equity Interests issued pursuant
to any management equity plan or stock option plan or similar agreement);
provided that notwithstanding the foregoing, the Company and its Restricted
Subsidiaries shall be permitted to make Restricted Payments under this clause
(7) only if after giving effect thereto, the Company would be permitted to incur
at least $1.00 of additional Indebtedness under the first paragraph of the
"Limitation on Incurrence of Additional Indebtedness and Issuance of Capital
Stock" covenant; and (8) dividends on the Company's Capital Stock (other than
Disqualified Capital Stock) after the first underwritten Equity Offering in an
annual amount not to exceed 6.0% of the gross proceeds (before deducting
underwriting discounts and commissions and other fees and expenses of the
offering) received from shares of Capital Stock (other than Disqualified Capital
Stock) sold for the account of the issuer thereof (and not for the account of
any stockholder) in such initial underwritten Equity Offering; provided,
however, that in the case of clauses other than clauses (1) and (2)(A), no Event
of
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Default shall have occurred or be continuing at the time of such payment or as a
result thereof. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date, amounts expended pursuant to clauses (1), 2(B),
(3), (4) and (8) shall be included in such calculation.
To the extent the issuance of Capital Stock and the receipt of capital
contributions are applied to permit the issuance of Indebtedness pursuant to
clause (v) of the definition of Permitted Indebtedness, the issuance of such
Capital Stock and the receipt of such capital contributions shall not be applied
to permit payments under this covenant.
Merger, Consolidation and Sale of Assets. The Indenture provides that the
Company shall not, in a single transaction or a series of related transactions,
consolidate with or merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of the Company's assets
determined on a consolidated basis for the Company to another Person or adopt a
plan of liquidation unless (i) either (1) the Company is the Surviving Person or
(2) the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person that acquires by conveyance, transfer
or lease the properties and assets of the Company substantially as an entirety
or in the case of a plan of liquidation, the Person to which assets of the
Company have been transferred, shall be a corporation, partnership, limited
liability company or trust organized and existing under the laws of the United
States or any State thereof or the District of Columbia; (ii) such Surviving
Person shall assume all of the obligations of the Company under the Debentures
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after giving effect to such
transaction and the use of the proceeds therefrom (on a pro forma basis,
including giving effect to any Indebtedness incurred or anticipated to be
incurred in connection with such transaction and the use of the proceeds
therefrom), (1) no Default or Event of Default shall have occurred and be
continuing and (2) either (x) such Surviving Person shall be able to incur $1.00
of additional Indebtedness under the first paragraph of the "Limitation on
Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant or
(y) the Leverage Ratio for such Surviving Person would be less than the Leverage
Ratio of the Company immediately prior to such transaction; and (iv) the Company
has delivered to the Trustee prior to the consummation of the proposed
transaction an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer complies with the Indenture and that
all conditions precedent in the Indenture relating to such transaction have been
satisfied. For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of related transactions) of
all or substantially all of the properties and assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties or assets of the Company, will be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary of the Company may consolidate with, merge into or transfer all or
part of its properties and assets to the Company and (2) the Company may merge
with an Affiliate thereof organized solely for the purpose of reorganizing the
Company in another jurisdiction in the U.S. to realize tax or other benefits. In
the event of any transaction (other than a lease) described in and complying
with the conditions listed in the immediately preceding paragraph in which the
Company, as the case may be, is not the Surviving Person and the Surviving
Person is to assume all the obligations of the Company under the Debentures and
the Indenture
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pursuant to a supplemental indenture, such Surviving Person shall succeed to,
and be substituted for, and may exercise every right and power of the Company,
as the case may be, and the Company shall be discharged from its Obligations
under the Indenture and the Debentures.
Limitations on Transactions with Affiliates. The Indenture provides that
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction or series
of related transactions involving aggregate payments or consideration in excess
of $5.0 million (including, without limitation, the purchase, sale, lease,
contribution or exchange of any property or the rendering of any service) with
or for the benefit of any of its or any of its Restricted Subsidiary's
Affiliates (other than transactions between the Company and a Restricted
Subsidiary of the Company or among Restricted Subsidiaries of the Company) (an
"Affiliate Transaction"), other than Affiliate Transactions on terms that are no
less favorable than those that might reasonably have been obtained in a
comparable transaction on an arms-length basis from a person that is not an
Affiliate; provided, however, that for a transaction or series of related
transactions involving value of $10.0 million or more, such determination will
be made in good faith by a majority of members of the board of directors of the
Company and by a majority of the disinterested members of the board of directors
of the Company, if any. The foregoing restrictions will not apply to (1)
reasonable and customary directors' fees, indemnification and similar
arrangements and payments thereunder; (2) any obligations of the Company under
any employment agreement, noncompetition or confidentiality agreement with any
officer of the Company, as in effect on the Issue Date (provided that each
amendment of any of the foregoing agreements shall be subject to the limitations
of this covenant); (3) any Restricted Payment permitted to be made pursuant to
the covenant described under "Limitation on Restricted Payments"; (4) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the board of directors of the
Company; (5) loans or advances to employees in the ordinary course of business
of the Company or any of its Restricted Subsidiaries consistent with past
practices; (6) payments made in connection with the Transactions, including,
without limitation, fees payable to and expenses of Hicks Muse and KKR; (7)
payments by the Company or any of its Restricted Subsidiaries to KKR or Hicks
Muse or their respective Affiliates made for any financial advisory, financing,
underwriting or placement services or in respect of other investment banking
activities, including, without limitation, in connection with acquisitions or
divestitures which payments are approved by a majority of the Board of Directors
of the Company in good faith; (8) transactions in which the Company or any of
its Restricted Subsidiaries, as the case may be, delivers to the Trustee a
letter from an Independent Financial Advisor stating that such transaction is
fair to the Company or such Restricted Subsidiary from a financial point of view
or that is on terms that are no less favorable than those that might reasonably
have been obtained in a comparable transaction on an arms-length basis from a
person that is not an Affiliate; (9) the existence of, or the performance by the
Company or any of its Restricted Subsidiaries of its obligations under the terms
of, any stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the Issue Date
and any similar agreements which it may enter into thereafter; provided,
however, that the existence of, or the performance by the Company or any of its
Restricted Subsidiaries of obligations under any future amendment to any such
existing agreement or under any similar agreement
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entered into after the Issue Date shall only be permitted by this clause (9) to
the extent that the terms (taken as a whole) of any such amendment or new
agreement are not otherwise disadvantageous to the Holders in any material
respect; (10) transactions with customers, clients, suppliers, or purchasers or
sellers of goods or services, in each case in the ordinary course of business
and otherwise in compliance with the terms of the Indenture which are fair to
the Company or its Restricted Subsidiaries, in the reasonable determination of
the Board of Directors of the Company or the management thereof, or are on terms
(taken as a whole) at least as favorable as might reasonably have been obtained
at such time from an unaffiliated party; (11) any agreement as in effect as of
the Issue Date or any amendment thereto (so long as any such amendment, taken as
a whole, is not disadvantageous to the Holders in any material respect) or any
transaction contemplated thereby and (12) any purchases of Capital Stock (other
than Disqualified Capital Stock) of the Company by Affiliates thereof.
Reports. The Indenture provides that so long as any of the Debentures are
outstanding, the Company will provide to the Trustee and the holders of
Debentures and file with the Commission, to the extent such submissions are
accepted for filing by the Commission, copies of the annual reports and of the
information, documents and other reports that the Company would have been
required to file with the Commission pursuant to Sections 13 or 15(d) of the
Exchange Act, regardless of whether the Company is then obligated to file such
reports.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on the Debentures when the same becomes due and
payable and the Default continues for a period of 30 days (whether or not such
payment is prohibited by the provisions described under "-- Ranking and
Subordination" above); (ii) the failure to pay principal of or premium, if any,
on any Debentures when such principal or premium, if any, becomes due and
payable, at maturity, upon redemption or otherwise (whether or not such payment
is prohibited by the provisions described under "-- Ranking and Subordination"
above); (iii) a default in the observance or performance of any other covenant
or agreement contained in the Debentures or the Indenture, which default
continues for a period of 60 days after the Company receives written notice
thereof specifying the default from the Trustee or holders of at least 30% in
aggregate principal amount of outstanding Debentures; (iv) the failure to pay at
the final stated maturity (after giving effect to any extensions thereof) the
principal amount of any Indebtedness of the Company or any Restricted Subsidiary
of the Company, or the acceleration of the final stated maturity of any such
Indebtedness, if the aggregate principal amount of such Indebtedness, together
with the aggregate principal amount of any other such Indebtedness in default
for failure to pay principal at the final stated maturity (giving effect to any
extensions thereof) or which has been accelerated, aggregates $20 million or
more at any time; (v) one or more judgments in an aggregate amount in excess of
$20 million (which are not covered by insurance as to which the insurer has not
disclaimed coverage) being rendered against the Company or any of its
Significant Restricted Subsidiaries and such judgment or judgments remain
undischarged or unstayed for a period of 60 days after such judgment or
judgments become final and nonappealable; and (vi) certain events of bankruptcy,
insolvency or reorganization affecting the Company or any of its Significant
Restricted Subsidiaries.
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Upon the happening of any Event of Default specified in the Indenture
(other than those of the type described in clause (vi) of the preceding
paragraph), the Trustee may, and the Trustee upon the request of holders of 30%
in principal amount of the outstanding Debentures shall, or the holders of at
least 30% in principal amount of outstanding Debentures may, declare the
principal of all the Debentures, together with all accrued and unpaid interest
and premium, if any, to be due and payable by notice in writing to the Company
and the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Senior Credit Facilities, will become due and payable upon the first
to occur of an acceleration under the Senior Credit Facilities or five Business
Days after receipt by the Company and the agent under the Senior Credit
Facilities of such Acceleration Notice (unless all Events of Default specified
in such Acceleration Notice have been cured or waived). If an Event of Default
with respect to bankruptcy proceedings relating to the Company or any
Significant Restricted Subsidiaries occurs and is continuing, then such amount
will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holder of the
Debentures.
At any time after a declaration of acceleration with respect to the
Debentures as described in the preceding paragraph, the holders of a majority in
principal amount of the Debentures then outstanding (by notice to the Trustee)
may rescind and cancel such declaration and its consequences if (i) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction, (ii) all existing Defaults and Events of Default have
been cured or waived except nonpayment of principal of or interest on the
Debentures that has become due solely by such declaration of acceleration, (iii)
to the extent the payment of such interest is lawful, interest (at the same rate
specified in the Debentures) on overdue installments of interest and overdue
payments of principal which has become due otherwise than by such declaration of
acceleration has been paid, (iv) the Company has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its reasonable expenses,
disbursements and advances and (v) in the event of the cure or waiver of a
Default or Event of Default of the type described in clause (vi) of the first
paragraph of "-- Events of Default" above, the Trustee has received an Officers'
Certificate and Opinion of Counsel that such Default or Event of Default has
been cured or waived. The holders of a majority in principal amount of the
Debentures may waive any existing Default or Event of Default under the
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any Debentures. In the event of any Event of Default
specified in clause (iv) of the first paragraph of "-- Events of Default," such
Event of Default and all consequences thereof (including without limitation any
acceleration or resulting payment default) shall be annulled, waived and
rescinded, automatically and without any action by the Trustee or the holders of
the Debentures, if within 60 days after such Event of Default arose (x) the
Indebtedness that is the basis for such Event of Default has been discharged, or
(y) the holders of such Indebtedness have rescinded or waived the acceleration,
notice or action (as the case may be) giving rise to such Event of Default, or
(z) if the default that is the basis for such Event of Default has been cured.
The Company is required to deliver to the Trustee, within 120 days after
the end of the Company's fiscal year, a certificate indicating whether the
signing officers know of any Default or Event of Default that occurred during
the previous year and whether the
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Company has complied with its obligations under the Indenture. In addition, the
Company will be required to notify the Trustee of the occurrence and
continuation of any Default or Event of Default promptly after the Company
becomes aware of the same.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default thereunder should occur and be continuing,
the Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the holders of the
Debentures unless such holders have offered to the Trustee reasonable indemnity
or security against any loss, liability or expense. Subject to such provision
for security or indemnification and certain limitations contained in the
Indenture, the holders of a majority in principal amount of the outstanding
Debentures have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Indenture at any time
by delivering all outstanding Debentures to the Trustee for cancellation and
paying all sums payable by it thereunder. The Company, at its option, (i) will
be discharged from any and all obligations with respect to the Debentures
(except for certain obligations of the Company to register the transfer or
exchange of such Debentures, replace stolen, lost or mutilated Debentures,
maintain paying agencies and hold moneys for payment in trust) or (ii) need not
comply with certain of the restrictive covenants with respect to the Indenture,
if the Company deposits with the Trustee, in trust, U.S. legal tender or U.S.
Government Obligations or a combination thereof that, through the payment of
interest and premium thereon and principal in respect thereof in accordance with
their terms, will be sufficient to pay all the principal of and interest and
premium on the Debentures on the dates such payments are due or through any date
of redemption, if earlier than the dates such payments are due, in any case in
accordance with the terms of such Debentures, as well as the Trustee's fees and
expenses. To exercise either such option, the Company is required to deliver to
the Trustee (A) an Opinion of Counsel or a private letter ruling issued to the
Company by the Internal Revenue Service (the "IRS") to the effect that the
holders of the Debentures will not recognize income, gain or loss for federal
income tax purposes as a result of the deposit and related defeasance and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such option had not been
exercised and, in the case of an Opinion of Counsel furnished in connection with
a discharge pursuant to clause (i) above, accompanied by a private letter ruling
issued to the Company by the IRS to such effect, (B) subject to certain
qualifications, an Opinion of Counsel to the effect that funds so deposited will
not be subject to avoidance under applicable bankruptcy law and (C) an Officers'
Certificate and an Opinion of Counsel to the effect that the Company has
complied with all conditions precedent to the defeasance. Notwithstanding the
foregoing, the Opinion of Counsel required by clause (A) above need not be
delivered if all Debentures not theretofore delivered to the Trustee for
cancellation (i) have become due and payable, (ii) will become due and payable
on the maturity date within one year or (iii) are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense, of the
Company.
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MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, together, without the
consent of the holders of the Debentures, may amend or supplement the Indenture
for certain specified purposes, including curing ambiguities, defects or
inconsistencies. Other modifications and amendments of the Indenture may be made
with the consent of the holders of a majority in principal amount of the then
outstanding Debentures, except that, without the consent of each holder of the
Debentures affected thereby, no amendment may, directly or indirectly: (i)
reduce the amount of Debentures whose holders must consent to an amendment; (ii)
reduce the rate of or change the time for payment of interest, including
defaulted interest, on any Debentures; (iii) reduce the principal of or change
the fixed maturity of any Debentures, or change the date on which any Debentures
may be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor; (iv) make any Debentures payable in money other than
that stated in the Debentures and the Indenture; (v) make any change in
provisions of the Indenture protecting the right of each holder of a Debenture
to receive payment of principal of, premium on and interest on such Debenture on
or after the due date thereof or to bring suit to enforce such payment or
permitting holders of a majority in principal amount of the Debentures to waive
a Default or Event of Default; or (vi) after the Company's obligation to
purchase the Debentures arises under the Indenture, amend, modify or change the
obligation of the Company to make or consummate a Change of Control Offer or
waive any default in the performance thereof or modify any of the provisions or
definitions with respect to any such offer.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
shall have any liability for any obligations of the Company under the Debentures
or the Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation. Each Holder by accepting a Debenture waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Debentures. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent person in the
conduct of such person's own affairs. Subject to such provisions,
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the Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any holder of Debentures, unless such
holder shall have offered to the Trustee security and indemnity satisfactory to
it against any loss, liability or expense.
GOVERNING LAW
The Indenture provides that it and the Debentures will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Acquired Preferred Stock" means the Preferred Stock of any Person at such
time as such Person becomes a Restricted Subsidiary of the Company or at the
time it merges or consolidates with the Company or any of its Restricted
Subsidiaries and not issued by such Person in connection with, or in
anticipation or contemplation of, such acquisition, merger or consolidation.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) any transaction pursuant to which any Person
shall become a Restricted Subsidiary of the Company or shall be consolidated or
merged with the Company or any Restricted Subsidiary of the Company or (ii) the
acquisition by the Company or any Restricted Subsidiary of the Company of assets
of any Person comprising a division, line of business or theatre site of such
Person.
"Business Day" means any day (other than a day which is a Saturday, Sunday
or legal holiday in the state of New York) on which banks are open for business
in New York, New York.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated) of capital stock of such Person and (ii) with respect to any Person
that is not a corporation, any and all partnership or other equity interests of
such Person.
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"Capitalized Lease Obligation" means, as to any Person, the obligation of
such Person to pay rent or other amounts under a lease to which such Person is a
party that is required to be classified and accounted for as a capital lease
obligation under GAAP, and for purposes of this definition, the amount of such
obligation at any date shall be the capitalized amount of such obligation at
such date, determined in accordance with GAAP.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group") (whether or not otherwise in compliance with the
provisions of the Indenture), other than to Hicks Muse, KKR or any of their
respective officers or directors or any Affiliates of any of the foregoing (the
"Permitted Holders"); or (ii) the acquisition by any Person or Group (other than
the Permitted Holders or any direct or indirect subsidiary of any Permitted
Holder) of the power, directly or indirectly, to vote or direct the voting of
securities having more than 50% of the ordinary voting power for the election of
directors of the Company.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement.
"Consolidated EBITDA" means, for any period, the net income of the Company
and its Restricted Subsidiaries for such period plus, to the extent such amount
was deducted in calculating such net income (i) Consolidated Interest Expense,
(ii) income taxes, (iii) depreciation expense, (iv) amortization expense, (v)
all other non-cash items, extraordinary items, nonrecurring and unusual items
and cumulative effects of changes in accounting principles reducing such net
income, less all non-cash items, extraordinary items, nonrecurring and unusual
items and cumulative effects of changes in accounting principles increasing such
net income, all as determined on a consolidated basis for the Company and its
Restricted Subsidiaries in conformity with GAAP; (vi) upfront expenses resulting
from equity offerings, investments, mergers, recapitalizations, option buyouts,
Dispositions, Asset Acquisitions and similar transactions to the extent such
expenses reduce net income; (vii) restructuring charges reducing net income; and
(viii) gains or losses on Dispositions; provided that, Consolidated EBITDA shall
not include (x) the net income (or net loss) of any Person that is not a
Restricted Subsidiary, except (I) with respect to net income, to the extent of
the amount of dividends or other distributions actually paid to the Company or
any of its Restricted Subsidiaries by such Person during such period and (II)
with respect to net losses, to the extent of the amount of investments made by
the Company or any Restricted Subsidiary in such Person during such period; (y)
solely for the purposes of calculating the amount of Restricted Payments that
may be made pursuant to clause (iii) of paragraph (a) of the "Limitation on
Restricted Payments" covenant described above (and in such case, except to the
extent includable pursuant to clause (x) above), the net income (or net loss) of
any Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with the Company or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by the Company or any of its Restricted Subsidiaries; and
(z) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such net income is not at the time permitted by the operation of
the terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation
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applicable to such Restricted Subsidiary (other than any agreement or instrument
evidencing Indebtedness or Preferred Stock outstanding on the Issue Date or
incurred or issued thereafter in compliance with the "Limitation on Incurrence
of Additional Indebtedness and Issuance of Capital Stock" covenant; provided
that the terms of any such agreement restricting the declaration and payment of
dividends or similar distributions apply only in the event of a default with
respect to a financial covenant or a covenant relating to payment (beyond any
applicable period of grace) contained in such agreement or instrument and
provided such terms are determined by the Company to be customary in comparable
financings and such restrictions are determined by the Company not to materially
affect the Company's ability to make principal or interest payments on the
Debentures when due).
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication, the sum of (i) the interest expense of such Person
and its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Swap Agreements
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit, bankers' acceptance financing or
similar facilities, and (e) all accrued interest and (ii) the interest component
of Capitalized Lease Obligations paid or accrued by such Person and its
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP; excluding, however, any amount of such interest of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Consolidated EBITDA pursuant to clause (z) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Consolidated EBITDA
pursuant to clause (z) of the definition thereof), all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Construction Indebtedness Amount" shall mean an amount equal to the lesser
of (i) $100 million and (ii) the total Indebtedness of any Person and its
Restricted Subsidiaries outstanding on the last day of any Reference Period
incurred in connection with the construction or enhancement of motion picture
theatres or screens that, on such day, are not open for business.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Debt Rating" shall mean the rating assigned to the Debentures by Moody's
or S&P, as the case may be.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Preferred Stock" means preferred stock of the Company (other
than Disqualified Capital Stock) that is issued for cash (other than to a
Restricted Subsidiary) and is so designated as Designated Preferred Stock,
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company, on the issuance date
thereof, the cash proceeds of which are excluded from the
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calculation set forth in clause (iii) paragraph (a) of the "Certain
Covenants -- Limitation on Restricted Payments" covenant.
"Designated Senior Indebtedness" means (i) all obligations under the Senior
Credit Facilities and (ii) any other Senior Indebtedness of the Company which,
at the date of determination, has an aggregate principal amount outstanding of,
or under which, at the date of determination, the holders thereof are committed
to lend up to, at least $25.0 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of the Indenture.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, or transfer, lease, conveyance
or other disposition of all or substantially all of such Person's assets or
Capital Stock.
"Disqualified Capital Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control if such Capital Stock requires that
the Change of Control Offer with respect to the Debentures be completed prior to
any similar offer being made with respect to such Capital Stock), in whole or in
part, on or prior to the final maturity date of the Debentures; provided that
only the portion of Capital Stock which so matures or is mandatorily redeemable
or is so redeemable at the sole option of the holder thereof prior to the final
maturity date of the Debentures shall be deemed Disqualified Capital Stock.
"Equity Offering" means a private sale or public offering of Capital Stock
or preferred stock (other than Disqualified Capital Stock) of the Company.
"GAAP" means generally accepted accounting principles in the United States
of America, including those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or the Commission or in such other statements by such other
entity as approved by a significant segment of the accounting profession. All
ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP as in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Indebtedness" means with respect to any Person, without duplication, any
liability of such Person (i) for borrowed money, (ii) evidenced by bonds,
debentures, notes or other similar instruments, (iii) constituting Capitalized
Lease Obligations, (iv) incurred or assumed as the deferred purchase price of
property or services, or pursuant to conditional sale obligations and title
retention agreements (but excluding trade accounts payable
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arising in the ordinary course of business), (v) for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) for Indebtedness of others guaranteed by such Person, (vii)
for Interest Swap Agreements, Commodity Agreements and Currency Agreements and
(viii) for Indebtedness of any other Person of the type referred to in clauses
(i) through (vii) which is secured by any Lien on any property or asset of such
first referred to Person, the amount of such Indebtedness being deemed to be the
lesser of the value of such property or asset or the amount of the Indebtedness
so secured. The amount of Indebtedness of any Person at any date shall be (i)
the outstanding principal amount of all unconditional obligations described
above, as such amount would be calculated in accordance with GAAP, (ii) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount and (iii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant to Persons engaged in the motion picture exhibition
and distribution business of nationally recognized standing that is, in the
judgment of the Company's Board of Directors, qualified to perform the task for
which it has been engaged.
"Interest Swap Agreements" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge or arrangement.
"Investment Grade Status" exists as of a date and thereafter if at such
date either (i) the Debt Rating of Moody's is at least Baa3 (or the equivalent)
or higher or (ii) the Debt Rating of S&P is at least BBB- (or the equivalent) or
higher.
"Issue Date" means December 16, 1998.
"Leverage Ratio" means, the ratio of (i) the aggregate outstanding amount
of Indebtedness (excluding any Construction Indebtedness Amount and net of any
cash and cash equivalents) of the Company and its Restricted Subsidiaries on a
consolidated basis in accordance with GAAP plus the aggregate liquidation
preference of all Disqualified Capital Stock of such Person and all Preferred
Stock of Restricted Subsidiaries of such Person (other than any such
Disqualified Capital Stock or Preferred Stock held by such Person or any of its
Restricted Subsidiaries) on such date to (ii) the aggregate amount of
Consolidated EBITDA for the most recent four full fiscal quarters (the "Four
Quarter Period") for which financial statements of the Company have been filed
with the Commission or delivered to the Trustee pursuant to the "Reports"
covenant. The Four Quarter Period shall be hereinafter referred to as the
"Reference Period."
For purposes of this definition, the aggregate outstanding principal amount
of Indebtedness or aggregate liquidation preference of Preferred Stock of the
Person and its Restricted Subsidiaries for which such calculation is made shall
be determined on a pro forma basis as if the Indebtedness or Preferred Stock
giving rise to the need to perform such calculation had been incurred and the
proceeds therefrom had been applied, and all other transactions in respect of
which such Indebtedness or Preferred Stock is being incurred has occurred, on
the last day of the Reference Period. In addition to the foregoing, for purposes
of this definition, "Consolidated EBITDA" shall be calculated on a pro forma
basis after giving effect to (i) the Transactions, (ii) the incurrence of the
Indebtedness or Preferred Stock of such Person and its Restricted Subsidiaries
(and the
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application of the proceeds therefrom) giving rise to the need to make such
calculation and any incurrence (and the application of the proceeds therefrom)
or repayment of other Indebtedness or Preferred Stock, other than the incurrence
or repayment of Indebtedness pursuant to working capital facilities, at any time
subsequent to the beginning of the Reference Period and on or prior to the date
of determination, as if such incurrence (and the application of the proceeds
thereof), or the repayment, as the case may be, occurred on the first day of the
Reference Period, (iii) any Dispositions, Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Subsidiaries (including any
Person that becomes a Restricted Subsidiary as a result of such Asset
Acquisition) incurring, assuming or otherwise becoming liable for Indebtedness
or Preferred Stock) or Theatre Completions at any time on or subsequent to the
first day of the Reference Period and on or prior to the date of determination,
as if such Disposition, Asset Acquisition (including the incurrence, assumption
or liability for any such Indebtedness or Preferred Stock and also including any
Consolidated EBITDA associated with such Asset Acquisition) or Theatre
Completion occurred on the first day of the Reference Period, (iv) the effects
of incremental contributions to Consolidated EBITDA the Company reasonably
believes in good faith could have been achieved during the Reference Period as a
result of such Asset Acquisition or Theatre Completion (regardless whether such
incremental contributions could then be reflected in pro forma financial
statements under GAAP, Regulation S-X promulgated by the Commission or any other
regulation or policy of the Commission); provided, however, that such
incremental contributions were identified and quantified in good faith in an
officer's certificate delivered to the Trustee at the time of any calculation of
the Leverage Ratio and (v) any motion picture theatre that was permanently
closed for business at any time on or subsequent to the first day of the
Reference Period and on or prior to the date of determination as if such theatre
was closed on the first day of the Reference Period. In calculating
"Consolidated Interest Expense" for purposes of the calculation of "Consolidated
EBITDA," (i) interest on Indebtedness determined on a fluctuating basis as of
the date of determination (including Indebtedness actually incurred on the date
of the transaction giving rise to the need to calculate the Leverage Ratio) and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness as in effect on the date of determination and (ii) notwithstanding
(i) above, interest determined on a fluctuating basis, to the extent such
interest is covered by Interest Swap Agreements that will remain in effect for
at least 12 months, shall be deemed to accrue at the rate per annum resulting
after giving effect to the operation of such agreements. For purposes of
calculating the Consolidated EBITDA associated with any Theatre Completion, the
amount thereof for the Reference Period shall be the amount of Consolidated
EBITDA expected by the Company in good faith to be derived by the Company from
such Theatre Completion during the first 12-month period following the date on
which the relevant theatre or screen opens for business.
"Lien" means, with respect to any asset, any lien, mortgage, deed of trust,
pledge, security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest).
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
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"9 1/2% Regal Notes" means the Company's 9 1/2% Senior Subordinated Notes
due 2008 issued pursuant to that certain indenture dated as of May 27, 1998, by
and between the Company and IBJ Schroder Bank & Trust Company.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing, or otherwise relating to, any
Indebtedness.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Indebtedness" means, without duplication, (i) Indebtedness
outstanding on the Issue Date (including the 9 1/2% Regal Notes and the
Debentures); (ii) Indebtedness of the Company and any of its Restricted
Subsidiaries incurred under the Senior Credit Facilities (including letter of
credit obligations), provided that the aggregate principal amount at any time
outstanding does not exceed $1.22 billion; (iii) Indebtedness evidenced by or
arising under the Debentures and the Indenture in respect of the Debentures;
(iv) Interest Swap Agreements, Commodity Agreements and Currency Agreements;
provided, however, that such agreements are entered into for bona fide hedging
purposes and not for speculative purposes; (v) additional Indebtedness of the
Company or any of its Restricted Subsidiaries not otherwise permitted under the
"Limitation on Incurrence of Additional Indebtedness and Issuance of Capital
Stock" covenant, in an aggregate principal amount, which when aggregated with
the aggregate principal amount of all other Indebtedness then outstanding and
incurred pursuant to this clause (v), does not at any one time outstanding
exceed the sum of (x) $100.0 million and (y) 100% of the net cash proceeds
received by the Company from the issue or sale after the Issue Date of Capital
Stock (other than Disqualified Capital Stock) of the Company or net cash
proceeds contributed to the capital of the Company (other than in respect of
Disqualified Capital Stock) as determined in accordance with clauses (iii)(b)
and (iii)(c) of paragraph (a) of the "Limitation on Restricted Payments"
covenant to the extent such net cash proceeds have not been applied pursuant to
such clause to make Restricted Payments or to effect other transactions pursuant
to the second paragraph of the "Limitation on Restricted Payments" covenant (it
being understood that any Indebtedness incurred under this clause (v) shall
cease to be deemed incurred or outstanding for purposes of this clause (v) from
and after the first date on which the Company could have incurred such
Indebtedness under the "Limitation on Incurrence of Additional Indebtedness and
Issuance of Capital Stock" covenant without reliance upon this clause (v), and
such Indebtedness shall thereupon be deemed to have been so incurred); (vi)
Refinancing Indebtedness (other than in respect of Indebtedness incurred
pursuant to clauses (ii), (v) and (xiii) of this definition); (vii) Indebtedness
owed by the Company to any Restricted Subsidiary of the Company (so long as it
shall remain a Restricted Subsidiary of the Company) or by any Restricted
Subsidiary (so long as it remains a Restricted Subsidiary of the Company) of the
Company to the Company or any Restricted Subsidiary of the Company; (viii)
guarantees by the Company or Restricted Subsidiaries of any Indebtedness
permitted to be incurred pursuant to the Indenture; (ix) Indebtedness in respect
of performance bonds, reimbursement obligations with respect to letters of
credit, bankers' acceptances, completion guarantees and surety or appeal bonds
provided by the Company or any of its Restricted Subsidiaries in the ordinary
course of their business or Indebtedness with
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respect to reimbursement type obligations regarding workers' compensation
claims; (x) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing any obligations of
the Company or any of its Restricted Subsidiaries pursuant to such agreements,
in each case incurred in connection with the disposition of any business assets
or Subsidiaries of the Company (other than guarantees of Indebtedness or other
obligations incurred by any Person acquiring all or any portion of such business
assets or Restricted Subsidiaries of the Company for the purpose of financing
such acquisition) in a principal amount not to exceed the gross proceeds,
including non-cash proceeds, actually received by the Company or any of its
Restricted Subsidiaries in connection with such disposition; provided, however,
that such Indebtedness is not reflected on the balance sheet of the Company or
any Restricted Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will not
be deemed to be reflected on such balance sheet for purposes of this clause);
(xi) Indebtedness (including but not limited to Capitalized Lease Obligations,
mortgage financings or purchase money obligations) incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property or assets (whether through direct purchase of assets or
the Capital Stock of any Person owning such assets) or incurred to refinance any
such purchase price or cost of construction or improvement; (xii) Indebtedness
or Disqualified Capital Stock of Persons that are acquired by the Company or any
of its Restricted Subsidiaries or merged into a Restricted Subsidiary in
accordance with the terms of the Indenture; provided, however, that such
Indebtedness or Disqualified Capital Stock is not incurred in contemplation of
such acquisition or merger; and provided further that after giving effect to
such acquisition or merger, either (i) the Company would be permitted to incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under the first paragraph of the "Limitation on Incurrence of Additional
Indebtedness and Issuance of Capital Stock" covenant or (ii) the Leverage Ratio
is less than immediately prior to such acquisition or merger; and (xiii)
Indebtedness incurred in connection with any Real Estate Financing Transaction;
provided, however, that the amount of Indebtedness outstanding under clause (ii)
above and this clause (xiii) shall not exceed $1.22 billion at any time
outstanding.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Real Estate Financing Transaction" means a financing or series of
financings consisting principally of one or more mortgage financings, real
estate sale or leaseback transactions or an asset-backed program based on real
estate owned by the Company or any of its Subsidiaries (funded by the issuance
of commercial paper, medium term notes or other forms of borrowing and including
credit enhancement facilities), and which may consist of or include such other
forms of financing consistent with the foregoing as the Board of Directors of
the Company shall approve in good faith, in each case as such
100
<PAGE> 105
financing or financings may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
amendment extending the maturity of, refinancing, replacing or otherwise
restructuring all or any portion of the Indebtedness under such financing or
financings or any successor or replacement agreement and whether including the
same or any other lender or group of lenders, and whether including or replacing
as borrowers or guarantors one or more Subsidiaries of the Company.
"Refinancing Indebtedness" means any refinancing by the Company or its
Restricted Subsidiaries of Indebtedness of the Company or any of its Restricted
Subsidiaries incurred in accordance with the "Limitation on Incurrence of
Additional Indebtedness and Issuance of Capital Stock" covenant that does not
(i) result in an increase in the aggregate principal amount of Indebtedness
(such principal amount to include, for purposes of this definition, any
premiums, fees, penalties or accrued interest paid with the proceeds of the
Refinancing Indebtedness) of such Person or (ii) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life to
Maturity of the Indebtedness being refinanced or (B) a final maturity earlier
than the final maturity of the Indebtedness being refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Senior Indebtedness; provided, however, that
if, and for so long as, any issue of Senior Indebtedness lacks such a
representative, then the Representative for such issue of Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such issue of Senior Indebtedness.
"Restricted Payment" means (i) the declaration or payment of any dividend
or the making of any other distribution (other than dividends or distributions
payable in Qualified Capital Stock or in options, rights or warrants to acquire
Qualified Capital Stock or dividends or distributions by a Restricted Subsidiary
so long as in the case of any dividend or distribution payable on or in respect
of any class or series of Capital Stock issued by a Subsidiary other than a
Wholly Owned Subsidiary, the Company or a Restricted Subsidiary receives at
least its pro rata share of such dividend or distribution in accordance with its
Capital Stock) on shares of the Company's Capital Stock, or (ii) the purchase,
redemption, retirement or other acquisition for value of any Capital Stock of
the Company, or any warrants, rights or options to acquire shares of Capital
Stock of the Company, other than through the exchange of such Capital Stock or
any warrants, rights or options to acquire shares of any class of such Capital
Stock for Qualified Capital Stock or warrants, rights or options to acquire
Qualified Capital Stock.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The board of directors of the Company may
designate any Unrestricted Subsidiary or any person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action) the Company could have incurred at least $1.00 of
additional indebtedness under the first paragraph pursuant to the "Limitation on
Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc., or any successor to the rating agency business thereof.
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<PAGE> 106
"Secured Indebtedness" means any Indebtedness of the Company or a
Restricted Subsidiary secured by a Lien.
"Senior Credit Facilities" means the credit facilities under that certain
Credit Agreement dated as of the closing date of the Transactions, and as
amended in connection with the Act III Combination, among the Company and The
Bank of Nova Scotia, as administrative agent and collateral agent, BancAmerica
Robertson Stephens, as syndication agent, and the other financial institutions
from time to time party thereto, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending or shortening the maturity of,
refinancing, replacing or otherwise restructuring (including by way of adding
Subsidiaries of the Company as additional borrowers or guarantors thereunder or
increasing the amount of Indebtedness thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders (or other
institutions).
"Senior Indebtedness" means, whether outstanding on the Issue Date or
thereafter issued, all Indebtedness of the Company, including interest
(including interest accruing on or after the filing of, or which would have
accrued but for the filing of, any petition in bankruptcy or for reorganization
relating to the Company or any Restricted Subsidiary whether or not a claim for
post-filing interest is allowed in such proceeding) and premium, if any,
thereon, and other monetary amounts (including fees, expenses, reimbursement
obligations under letters of credit and indemnities) owing in respect thereof
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that the obligations in respect of such
Indebtedness ranks pari passu with the Debentures; provided, however, that
Senior Indebtedness will not include (1) any obligation of the Company to any
Restricted Subsidiary, (2) any liability for federal, state, foreign, local or
other taxes owed or owing by the Company, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness, Guarantee or obligation of the Company that is expressly
subordinate or junior in right of payment to any other Indebtedness, Guarantee
or obligation of the Company, including any Senior Subordinated Indebtedness and
the 9 1/2% Regal Notes (as to which the Debentures rank pari passu in right of
payment) or (5) obligations in respect of any Capital Stock.
"Senior Subordinated Indebtedness" means the Debentures and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Debentures in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Significant Restricted Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date.
"Subsidiary," with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the
102
<PAGE> 107
election of directors under ordinary circumstances shall at the time be owned,
directly or indirectly, through one or more intermediaries, by such Person or
(ii) any other Person of which at least a majority of the voting interest under
ordinary circumstances is at the time, directly or indirectly, through one or
more intermediaries, owned by such Person. Notwithstanding anything in the
Indenture to the contrary, all references to the Company and its consolidated
Subsidiaries or to financial information prepared on a consolidated basis in
accordance with GAAP shall be deemed to include the Company and its Subsidiaries
as to which financial statements are prepared on a combined basis in accordance
with GAAP and to financial information prepared on such a combined basis.
Notwithstanding anything in the Indenture to the contrary, an Unrestricted
Subsidiary shall not be deemed to be a Restricted Subsidiary for purposes of the
Indenture.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Theatre Completion" means any motion picture theatre or screen or
enhancement which was first opened for business during any applicable period.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Unrestricted Subsidiary" means a Subsidiary of the Company created after
the Issue Date and so designated by a resolution adopted by the board of
directors of the Company; provided, however, that (a) neither the Company nor
any of its other Restricted Subsidiaries (1) provides any credit support for any
Indebtedness or other Obligations of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness) or (2) is directly or
indirectly liable for any Indebtedness or other Obligations of such Subsidiary
and (b) at the time of designation of such Subsidiary, such Subsidiary has no
property or assets (other than de minimis assets resulting from the initial
capitalization of such Subsidiary). The board of directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could incur
$1.00 of additional Indebtedness under the first paragraph of the "Limitation on
Incurrence of Additional Indebtedness and Issuance of Capital Stock" covenant
and (y) no Default or Event of Default shall have occurred or be continuing. Any
designation pursuant to this definition by the board of directors of the Company
shall be evidenced to the Trustee by the filing with the Trustee of a certified
copy of the resolution of the Company's board of directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial
103
<PAGE> 108
maturity or other required payment of principal, including payment at final
maturity, in respect thereof, by (ii) the number of years (calculated to the
nearest one-twelfth) which will elapse between such date and the making of such
payment.
"Wholly Owned Subsidiary" means, with respect to any Subsidiary of any
Person, the ownership of all of the outstanding Capital Stock of such Subsidiary
(other than any director's qualifying shares or shares owned by foreign
nationals to the extent mandated by applicable law) by such Person or one or
more Wholly Owned Subsidiaries of such Person.
104
<PAGE> 109
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Debentures for Debentures, but
does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury
regulations, Internal Revenue Service rulings and pronouncements, and judicial
decisions now in effect, all of which are subject to change at any time by
legislative, judicial or administrative action. Any such changes may be applied
retroactively in a manner that could adversely affect a holder of the
Debentures. The description does not consider the effect of any applicable
foreign, state, local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD DEBENTURES FOR DEBENTURES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD DEBENTURES FOR DEBENTURES
The exchange of Old Debentures for Debentures pursuant to the Exchange
Offer should not constitute a significant modification of the terms of the Old
Debentures and, therefore, such exchange should not constitute an exchange for
federal income tax purposes. Accordingly, such exchange should have no federal
income tax consequences to holders of Old Debentures.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Debentures for its own account in exchange
for Old Debentures pursuant to the Exchange Offer, where such Old Debentures
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Debentures. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of the Debentures received in exchange for Old
Debentures where such Old Debentures were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Registration Statement is declared effective, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
, 1999, all dealers effecting transactions in the Debentures may be
required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of Debentures by
broker-dealers. Debentures received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Debentures or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Debentures. Any broker-dealer that
resells the
105
<PAGE> 110
Debentures that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Debentures may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of the Debentures and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Registration Statement is declared
effective, the Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-dealer that
requests such documents in the Letter of Transmittal or otherwise. The Company
has agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Debentures) other than
commissions or concessions of any broker-dealers and will indemnify holders of
the Old Debentures (including any broker-dealers) against certain liabilities,
including certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Debentures will be passed upon for the Company by Weil,
Gotshal & Manges LLP, Dallas, Texas and New York, New York.
EXPERTS
The consolidated financial statements of Regal Cinemas, Inc. at January 1,
1998 and January 2, 1997, and for each of the three years in the period ended
January 1, 1998, included in this Prospectus have been included herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The report of PricewaterhouseCoopers LLP with respect to the Company's
consolidated financial statements makes reference to the fact that separate
financial statements of Cobb Theatres, including the Consolidated Balance Sheet
as of December 31, 1996, and the Consolidated Statements of Income and Cash
Flows for the year ended December 31, 1996, were audited by Ernst & Young LLP,
independent auditors, as stated in their report dated July 2, 1997. The report
of PricewaterhouseCoopers LLP with respect to the Company's consolidated
financial statements, also makes reference to the fact that separate financial
statements of Cobb Theatres including Consolidated Statements of Income,
Members' Equity and Cash Flows for each of the two years in the period ended
August 31, 1996, were audited by Ernst & Young LLP, independent auditors, as
stated in their report dated October 23, 1996. The financial statements referred
to above are included in reliance upon such reports given on the authority of
such firms as experts in accounting and auditing.
The consolidated financial statements of Act III Cinemas, Inc., as of and
for the year ended December 31, 1997, included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and
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<PAGE> 111
elsewhere in the Prospectus, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Act III Cinemas, Inc. as of
December 31, 1996 and for each of the two years in the period ended December 31,
1996, included in this Prospectus, have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
On September 9, 1998, the Company dismissed its independent public
accountants, PricewaterhouseCoopers LLP, and replaced them with Deloitte &
Touche LLP. PricewaterhouseCoopers LLP's reports on the Company's consolidated
financial statements at January 1, 1998, and January 2, 1997, and for each of
the three years in the period ended January 1, 1998 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles. In connection with the audit
of the Company's consolidated financial statements at January 1, 1998, and
January 2, 1997, and for each of the three years in the period ended January 1,
1998 and the subsequent interim period, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
107
<PAGE> 112
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REGAL CINEMAS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Coopers & Lybrand L.L.P., Independent
Accountants............................................... F-2
Report of Ernst & Young LLP, Independent Auditors........... F-3
Consolidated Balance Sheets at January 2, 1997 and January
1, 1998................................................... F-5
Consolidated Statements of Income for the Years Ended
December 28, 1995, January 2, 1997 and January 1, 1998.... F-6
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 28, 1995, January 2, 1997 and
January 1, 1998........................................... F-7
Consolidated Statements of Cash Flows for the Years Ended
December 28, 1995, January 2, 1997 and January 1, 1998.... F-8
Notes to Consolidated Financial Statements.................. F-9
Condensed Consolidated Balance Sheets at October 1, 1998
(Unaudited) and January 1, 1998........................... F-21
Condensed Consolidated Statements of Operations for the Nine
Months Ended October 1, 1998 and October 2, 1997
(Unaudited)............................................... F-22
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended October 1, 1998 and October 2, 1997
(Unaudited)............................................... F-23
Notes to Condensed Consolidated Financial Statements........ F-24
</TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ACT III CINEMAS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Deloitte & Touche LLP Independent Auditors........ F-30
Report of PricewaterhouseCoopers LLP Independent
Accountants............................................... F-31
Consolidated Balance Sheets at December 31, 1996 and 1997... F-32
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-34
Consolidated Statements of Shareholders' Deficit for the
Years Ended December 31, 1995, 1996 and 1997.............. F-35
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997.......................... F-36
Notes to Consolidated Financial Statements.................. F-37
Consolidated Balance Sheets at December 31, 1997 and June
30, 1998 (Unaudited)...................................... F-51
Consolidated Statements of Operations for the Three Months
and Six Months Ended June 30, 1997 and 1998 (Unaudited)... F-52
Consolidated Statement of Shareholders' Deficit for the Six
Months Ended June 30, 1998 (Unaudited).................... F-53
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1998 (Unaudited).................. F-54
Notes to Consolidated Financial Statements for the Six
Months Ended June 30, 1997 and 1998 (Unaudited)........... F-55
</TABLE>
F-1
<PAGE> 113
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Regal Cinemas, Inc.
We have audited the accompanying consolidated balance sheets of Regal
Cinemas, Inc. and Subsidiaries (the "Company") as of January 2, 1997 and January
1, 1998, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended January 1, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated financial statements
give retroactive effect to the acquisition of Cobb Theatres, L.L.C. which has
been accounted for as pooling of interests as described in Note 1 to the
consolidated financial statements. We did not audit the financial statements of
Cobb Theatres, L.L.C. for 1995 and 1996. Such statements reflect aggregate total
assets constituting 23% in 1996 and aggregate total revenues constituting 34%
and 31% in 1995 and 1996, respectively, of the related consolidated totals.
Those statements were audited by other auditors, whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for Cobb
Theatres, L.L.C. is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Regal Cinemas, Inc. and
Subsidiaries as of January 2, 1997 and January 1, 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 1, 1998, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Knoxville, Tennessee
February 6, 1998
F-2
<PAGE> 114
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cobb Theatres, L.L.C.
We have audited the consolidated balance sheet of Cobb Theatres, L.L.C. as
of December 31, 1996 and the related consolidated statements of operations and
cash flows for the year then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cobb Theatres,
L.L.C. at December 31, 1996 and the consolidated results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Birmingham, Alabama
July 2, 1997
F-3
<PAGE> 115
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Cobb Theatres, L.L.C.
We have audited the consolidated balance sheets of Cobb Theatres, L.L.C. as
of August 31, 1996 and 1995, and the related consolidated statements of
operations, changes in members' equity and cash flows for the years then ended
(not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cobb Theatres,
L.L.C. at August 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Birmingham, Alabama
October 23, 1996
F-4
<PAGE> 116
REGAL CINEMAS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................. $ 17,116 $ 18,398
Accounts receivable.................................. 2,892 4,791
Inventories.......................................... 2,024 2,159
Prepaids and other current assets.................... 6,168 6,377
Refundable income taxes.............................. 3,477 2,424
-------- ---------
Total current assets......................... 31,677 34,149
-------- ---------
Property and equipment:
Land................................................. 41,793 53,955
Buildings and leasehold improvements................. 260,184 366,323
Equipment............................................ 167,475 211,465
Construction in progress............................. 43,539 46,529
-------- ---------
512,991 678,272
Accumulated depreciation and amortization............ (93,227) (112,927)
-------- ---------
Total property and equipment, net............ 419,764 565,345
Goodwill, net.......................................... 28,804 52,619
Other assets........................................... 8,580 8,537
-------- ---------
Total assets................................. $488,825 $ 660,650
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt................. $ 761 $ 306
Accounts payable..................................... 36,101 38,982
Accrued expenses..................................... 14,325 13,739
-------- ---------
Total current liabilities.................... 51,187 53,027
-------- ---------
Long-term debt, less current maturities................ 143,865 288,277
Other liabilities...................................... 14,471 12,771
-------- ---------
Total liabilities............................ 209,523 354,075
-------- ---------
Commitments (Note 4)
Shareholders' equity:
Preferred stock, no par; 1,000,000 shares authorized,
none issued....................................... -- --
Common stock, no par; 100,000,000 shares authorized;
35,977,325 issued and outstanding in 1996;
36,113,524 issued and outstanding in 1997......... 221,613 223,707
Retained earnings...................................... 57,689 82,868
-------- ---------
Total shareholders' equity................... 279,302 306,575
-------- ---------
Total liabilities and shareholders' equity... $488,825 $ 660,650
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 117
REGAL CINEMAS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
DECEMBER 28, JANUARY 2, JANUARY 1,
1995 1997 1998
------------ ---------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Admissions............................... $213,388 $266,003 $325,118
Concessions.............................. 87,272 110,237 137,173
Other operating revenues................. 8,362 12,953 16,806
-------- -------- --------
Total revenues................... 309,022 389,193 479,097
Operating expenses:
Film rental and advertising costs........ 115,408 145,247 178,173
Cost of concessions and other............ 11,363 15,129 16,573
Theatre operating expenses............... 105,688 127,706 156,588
General and administrative expenses...... 14,848 16,581 16,609
Depreciation and amortization............ 19,359 24,695 30,535
Merger expenses.......................... 1,246 1,639 7,789
Loss on impairment of assets............. -- -- 4,960
-------- -------- --------
Total operating expenses......... 267,912 330,997 411,227
-------- -------- --------
Operating income........................... 41,110 58,196 67,870
-------- -------- --------
Other income (expense):
Interest expense......................... (10,672) (12,844) (13,959)
Interest income.......................... 368 619 816
Other.................................... (653) 676 (407)
-------- -------- --------
Income before income taxes and
extraordinary item....................... 30,153 46,647 54,320
Provision for income taxes................. (12,200) (20,830) (19,121)
-------- -------- --------
Income before extraordinary item........... 17,953 25,817 35,199
Extraordinary item:
Loss on extinguishment of debt, net of
applicable taxes...................... (448) (751) (10,020)
-------- -------- --------
Net income................................. 17,505 25,066 25,179
GST and Neighborhood dividends............. (433) (229) --
-------- -------- --------
Net income applicable to common stock...... $ 17,072 $ 24,837 $ 25,179
======== ======== ========
Earnings per common share before effect of
extraordinary item:
Basic.................................... $ 0.57 $ 0.76 $ 0.98
Diluted.................................. $ 0.56 $ 0.73 $ 0.95
Extraordinary item:
Basic.................................... $ (0.01) $ (0.02) $ (0.28)
Diluted.................................. $ (0.01) $ (0.02) $ (0.27)
Earnings per common share:
Basic.................................... $ 0.56 $ 0.74 $ 0.70
Diluted.................................. $ 0.55 $ 0.71 $ 0.68
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 118
REGAL CINEMAS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
-------- -------- --------
(IN THOUSANDS OF DOLLARS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Balances at December 29, 1994................ $ 70,641 $17,414 $ 88,055
Payment of GST dividends and partnership
distributions........................... -- (490) (490)
Issuance of 241,313 shares of common
stock................................... 2,426 -- 2,426
Issuance of 194,142 shares upon exercise of
stock options and restricted stock
awards.................................. 407 -- 407
Issuance of Neighborhood stock prior to
merger.................................. 150 -- 150
Income tax benefits related to exercised
stock options........................... 817 -- 817
Stock option amortization.................. 150 -- 150
Net income................................. -- 17,505 17,505
-------- ------- --------
Balances at December 28, 1995................ 74,591 34,429 109,020
Payment of GST dividends and partnership
distributions........................... -- (263) (263)
Issuance of 5,015,741 shares of common
stock, net of offering costs............ 140,651 -- 140,651
Issuance of 457,902 shares upon exercise of
stock options and restricted stock
awards.................................. 1,177 -- 1,177
Income tax benefits related to exercised
stock options........................... 5,017 -- 5,017
Conformation of Cobb Theatres fiscal year
(see Note 2)............................ -- (1,543) (1,543)
Stock option amortization.................. 177 -- 177
Net income................................. -- 25,066 25,066
-------- ------- --------
Balances at January 2, 1997.................. 221,613 57,689 279,302
Issuance of 136,228 shares upon exercise of
stock options and restricted stock
awards.................................. 723 -- 723
Income tax benefits related to exercised
stock options........................... 1,306 -- 1,306
Stock option amortization.................. 65 -- 65
Net income................................. -- 25,179 25,179
-------- ------- --------
Balances at January 1, 1998.................. $223,707 $82,868 $306,575
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 119
REGAL CINEMAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
DECEMBER 28, JANUARY 2, JANUARY 1,
1995 1997 1998
------------ ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 17,505 $ 25,066 $ 25,179
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 19,359 24,695 30,535
Noncash loss on extinguishment of
debt.............................. 448 751 2,575
Loss on impairment of assets........ -- -- 4,960
Deferred income taxes............... 3,309 4,112 1,293
Changes in operating assets and
liabilities:
Accounts receivable............... 125 (1,182) (1,899)
Current taxes receivable.......... (1,037) 4,757 2,359
Inventories....................... (215) (365) (135)
Prepaids and other current
assets......................... (1,009) (236) (209)
Accounts payable.................. 4,625 10,878 2,881
Accrued expenses and other
liabilities.................... (3,137) (946) (3,579)
--------- --------- ---------
Net cash provided by operating
activities.................. 39,973 67,530 63,960
Cash flows from investing activities:
Capital expenditures................... (105,284) (124,068) (178,099)
Investment in goodwill and other
assets.............................. (7,352) (7,077) (24,198)
--------- --------- ---------
Net cash used in investing
activities.......................... (112,636) (131,145) (202,297)
Cash flows from financing activities:
GST and Neighborhood dividends paid.... (332) (500) --
Net proceeds from issuance of stock.... -- 126,763 --
Borrowings under long-term debt........ 81,334 161,500 358,418
Payments on long-term debt............. (10,248) (211,623) (214,460)
Debt issuance costs.................... (257) (5,127) (5,127)
Partnership distribution............... (57) (34) --
Exercise of warrants and options....... 557 1,177 788
Redemption of preferred stock.......... (1,150) -- --
--------- --------- ---------
Net cash provided by financing
activities.................. 69,847 72,156 139,619
Net increase (decrease) in cash and
equivalents............................ (2,816) 8,541 1,282
Cash and equivalents at beginning of
period................................. 9,851 8,575 17,116
--------- --------- ---------
Cash and equivalents at end of period.... $ 7,035 $ 17,116 $ 18,398
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 120
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION
Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries,
Neighborhood Entertainment Inc. ("Neighborhood"), Georgia State Theatres, Inc.
("GST") and the entities through which Cobb Theatres, L.L.C. and Tricob
Partnership, an entity controlled by the members of Cobb Theatres, L.L.C.,
conducted their business ("Cobb Theatres"), collectively referred to as the
"Company" operate multi-screen motion picture theatres principally throughout
the eastern United States. The Company formally operates on a fiscal year ending
on the Thursday closest to December 31. Neighborhood and GST were merged with
and into Regal during May 1997.
On April 17, 1995, Regal issued 814,755 shares of its common stock for all
of the outstanding common stock of Neighborhood. On May 30, 1996, Regal issued
1,410,213 shares of its common stock for all of the outstanding common stock of
GST. On July 31, 1997, Regal issued 2,837,594 shares of its common stock for the
Cobb Theatres acquisition. The mergers have been accounted for as poolings of
interests and, accordingly, these consolidated financial statements have been
restated for all periods to include the results of operations and financial
positions of Neighborhood, GST and Cobb Theatres.
Separate results of the combining entities for the fiscal years ended 1995,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Regal............................................. $184,958 $265,127 $397,946
Neighborhood (through April 27 for 1995).......... 5,135 -- --
GST (through May 30 for 1996)..................... 13,321 4,709 --
Cobb Theatres, L.L.C. and Tricob Partnership
(through July 31 for 1997)...................... 105,608 119,357 81,151
-------- -------- --------
$309,022 $389,193 $479,097
======== ======== ========
Net income (loss):
Regal............................................. $ 19,061 $ 29,935 $ 27,940
Neighborhood (through April 27 for 1995).......... (1,824) -- --
GST (through May 30 for 1996)..................... 866 90 --
Cobb Theatres, L.L.C. and Tricob Partnership
(through July 31 for 1997)...................... (598) (4,959) (2,761)
-------- -------- --------
$ 17,505 $ 25,066 $ 25,179
======== ======== ========
</TABLE>
The net loss for Neighborhood for the four months ended April 27, 1995, and
the net loss for Cobb Theatres for the seven months ended July 31, 1997, reflect
approximately $1.2 million and $3.5 million, respectively, of expenses (net of
applicable income taxes)
F-9
<PAGE> 121
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
associated with the mergers, principally legal and accounting fees, severance
and benefit related costs and other costs of consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Regal and its wholly-owned subsidiaries. Prior to the
merger with Regal, Cobb Theatres formerly operated and reported on a fiscal year
ending August 31. The accompanying consolidated financial statements reflect the
financial position of Cobb Theatres as of December 31, 1996 and January 1, 1998,
and its results of operations for the year ended August 31, 1995 and for the
years ended December 31, 1996 and January 1, 1998. Cobb Theatres incurred a net
loss of $1,543,000 for the period from September 1, 1995 through December 31,
1995. Such loss has been charged directly to retained earnings in the
accompanying consolidated statement of changes in stockholders' equity.
All significant intercompany accounts and transactions have been eliminated
from the consolidated financial statements.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Repairs and maintenance are charged to expense as incurred. Gains and losses
from disposition of property and equipment are included in income and expense
when realized. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the respective assets.
The Company evaluates the carrying value of property and equipment and
intangibles for impairment losses by analyzing the operating performance and
future undiscounted cash flows for each theatre. The Company adjusts the net
book value of the underlying assets if the sum of expected future cash flows is
less than book value.
CASH EQUIVALENTS -- The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. At January 2, 1997 and January 1, 1998, the Company held
approximately $15,255,000 and $12,549,000, respectively, in temporary cash
investments (valued at cost, which approximates market) in the form of
certificates of deposit and variable rate investment accounts with major
financial institutions.
INCOME TAXES -- Deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
INVENTORIES -- Inventories consist of concession products and theatre
supplies and are stated on the basis of first-in, first-out (FIFO) cost, which
is not in excess of net realizable value.
DEBT ACQUISITION AND LEASE COSTS (INCLUDED IN OTHER ASSETS) -- Debt
acquisition and lease costs are deferred and amortized over the terms of the
related agreements.
F-10
<PAGE> 122
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DEFERRED RENT (INCLUDED IN OTHER LIABILITIES) -- Rent expense is recognized
on a straight-line basis after considering the effect of rent escalation
provisions and rent holidays for newly opened theatres resulting in a level
monthly rent expense for each lease over its term.
DEFERRED REVENUE (INCLUDED IN OTHER LIABILITIES) -- Deferred revenue
relates primarily to vendor rebates. Rebates are recognized as a reduction of
costs of concessions as earned.
INTEREST RATE SWAPS -- Interest rate swaps are entered into as a hedge
against interest exposure of variable rate debt. The differences to be paid or
received on swaps are included in interest expense. The fair value of the
Company's interest rate swap agreements is based on dealer quotes. These values
represent the amounts the Company would receive or pay to terminate the
agreements taking into consideration current interest rates.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unless indicated otherwise, the fair value of the Company's financial
instruments approximates carrying value.
3. ACQUISITIONS
In addition to the Neighborhood, GST and Cobb Theatres mergers described in
Note 1, the Company completed the purchase of 23 theatres with 179 screens
during 1996 and 1997. The theatres were purchased for consideration of 703,241
shares of Regal common stock valued at $14.1 million and approximately $62.5
million cash.
These transactions have been accounted for using the purchase method of
accounting and, accordingly, the purchase prices have been allocated at fair
value to the separately identifiable assets (principally property, equipment,
and leasehold improvements) of the respective theatre locations, with the
remaining balance allocated to goodwill, which is being amortized on a straight
line basis generally over twenty to thirty years. The results of operations of
these theatre locations have been included in the financial statements for the
periods subsequent to the acquisition date.
The following unaudited pro forma results of operations for all periods
presented assume the individual acquisitions occurred as of the beginning of the
respective periods after giving effect to certain adjustments, including
depreciation, increased interest expense on acquisition debt and related income
tax effects. The pro forma results have been prepared for comparative purposes
only and do not purport to indicate the results of
F-11
<PAGE> 123
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
operations which would actually have occurred had the combination been in effect
on the dates indicated, or which may occur in the future.
<TABLE>
<CAPTION>
1995 1996
---------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
1996 ACQUISITION:
Revenues............................................. $329,824 $396,598
Operating income..................................... 42,234 58,280
Income before extraordinary item..................... 31,399 45,451
Net income applicable to common stock................ 18,196 24,921
Earnings per common share:
Basic............................................. $ 0.60 $ 0.74
======== ========
Diluted........................................... $ 0.58 $ 0.72
======== ========
1997 ACQUISITIONS:
Revenues............................................. $413,743 $499,223
Operating income..................................... 62,533 70,108
Income before extraordinary item..................... 28,463 36,564
Net income applicable to common stock................ 27,483 26,544
Earnings per common share:
Basic............................................. $ 0.81 $ 0.74
======== ========
Diluted........................................... $ 0.79 $ 0.71
======== ========
</TABLE>
4. LEASES
Leases entered into by the Company, principally for theatres, are accounted
for as operating leases. The Company, at its option, can renew a substantial
portion of the leases at defined or then fair rental rates for various periods.
Certain leases for Company theatres provide for contingent rentals based on
revenues. Minimum rentals payable under all noncancelable operating leases with
terms in excess of one year as of January 1, 1998, are summarized for the
following fiscal years:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 58,790
1999........................................................ 58,542
2000........................................................ 57,409
2001........................................................ 56,678
2002........................................................ 55,380
Thereafter.................................................. 642,069
</TABLE>
Rent expense under such operating leases was $34,459, $41,427 and $52,632
for fiscal years 1995, 1996 and 1997, respectively.
F-12
<PAGE> 124
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
5. LONG-TERM DEBT
Long-term debt at January 2, 1997 and January 1, 1998, consists of the
following:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1,
1997 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$125,000,000 Regal senior subordinated notes due
October 1, 2007, with interest payable
semiannually at 8.5%. Notes are redeemable, in
whole or in part, at the option of the Company at
any time on or after October 1, 2002, at the
redemption prices (expressed as percentages of
the principal amount thereof) set forth below
together with accrued and unpaid interest to the
redemption date, if redeemed during the 12 month
period beginning on October 1 of the years
indicated:
</TABLE>
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C> <C> <C> <C> <C>
2002............... 104.250%
2003............... 102.033%
2004............... 101.417%
2005 and
thereafter......... 100.000% ........ $ -- $125,000
$250,000,000 Regal senior reducing revolving credit
facility which expires on June 30, 2003, with interest
payable quarterly, at LIBOR (5.8% at January 1, 1998)
plus .65%. Draw capability will expire on June 30, 1999.
Repayment of the outstanding balance on the credit
facility will begin September 30, 1999, and consist of
5% of the outstanding balance on a quarterly basis
through June 30, 2001. Thereafter, payments will be 7.5%
of the outstanding balance quarterly through June 30,
2003.................................................... 51,000 162,000
$85,000,000 Cobb Theatres notes due March 1, 2003, with
interest payable semiannually at 10 5/8%................ 85,000 170
Notes payable to banks at rates ranging from prime plus
0.5% to 2.0%............................................ 6,908 --
Other..................................................... 1,718 1,413
-------- --------
144,626 288,583
Less current maturities................................... (761) (306)
-------- --------
$143,865 $288,277
======== ========
</TABLE>
F-13
<PAGE> 125
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company's debt at January 1, 1998, is scheduled to mature as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 306
1999........................................................ 821
2000........................................................ --
2001........................................................ --
2002........................................................ --
Thereafter.................................................. 287,456
--------
Total............................................. $288,583
========
</TABLE>
On August 14, 1997, the Company commenced a tender offer for all of the
Cobb Notes and a consent solicitation in order to effect certain changes in the
Indenture. Upon completion of the tender offer, holders had tendered and given
consents with respect to 96.86% of the outstanding principal amount of the Cobb
Notes. In addition, the Company and the trustee executed a supplement to the
Indenture, effecting the proposed amendments which included, among other things,
the elimination of all financial covenants and the release of security for the
Cobb Notes. On September 18, 1997, the Company paid, for each $1,000 principal
amount, $1,136.97 for Cobb Notes tendered on or prior to August 28, 1997 and
$1,126.97 for Cobb Notes tendered after August 28, 1997, plus, in each case,
accrued and unpaid interest of $5.02. After completion of the tender offer, the
Company purchased an additional $2,500,000 of the aggregate principal amount of
the Cobb Notes. Regal financed the purchase price of the Cobb Notes with
borrowings under a loan agreement with a bank. All such borrowings were repaid
with a portion of the net proceeds of the offering of the $125,000,000 Regal
Senior Subordinated Notes. Regal recognized an extraordinary charge totaling
approximately $10.0 million (net of tax) in 1997, relating to the purchase of
the Cobb Notes. The fair value of the senior subordinated notes was $126,250,000
at January 1, 1998.
Upon consummation of the Neighborhood merger, Regal refinanced all existing
debt of the acquired company, recognizing a loss on extinguishment of debt (net
of applicable income taxes) of $448,000 in 1995. Additionally, Cobb Theatres
refinanced existing debt, recognizing a loss on extinguishment of debt (net of
applicable income taxes) of $751,000 in 1996. Such losses are reported as
extraordinary items in the accompanying consolidated statements of income.
In March 1995, Regal entered into a seven-year interest rate swap agreement
for the management of interest rate exposure. At January 1, 1998, the agreement
had effectively converted $20 million of LIBOR floating rate debt under the
reducing revolving credit facility to a 7.32% fixed rate obligation. Regal
continually monitors its position and the credit rating of the interest swap
counterparty. The fair value of the interest swap agreement was $(955,000) at
January 1, 1998.
F-14
<PAGE> 126
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. COMMON AND PREFERRED STOCK
COMMON STOCK -- Regal's common shares authorized, issued and outstanding
throughout the financial statements and notes reflect the retroactive effect of
stock issued in connection with the pooling transactions described in Note 1 and
the authorization of additional shares and the effect of the two 3-for-2 stock
splits authorized on December 13, 1995 and September 16, 1996, respectively.
PREFERRED STOCK -- The Company currently has 1,000,000 shares of preferred
stock authorized with none issued. The Company may issue the preferred shares
from time to time in such series having such designated preferences and rights,
qualifications and limitations as the Board of Directors may determine.
STOCK OPTIONS -- The Company has three employee stock option plans under
which 4,929,064 options are authorized and reserved. The options vest over
three-to-five year periods and expire ten years after the respective grant
dates. Activity within the plans is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED OPTIONS
AVERAGE EXERCISABLE AT
SHARES EXERCISE PRICE YEAR END
--------- -------------- --------------
<S> <C> <C> <C>
Under option at December 29, 1994........... 1,993,081 $ 5.54
Options granted in 1995..................... 808,875 $14.16
Options exercised in 1995................... (174,709) $ 2.09
Options canceled in 1995.................... (29,524) $ 2.37
---------
Under option at December 28, 1995........... 2,597,723 $ 8.49 32,927
=======
Options granted in 1996..................... 952,750 $25.06
Options exercised in 1996................... (370,915) $ 2.86
---------
Under option at January 2, 1997............. 3,179,558 $14.11 56,330
=======
Options granted in 1997..................... 977,000 $28.18
Options exercised in 1997................... (112,603) $ 5.44
Options canceled in 1997.................... (72,500) $22.96
---------
Under option at January 1, 1998............. 3,971,455 $17.72 576,604
========= ====== =======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 1/1/98 CONTRACTUAL LIFE EXERCISE PRICE AT 1/1/98 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.21............... 14,625 4.25 $ 1.21 11,812 $1.21
$ 2.37............... 212,233 4.52 $ 2.37 184,810 $2.37
$ 3.86............... 323,366 5.52 $ 3.86 153,348 $3.86
$ 9.78-$10.08........ 755,106 6.62 $ 9.79 226,634 $9.79
$12.34-$17.06........ 795,375 7.57 $14.11 -- --
$22.00-$31.88........ 1,870,750 9.14 $26.71 -- --
--------- -------
3,971,455 576,604
========= =======
</TABLE>
F-15
<PAGE> 127
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
In addition, the Company has the 1993 Outside Directors' Stock Option Plan
(the "1993 Directors' Plan"). Directors' stock options for the purchase of
20,250 shares at an exercise price of $12.33, 20,250 shares at an exercise price
of $29.59 and 30,000 shares at an exercise price of $27.25 were granted during
1995, 1996 and 1997, respectively. The exercise price of all options granted
under the 1993 Directors' Plan vest over 3 years and expire 10 years after the
respective grant dates. Options exercisable at the end of 1995, 1996 and 1997,
were 47,250, 70,875, and 67,500, respectively.
Warrants to purchase 158,455 shares of common stock at an exercise price of
$1.21 per share expire in 1998. The Company has reserved a sufficient number of
shares of common stock for issuance pursuant to the authorized options and
warrants.
The Company makes awards of restricted stock under its employee stock plans
as part of certain employees' incentive compensation. In general, the
restrictions lapse in the year following grant. Restricted stock awards totaled
25,517 shares, 7,500 shares and 5,000 shares pursuant to 1995, 1996 and 1997
bonus awards, respectively.
Regal has elected to continue following Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock option plans and its
outside directors' plan rather than the alternative fair value accounting
provided for under FASB Statement 123, "Accounting for Stock-Based Compensation"
(Statement 123). Under APB 25, because the exercise price of the Company's
employee and director stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized in the
accompanying financial statements.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company has
accounted for its stock options under the fair value method of that Statement.
The fair value for the employee and directors options granted during fiscal
years 1995, 1996 and 1997, was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates ranging from 5.96% to 6.59% for 1995
grants, 6.06% to 6.95% for 1996 grants and 5.9% to 6.68% for 1997 grants;
volatility factors of the expected market price of the Company's common stock of
32.8% for 1995, 32.8% for 1996 and 33.7% for 1997, and a weighted average
expected life of 5 years for employee options and 7 years for outside director
options. Additionally, the weighted average grant date fair value of options
granted in fiscal years 1995, 1996 and 1997, was $5.67, $10.34 and $11.48 per
share, respectively.
The option valuation model used by the Company was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee and director options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair values of its stock
options.
F-16
<PAGE> 128
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The pro forma
results do not purport to indicate the effects on reported net income for
recognizing compensation expense which are expected to occur in future years.
The Company's pro forma information for 1995, 1996 and 1997 option grants
follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Pro forma net income............................ $17,276 $23,930 $22,883
Pro forma earnings per share:
Basic......................................... $ 0.55 $ 0.70 $ 0.63
Diluted....................................... $ 0.54 $ 0.68 $ 0.62
</TABLE>
7. INCOME TAXES
Deferred income taxes reflect the impact of temporary differences between
amounts recorded for assets and liabilities for financial reporting purposes and
amounts utilized for measurement in accordance with tax laws. The tax effects of
the temporary differences giving rise to the Company's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Net operating loss carryforward.......................... $ 4,431 $ 4,036
Alternative minimum tax credits.......................... 893 627
Accrued expenses......................................... 2,213 1,230
Tax operating lease...................................... 623 524
State income taxes....................................... 531 632
Other.................................................... -- 296
------- -------
8,691 7,345
------- -------
Liabilities:
Property and equipment................................... 13,927 16,313
Other.................................................... 620 490
------- -------
14,547 16,803
------- -------
Deferred tax liability..................................... (5,856) (9,458)
Cobb Theatres valuation allowance for deferred tax asset... (2,309) --
------- -------
Net deferred tax........................................... $(8,165) $(9,458)
======= =======
</TABLE>
F-17
<PAGE> 129
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The 1995, 1996 and 1997 provisions for income taxes before extraordinary
items (see Note 5) consist of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current.......................................... $ 8,969 $16,718 $17,828
Deferred......................................... 3,309 1,803 3,602
Increase (decrease) in deferred income tax
valuation allowance............................ (78) 2,309 (2,309)
------- ------- -------
$12,200 $20,830 $19,121
======= ======= =======
</TABLE>
A reconciliation of the Company's income tax provision to taxes computed by
applying the statutory Federal rate of 35% to pretax financial reporting income
before extraordinary items is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory Federal rate.................... $10,837 $16,244 $19,012
state income taxes, net of Federal benefit....... 1,105 1,870 2,161
Increase (decrease) in deferred income tax
valuation allowance............................ (78) 2,309 (2,309)
Nondeductible merger expenses and other.......... 336 407 257
------- ------- -------
$12,200 $20,830 $19,121
======= ======= =======
</TABLE>
At January 1, 1998, Cobb Theatres had net operating loss carryforwards of
approximately $10.6 million that may be offset against future taxable income.
Substantially all of the carryforward expires in 2009 through 2011. The $2,309
increase in the valuation allowance in 1996, and corresponding decrease in 1997,
primarily reflect the change in the assessment of the likelihood of utilization
of Cobb net operating loss carryforwards prior to, and after the merger of Cobb
with Regal. Neighborhood and Cobb Theatres had approximately $266,000 and
$627,000, respectively, of alternative minimum tax credit carryforwards
available to reduce their future income tax liabilities. Under current Federal
income tax law, the alternative minimum tax credit carryforwards have no
expiration date.
8. RELATED PARTY TRANSACTIONS
Prior to May 1996, Regal obtained film licenses through an independent film
booking agency owned by a director of the Company. Additionally, this director
provides consulting services to the Company. The Company paid $626,000 and
$655,000 in 1995 and 1996, respectively, for booking fees and consulting
services.
Regal paid $626,000, $952,000 and $1,200,057 in 1995, 1996 and 1997,
respectively, for legal services provided by a law firm, a member of which
serves as a director of the Company.
F-18
<PAGE> 130
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Cobb Theatres leased office and warehouse facilities from a related party.
The related rent expense amounted to approximately $266,000, $509,000 and
$186,826 in 1995, 1996 and 1997, respectively.
Cobb Theatres had an agreement with a corporation owned by a related party,
to provide aircraft services. The fees for such services amounted to
approximately $335,000, $432,000 and $257,250 for 1995, 1996 and 1997,
respectively.
9. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which changes
the calculations used for earnings per share ("EPS") and makes them comparable
to international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. The Statement is effective for financial statements
issued for periods ending after December 15, 1997; earlier application was not
permitted. All per share data has also been adjusted to give effect to the
December 1995 and September 1996 common stock splits.
The following reconciliation details the numerators and denominators used
to calculate basic and diluted earnings per share for 1995, 1996 and 1997 (in
000's).
<TABLE>
<CAPTION>
1995
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS net income applicable to common
stock.................................... $17,072 30,428 $0.56
=====
Effect of dilutive securities.............. 883
------- ------
Diluted EPS net income..................... $17,072 31,311 $0.55
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
1996
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS net income applicable to common
stock.................................... $24,837 33,726 $0.74
=====
Effect of dilutive securities.............. 1,074
------- ------
Diluted EPS net income..................... $24,837 34,800 $0.71
======= ====== =====
</TABLE>
F-19
<PAGE> 131
REGAL CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
1997
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic EPS net income applicable to common
stock.................................... $25,179 36,113 $0.70
=====
Effect of dilutive securities.............. 1,072
------- ------
Diluted EPS net income..................... $25,179 37,185 $0.68
======= ====== =====
</TABLE>
10. SUBSEQUENT EVENT
Regal has entered into an Agreement and Plan of Merger as of January 19,
1998 (the "Merger Agreement"), among Screen Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of KKR 1996 Fund L.P. (the "KKR
Fund"), Monarch Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of an affiliate of Hicks, Muse, Tate & Furst Incorporated (the "HMTF
Fund" and together with the KKR Fund, the "Funds"), and the Company. Pursuant to
and subject to the terms and conditions of the Merger Agreement, Screen
Acquisition Corp. and Monarch Acquisition Corp. will be merged with and into the
Company (the "Merger") and the Company will continue after the Merger as a
corporation owned by the Funds (the "Surviving Corporation"). Each share of
Company common stock will be converted into the right to receive $31.00 in cash
from the Surviving Corporation.
The Merger is subject to termination or expiration of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
approval by Company shareholders, the obtaining of necessary financing to
consummate the Merger and certain other conditions. The waiting period under the
HSR Act expired on March 1, 1998.
F-20
<PAGE> 132
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 1,
1998 1998
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................. $ 15,161 $ 18,398
Accounts receivable.................................. 7,686 4,791
Inventories.......................................... 4,258 2,159
Prepaids and other current assets.................... 11,943 6,377
Refundable income taxes.............................. 13,907 2,424
---------- ---------
Total current assets......................... 52,955 34,149
---------- ---------
Property and equipment:
Land................................................. 115,093 53,955
Buildings and leasehold improvements................. 643,263 366,323
Equipment............................................ 374,855 211,465
Construction in progress............................. 92,473 46,529
---------- ---------
1,225,684 678,272
Accumulated depreciation and amortization............ (143,674) (112,927)
---------- ---------
Total property and equipment, net............ 1,082,010 565,345
Excess purchase cost over fair value of net assets
acquired............................................. 396,841 52,619
Other assets........................................... 59,415 8,537
---------- ---------
Total assets................................. $1,591,221 $ 660,650
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 4)........ $ 306 $ 306
Accounts payable..................................... 34,882 38,982
Accrued expenses..................................... 56,258 13,739
---------- ---------
Total current liabilities.................... 91,446 53,027
---------- ---------
Long-term debt, less current maturities (Note 4)....... 1,226,122 288,277
Other liabilities...................................... 33,788 12,771
---------- ---------
Total liabilities............................ 1,351,356 354,075
---------- ---------
Commitments (Note 4)
Shareholders' equity (Note 1):
Preferred stock, no par; 100,000,000 shares
authorized, none issued........................... -- --
Common stock, no par; 500,000,000 shares authorized;
216,182,146 and 223,903,849 shares issued and
outstanding at October 1, 1998 and January 1,
1998.............................................. 193,459 223,707
Loans to Shareholders................................ (501) --
Retained earnings...................................... 46,907 82,868
---------- ---------
Total shareholders' equity................... $ 239,865 $ 306,575
---------- ---------
Total liabilities and shareholders' equity... $1,591,221 $ 660,650
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-21
<PAGE> 133
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Admissions............................. $124,563 $ 87,147 $315,481 $237,602
Concessions............................ 54,966 37,641 137,007 100,637
Other operating revenue................ 10,196 4,780 25,380 13,519
-------- -------- -------- --------
Total revenues................. 189,725 129,568 477,868 351,758
-------- -------- -------- --------
Operating expenses:
Film rental and advertising costs...... 66,368 48,602 170,355 129,900
Cost of concessions and other.......... 8,556 5,404 21,551 15,621
Theatre operating expenses............. 63,540 38,851 163,717 113,963
General and administrative expenses.... 5,732 3,392 13,743 12,936
Depreciation and amortization.......... 15,599 7,078 35,516 21,538
Merger expenses........................ -- 7,789 -- 7,789
Loss on impairment of assets........... -- 4,960 -- 4,960
Recapitalization expenses (Note 1)..... 2,479 -- 64,526 --
-------- -------- -------- --------
Total operating expenses....... 162,274 116,076 469,408 306,707
-------- -------- -------- --------
Operating income......................... 27,451 13,492 8,460 45,051
Other income (expense):
Interest expense....................... (19,508) (3,379) (32,835) (9,456)
Interest income........................ 382 560 849 734
Other.................................. (209) (122) (445) (453)
-------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item..................... 8,116 10,551 (23,971) 35,876
Provision for income taxes (Note 5)...... 4,012 2,300 100 12,099
-------- -------- -------- --------
Income (loss) before extraordinary
item................................... 4,104 8,251 (24,071) 23,777
Extraordinary loss on retirement of
debt, net of income tax benefit of
$7,602 and $6,141, respectively
(Note 4)............................ -- (10,020) (11,890) (10,020)
-------- -------- -------- --------
Net income (loss)........................ $ 4,104 $ (1,769) $(35,961) $ 13,757
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-22
<PAGE> 134
REGAL CINEMAS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
OCTOBER 1, OCTOBER 2,
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $ (35,961) $ 13,757
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Loss on extinguishment of debt...................... 11,890 10,020
Depreciation and amortization....................... 35,516 21,538
Loss on impairment of assets........................ -- 4,960
Deferred income taxes............................... 7,276 (4,750)
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable.............................. 3,035 1,413
Inventories...................................... (72) (73)
Refundable income taxes.......................... (13,230) 1,866
Prepaids and other current assets................ (2,644) (1,671)
Accounts payable................................. (23,429) (13,799)
Accrued expenses and other liabilities........... 35,353 (8,064)
----------- ---------
Net cash provided by operating activities........ 17,734 25,197
Cash flows from investing activities:
Capital expenditures, net................................ (157,728) (113,551)
Increase in other assets................................. (3,499) (22,083)
----------- ---------
Net cash used in investing activities............ (161,227) (135,634)
Cash flows from financing activities:
Long-term debt........................................... 1,217,375 104,015
Payments made on long-term debt.......................... (684,500) --
Deferred financing costs................................. (35,441) --
Premium paid to pay off long-term debt................... (14,530) --
Proceeds from issuance of common stock................... 774,717 1,500
Purchase and retirement of common stock.................. (1,117,407) --
Stock compensation expense............................... 42 90
----------- ---------
Net cash provided by financing activities........ 140,256 105,605
----------- ---------
Net decrease in cash and equivalents....................... (3,237) (4,832)
Cash and equivalents at beginning of period................ 18,398 17,116
----------- ---------
Cash and equivalents at end of period...................... $ 15,161 $ 12,284
=========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-23
<PAGE> 135
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND BASIS OF PRESENTATION
Regal Cinemas, Inc. and its wholly owned subsidiaries, collectively
referred to as the "Company," operates multi-screen motion picture theatres
principally throughout the eastern and northwestern United States. The Company
formally operates on a fiscal year ending on the Thursday closest to December
31.
The condensed consolidated balance sheet as of October 1, 1998, the
condensed consolidated statements of operations for the three months and nine
months ended October 1, 1998 and October 2, 1997 and the condensed consolidated
statements of cash flows for the nine months ended October 1, 1998 and October
2, 1997 have been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for all periods presented have been made. The January 1, 1998
information has been derived from the audited January 1, 1998 balance sheet of
Regal Cinemas, Inc.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's Report filed on Form 10-K dated March 31, 1998. The results of
operations for the three and nine-month periods ended October 1, 1998 are not
necessarily indicative of the operating results for the full year.
2. RECAPITALIZATION
On May 27, 1998, an affiliate of Kohlberg Kravis Roberts & Co. L.P. ("KKR")
and an affiliate of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") merged
with and into Regal Cinemas, Inc., with the Company continuing as the surviving
corporation of the Merger (the "Merger"). The Merger and related transactions
have been recorded as a recapitalization (the "Recapitalization"). In the
Recapitalization, the Company's existing shareholders, received cash for their
shares of common stock. In addition, in connection with the Recapitalization,
the Company canceled options and repurchased warrants held by certain former
directors, management and employees of the Company (the "Option/ Warrant
Redemption"). The aggregate amount paid to effect the Merger and the Option/
Warrant Redemption was approximately $1.2 billion.
The net proceeds of a $400 million senior subordinated note offering,
initial borrowings of $375.0 million under its senior credit facilities and the
proceeds of $776.9 million from the investment by KKR, Hicks Muse, DLJ Merchant
Banking Partners II, L.P. and affiliated funds ("DLJ") and management in the
Company were used: (i) to fund the cash payments required to effect the Merger
and the Option/Warrant Redemption; (ii) to repay and retire the Company's
existing senior credit facilities; (iii) to repurchase the Company's existing
8.5% senior subordinated notes; (iv) to pay related fees
F-24
<PAGE> 136
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
and expenses; and (v) for general corporate purposes. Upon consummation of the
Merger, KKR owned $287.3 million of the Company's equity securities, Hicks Muse
owned $437.3 million of the Company's equity securities and DLJ owned $50.0
million of the Company's equity securities. Each investor received securities
consisting of a combination of the Company's common stock, no par value (the
"Common Stock") and the Company's Series A Convertible Preferred Stock, no par
value ("Convertible Preferred Stock"), which was converted into Common Stock on
June 3, 1998. To equalize KKR's and Hicks Muse's investments in the Company at
$362.3 million each, Hicks Muse exchanged $75.0 million of Convertible Preferred
Stock, with KKR for $75.0 million of common stock of Act III Cinemas, Inc. ("Act
III"). As a result of the Recapitalization and the Act III combination (see Note
3), KKR and Hicks Muse each own approximately 46.3% of the Company's Common
Stock, with DLJ, management and other minority holders owning the remainder.
During 1998, nonrecurring costs of approximately $64.5 million, including
approximately $39.8 million of compensation costs, were incurred in connection
with the Recapitalization. Financing costs of approximately $34.2 million were
incurred and classified as deferred financing costs which will be amortized over
the lives of the new debt facilities (see Note 4). Of the total Merger and
Recapitalization costs above, an aggregate of $19.5 million was paid to KKR and
Hicks Muse.
3. ACQUISITIONS
On August 26, 1998, the Company acquired Act III Cinemas, Inc. (the "Act
III Merger"), the ninth largest motion picture exhibitor in the United States
based on number of screens in operation. Total purchase cost was approximately
$312.0 million, representing primarily the value of 60,383,388 shares of the
Company's common stock issued to acquire each share of Act III's outstanding
common stock and 5,195,598 options of the Company issued for Act III options. In
connection with the Act III merger, the Company also amended its credit
facilities and borrowed $383.3 million thereunder to repay Act III's borrowings
and accrued interest under Act III's existing credit facilities and two senior
subordinated notes totaling $150.0 million.
The Act III merger has been accounted for as a purchase, applying the
applicable provisions of Accounting Principles Board Opinion No. 16. Preliminary
allocation of the purchase price as of September 30, 1998 is as follows:
<TABLE>
<CAPTION>
($'S IN MILLIONS)
<S> <C>
Property, plant and equipment............................... $390.5
Other long-term assets...................................... 23.2
Long-term debt assumed...................................... (405.0)
Net working capital acquired................................ (38.6)
Excess purchase cost over fair value of net assets
acquired.................................................. 341.9
------
Total purchase cost............................... $312.0
======
</TABLE>
F-25
<PAGE> 137
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The above allocation of purchase cost has been preliminarily allocated to
the acquired assets and liabilities of Act III based on estimates of fair value
as of the closing date. Such estimates were based on valuations and studies
which are not yet complete. Therefore, the above allocation of purchase price
may change when such studies are completed. The Company is amortizing goodwill
over an estimated useful life of 40 years.
The following unaudited consolidated pro forma condensed results of
operations data gives effect to the Act III Combination and Regal
Recapitalization as if they had occurred as of January 1, 1997 ($'s in
millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------- -----------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Pro Forma Revenues................. $247.3 $197.7 $667.1 $541.0
Pro Forma Income (Loss) Before
Extraordinary Items.............. $ 5.0 $ .4 $(36.1) $ (3.3)
</TABLE>
On July 31, 1997, the Company issued 2,837,594 shares of its Common Stock
for all of the outstanding common stock of Cobb Theatres. The merger has been
accounted for as a pooling of interests and, accordingly, these condensed
consolidated financial statements have been restated for all periods to include
the results of operations and financial positions of Cobb Theatres.
Separate results of the combining entities for the three and nine-month
periods ended October 2, 1997 are as follows:
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS
ENDED ENDED
OCTOBER 2, OCTOBER 2,
1997 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Regal............................................... $111,651 $267,357
Cobb Theatres, L.L.C. and Tricob Partnership........ 16,469 81,151
-------- --------
$128,120 $348,508
======== ========
Net (loss):
Regal............................................... $ 648 $ 16,518
Cobb Theatres, L.L.C. and Tricob Partnership........ (2,417) (2,761)
-------- --------
$ (1,769) $ 13,757
======== ========
</TABLE>
F-26
<PAGE> 138
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM DEBT
Long-term debt at October 1, 1998 and January 1, 1998, consists of the
following:
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 1,
1998 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
$400,000 of the Company's senior subordinated notes
due June 1, 2008, with interest payable
semiannually at 9.5%. Notes are redeemable, in
whole or in part, at the option of the Company at
any time on or after June 1, 2003, at the
redemption prices (expressed as percentages of the
principal amount thereof) set forth below together
with accrued and unpaid interest to the redemption
date, if redeemed during the 12 month period
beginning on June 1 of the years indicated:
</TABLE>
<TABLE>
<CAPTION>
REDEMPTION
PRICE
YEAR ----------
<S> <C> <C> <C>
2003....................... 104.750%
2004....................... 103.167%
2005....................... 101.583%
2006 and thereafter........ 100.000% $ 400,000 $ --
</TABLE>
<TABLE>
<S> <C> <C>
Term Loans........................................... 712,500 --
Revolving credit facility............................ 84,845 --
$125,000 of the Company's senior subordinated notes,
due October 1, 2007 with interest payable
semiannually at 8.5%............................... -- 125,000
$250,000 of the Company's senior reducing revolving
credit facility.................................... -- 162,000
Capital lease obligations, payable in monthly
installments plus interest at 14%.................. 24,241 --
Other non-recourse debt, generally payable in monthly
installments, plus interest at approximately 10%... 4,772 --
Other................................................ 70 1,583
---------- --------
1,226,428 288,583
Less current maturities.............................. (306) (306)
---------- --------
$1,226,122 $288,277
========== ========
</TABLE>
Under the Company's previous $250,000 senior reducing revolving credit
facility (the "revolving credit facility"), interest was payable quarterly at
LIBOR plus .65%. The margin added to LIBOR was determined based upon certain
financial ratios of the Company. The revolving credit facility was repaid in
conjunction with the Recapitalization.
New Credit Facilities -- In connection with the Merger and
Recapitalization, the Company entered into credit facilities provided by a
syndicate of financial institutions. In August 1998 in connection with the Act
III merger, such credit facilities were amended.
F-27
<PAGE> 139
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Such credit facilities (the "Credit Facilities") now include a $500,000
Revolving Credit Facility (including the availability of Revolving Loans, Swing
Line Loans, and Letters of Credit) and three term loan facilities: Term A
($240,000), Term B ($240,000), and Term C ($135,000) (the "Term Loans"). The
Company must pay an annual commitment fee ranging from 0.2% to 0.425%, depending
on the Company's Total Leverage Ratio, as defined in the credit facilities, of
the unused portion of the Revolving Credit Facility. The Revolving Credit
Facility expires in June 2005. At October 1, 1998, there was approximately $84.9
million outstanding under the Revolving Credit Facility.
Borrowings under the Term A Loan or the Revolving Credit Facility can be
made at the "Base Rate" plus a margin of 0% to 1%, or the "LIBO Rate," plus
.625% to 2.25%, both depending on the Total Leverage Ratio. The Base Rate on
revolving loans is the rate established by the Administrative Agent in New York
as its base rate for dollars loaned in the United States. The LIBO Rate is based
on the LIBOR rate for the corresponding length of loan. One percent of the
outstanding balance on the Term A Loan is due annually though 2004 with the
balance of the Term A Loan due in 2005.
Borrowings under the Term B Loan can be made at the Base Rate plus a margin
of 0.75% to 1.25% or the LIBO Rate plus 2.0% to 2.5%, both depending on the
Total Leverage Ratio. One percent of the outstanding balance is due annually
through 2005, with the balance of the loan due in 2006.
Borrowings under the Term C Loan can be made at the Base Rate plus a margin
of 1.0% to 1.5% or the LIBO Rate plus 2.25% to 2.75%, both depending on the
Total Leverage Ratio. One percent of the outstanding balance is due annually
through 2006, with the balance of the loan due in 2007.
The Credit Facilities contain customary covenants and restrictions on the
Company's ability to issue additional debt or engage in certain activities and
include customary events of default. In addition, the Credit Facilities specify
that the Company must meet or exceed defined interest coverage ratios and must
not exceed defined leverage ratios. The Company was in compliance with such
covenants at October 1, 1998.
The Credit Facility is secured by a pledge of the stock of the Company's
domestic subsidiaries. The Company's payment obligations under the Credit
Facility is guaranteed by its direct and indirect U.S. subsidiaries.
Tender Offer -- In connection with the Recapitalization, the Company
commenced a tender offer for all of the Company's 8.5% senior subordinated notes
("Old Regal Notes") and a consent solicitation in order to effect certain
changes in the Indenture. Upon completion of the tender offer, holders had
tendered and given consents with respect to 100% of the outstanding principal
amount of the Old Regal Notes. In addition, the Company and the trustee executed
a supplement to the Indenture, effecting the proposed amendments which included,
among other things, the elimination of all financial covenants for the Old Regal
Notes. On May 27, 1998, the Company paid, for each $1,000 principal amount,
$1,116.24 for the Old Regal Notes tendered plus, in each case, accrued and
F-28
<PAGE> 140
REGAL CINEMAS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
unpaid interest of $13.22. Regal financed the purchase price of the Old Regal
Notes with funds from the Recapitalization.
Extraordinary Loss -- An extraordinary loss of $11.9 million, net of income
taxes of $7.6 million, was recognized for the write-off of deferred financing
costs and prepayment penalties incurred in connection with redeeming the Old
Regal Notes as well as for the write-off of deferred financing costs related to
the Company's previous credit facility.
5. INCOME TAXES
The effective income tax rate on income (loss) before extraordinary items
for the nine month periods ended October 1, 1998 and October 2, 1997 differs
from the statutory income tax rates due primarily to nondeductible
recapitalization costs in 1998 and state income taxes in 1998 and 1997. The
Company's effective tax rates for the nine-month period ended October 1, 1998
and October 2, 1997 were .1% and 33.7%, respectively.
6. CAPITAL STOCK
Earnings per share information is not presented as the Company's shares do
not trade in a public market. After the Recapitalization, the Company effected a
stock split resulting in a price per share of $5.00, which $5.00 per share price
is equivalent to the $31.00 per share consideration paid in the Merger. The
January 1, 1998 shares outstanding have been adjusted to reflect such equivalent
shares.
7. RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial statements
to conform with the 1998 presentation. These reclassifications had no impact on
previously reported results of operations or shareholders' deficit.
8. SUBSEQUENT EVENTS
On November 10, 1998 the Company issued and sold $200,000,000 senior
subordinated notes due 2008 which bear interest at 9 1/2%. These instruments are
identical to the Company's $400,000,000 senior subordinated notes offered May
27, 1998 as described in Note 4. On December 16, 1998 the Company also issued
and sold $200,000,000 senior subordinated debentures due 2010 which bear
interest at 8 7/8%. The proceeds from these offerings were used primarily to
reduce amounts outstanding under the Company's Senior Credit Facilities.
F-29
<PAGE> 141
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Act III Cinemas, Inc.:
We have audited the accompanying consolidated balance sheet of Act III
Cinemas, Inc. and subsidiaries (the "Company") as of December 31, 1997, and the
related consolidated statements of operations, shareholders' deficit, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Act III Cinemas, Inc. and
subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Portland, Oregon
March 25, 1998
F-30
<PAGE> 142
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Act III Cinemas, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' deficit and of cash
flows present fairly, in all material respects, the financial position of Act
III Cinemas, Inc. and its subsidiaries at December 31, 1996, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Act III
Cinemas, Inc. and its subsidiaries for any period subsequent to December 31,
1996.
/s/ PRICE WATERHOUSE LLP
- --------------------------------
PRICE WATERHOUSE LLP
Portland, Oregon
February 28, 1997
F-31
<PAGE> 143
ACT III CINEMAS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- --------
(AMOUNTS IN
THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 8,720 $ 2,015
Restricted cash and cash equivalents.................... -- 95,094
Accounts receivable..................................... 1,324 1,948
Inventories............................................. 2,122 2,180
Prepaids and other current assets....................... 641 1,121
Income tax receivable................................... -- 5,424
-------- --------
Total current assets............................ 12,807 107,782
CONTRACTS RECEIVABLE (Note 3)............................. 2,007 658
PROPERTY AND EQUIPMENT, Net (Note 4)...................... 231,621 329,880
INTANGIBLE ASSETS:
Favorable lease terms acquired, net of accumulated
amortization of $19,789 and $22,108.................. 26,791 24,473
Excess of purchase price over the fair value of net
tangible assets acquired, net of accumulated
amortization of $3,751 and $4,241.................... 4,962 4,472
DEFERRED FINANCING COSTS AND OTHER ASSETS, Net............ 3,239 15,346
-------- --------
TOTAL..................................................... $281,427 $482,611
======== ========
</TABLE>
(Continued)
See notes to consolidated financial statements.
F-32
<PAGE> 144
ACT III CINEMAS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligations (Note 5)............................... $ 1,978 $ 94,831
Accounts payable...................................... 10,042 18,251
Accrued film rentals.................................. 10,063 12,098
Interest payable...................................... 5,089 6,628
Taxes other than income taxes......................... 2,839 3,380
Other current liabilities............................. 6,650 6,311
Income taxes payable.................................. 1,610 312
-------- ---------
Total current liabilities..................... 38,271 141,811
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Note 5)... 254,130 431,972
DEFERRED INCOME TAXES (Note 8).......................... 9,173 12,632
OTHER NONCURRENT LIABILITIES............................ -- 432
-------- ---------
Total liabilities............................. 301,574 586,847
COMMITMENTS AND CONTINGENCIES (Note 11)................. -- --
MANDATORILY REDEEMABLE SECURITIES (Note 6).............. 13,132 --
SHAREHOLDERS' DEFICIT:
Preferred stock, $.01 par value, 50,000 authorized;
none issued and outstanding at December 31, 1997... -- --
Common stock, $.001 par value, 150,000 shares
authorized, 49,047 and 47,852 shares issued and
outstanding (Note 7)............................... 1 --
Additional paid-in capital............................ 4,479 607
Loans to shareholders................................. -- (501)
Accumulated deficit................................... (37,759) (104,342)
-------- ---------
Total shareholders' deficit................... (33,279) (104,236)
-------- ---------
TOTAL................................................... $281,427 $ 482,611
======== =========
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE> 145
ACT III CINEMAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
REVENUES:
Admissions.................................. $133,522 $152,257 $172,940
Concessions................................. 60,554 69,184 78,190
Other....................................... 2,115 2,108 2,150
-------- -------- --------
Total revenues...................... 196,191 223,549 253,280
-------- -------- --------
EXPENSES:
Costs of operations:
Film rental.............................. 70,232 81,015 93,243
Cost of concessions...................... 9,292 10,589 12,432
Other theatre operating expenses......... 55,486 65,935 78,294
General and administrative expenses (Notes 7
and 10).................................. 6,341 7,169 8,095
Depreciation and amortization............... 12,705 19,862 21,821
Amortization of intangibles and other
assets................................... 9,457 5,955 4,083
Recapitalization expenses (Note 2).......... -- -- 25,851
-------- -------- --------
Total expenses...................... 163,513 190,525 243,819
-------- -------- --------
INCOME FROM OPERATIONS........................ 32,678 33,024 9,461
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income............................. 1,395 838 1,281
Interest expense (Note 5)................... (25,281) (23,475) (28,119)
Other....................................... 153 188 1,826
-------- -------- --------
(23,733) (22,449) (25,012)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS.......................... 8,945 10,575 (15,551)
PROVISION FOR (BENEFIT FROM) INCOME TAXES
(Note 8).................................... 3,759 4,690 (1,142)
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS....... 5,186 5,885 (14,409)
EXTRAORDINARY LOSS -- Loss on early retirement
of debt, net of income tax benefit of $1,391
(Note 9).................................... -- -- 7,700
-------- -------- --------
NET INCOME (LOSS)............................. 5,186 5,885 (22,109)
ACCRETION OF MANDATORILY REDEEMABLE SECURITIES
(Note 6).................................... 24 19 13
DIVIDENDS ON MANDATORILY REDEEMABLE SECURITIES
(Note 6).................................... 1,492 1,717 1,425
-------- -------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCK....................................... $ 3,670 $ 4,149 $(23,547)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE> 146
ACT III CINEMAS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL LOANS TO
---------------- PAID-IN SHARE- ACCUMULATED
SHARES AMOUNT CAPITAL HOLDERS DEFICIT TOTAL
------- ------ ---------- -------- ----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994.............. 49,314 $ 1 $ 4,779 $ -- $ (45,578) $ (40,798)
Accretion of mandatorily redeemable
securities............................ -- -- -- -- (24) (24)
Dividends on mandatorily redeemable
securities............................ -- -- -- -- (1,492) (1,492)
Net income.............................. -- -- -- -- 5,186 5,186
Redemption of common stock.............. (267) -- (300) -- -- (300)
------- --- --------- ----- --------- ---------
BALANCE, DECEMBER 31, 1995.............. 49,047 1 4,479 -- (41,908) (37,428)
Accretion of mandatorily redeemable
securities............................ -- -- -- -- (19) (19)
Dividends on mandatorily redeemable
securities............................ -- -- -- -- (1,717) (1,717)
Net income.............................. -- -- -- -- 5,885 5,885
------- --- --------- ----- --------- ---------
BALANCE, DECEMBER 31, 1996.............. 49,047 1 4,479 -- (37,759) (33,279)
Accretion of mandatorily redeemable
securities............................ -- -- -- -- (13) (13)
Dividends on mandatorily redeemable
securities............................ -- -- -- -- (1,425) (1,425)
Conversion of mandatorily redeemable
securities............................ 10,698 -- 14,570 -- -- 14,570
Stock compensation...................... -- -- 1,500 -- -- 1,500
Issuance of common stock, net of
issuance costs of $3,520.............. 42,531 -- 209,135 -- -- 209,135
Purchase and retirement of common
stock................................. (54,545) (1) (229,684) -- (43,036) (272,721)
Issuance of common stock................ 21 -- 106 -- -- 106
Issuance of common stock in exchange for
notes................................. 100 -- 501 (501) -- --
Net loss................................ -- -- -- -- (22,109) (22,109)
------- --- --------- ----- --------- ---------
BALANCE, DECEMBER 31, 1997.............. 47,852 $-- $ 607 $(501) $(104,342) $(104,236)
======= === ========= ===== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE> 147
ACT III CINEMAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
--------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ 5,186 $ 5,885 $(22,109)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.............. 22,162 25,817 25,904
Amortization of debt discount.............. 1,038 937 823
Loss on sale of assets..................... 22 -- 289
Gain on installment sale................... -- -- (2,301)
Deferred income taxes...................... 674 1,502 3,459
Stock compensation......................... -- -- 1,500
Other...................................... -- -- 432
Extraordinary loss -- loss on early
retirement of debt....................... -- -- 7,700
Change in current assets and liabilities:
Accounts receivable...................... 371 (458) (624)
Inventories.............................. (502) (268) (58)
Prepaids and other current assets........ (63) (196) (480)
Accounts payable......................... 69 5,618 8,209
Accrued film rentals..................... 850 1,131 2,035
Interest payable......................... 832 60 1,539
Taxes other than income taxes............ 452 (318) 541
Other current liabilities................ 103 1,402 (339)
Income taxes............................. 1,675 (1,406) (5,331)
--------- -------- --------
Net cash provided by operating
activities......................... 32,869 39,706 21,189
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (32,222) (73,608) (120,518)
Increase in restricted cash and cash
equivalents................................ -- -- (95,094)
Proceeds from sale of assets.................. 329 -- 149
Payments received on contracts receivable,
net........................................ 380 8 3,650
--------- -------- --------
Net cash used in investing
activities......................... (31,513) (73,600) (211,813)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings..................... -- 25,000 476,336
Deferred financing costs...................... -- -- (16,807)
Proceeds from issuance of common stock........ -- -- 209,241
Purchase and retirement of common stock....... (300) -- (272,721)
Payments made on long-term debt............... (9,485) (1,388) (212,130)
--------- -------- --------
Cash provided by (used in) financing
activities......................... (9,785) 23,612 183,919
--------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS....... (8,429) (10,282) (6,705)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.... 27,431 19,002 8,720
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR.......... $ 19,002 $ 8,720 $ 2,015
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-36
<PAGE> 148
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF OPERATIONS AND BASIS OF PRESENTATION -- Act III Cinemas, Inc.
("Cinemas" or the "Company") owns and operates movie theatres through its
wholly-owned subsidiary, Act III Theatres, Inc. ("Theatres") in the states of
Alaska, Idaho, Missouri, Nevada, Oregon, Texas and Washington.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles which require
management to make certain estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION -- The consolidated financial statements include the
accounts of Cinemas, its wholly-owned subsidiary, Theatres, and all of the
wholly-owned subsidiaries of Theatres. All significant intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION AND FILM RENTAL COSTS -- Revenues are recognized when
admissions and concession sales are collected at the theatres. Film rental costs
are accrued based on the applicable box office receipts and the terms of the
film licenses.
The Company licenses approximately 90% of its films from seven film
distributors.
CASH AND CASH EQUIVALENTS include short-term investments with an original
maturity of less than 90 days. The carrying amount of cash and cash equivalents
approximates fair value because of the short-term maturity of those instruments.
RESTRICTED CASH AND CASH EQUIVALENTS consist of amounts held in trust for
the payment of the 11 7/8% Senior Subordinated Notes outstanding at December 31,
1997. Such notes were repaid on February 1, 1998.
ACCOUNTS RECEIVABLE AND ADVERTISING EXPENSES -- Accounts receivable consist
primarily of amounts which will be deducted from final film payments under the
terms of co-op advertising arrangements with film distributors. The Company
records its share of advertising expense under the co-op arrangements at the
time the advertisements are first run. Advertising expense aggregated $4,410,
$5,080, and $6,918 for the years ended December 31, 1995, 1996, and 1997,
respectively, and is included in other theatre operating expenses in the
accompanying consolidated statements of operations. The co-op advertising
receivables aggregated $1,286 and $1,514 at December 31, 1996 and 1997,
respectively.
INVENTORIES consist of concession and theatre supplies and are stated at
the lower of cost or market. The Company uses the first-in, first-out (FIFO)
method to determine cost.
F-37
<PAGE> 149
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
PREPAIDS AND OTHER CURRENT ASSETS consist primarily of theatre leasehold
improvements paid by the Company, which will be reimbursed by the lessor, and
prepaid interest expense.
PROPERTY AND EQUIPMENT are stated at cost. The Company uses the
straight-line method to compute depreciation and amortization over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 20 to 31.5 years
Fixtures and equipment...................................... 5 to 7 years
Leasehold improvements...................................... 4 to 20 years
</TABLE>
Leasehold improvements are amortized using the lesser of the useful life of
the improvement or the remaining lease term.
INTANGIBLES -- The Company uses the straight-line method to compute
amortization of favorable lease terms acquired over the related lease term and
the excess of purchase price over fair value of net tangible assets acquired
over a 20 year period.
IMPAIRMENT OF LONG-LIVED ASSETS -- The Company believes the above useful
lives for property and equipment and intangibles are appropriate based on the
factors influencing acquisition decisions. These factors include theatre
location, profitability and general industry outlook. The Company reviews its
property and equipment and intangible assets for asset impairment whenever
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. To perform that review, the Company estimates the sum of
expected future undiscounted cash flows from the related theatre operations. If
the estimated net cash flows are less than the carrying amount of property and
equipment and intangibles, the Company would recognize an impairment loss in an
amount necessary to write the property and equipment and intangibles down to
fair value as determined by the expected discounted future cash flows.
DEFERRED FINANCING COSTS AND OTHER ASSETS consist primarily of deferred
financing fees which are being amortized over the lives of the related debt
facilities using the straight-line method, which approximates the effective
interest method.
PREOPENING COSTS are expensed as incurred.
OTHER CURRENT LIABILITIES include deferred revenues from advance ticket and
gift certificate sales of $2,117 and $1,730 at December 31, 1996 and 1997,
respectively, and also include payroll related liabilities and accrued
percentage rents.
INCOME TAXES -- The Company utilizes the liability method to account for
income taxes such that deferred taxes are determined based on the estimated
future tax effects of differences between the financial statement and tax basis
of assets and liabilities given the provisions of the enacted tax laws and tax
rates. Deferred income tax expense or benefit is based on the changes in the
financial statement basis versus the tax basis in the Company's assets or
liabilities from period to period.
F-38
<PAGE> 150
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
STATEMENT OF CASH FLOWS -- The Company made the following cash payments:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Interest........................................ $23,411 $23,342 $24,477
Income taxes.................................... 1,979 4,364 1,767
</TABLE>
Interest capitalized totaled zero, $864, and $2,240 for each of the years
ended December 31, 1995, 1996, and 1997, respectively.
As reported in the consolidated statements of shareholders' deficit, the
Company's mandatorily redeemable securities accrued dividends and accretion in
all periods, which have been excluded from the accompanying consolidated
statements of cash flows.
STOCK-BASED COMPENSATION -- SFAS No. 123, Accounting for Stock-Based
Compensation, allows companies to choose whether to account for stock-based
compensation on a fair value method or to continue accounting for such
compensation under the method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25"). The Company has
chosen to continue to account for stock compensation using APB 25 (see Note 7).
SFAS NO. 130, REPORTING COMPREHENSIVE INCOME, requires that all items
required to be recognized as a component of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. The new standard is effective for the Company's year
ending December 31, 1998. Adoption of SFAS No. 130 will not impact previously
reported net income (loss) or affect the comparability of financial statements.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1995
and 1996 financial statements to conform with the 1997 presentation. These
reclassifications had no impact on previously reported results of operations or
common shareholders' deficit.
2. RECAPITALIZATION
On October 17, 1997, the Company and Act III Acquisition Corp.
("Acquisition Corp.") entered into an Agreement and Plan of Merger (the "Merger
Agreement"). Acquisition Corp. was owned by KKR 1996 Fund L.P. and KKR Partners
II L.P., entities operated at the direction of Kohlberg Kravis Roberts & Co., a
private investment firm ("KKR"). Pursuant to the Merger Agreement, on December
3, 1997, Acquisition Corp. was merged with and into the Company (the "Merger"),
with the Company continuing as the surviving corporation. At December 31, 1997,
affiliates of KKR owned approximately 42,531 shares, or approximately 89% of the
Company's common stock outstanding after the Merger.
In order to fund the transactions contemplated by the Merger (the
"Recapitalization"), the Company issued $250,000 new bank debt, $150,000
Subordinated Notes due June 2008 to KKR 1996 L.P., and issued 42,531 shares of
common stock to KKR affiliates for $212.7 million. In connection with the
Merger, the Company repaid the
F-39
<PAGE> 151
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
$211,542 outstanding balance on the Company's previous $250,000 credit facility,
deposited $95,094 in trust to retire $85,000 Senior Subordinated Notes,
including interest of $5,047 and fees of $5,047; paid $13,590 to redeem certain
outstanding stock options, and purchased and retired 54,545 shares of common
stock for $272.7 million.
During 1997, nonrecurring costs of approximately $25.8 million, including
approximately $17.2 million of compensation costs, were incurred and expensed in
connection with the Recapitalization. Financing costs of approximately $15.2
million were incurred and classified as deferred financing costs which will be
amortized over the lives of the new debt facilities (see Note 5). In addition,
the Company incurred approximately $3.5 million of costs associated with issuing
common stock. Such costs were netted against the proceeds from the stock
issuance. Of the total Merger and Recapitalization costs above, $6.0 million
were paid to KKR.
3. CONTRACTS RECEIVABLE
Contracts receivable consist primarily of the following items:
In November 1991, the Company effectively sold six theatres to a then
former senior executive officer under a sales contract in the gross amount of
$4,034 in settlement of claims previously filed by the officer and the Company
against each other. The Company recorded a deferred gain on the sale of $2,802
which was being recognized over the term of the contract under the installment
method as cash was received. At December 31, 1996, the balance of the contract,
net of the deferred gain of $2,301, was $1,036. During the year ended December
31, 1997, all amounts due under the contract were received. Accordingly, the
deferred gain of $2,301 was recognized fully in 1997.
In March 1992, the Company loaned $2,350 in cash to a Texas corporation in
exchange for a noninterest-bearing note to settle a claim previously brought
against Act III Theatres, L.P. ("Theatres L.P."), Cinemas' previous majority
shareholder. The Texas corporation used such funds to equip and operate a
theatre in Texas and is repaying the note in installments of up to $500 per year
from the theatre's cash flow, as defined, until such time that the note is fully
repaid. Management believes the theatre will provide sufficient cash flow to
fully repay the note. The note is secured by the theatre. At December 31, 1996,
the balance of this note, net of a $210 discount, was $910. At December 31,
1997, the balance of this note, net of a $117 discount, was $607.
F-40
<PAGE> 152
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
4. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Land.................................................... $ 39,389 $ 43,639
Buildings and improvements.............................. 156,007 212,708
Fixtures and equipment.................................. 89,981 144,884
Leasehold improvements.................................. 17,805 17,805
-------- --------
303,182 419,036
Accumulated depreciation and amortization............... (71,561) (89,156)
-------- --------
Property and equipment, net................... $231,621 $329,880
======== ========
</TABLE>
At December 31, 1996 and 1997, property and equipment include $23,127 of
buildings and improvements held under capital leases with related accumulated
amortization of $10,198 and $11,378, respectively.
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt consists of:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Term loans............................................... $ -- $250,000
Subordinated note........................................ -- 150,000
Revolving line of credit................................. 135,025 --
11 7/8% Senior Subordinated Notes, due February 1,
2003................................................... 85,000 90,047
-------- --------
220,025 490,047
Less debt discount....................................... (1,442) --
Other nonrecourse debt, generally payable in monthly
installments, plus interest at approximately 10%....... 12,619 12,862
-------- --------
231,202 502,909
Capital lease obligations, payable in monthly
installments, plus interest at approximately 14%....... 24,906 23,894
-------- --------
256,108 526,803
Current portion.......................................... (1,978) (94,831)
-------- --------
Total long-term debt and capital lease
obligations................................. $254,130 $431,972
======== ========
</TABLE>
Under the Company's previous $250,000 credit facility (the "revolving line
of credit"), interest was payable monthly at prime plus .25% or LIBOR plus 1.75%
(at the Company's option). The margin added to prime or LIBOR was determined
based upon
F-41
<PAGE> 153
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
certain financial ratios of the Company. The revolving line of credit was repaid
in conjunction with the Recapitalization.
CREDIT FACILITIES -- In connection with the Merger and Recapitalization,
the Company entered into credit facilities provided by a syndicate of financial
institutions. Such credit facilities (the "Credit Facilities") include a
$300,000 Revolving Credit Facility (including the availability of Revolving
Loans, Swing Line Loans, and Letters of Credit) and three term loan facilities:
Term A ($80,000), Term B ($80,000), and Term C ($90,000) (the "Term Loans"). The
Company must pay an annual commitment fee ranging from 0.2% to 0.425%, depending
on the Company's Total Leverage Ratio, as defined, of the unused portion of the
Revolving Credit Facility. The Revolving Credit Facility expires in December
2004. No borrowings were outstanding under the Revolving Credit Facility at
December 31, 1997.
Borrowings under the Term A Loan or the Revolving Credit Facility can be
made at the "Base Rate" plus a margin of 0% to 1%, or the "LIBO Rate," plus
.625% to 2.25%, both depending on the Total Leverage Ratio. The Base Rate on
revolving loans is the rate established by the Administrative Agent in New York
as its base rate for dollars loaned in the United States. The LIBO Rate is based
on the LIBOR rate for the corresponding length of loan. 1% of the outstanding
balance on the Term A Loan is due annually through 2003, with the balance of the
Term A Loan due in 2004.
Borrowings under the Term B Loan can be made at the Base Rate plus a margin
of 0.75% to 1.25% or the LIBO Rate plus 2.0% to 2.5%, both depending on the
Total Leverage Ratio. 1% of the outstanding balance is due annually through
2004, with the balance of the loan due in 2005.
Borrowings under the Term C Loan can be made at the Base Rate plus a margin
of 1.0% to 1.5% or the LIBO Rate plus 2.25% to 2.75%, both depending on the
Total Leverage Ratio. 1% of the outstanding balance is due annually through
2005, with the balance of the loan due in 2006.
The Credit Facilities contain customary covenants and restrictions on the
Company's ability to issue additional debt or engage in certain activities and
include customary events of default. In addition, the Credit Facilities specify
that the Company must meet or exceed defined interest coverage ratios and must
not exceed defined leverage ratios. The Company was in compliance with such
covenants at December 31, 1997.
Long-term debt is secured by substantially all assets of the Company.
SENIOR SUBORDINATED NOTES -- In connection with the Recapitalization, the
Company issued $150,000 Senior Subordinated Notes (the "Subordinated Notes") to
KKR 1996 Fund L.P., a related party. The notes bear interest at the treasury
bill rate, as defined, plus 4% through May 1998, the treasury bill rate plus 5%
through May 1999, the 10-year treasury note rate plus 5% through May 2000, the
10-year treasury note rate plus 6% through May 2001, and the 10-year treasury
note rate plus 7% thereafter, in no event exceeding 12% for any period. Through
May 2002, interest is payable semiannually on June 1 and December 1, at the
Company's discretion. Any accrued but unpaid interest
F-42
<PAGE> 154
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
outstanding at November 30, 2002 must be repaid on December 1 of that year.
Subsequent to December 1, 2002, interest is payable semiannually.
The principal of the Subordinated Notes is due in May 1998 but may be
automatically extended through May 1999 (the "Conversion Date"). On the
Conversion Date, the Subordinated Notes, if unpaid, become due and payable on
May 30, 2008. The Subordinated Notes are subordinated to all other indebtedness
of the Company. The Subordinated Notes are classified as long-term at December
31, 1997 due to the automatic extension of the due date permitted under their
terms.
The 11 7/8% Senior Subordinated Notes (the "11 7/8% Notes"), due February
1, 2003, were repaid on February 1, 1998. On December 3, 1997, pursuant to the
terms of the 11 7/8% Notes, the Company deposited funds in an irrevocable trust
sufficient to redeem the $85,000 principal balance, accrued interest of $5,047,
and prepayment penalties of $5,047 on the first available call date, February 1,
1998. Prior to their redemption, interest on the 11 7/8% Notes was due
semiannually on February 1 and August 1 of each year.
As of December 31, 1997, scheduled maturities of long-term debt, including
capital lease obligations, are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES
YEAR ENDING LONG-TERM ------------------------------- TOTAL
DECEMBER 31, DEBT PAYMENTS INTEREST PRINCIPAL PRINCIPAL
- ------------ --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1998........................ $ 93,638 $ 4,360 $ 3,167 $ 1,193 $ 94,831
1999........................ 3,623 4,377 2,990 1,387 5,010
2000........................ 3,461 4,377 2,643 1,734 5,195
2001........................ 3,556 4,402 2,530 1,872 5,428
2002........................ 3,660 4,747 2,517 2,230 5,890
Thereafter.................. 394,971 20,400 4,922 15,478 410,449
-------- ------- ------- ------- --------
$502,909 $42,663 $18,769 $23,894 $526,803
======== ======= ======= ======= ========
</TABLE>
F-43
<PAGE> 155
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. MANDATORILY REDEEMABLE SECURITIES
Mandatorily redeemable securities consist of:
<TABLE>
<CAPTION>
MANDATORILY REDEEMABLE SECURITIES
-----------------------------------
CARRYING REDEMPTION
SHARES VALUE VALUE
------- --------- -----------
<S> <C> <C> <C>
Balance, December 31, 1994..................... 200 $ 9,880 $ 9,949
Accretion to redemption value.................. -- 24 --
Accretion of dividends......................... -- 1,492 1,492
---- -------- --------
Balance, December 31, 1995..................... 200 11,396 11,441
Accretion to redemption value.................. -- 19 --
Accretion of dividends......................... -- 1,717 1,717
---- -------- --------
Balance, December 31, 1996..................... 200 13,132 13,158
Accretion to redemption value.................. -- 13 --
Accretion of dividends......................... -- 1,425 1,425
Conversion of securities into common stock..... (200) (14,570) (14,583)
---- -------- --------
Balance, December 31, 1997..................... -- $ -- $ --
==== ======== ========
</TABLE>
MANDATORILY REDEEMABLE SECURITIES -- During 1990, Cinemas authorized and
issued shares of its mandatorily redeemable senior subordinated convertible
preferred stock ("Senior Subordinated Convertible Preferred Stock"), par value
$.01 per share.
The holders of the Senior Subordinated Convertible Preferred Stock were
entitled to annual dividends, payable on September 30, at the rate of 15% per
annum of the base amount of each share. The base amount was defined as $25,000
per share, adjusted by the amount of any dividends on such shares accrued to
date and not previously paid or added to the base amount.
Cinemas was required to redeem the Senior Subordinated Convertible
Preferred Stock on February 8, 2000 at the base amount per share. Accretion to
record the value of the Senior Subordinated Convertible Preferred Stock at its
redemption value on its scheduled redemption date was calculated using the
effective interest method.
Each share of Senior Subordinated Convertible Preferred Stock was
convertible into one share (prior to the stock split referred to below) of
common stock at the holder's option. In connection with the Merger and
Recapitalization, the holders of all 200 outstanding shares of Senior
Subordinated Convertible Preferred Stock elected to convert their shares to
common stock.
F-44
<PAGE> 156
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. SHAREHOLDERS' DEFICIT
STOCK SPLIT -- Effective December 3, 1997, the Company declared a 53,488.9
to one stock split. Share data for all periods presented has been restated to
reflect the effects of the split.
STOCK OPTION AND INCENTIVE COMPENSATION PLANS -- Prior to the Merger,
certain members of management of the Company and its subsidiaries were granted
either nonqualified stock options or incentive stock options to purchase shares
of common stock under the Management Stock Option Plan. All options issued under
the Management Stock Option Plan became fully vested upon consummation of the
Merger, and all participants either received cash, for the difference between
the per share price inherent in the Merger and Recapitalization and the exercise
price of their options, or retained their existing options. In addition, certain
members of management were issued options under the newly formed 1997 Stock
Option Plan for Key Employees of Act III Cinemas, Inc. (the "Plan").
Under the Plan, the Compensation Committee of the Board of Directors of the
Company may award either nonqualified stock options or incentive stock options
to purchase shares of common stock. The number of shares of common stock which
may be issued pursuant to such options may not exceed 20% of common shares
outstanding. The option price per share is determined by the Compensation
Committee, provided that, in the case of incentive stock options, the purchase
price per share shall not be less than 100% of the fair market value of the
Company's common stock on the grant date.
The following table summarizes the stock option activity under the stock
option plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
December 31, 1994....................................... 1,631,411 $0.09
Granted............................................... 1,872,112 0.34
---------- -----
December 31, 1995....................................... 3,503,523 0.22
Granted............................................... 1,738,389 0.37
---------- -----
December 31, 1996....................................... 5,241,912 0.27
Granted............................................... 6,419,923 4.92
Exercised............................................. (3,057,199) 0.20
---------- -----
December 31, 1997....................................... 8,604,636 $3.77
========== =====
</TABLE>
F-45
<PAGE> 157
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Additional information regarding options outstanding as of December 31,
1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -----------------------
OUTSTANDING WEIGHTED AVG. WEIGHTED EXERCISABLE WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1997 LIFE (YRS) PRICE 1997 PRICE
- --------------- ------------ ------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$.34 to $.37 2,291,691 8.8 $0.37 2,291,691 $0.37
$5.00 6,312,945 9.9 5.00 -- 5.00
--------- --- ----- --------- -----
8,604,636 9.6 $3.77 2,291,691 $0.37
========= === ===== ========= =====
</TABLE>
As discussed in Note 1, the Company has adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, no compensation cost has been
recognized for stock options granted at the fair value on the date of grant. Had
compensation cost for the Company's stock option plans been determined based on
the estimated fair value of the options at the date of grant, the effect on
1995, 1996, and 1997 net income or loss of applying SFAS No. 123 would not have
been material.
For the years ended December 31, 1995, 1996, and 1997, the Company
recognized $77, $630, and $15,171, respectively, of compensation expense related
to these options, of which $14,325 of 1997 expense resulted from the full
vesting of all options upon consummation of the Merger.
The Company has a discretionary Management Incentive Compensation Plan
whereby designated executives and key employees may be awarded an incentive
amount based on 3.5% of earnings before income taxes and interest, as defined in
the agreement. Compensation expense related to this plan was $782, $951, and
$991 for the years ended December 31, 1995, 1996, and 1997, respectively.
Compensation expense related to the stock option plans and the Management
Incentive Compensation Plan is included in general and administrative expenses
in the accompanying consolidated statements of operations, except for
compensation expense relating to the Merger and Recapitalization, which is
included in recapitalization expenses.
F-46
<PAGE> 158
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. INCOME TAXES
The income tax provision (benefit) associated with income (loss) before
extraordinary items consists of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Current:
Federal.......................................... $2,838 $2,945 $(4,601)
State............................................ 247 243 --
------ ------ -------
Total current............................ 3,085 3,188 (4,601)
------ ------ -------
Deferred:
Federal.......................................... 620 1,386 3,867
State............................................ 54 116 (408)
------ ------ -------
Total deferred........................... 674 1,502 3,459
------ ------ -------
Total income tax provision (benefit)..... $3,759 $4,690 $(1,142)
====== ====== =======
</TABLE>
The effective income tax rate on income before extraordinary items for the
years ended December 31, 1995, 1996, and 1997 differs from the statutory federal
income tax rate of 34% as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- -----
<S> <C> <C> <C>
Federal statutory tax rate............................... 34.0% 34.0% 34.0%
Nondeductible recapitalization costs..................... -- -- (25.5)
Purchase accounting amortization adjustments............. 2.4 4.6 (1.0)
State taxes, net of federal effect....................... 3.1 2.8 0.5
Other.................................................... 2.5 2.9 (0.7)
---- ---- -----
Effective rate................................. 42.0% 44.3% 7.3%
==== ==== =====
</TABLE>
F-47
<PAGE> 159
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
DEFERRED INCOME TAXES -- The components of the net deferred tax liability
are:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Capital lease obligation................................. $ 9,215 $ 9,212
Intangibles.............................................. 206 45
Debt discount associated with warrants................... 2,459 --
Net operating loss and tax credit carryforwards.......... -- 3,097
Other.................................................... 503 245
------- -------
Total deferred tax asset......................... 12,383 12,599
------- -------
Deferred tax liabilities:
Property and equipment and accumulated depreciation...... 17,536 20,849
Intangibles and accumulated amortization................. 4,020 4,382
------- -------
Total deferred tax liability..................... 21,556 25,231
------- -------
Net deferred tax liability....................... $ 9,173 $12,632
======= =======
</TABLE>
Net operating loss and tax credit carryforwards, if unused, will expire in
2012.
9. EXTRAORDINARY LOSS
An extraordinary loss of $7,700, net of income taxes of $1,391, was
recognized for the write-off of deferred financing costs and prepayment
penalties incurred in connection with redeeming the 11 7/8% Notes as well as for
the write-off of deferred financing costs related to the Company's previous
credit facility.
10. RELATED-PARTY TRANSACTIONS
Pursuant to a management agreement between the Company and its former
indirect parent, Act III Communications Holdings L.P. ("Holdings, L.P."),
beginning in 1993 and amended February 14, 1997, Holdings L.P. charged annual
management fees of $600, $600, and $917 for the years ended December 31, 1995,
1996, and 1997, respectively.
Holdings L.P. has also charged the Company additional amounts of $517,
$677, and $1,027 for the years ended December 31, 1995, 1996, and 1997,
respectively, for the allocation of salaries of certain Holdings L.P. employees,
including Cinemas' Chief Executive Officer, rent and other charges. The annual
base fee and additional charges, which were permitted by the principal creditor,
are included in general and administrative expenses in the accompanying
consolidated statement of operations.
In connection with the Merger, the above agreements were terminated.
F-48
<PAGE> 160
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Concurrent with the Merger, the Company entered into a management agreement
with KKR which permits KKR to charge annual management fees of up to $750. The
Company paid no management fees to KKR in 1997.
11. COMMITMENTS AND CONTINGENCIES
COMMITMENTS -- The Company utilizes land, building, and equipment under
various long-term rental and lease agreements which expire in varying years
through approximately 2035. The majority of these leases represent operating
leases wherein rental payments are recorded as rent expense when incurred. In
addition to specified minimum lease payments, certain of these leases require
rents based on specified theatre revenues.
At December 31, 1997, minimum annual rentals under long-term operating
leases are:
<TABLE>
<S> <C>
1998........................................................ $ 14,794
1999........................................................ 14,926
2000........................................................ 14,846
2001........................................................ 12,559
2002........................................................ 12,080
Thereafter.................................................. 178,010
--------
Total............................................. $247,215
========
</TABLE>
Rent expense under these long-term operating leases aggregated $10,472,
$12,964, and $15,725 and included $1,389, $3,161, and $3,987 of rents based on
specific theatre revenues for the years ended December 31, 1995, 1996, and 1997,
respectively. Operating lease rent expense is included in other theatre
operating expenses and general and administrative expenses in the accompanying
consolidated statement of operations.
The Company had entered into commitments as of December 31, 1997 totaling
approximately $59.7 million for the construction of new theaters.
CONTINGENCIES -- From time to time, the Company is involved in legal
proceedings arising in the ordinary course of its business operations, such as
personal injury claims, employment matters and contractual disputes. Management
believes that the Company's potential liability with respect to such proceedings
is not material in the aggregate to the Company's consolidated financial
position, results of operations, or liquidity.
F-49
<PAGE> 161
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $ 8,720 $ 8,720 $ 2,015 $ 2,015
Restricted cash and cash equivalents.... -- -- 95,094 95,094
Contracts receivable.................... 2,294 2,294 658 658
Long-term debt, excluding capital lease
obligations (Note 5).................. 231,202 238,002 502,909 502,909
Mandatorily redeemable securities -- Not
practicable to estimate (Note 6)...... 13,132 -- -- --
</TABLE>
Excluding the $85,000 of 11 7/8% Notes, the carrying amount of the
Company's long-term debt approximates its fair value, since the debt is
primarily variable rate debt. The fair value of the 11 7/8% Notes was
approximately $91,800 at December 31, 1996, based on quoted market prices. The
carrying value of the 11 7/8% Notes at December 31, 1997 approximates fair
value, based on their subsequent repayment.
It was not practicable to determine the fair value of the mandatorily
redeemable securities at December 31, 1996 due to the lack of a readily
available market for these securities.
* * * * * *
F-50
<PAGE> 162
ACT III CINEMAS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30
1997 1998
----------- ---------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,015 $ 1,942
Restricted cash and cash equivalents...................... 95,094 --
Accounts receivable....................................... 1,948 1,403
Prepaid expenses and other receivables.................... 1,121 696
Inventories............................................... 2,180 2,576
Income tax receivable..................................... 5,424 --
--------- ---------
Total current assets................................ 107,782 6,617
CONTRACTS RECEIVABLE........................................ 658 359
PROPERTY AND EQUIPMENT, Net................................. 329,880 357,123
INTANGIBLES, Net............................................ 28,945 27,540
OTHER ASSETS, Net........................................... 15,346 14,385
--------- ---------
TOTAL............................................... $ 482,611 $ 406,024
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligations............................................. $ 94,831 $ 4,261
Accounts payable.......................................... 18,251 $ 9,630
Accrued film rentals...................................... 12,098 11,428
Taxes other than income taxes............................. 3,380 2,630
Interest payable.......................................... 6,628 1,538
Other current liabilities................................. 6,623 5,528
--------- ---------
Total current liabilities........................... 141,811 35,015
DEFERRED INCOME TAXES....................................... 12,632 8,861
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS................ 431,972 403,734
OTHER NONCURRENT LIABILITIES................................ 432 692
--------- ---------
Total liabilities................................... 586,847 448,302
COMMITMENTS AND CONTINGENCIES (Note 4)...................... -- --
COMMON SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value, 150,000 shares authorized,
47,852 shares outstanding............................... -- --
Additional paid-in capital................................ 607 63,262
Loans to shareholders..................................... (501) (501)
Accumulated deficit....................................... (104,342) (105,039)
--------- ---------
Total common shareholders' equity (deficit)......... (104,236) (42,278)
--------- ---------
TOTAL............................................... $ 482,611 $ 406,024
========= =========
</TABLE>
See notes to consolidated financial statements.
F-51
<PAGE> 163
ACT III CINEMAS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES:
Admissions.................................... $39,415 $43,899 $ 82,168 $ 88,619
Concessions................................... 17,952 20,890 37,117 42,058
Other......................................... 481.... 441 1,104 990
------- ------- -------- --------
Total revenues........................ 57,848 65,230 120,389 131,667
------- ------- -------- --------
EXPENSES:
Costs of operations:
Film rental................................ 21,581 24,290 43,416 45,886
Cost of concessions........................ 3,187 3,062 6,440 6,029
Other theatre operating expenses........... 18,591 20,656 37,107 41,844
General and administrative expenses........... 2,166 1,457 4,255 3,561
Depreciation and amortization................. 6,265 7,952 12,342 15,801
------- ------- -------- --------
Total expenses........................ 51,790 57,417 103,560 113,121
------- ------- -------- --------
INCOME FROM OPERATIONS.......................... 6,058 7,813 16,829 18,546
------- ------- -------- --------
OTHER EXPENSES:
Interest expense, net......................... 6,321 9,896 11,972 19,502
Loss on sale of assets........................ 174 -- 289 --
------- ------- -------- --------
6,495 9,896 12,261 19,502
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES............... (437) (2,083) 4,568 (956)
PROVISION FOR (BENEFIT FROM) INCOME TAXES....... (228) (676) 1,659 (259)
------- ------- -------- --------
NET INCOME (LOSS)............................... (209) (1,407) 2,909 (697)
ACCRETION OF MANDATORILY REDEEMABLE
SECURITIES.................................... 4 -- 8 --
PREFERRED DIVIDENDS............................. 475 -- 950 --
------- ------- -------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK.... $ (688) $(1,407) $ 1,951 $ (697)
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-52
<PAGE> 164
ACT III CINEMAS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN LOANS TO ACCUMULATED
SHARES AMOUNT CAPITAL SHAREHOLDERS DEFICIT TOTAL
------ ------ ---------- ------------ ----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997.......... 47,852 $ -- $ 607 $(501) $(104,342) $(104,236)
Equity contribution................. -- -- 62,655 -- -- 62,655
Net income (loss)................... -- -- -- -- (697) (697)
------ ---- ------- ----- --------- ---------
BALANCE, JUNE 30, 1998.............. 47,852 $ -- $63,262 $(501) $(105,039) $ (42,278)
====== ==== ======= ===== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-53
<PAGE> 165
ACT III CINEMAS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 2,909 $ (697)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization....................... 12,754 15,801
Loss on sale of assets.............................. 289 --
Deferred income taxes............................... 657 3,771
Change in certain working capital items and other... 3,135 (4,922)
-------- --------
Net cash provided by operating activities...... 19,744 6,411
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................... (44,457) (40,678)
Net change in contracts receivable..................... (275) 299
Proceeds from sale of assets........................... 150 --
-------- --------
Net cash used in investing activities.......... (44,582) (40,379)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term debt........................ (957) (91,105)
Borrowings on long-term debt........................... 39,975 62,345
Deferred financing costs............................... (1,575) --
Equity contributions................................... -- 62,655
-------- --------
Cash provided by financing activities.......... 37,443 33,895
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 12,605 (73)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 8,720 2,015
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 21,325 $ 1,942
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Repayment of debt and accrued interest with restricted
cash and cash equivalents........................... $ -- $ 95,094
======== ========
</TABLE>
See notes to consolidated financial statements.
F-54
<PAGE> 166
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the consolidated results of
operations for the interim periods. Certain information and footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The interim
consolidated financial information and notes thereto should be read in
conjunction with the Company's consolidated financial statements as of and for
the year ended December 31, 1997.
The consolidated results of operations for the three and six months ended
June 30, 1998 are not necessarily indicative of results to be expected for the
year ending December 31, 1998.
2. EARNINGS PER SHARE
Earnings per share information is not presented as the Company's shares do
not trade in a public market.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ---------
<S> <C> <C>
Land.................................................. $ 43,639 $ 44,958
Buildings and improvements............................ 212,708 236,689
Fixtures and equipment................................ 144,884 160,262
Leasehold improvements................................ 17,805 17,805
-------- ---------
419,036 459,714
Accumulated depreciation and amortization............. (89,156) (102,591)
-------- ---------
Property and equipment, net......................... $329,880 $ 357,123
======== =========
</TABLE>
At December 31, 1997 and June 30, 1998, property and equipment include
$23,127 of buildings and improvements held under capital leases with related
accumulated amortization of $11,378 and $11,969, respectively.
4. COMMITMENTS AND CONTINGENCIES
COMMITMENTS -- See Note 11 of the Notes to Consolidated Financial
Statements in the Company's financial statements for the year ended December 31,
1997 for a
F-55
<PAGE> 167
ACT III CINEMAS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
description of commitments under operating leases and for the construction of
new theatres. Rent expense for the three and six months ended June 30, 1997 and
1998 was $3,624, $7,283, $4,144 and $9,520, respectively.
CONTINGENCIES -- From time to time, the Company is involved in legal
proceedings arising in the ordinary course of its business operations, such as
personal injury claims, employment matters and contractual disputes. Management
believes that the Company's potential liability with respect to such proceedings
is not material in the aggregate to the Company's consolidated financial
position, results of operations, or liquidity.
5. SUBSEQUENT EVENT
On August 26, 1998, the Company was acquired by Regal Cinemas, Inc.
("Regal") ("the Acquisition"). As a result of the Acquisition, each share of the
Company's common stock was converted into the right to receive one share of
Regal common stock. In connection with the Acquisition, the Company's
outstanding indebtedness under the credit facilities and the subordinated note
were repaid.
F-56
<PAGE> 168
------------------------------------------------------------
------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR ANY OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information........ i
Cautionary Statement Regarding Forward- ii
Looking Statements.......................
Prospectus Summary......................... 1
Risk Factors............................... 12
The Transactions........................... 19
Use of Proceeds............................ 21
Capitalization............................. 21
Unaudited Pro Forma Consolidated Financial 22
Data.....................................
Selected Historical Consolidated Financial 29
Data.....................................
Management's Discussion and Analysis of 31
Financial Condition and Results of
Operations...............................
Business................................... 41
Management................................. 54
Certain Transactions....................... 61
Principal Stockholders..................... 62
Description of Certain Indebtedness........ 64
The Exchange Offer......................... 68
Description of the Debentures.............. 77
Certain Federal Income Tax 105
Considerations...........................
Plan of Distribution....................... 105
Legal Matters.............................. 106
Experts.................................... 106
Change in Accountants...................... 107
Index to Consolidated Financial F-1
Statements...............................
</TABLE>
------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN
THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
REGAL CINEMAS LOGO
OFFER TO EXCHANGE ALL OUTSTANDING AND UNREGISTERED
8 7/8% SENIOR SUBORDINATED
DEBENTURES DUE 2010
FOR
8 7/8% SENIOR SUBORDINATED
DEBENTURES DUE 2010
---------------------
PROSPECTUS
---------------------
, 1999
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 169
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any of its directors and officers against liability incurred in
connection with a proceeding if (i) the director or officer acted in good faith,
(ii) in the case of conduct in his or her official capacity with the
corporation, the director or officer reasonably believed such conduct was in the
corporation's best interests, (iii) in all other cases, the director or officer
reasonably believed that his or her conduct was not opposed to the best interest
of the corporation, and (iv) in connection with any criminal proceeding, the
director or officer had no reasonable cause to believe that his or her conduct
was unlawful. In actions brought by or in the right of the corporation, however,
the TBCA provides that no indemnification may be made if the director or officer
was adjudged to be liable to the corporation. In cases where the director or
officer is wholly successful, on the merits or otherwise, in the defense of any
proceeding instigated because of his or her status as an officer or director of
a corporation, the TBCA mandates that the corporation indemnify the director or
officer against reasonable expenses incurred in the proceeding. The TBCA also
provides that in connection with any proceeding charging improper personal
benefit to an officer or director, no indemnification may be made if such
officer or director is adjudged liable on the basis that personal benefit was
improperly received. Notwithstanding the foregoing, the TBCA provides that a
court of competent jurisdiction, upon application, may order that an officer or
director be indemnified if, in consideration of all relevant circumstances, the
court determines that such individual is fairly and reasonably entitled to
indemnification, whether or not the standard of conduct set forth above was met
or was adjudged liable, provided that if such officer or director was adjudged
liable, indemnification is limited to reasonable expenses.
Article 8 of the Amended and Restated Charter (the "Charter") of the
Company and its Restated Bylaws provide that the Company shall indemnify against
liability, and advance expenses to, any present or former director or officer of
the Company to the fullest extent allowed by the TBCA, as amended from time to
time, or any subsequent law, rule or regulation adopted in lieu thereof.
Additionally, the Charter provides that no director of the Company shall be
personally liable to the Company or any of its shareholders for monetary damages
for breach of any fiduciary duty except for liability arising from (i) any
breach of a director's duty of loyalty to the Company or its shareholders, (ii)
acts or omissions not in good faith or which involved intentional misconduct or
a knowing violation of law, (iii) any unlawful distributions or (iv) receiving
any improper personal benefit. The Company has entered into indemnification
agreements with certain of the Company's directors and executive officers.
Directors' and officers' liability insurance has also been obtained by the
Company, the effect of which is to indemnify certain directors and officers of
the Company against certain damages and expenses because of certain claims made
against them caused by their negligent act, error or omission.
The above discussion of the Charter and Bylaws of the Company and the TBCA
is not intended to be exhaustive and is qualified in its entirety by reference
thereto.
II-1
<PAGE> 170
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment of expenses incurred or paid by a director, officer or controlling
person thereof in the successful defense of any action, suit or proceeding) is
asserted by a director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of January 19,
1998, by and among Regal Cinemas, Inc., Screen
Acquisition Corp. and Monarch Acquisition Corp.(1)
2.2 -- Agreement and Plan of Merger, dated as of August 20,
1998, by and among Regal Cinemas, Inc., Knoxville
Acquisition Corp. and Act III Cinemas, Inc.(2)
3.1 -- Amended and Restated Charter of the Registrant.(3)
3.2 -- Restated Bylaws of the Registrant.(4)
4.1 -- Specimen Common Stock certificate.(4)
4.2 -- Article 5 of the Registrant's Amended and Restated
Charter (included in the Amended and Restated Charter
filed as Exhibit 3.1 hereto).
4.3 -- Indenture, dated as of May 27, 1998, by and between Regal
Cinemas, Inc. and IBJ Schroder Bank & Trust Company.(5)
4.4 -- Form of Regal Cinemas, Inc. 9 1/2% Senior Subordinated
Note due June 1, 2008 (contained in Indenture filed as
Exhibit 4.3 hereto).
4.5 -- Indenture, dated as of December 16, 1998, by and between
Regal Cinemas, Inc. and IBJ Schroder Bank & Trust
Company.*
4.6 -- Form of Regal Cinemas, Inc. 8 7/8% Senior Subordinated
Debenture due December 15, 2010 (contained in the
Indenture filed as Exhibit 4.5 hereto).
5 -- Opinion of Weil, Gotshal & Manges LLP.+
10.1 -- Employment Agreement, dated as of May 27, 1998, by and
between Regal Cinemas, Inc. and Michael L. Campbell.(5)
10.2 -- Employment Agreement, dated as of May 27, 1998, by and
between Regal Cinemas, Inc. and Gregory W. Dunn.(5)
</TABLE>
II-2
<PAGE> 171
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.3 -- Credit Agreement, dated as of May 27, 1998, by and
between Regal Cinemas, Inc., its subsidiaries and the
lenders named therein.(5)
10.3-1 -- First Amendment, dated as of August 26, 1998, by and
between Regal Cinemas, Inc., its subsidiaries and the
lenders named therein.(3)
10.4 -- Agreement and Plan of Merger, dated as of June 11, 1997,
by and among Regal Cinemas, Inc., Regal Acquisition
Corporation, RAC Corporation, RAC Finance Corp., Cobb
Theatres, L.L.C., R.C. Cobb, Inc., Cobb Theatres II,
Inc., Cobb Finance Corp. and Tricob Partnership.(6)
10.5 -- Agreement and Waiver, dated as of July 31, 1997, by and
among Regal Cinemas, Inc., Regal Acquisition Corporation,
RAC Corporation, RAC Finance Corp., Cobb Theatres,
L.L.C., R.C. Cobb, Inc., Cobb Theatres II, Inc., Cobb
Finance Corp. and Tricob Partnership.(7)
10.6 -- 1993 Employee Stock Incentive Plan.(4)
10.7 -- Regal Cinemas, Inc. Participant Stock Option Plan.(4)
10.8 -- Regal Cinemas, Inc. Employee Stock Option Plan.(4)
10.9 -- 1998 Stock Purchase and Option Plan for Key Employees of
Regal Cinemas, Inc.(8)
10.10 -- Form of Management Stockholder's Agreement.(8)
10.11 -- Form of Non-Qualified Stock Option Agreement.(8)
10.12 -- Form of Sale Participation Agreement.(8)
10.13 -- Form of Registration Rights Agreement.(8)
10.14 -- Stockholders' Agreement, dated as of May 27, 1998, by and
among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR
Partners II, L.P. and Regal Equity Partners, L.P.(3)
10.15 -- Stockholders' and Registration Rights Agreement, dated as
of May 27, 1998, by and among Regal Cinemas, Inc., KKR
1996 Fund, L.P., KKR Partners II, L.P., Regal Equity
Partners, L.P. and the DLJ signatories thereto.(3)
10.16 -- Placement Agreement, dated as of November 4, 1998, by and
between Regal Cinemas, Inc. and Morgan Stanley & Co.
Incorporated.(9)
10.17 -- Registration Rights Agreement, dated as of November 10,
1998, by and between Regal Cinemas, Inc. and Morgan
Stanley & Co. Incorporated.(9)
10.18 -- Placement Agreement, dated as of December 9, 1998, by and
among Regal Cinemas, Inc., Morgan Stanley & Co.
Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation.*
</TABLE>
II-3
<PAGE> 172
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.19 -- Registration Rights Agreement, dated as of December 16,
1998, by and among Regal Cinemas, Inc., Morgan Stanley &
Co. Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation.*
12 -- Statement regarding computation of ratio of earnings to
fixed charges.*
16.1 -- Letter from PricewaterhouseCoopers LLP.(10)
16.2 -- Letter from PricewaterhouseCoopers LLP.(11)
21 -- Subsidiaries.(3)
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5 hereto).
23.2 -- Consent of Deloitte & Touche LLP.*
23.3 -- Consent of PricewaterhouseCoopers LLP (Portland,
Oregon).*
23.4 -- Consent of PricewaterhouseCoopers LLP (Knoxville,
Tennessee).*
23.5 -- Consent of Ernst & Young LLP.*
24 -- Powers of Attorney of directors and executive officers of
the Registrant (included on signature pages).*
25.1 -- Statement of Eligibility and Qualification of IBJ
Schroder Bank & Trust Company, as Trustee, under the
Indenture listed as Exhibit 4.3 hereto on Form T-1.(3)
25.2 -- Statement of Eligibility and Qualification of IBJ
Schroder Bank & Trust Company, as Trustee, under the
Indenture listed as Exhibit 4.5 hereto on Form T-1.*
27 -- Financial Data Schedule (for SEC use only).*
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
</TABLE>
- -------------------------
* Filed herewith.
+ To be filed by amendment.
(1) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated January 20, 1998.
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated September 1, 1998.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-4, Registration No. 333-64399.
(4) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, Registration No. 33-62868.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended July 2, 1998.
(6) Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on
Form 10-Q for the quarter ended May 31, 1997.
II-4
<PAGE> 173
(7) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated August 14, 1997.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, Registration No. 333-52943.
(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-4, Registration No. 333- .
(10) Incorporated by reference to the Registrant's Current Report on Form 8-K/A
dated September 16, 1998.
(11) Incorporated by reference to the Registrant's Current Report on Form 8-K/A
dated September 23, 1998.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 174
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Knoxville, State of Tennessee, on December 30, 1998.
REGAL CINEMAS, INC.
By: /s/ MICHAEL L. CAMPBELL
--------------------------------------
Michael L. Campbell
President and Chief Executive Officer
POWER OF ATTORNEY
Know all those by these presents, that each person whose signature appears
below constitutes and appoints each of Michael L. Campbell and D. Mark Monroe,
or any of them, each acting along, his true and lawful attorney-in-fact and
agent, with full Power of Substitution and Resubstitution, for such person and
in his name, place and stead, in any and all capacities, in connection with the
Registration Statement on Form S-4 of Regal Cinemas, Inc. under the Securities
Act of 1933, as amended, including, without limitation the generality of the
foregoing, to sign the Registration Statement in the name and on behalf of Regal
Cinemas, Inc., or on behalf of the undersigned as a director or officer of Regal
Cinemas, Inc., and any and all amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, and to sign any and all additional Registration
Statements relating to the same offering of Securities as the Registration
Statement that are filed pursuant to Rule 462 under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body, granting unto
said attorneys-in-fact and agents, each acting alone, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all the said
attorneys-in-fact and agents, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
II-6
<PAGE> 175
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL L. CAMPBELL President, Chief Executive December 30, 1998
- ------------------------------------------ Officer and Director
Michael L. Campbell (Principal Executive
Officer)
/s/ D. MARK MONROE Vice President, December 30, 1998
- ------------------------------------------ Acting Chief Financial
D. Mark Monroe Officer and Treasurer
(Principal Financial and
Accounting Officer)
/s/ DAVID DENIGER Director December 30, 1998
- ------------------------------------------
David Deniger
/s/ THOMAS O. HICKS Director December 30, 1998
- ------------------------------------------
Thomas O. Hicks
/s/ HENRY R. KRAVIS Director December 30, 1998
- ------------------------------------------
Henry R. Kravis
/s/ MICHAEL J. LEVITT Director December 30, 1998
- ------------------------------------------
Michael J. Levitt
/s/ JOHN R. MUSE Director December 30, 1998
- ------------------------------------------
John R. Muse
/s/ ALEXANDER NAVAB, JR. Director December 30, 1998
- ------------------------------------------
Alexander Navab, Jr.
/s/ CLIFTON S. ROBBINS Director December 30, 1998
- ------------------------------------------
Clifton S. Robbins
Director December , 1998
- ------------------------------------------
George R. Roberts
</TABLE>
II-7
<PAGE> 176
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of January 19,
1998, by and among Regal Cinemas, Inc., Screen
Acquisition Corp. and Monarch Acquisition Corp.(1)
2.2 -- Agreement and Plan of Merger, dated as of August 20,
1998, by and among Regal Cinemas, Inc., Knoxville
Acquisition Corp. and Act III Cinemas, Inc.(2)
3.1 -- Amended and Restated Charter of the Registrant.(3)
3.2 -- Restated Bylaws of the Registrant.(4)
4.1 -- Specimen Common Stock certificate.(4)
4.2 -- Article 5 of the Registrant's Amended and Restated
Charter (included in the Amended and Restated Charter
filed as Exhibit 3.1 hereto).
4.3 -- Indenture, dated as of May 27, 1998, by and between Regal
Cinemas, Inc. and IBJ Schroder Bank & Trust Company.(5)
4.4 -- Form of Regal Cinemas, Inc. 9 1/2% Senior Subordinated
Note due June 1, 2008 (contained in Indenture filed as
Exhibit 4.3 hereto).
4.5 -- Indenture, dated as of December 16, 1998, by and between
Regal Cinemas, Inc. and IBJ Schroder Bank & Trust
Company.*
4.6 -- Form of Regal Cinemas, Inc. 8 7/8% Senior Subordinated
Debenture due December 15, 2010 (contained in the
Indenture filed as Exhibit 4.5 hereto).
5 -- Opinion of Weil, Gotshal & Manges LLP.+
10.1 -- Employment Agreement, dated as of May 27, 1998, by and
between Regal Cinemas, Inc. and Michael L. Campbell.(5)
10.2 -- Employment Agreement, dated as of May 27, 1998, by and
between Regal Cinemas, Inc. and Gregory W. Dunn.(5)
10.3 -- Credit Agreement, dated as of May 27, 1998, by and
between Regal Cinemas, Inc., its subsidiaries and the
lenders named therein.(5)
10.3-1 -- First Amendment, dated as of August 26, 1998, by and
between Regal Cinemas, Inc., its subsidiaries and the
lenders named therein.(3)
10.4 -- Agreement and Plan of Merger, dated as of June 11, 1997,
by and among Regal Cinemas, Inc., Regal Acquisition
Corporation, RAC Corporation, RAC Finance Corp., Cobb
Theatres, L.L.C., R.C. Cobb, Inc., Cobb Theatres II,
Inc., Cobb Finance Corp. and Tricob Partnership.(6)
10.5 -- Agreement and Waiver, dated as of July 31, 1997, by and
among Regal Cinemas, Inc., Regal Acquisition Corporation,
RAC Corporation, RAC Finance Corp., Cobb Theatres,
L.L.C., R.C. Cobb, Inc., Cobb Theatres II, Inc., Cobb
Finance Corp. and Tricob Partnership.(7)
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.6 -- 1993 Employee Stock Incentive Plan.(4)
10.7 -- Regal Cinemas, Inc. Participant Stock Option Plan.(4)
10.8 -- Regal Cinemas, Inc. Employee Stock Option Plan.(4)
10.9 -- 1998 Stock Purchase and Option Plan for Key Employees of
Regal Cinemas, Inc.(8)
10.10 -- Form of Management Stockholder's Agreement.(8)
10.11 -- Form of Non-Qualified Stock Option Agreement.(8)
10.12 -- Form of Sale Participation Agreement.(8)
10.13 -- Form of Registration Rights Agreement.(8)
10.14 -- Stockholders' Agreement, dated as of May 27, 1998, by and
among Regal Cinemas, Inc., KKR 1996 Fund, L.P., KKR
Partners II, L.P. and Regal Equity Partners, L.P.(3)
10.15 -- Stockholders' and Registration Rights Agreement, dated as
of May 27, 1998, by and among Regal Cinemas, Inc., KKR
1996 Fund, L.P., KKR Partners II, L.P., Regal Equity
Partners, L.P. and the DLJ signatories thereto.(3)
10.16 -- Placement Agreement, dated as of November 4, 1998, by and
between Regal Cinemas, Inc. and Morgan Stanley & Co.
Incorporated.(9)
10.17 -- Registration Rights Agreement, dated as of November 10,
1998, by and between Regal Cinemas, Inc. and Morgan
Stanley & Co. Incorporated.(9)
10.18 -- Placement Agreement, dated as of December 9, 1998, by and
among Regal Cinemas, Inc., Morgan Stanley & Co.
Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation.*
10.19 -- Registration Rights Agreement, dated as of December 16,
1998, by and among Regal Cinemas, Inc., Morgan Stanley &
Co. Incorporated and Donaldson, Lufkin & Jenrette
Securities Corporation.*
12 -- Statement regarding computation of ratio of earnings to
fixed charges.*
16.1 -- Letter from PricewaterhouseCoopers LLP.(10)
16.2 -- Letter from PricewaterhouseCoopers LLP.(11)
21 -- Subsidiaries.(3)
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5 hereto).
23.2 -- Consent of Deloitte & Touche LLP.*
23.3 -- Consent of PricewaterhouseCoopers LLP (Portland,
Oregon).*
23.4 -- Consent of PricewaterhouseCoopers LLP (Knoxville,
Tennessee).*
23.5 -- Consent of Ernst & Young LLP.*
24 -- Powers of Attorney of directors and executive officers of
the Registrant (included on signature pages).*
</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
25.1 -- Statement of Eligibility and Qualification of IBJ
Schroder Bank & Trust Company, as Trustee, under the
Indenture listed as Exhibit 4.3 hereto on Form T-1.(3)
25.2 -- Statement of Eligibility and Qualification of IBJ
Schroder Bank & Trust Company, as Trustee, under the
Indenture listed as Exhibit 4.5 hereto on Form T-1.*
27 -- Financial Data Schedule (for SEC use only).*
99.1 -- Form of Letter of Transmittal.*
99.2 -- Form of Notice of Guaranteed Delivery.*
</TABLE>
- -------------------------
* Filed herewith.
+ To be filed by amendment.
(1) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated January 20, 1998.
(2) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated September 1, 1998.
(3) Incorporated by reference to the Registrant's Registration Statement on
Form S-4, Registration No. 333-64399.
(4) Incorporated by reference to the Registrant's Registration Statement on
Form S-1, Registration No. 33-62868.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended July 2, 1998.
(6) Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on
Form 10-Q for the quarter ended May 31, 1997.
(7) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated August 14, 1997.
(8) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, Registration No. 333-52943.
(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-4, Registration No. 333- .
(10) Incorporated by reference to the Registrant's Current Report on Form 8-K/A
dated September 16, 1998.
(11) Incorporated by reference to the Registrant's Current Report on Form 8-K/A
dated September 23, 1998.
<PAGE> 1
EXHIBIT 4.5
================================================================================
REGAL CINEMAS, INC.,
Issuer
and
IBJ SCHRODER BANK & TRUST COMPANY,
Trustee
----------
Indenture
Dated as of December 16, 1998
----------
8 7/8% Senior Subordinated Debentures due 2010
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- ------------ ------------------
<S> <C>
ss. 310(a)(1).......................................................... 7.10
(a)(2).......................................................... 7.10
(b)............................................................. 7.03; 7.08
ss. 311(a)............................................................. 7.03
(b)............................................................. 7.03
ss. 312(a)............................................................. 2.04
(b)............................................................. 10.02
(c)............................................................. 10.02
ss. 313(a)............................................................. 7.06
(b)(2).......................................................... 7.07
(c)............................................................. 7.05; 7.06; 11.02
(d)............................................................. 7.06
ss. 314(a)............................................................. 7.05; 11.02
(a)(4).......................................................... 4.12; 11.02
(c)(1).......................................................... 11.03
(c)(2).......................................................... 11.03
(e)............................................................. 4.12; 11.04
ss. 315(a)............................................................. 7.02
(b)............................................................. 7.05; 11.02
(c)............................................................. 7.02
(d)............................................................. 7.02
(e)............................................................. 6.11
ss. 316(a)(1)(A)....................................................... 6.05
(a)(1)(B)....................................................... 6.04
(b)............................................................. 6.07
(c)............................................................. 9.03
ss. 317(a)(1).......................................................... 6.08
(a)(2).......................................................... 6.09
(b)............................................................. 2.05
ss. 318(a)............................................................. 11.01
(c)............................................................. 11.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS1
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. Definitions .......................................................... 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act .................... 17
SECTION 1.03. Rules of Construction ................................................ 18
ARTICLE TWO
THE DEBENTURES
SECTION 2.01. Form and Dating ...................................................... 19
SECTION 2.02. Restrictive Legends .................................................. 20
SECTION 2.03. Execution, Authentication and Denominations .......................... 22
SECTION 2.04. Registrar and Paying Agent ........................................... 23
SECTION 2.05. Paying Agent to Hold Money in Trust .................................. 24
SECTION 2.06. Transfer and Exchange ................................................ 24
SECTION 2.07. Book-Entry Provisions for Global Debentures .......................... 25
SECTION 2.08. Special Transfer Provisions .......................................... 27
SECTION 2.09. Replacement Debentures ............................................... 30
SECTION 2.10. Outstanding Debentures ............................................... 31
SECTION 2.11. Temporary Debentures ................................................. 31
SECTION 2.12. Cancellation ......................................................... 31
SECTION 2.13. CUSIP Numbers ........................................................ 32
SECTION 2.14. Defaulted Interest ................................................... 32
SECTION 2.15. Issuance of Additional Debentures .................................... 32
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption .................................................. 32
SECTION 3.02. Notices to Trustee ................................................... 33
SECTION 3.03. Selection of Debentures to Be Redeemed ............................... 33
SECTION 3.04. Notice of Redemption ................................................. 34
SECTION 3.05. Effect of Notice of Redemption ....................................... 35
SECTION 3.06. Deposit of Redemption Price .......................................... 35
SECTION 3.07. Payment of Debentures Called for Redemption .......................... 35
SECTION 3.08. Debentures Redeemed in Part .......................................... 35
</TABLE>
- ----------
Note: The Table of Contents shall not for any purposes be deemed to be a part
of the Indenture.
<PAGE> 4
ii
<TABLE>
<S> <C> <C>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Debentures ................................................ 36
SECTION 4.02. Maintenance of Office or Agency ...................................... 36
SECTION 4.03. Fall-away Event ...................................................... 37
SECTION 4.04. Limitation on Restricted Payments .................................... 37
SECTION 4.05. Limitation on the Incurrence of Additional Indebtedness
and Issuance of Capital Stock ......................... 39
SECTION 4.06. Limitations on Transactions with Affiliates .......................... 40
SECTION 4.07. Repurchase of Debentures upon a Change of Control .................... 41
SECTION 4.08. Existence ............................................................ 42
SECTION 4.09. Payment of Taxes and Other Claims .................................... 42
SECTION 4.10. Maintenance of Properties and Insurance .............................. 43
SECTION 4.11. Notice of Defaults ................................................... 43
SECTION 4.12. Compliance Certificates .............................................. 43
SECTION 4.13. Commission Reports and Reports to Holders ............................ 44
SECTION 4.14. Waiver of Stay, Extension or Usury Laws .............................. 44
SECTION 4.15. Limitation on Layering ............................................... 45
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc .......................................... 45
SECTION 5.02. Successor Substituted ................................................ 46
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default .................................................... 46
SECTION 6.02. Acceleration ......................................................... 47
SECTION 6.03. Other Remedies ....................................................... 48
SECTION 6.04. Waiver of Past Defaults .............................................. 48
SECTION 6.05. Control by Majority .................................................. 49
SECTION 6.06. Limitation on Suits .................................................. 49
SECTION 6.07. Rights of Holders to Receive Payment ................................. 50
SECTION 6.08. Collection Suit by Trustee ........................................... 50
SECTION 6.09. Trustee May File Proofs of Claim ..................................... 50
SECTION 6.10. Priorities ........................................................... 51
SECTION 6.11. Undertaking for Costs ................................................ 51
SECTION 6.12. Restoration of Rights and Remedies ................................... 51
</TABLE>
<PAGE> 5
iii
<TABLE>
<S> <C> <C>
SECTION 6.13. Rights and Remedies Cumulative ....................................... 52
SECTION 6.14. Delay or Omission Not Waiver ......................................... 52
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General .............................................................. 52
SECTION 7.02. Certain Rights of Trustee ............................................ 52
SECTION 7.03. Individual Rights of Trustee ......................................... 54
SECTION 7.04. Trustee's Disclaimer ................................................. 54
SECTION 7.05. Notice of Default .................................................... 54
SECTION 7.06. Reports by Trustee to Holders ........................................ 54
SECTION 7.07. Compensation and Indemnity ........................................... 54
SECTION 7.08. Replacement of Trustee ............................................... 55
SECTION 7.09. Successor Trustee by Merger, Etc ..................................... 56
SECTION 7.10. Eligibility .......................................................... 57
SECTION 7.11. Money Held in Trust .................................................. 57
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations ................................. 57
SECTION 8.02. Defeasance and Discharge of Indenture 58
SECTION 8.03. Defeasance of Certain Obligations .................................... 60
SECTION 8.04. Application of Trust Money ........................................... 62
SECTION 8.05. Repayment to Company ................................................. 62
SECTION 8.06. Reinstatement ........................................................ 62
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders ........................................... 63
SECTION 9.02. With Consent of Holders .............................................. 63
SECTION 9.03. Revocation and Effect of Consent ..................................... 65
SECTION 9.04. Notation on or Exchange of Debentures 65
SECTION 9.05. Trustee to Sign Amendments, Etc ...................................... 65
SECTION 9.06. Conformity with Trust Indenture Act .................................. 66
</TABLE>
<PAGE> 6
iv
<TABLE>
<S> <C> <C>
ARTICLE TEN
SUBORDINATION OF DEBENTURES
SECTION 10.01. Debentures Subordinated to Senior Indebtedness ...................... 66
SECTION 10.02. No Payment on Debentures in Certain Circumstances ................... 66
SECTION 10.03. Payment over of Proceeds upon Dissolution, Etc ...................... 68
SECTION 10.04. Subrogation ......................................................... 70
SECTION 10.05. Obligations of Company Unconditional 71
SECTION 10.06. Notice to Trustee ................................................... 71
SECTION 10.07. Reliance on Judicial Order or Certificate of Liquidating Agent ...... 72
SECTION 10.08. Trustee's Relation to Senior Indebtedness ........................... 72
SECTION 10.09. Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness ................ 73
SECTION 10.10. Holders Authorize Trustee to Effectuate Subordination of Debentures . 73
SECTION 10.11. Not to Prevent Events of Default .................................... 73
SECTION 10.12. Trustee's Compensation Not Prejudiced ............................... 73
SECTION 10.13. No Waiver of Subordination Provisions ............................... 73
SECTION 10.14. Payments May Be Paid Prior to Dissolution ........................... 74
SECTION 10.15. Consent of Holders of Senior Indebtedness Under the
Senior Credit Facilities .............................. 74
SECTION 10.16. Trust Moneys Not Subordinated ....................................... 74
SECTION 10.17. Notice to Representative of Designated Senior Indebtedness .......... 74
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939 75
SECTION 11.02. Notices ............................................................. 75
SECTION 11.03. Certificate and Opinion as to Conditions Precedent .................. 76
SECTION 11.04. Statements Required in Certificate or Opinion 77
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar ......................... 77
SECTION 11.06. Payment Date Other Than a Business Day .............................. 77
SECTION 11.07. Governing Law 78
SECTION 11.08. No Adverse Interpretation of Other Agreements 78
SECTION 11.09. No Recourse Against Others .......................................... 78
SECTION 11.10. Successors 78
SECTION 11.11. Duplicate Originals 78
SECTION 11.12. Separability ........................................................ 78
SECTION 11.13. Table of Contents, Headings, Etc .................................... 78
EXHIBIT A Form of Debenture .................................................... A-1
EXHIBIT B Form of Certificate .................................................. B-1
</TABLE>
<PAGE> 7
v
<TABLE>
<S> <C> <C>
EXHIBIT C Form of Certificate to Be Delivered in Connection with
Transfers to Non-QIB Accredited Investors ....................... C-1
EXHIBIT D Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S .............................. D-1
</TABLE>
<PAGE> 8
INDENTURE, dated as of December 16, 1998, between REGAL CINEMAS, INC.,
a Tennessee corporation (the "Company"), and IBJ SCHRODER BANK & TRUST COMPANY,
a New York banking corporation, trustee (the "Trustee").
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $200,000,000 aggregate
principal amount of the Company's 8 7/8% Senior Subordinated Debentures due 2010
(the "Debentures") issuable as provided in this Indenture. All things necessary
to make this Indenture a valid agreement of the Company, in accordance with its
terms, have been done, and the Company has done all things necessary to make the
Debentures, when executed by the Company and authenticated and delivered by the
Trustee hereunder and duly issued by the Company, valid obligations of the
Company as hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be a part
of and to govern indentures qualified under the Trust Indenture Act of 1939, as
amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the
Debentures by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, as follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions .
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Acquired Preferred Stock" means the Preferred Stock of any Person at
such time as such Person becomes a Restricted Subsidiary of the Company or at
the time it merges or consolidates with the Company or any of its Restricted
Subsidiaries and not issued by such Person in connection with, or in
anticipation or contemplation of, such acquisition, merger or consolidation.
<PAGE> 9
2
"Act III" means Act III Cinemas, Inc., a Delaware corporation.
"Act III Merger" means the merger of Act III with and into the Company.
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Affiliate Transaction" has the meaning specified in Section 4.06.
"Agent" means any Registrar, Co-Registrar, Paying Agent, Transfer Agent
or authenticating agent.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Acquisition" means (i) any transaction pursuant to which any
Person shall become a Restricted Subsidiary of the Company or shall be
consolidated or merged with the Company or any Restricted Subsidiary of the
Company or (ii) the acquisition by the Company or any Restricted Subsidiary of
the Company of assets of any Person comprising a division, line of business or
theatre site of such Person.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day (other than a day which is a Saturday,
Sunday or legal holiday in the State of New York) on which banks are open for
business in New York, New York.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated) of capital stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligation
of such Person to pay rent or other amounts under a lease to which such Person
is a party that is required to be classified and accounted for as a capital
lease obligation under GAAP, and for purposes of this
<PAGE> 10
3
definition, the amount of such obligation at any date shall be the capitalized
amount of such obligation at such date, determined in accordance with GAAP.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons for purposes
of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in
compliance with the provisions of this Indenture), other than to Hicks Muse, KKR
or any of their respective officers or directors or any Affiliates of any of the
foregoing (the "Permitted Holders"); or (ii) the acquisition by any Person or
Group (other than the Permitted Holders or any direct or indirect subsidiary of
any Permitted Holder) of the power, directly or indirectly, to vote or direct
the voting of securities having more than 50% of the ordinary voting power for
the election of directors of the Company.
"Change of Control Offer" has the meaning provided in Section 4.07(a).
"Change of Control Payment Date" has the meaning provided in Section
4.07(c).
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the TIA, then the body performing such duties at
such time.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement.
"Company" means the party named as such in the first paragraph of this
Indenture until a successor replaces it pursuant to Article Five of this
Indenture and thereafter means the successor.
"Company Order" means a written request or order signed in the name of
the Company (i) by its Chairman of the Board, its Chief Executive Officer, its
President, a Vice President or its Chief Financial Officer and (ii) by its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and
delivered to the Trustee; provided, however, that such written request or order
may be signed by any two officers or directors listed in clause (i) above in
lieu of being signed by one of such officers or directors listed in such clause
(i) and one of the officers listed in clause (ii) above.
"Consolidated EBITDA" means, for any period, the net income of the
Company and its Restricted Subsidiaries for such period plus, to the extent such
amount was deducted in calculating such net income (i) Consolidated Interest
Expense, (ii) income taxes, (iii) depreciation expense, (iv) amortization
expense, (v) all other non-cash items, extraordinary items, nonrecurring and
<PAGE> 11
4
unusual items and cumulative effects of changes in accounting principles
reducing such net income, less all non-cash items, extraordinary items,
nonrecurring and unusual items and cumulative effects of changes in accounting
principles increasing such net income, all as determined on a consolidated basis
for the Company and its Restricted Subsidiaries in conformity with GAAP; (vi)
upfront expenses resulting from equity offerings, investments, mergers,
recapitalizations, option buyouts, Dispositions, Asset Acquisitions and similar
transactions to the extent such expenses reduce net income; (vii) restructuring
charges reducing net income; and (viii) gains or losses on Dispositions;
provided that Consolidated EBITDA shall not include (x) the net income (or net
loss) of any Person that is not a Restricted Subsidiary, except (I) with respect
to net income, to the extent of the amount of dividends or other distributions
actually paid to the Company or any of its Restricted Subsidiaries by such
Person during such period and (II) with respect to net losses, to the extent of
the amount of investments made by the Company or any Restricted Subsidiary in
such Person during such period; (y) solely for the purposes of calculating the
amount of Restricted Payments that may be made pursuant to clause (iii) of
Section 4.04(a) (and in such case, except to the extent includable pursuant to
clause (x) above), the net income (or net loss) of any Person accrued prior to
the date it becomes a Restricted Subsidiary or is merged into or consolidated
with the Company or any of its Restricted Subsidiaries or all or substantially
all of the property and assets of such Person are acquired by the Company or any
of its Restricted Subsidiaries; and (z) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at the
time permitted by the operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary (other than any agreement or instrument
evidencing Indebtedness or Preferred Stock outstanding on the Issue Date or
incurred or issued thereafter in compliance with Section 4.05; provided that the
terms of any such agreement restricting the declaration and payment of dividends
or similar distributions apply only in the event of a default with respect to a
financial covenant or a covenant relating to payment (beyond any applicable
period of grace) contained in such agreement or instrument and provided such
terms are determined by the Company to be customary in comparable financings and
such restrictions are determined by the Company not to materially affect the
Company's ability to make principal or interest payments on the Debentures when
due).
"Consolidated Interest Expense" means, with respect to any Person for
any period, without duplication, the sum of (i) the interest expense of such
Person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Interest Swap
Agreements (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit, bankers' acceptance
financing or similar facilities, and (e) all accrued interest and (ii) the
interest component of Capitalized Lease Obligations paid or accrued by such
Person and its Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP; excluding, however, any amount of such interest
of any Restricted Subsidiary if the net income
<PAGE> 12
5
of such Restricted Subsidiary is excluded in the calculation of Consolidated
EBITDA pursuant to clause (z) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Consolidated EBITDA pursuant to clause (z) of the definition
thereof), all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Construction Indebtedness Amount" shall mean an amount equal to the
lesser of (i) $100 million and (ii) the total Indebtedness of any Person and its
Restricted Subsidiaries outstanding on the last day of any Reference Period
incurred in connection with the construction or enhancement of motion picture
theatres or screens that, on such day, are not open for business.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at One State Street, New York, New York 10004; Attention: Corporate
Administration.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Debentures" means any of the securities, as defined in the first
paragraph of the recitals hereof, that are authenticated and delivered under
this Indenture. For all purposes of this Indenture, the term "Debentures" shall
include the Debentures initially issued on the Issue Date, any Exchange
Debentures to be issued and exchanged for any Debentures pursuant to the
Registration Rights Agreement and this Indenture and any other Debentures issued
after the Closing Date under this Indenture. For purposes of this Indenture, all
Debentures shall vote together as one series of Debentures under this Indenture.
"Debenture Obligations" means all Obligations relating to the
Debentures, including, without limitation, all principal, premium, if any,
interest (including, without limitation, any additional amounts payable with
respect to the Debentures as a result of the failure to comply with the terms of
the Registration Rights Agreement).
"Debt Rating" shall mean the rating assigned to the Debentures by
Moody's or S&P, as the case may be.
"Default" means an event or condition the occurrence of which is, or
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Depositary" means The Depository Trust Company, its nominees, and
their respective successors.
<PAGE> 13
6
"Designated Preferred Stock" means preferred stock of the Company
(other than Disqualified Capital Stock) that is issued for cash (other than to a
Restricted Subsidiary) and is so designated as Designated Preferred Stock,
pursuant to an Officers' Certificate executed by the principal executive officer
and the principal financial officer of the Company, on the issuance date
thereof, the cash proceeds of which are excluded from the calculation set forth
in clause (iii) of Section 4.04(a).
"Designated Senior Indebtedness" means (i) all obligations under the
Senior Credit Facilities and (ii) any other Senior Indebtedness of the Company
which, at the date of determination, has an aggregate principal amount
outstanding of, or under which, at the date of determination, the holders
thereof are committed to lend up to, at least $25.0 million and is specifically
designated by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of this Indenture.
"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, or transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets or Capital Stock.
"Disqualified Capital Stock" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures (excluding any
maturity as the result of an optional redemption by the issuer thereof) or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a Change of Control if such Capital Stock requires that
the Change of Control Offer with respect to the Debentures be completed prior to
any similar offer being made with respect to such Capital Stock), in whole or in
part, on or prior to the final maturity date of the Debentures; provided that
only the portion of Capital Stock which so matures or is mandatorily redeemable
or is so redeemable at the sole option of the holder thereof prior to the final
maturity date of the Debentures shall be deemed Disqualified Capital Stock.
"Equity Offering" means a private sale or public offering of Capital
Stock or preferred stock (other than Disqualified Capital Stock) of the Company.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Debentures" means any securities of the Company containing
terms identical to the Debentures (except that such Exchange Debentures shall be
registered under the Securities Act) that are issued and exchanged for the
Debentures pursuant to the Registration Rights Agreement and this Indenture.
<PAGE> 14
7
"GAAP" means generally accepted accounting principles in the United
States of America, including those set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or the Commission or in such other statements by such other
entity as approved by a significant segment of the accounting profession. All
ratios and computations based on GAAP contained in this Indenture shall be
computed in conformity with GAAP as in effect on the date hereof.
"Global Debentures" has the meaning provided in Section 2.01.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hicks Muse" means Hicks, Muse, Tate & Furst Incorporated.
"Holder" or "Debentureholder" means the registered holder of any
Debenture.
"Indebtedness" means with respect to any Person, without duplication,
any liability of such Person (i) for borrowed money, (ii) evidenced by bonds,
debentures, notes or other similar instruments, (iii) constituting Capitalized
Lease Obligations, (iv) incurred or assumed as the deferred purchase price of
property or services, or pursuant to conditional sale obligations and title
retention agreements (but excluding trade accounts payable arising in the
ordinary course of business), (v) for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (vi) for
Indebtedness of others guaranteed by such Person, (vii) for Interest Swap
Agreements, Commodity Agreements and Currency Agreements and (viii) for
Indebtedness of any other Person of the type referred to in clauses (i) through
(vii) which is secured by any Lien on any property or asset of such first
referred to Person, the amount of such Indebtedness being deemed to be the
lesser of the value of such property or asset or the amount of the Indebtedness
so secured. The amount of Indebtedness of any Person at any date shall be (i)
the outstanding principal amount of all unconditional obligations described
above, as such amount would be calculated in accordance with GAAP, (ii) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount and (iii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture as originally executed or as it may be
amended or supplemented from time to time by one or more indentures supplemental
to this Indenture entered into pursuant to the applicable provisions of this
Indenture.
"Independent Financial Advisor" means an accounting, appraisal,
investment banking firm or consultant to Persons engaged in the motion picture
exhibition and distribution business of
<PAGE> 15
8
nationally recognized standing that is, in the judgment of the Company's Board
of Directors, qualified to perform the task for which it has been engaged.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on
June 15 and December 15 of each year, commencing June 15, 1999.
"Interest Swap Agreements" means any interest rate protection
agreement, interest rate future, interest rate option, interest rate swap,
interest rate cap or other interest rate hedge or arrangement.
"Investment Grade Status" exists as of a date and thereafter if at such
date either (i) the Debt Rating of Moody's is at least Baa3 (or the equivalent)
or higher or (ii) the Debt Rating of S&P is at least BBB-- (or the equivalent)
or higher.
"Issue Date" means December 16, 1998.
"KKR" means Kohlberg Kravis Roberts & Co. L.P.
"Leverage Ratio" means the ratio of (i) the aggregate outstanding
amount of Indebtedness (excluding any Construction Indebtedness Amount and net
of any cash and cash equivalents) of the Company and its Restricted Subsidiaries
on a consolidated basis in accordance with GAAP plus the aggregate liquidation
preference of all Disqualified Capital Stock of such Person and all Preferred
Stock of Restricted Subsidiaries of such Person (other than any such
Disqualified Capital Stock or Preferred Stock held by such Person or any of its
Restricted Subsidiaries) on such date to (ii) the aggregate amount of
Consolidated EBITDA for the most recent four full fiscal quarters (the "Four
Quarter Period") for which financial statements of the Company have been filed
with the Commission or delivered to the Trustee pursuant to Section 4.13. The
Four Quarter Period shall be hereinafter referred to as the "Reference Period."
For purposes of this definition, the aggregate outstanding principal
amount of Indebtedness or aggregate liquidation preference of Preferred Stock of
the Person and its Restricted Subsidiaries for which such calculation is made
shall be determined on a pro forma basis as if the Indebtedness or Preferred
Stock giving rise to the need to perform such calculation had been incurred and
the proceeds therefrom had been applied, and all other transactions in respect
of which such Indebtedness or Preferred Stock is being incurred has occurred, on
the last day of the Reference Period. In addition to the foregoing, for purposes
of this definition, "Consolidated EBITDA" shall be calculated on a pro forma
basis after giving effect to (i) the Transactions, (ii) the incurrence of the
Indebtedness or Preferred Stock of such Person and its Restricted Subsidiaries
(and the application of the proceeds therefrom) giving rise to the need to make
such calculation
<PAGE> 16
9
and any incurrence (and the application of the proceeds therefrom) or repayment
of other Indebtedness or Preferred Stock, other than the incurrence or repayment
of Indebtedness pursuant to working capital facilities, at any time subsequent
to the beginning of the Reference Period and on or prior to the date of
determination, as if such incurrence (and the application of the proceeds
thereof), or the repayment, as the case may be, occurred on the first day of the
Reference Period, (iii) any Dispositions, Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Subsidiaries (including any
Person that becomes a Restricted Subsidiary as a result of such Asset
Acquisition) incurring, assuming or otherwise becoming liable for Indebtedness
or Preferred Stock) or Theatre Completions at any time on or subsequent to the
first day of the Reference Period and on or prior to the date of determination,
as if such Disposition, Asset Acquisition (including the incurrence, assumption
or liability for any such Indebtedness or Preferred Stock and also including any
Consolidated EBITDA associated with such Asset Acquisition) or Theatre
Completion occurred on the first day of the Reference Period, (iv) the effects
of incremental contributions to Consolidated EBITDA the Company reasonably
believes in good faith could have been achieved during the Reference Period as a
result of such Asset Acquisition or Theatre Completion (regardless of whether
such incremental contributions could then be reflected in pro forma financial
statements under GAAP, Regulation S-X promulgated by the Commission or any other
regulation or policy of the Commission); provided, however, that such
incremental contributions were identified and quantified in good faith in an
Officers' Certificate delivered to the Trustee at the time of any calculation of
the Leverage Ratio and (v) any motion picture theatre that was permanently
closed for business at any time on or subsequent to the first day of the
Reference Period and on or prior to the date of determination as if such theatre
was closed on the first day of the Reference Period. In calculating
"Consolidated Interest Expense" for purposes of the calculation of "Consolidated
EBITDA," (i) interest on Indebtedness determined on a fluctuating basis as of
the date of determination (including Indebtedness actually incurred on the date
of the transaction giving rise to the need to calculate the Leverage Ratio) and
which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness as in effect on the date of determination and (ii) notwithstanding
(i) above, interest determined on a fluctuating basis, to the extent such
interest is covered by Interest Swap Agreements that will remain in effect for
at least 12 months, shall be deemed to accrue at the rate per annum resulting
after giving effect to the operation of such agreements. For purposes of
calculating the Consolidated EBITDA associated with any Theatre Completion, the
amount thereof for the Reference Period shall be the amount of Consolidated
EBITDA expected by the Company in good faith to be derived by the Company from
such Theatre Completion during the first 12-month period following the date on
which the relevant theatre or screen opens for business.
"Lien" means, with respect to any asset, any lien, mortgage, deed of
trust, pledge, security interest, charge or encumbrance of any kind (including
any conditional sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest).
<PAGE> 17
10
"Moody's" means Moody's Investors Service, Inc. or any successor to the
rating agency business thereof.
"9 1/2% Regal Notes" means the Company's 9 1/2% Senior Subordinated
Notes due 2008 issued pursuant to that certain indenture dated as of May 27,
1998, by and between the Company and IBJ Schroder Bank & Trust Company.
"Non-U.S. Person" means a person who is not a "U.S. person" (as defined
in Regulation S).
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing, or otherwise relating to, any
Indebtedness.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President or the
Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or
the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof or two officers listed in clause (i) of the
definition thereof. Each Officers' Certificate shall include the statements
provided for in TIA Section 314(e) to the extent applicable.
"Offshore Global Debenture" has the meaning provided in Section 2.01.
"Offshore Physical Debentures" has the meaning provided in Section
2.01.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.04 hereof. The counsel may be an employee of or counsel to the Company. Each
such Opinion of Counsel shall include the statements provided for in TIA Section
314(e).
"Paying Agent" has the meaning provided in Section 2.04, except that,
for the purposes of Article Eight, the Paying Agent shall not be the Company or
a Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
"Payment Blockage Period" has the meaning provided in Section 10.02.
"Permitted Indebtedness" means, without duplication, (i) Indebtedness
outstanding on the Issue Date (including the 9 1/2% Regal Notes and the
Debentures); (ii) Indebtedness of the Company and any of its Restricted
Subsidiaries incurred under the Senior Credit Facilities (including letter of
credit obligations), provided that the aggregate principal amount at any time
<PAGE> 18
11
outstanding does not exceed $1.22 billion; (iii) Indebtedness evidenced by or
arising under the Debentures and this Indenture in respect of the Debentures;
(iv) Interest Swap Agreements, Commodity Agreements and Currency Agreements;
provided, however, that such agreements are entered into for bona fide hedging
purposes and not for speculative purposes; (v) additional Indebtedness of the
Company or any of its Restricted Subsidiaries not otherwise permitted under
Section 4.05 of this Indenture, in an aggregate principal amount, which when
aggregated with the aggregate principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (v), does not at any one time
outstanding exceed the sum of (x) $100.0 million and (y) 100% of the net cash
proceeds received by the Company from the issue or sale after the Issue Date of
Capital Stock (other than Disqualified Capital Stock) of the Company or net cash
proceeds contributed to the capital of the Company (other than in respect of
Disqualified Capital Stock) as determined in accordance with clauses (iii)(b)
and (iii)(c) of Section 4.04(a) to the extent such net cash proceeds have not
been applied pursuant to such clause to make Restricted Payments or to effect
other transactions pursuant to Section 4.04(b) (it being understood that any
Indebtedness incurred under this clause (v) shall cease to be deemed incurred or
outstanding for purposes of this clause (v) from and after the first date on
which the Company could have incurred such Indebtedness under Section 4.05
without reliance upon this clause (v), and such Indebtedness shall thereupon be
deemed to have been so incurred); (vi) Refinancing Indebtedness (other than in
respect of Indebtedness incurred pursuant to clauses (ii), (v) and (xiii) of
this definition); (vii) Indebtedness owed by the Company to any Restricted
Subsidiary of the Company (so long as it shall remain a Restricted Subsidiary of
the Company) or by any Restricted Subsidiary (so long as it remains a Restricted
Subsidiary of the Company) of the Company to the Company or any Restricted
Subsidiary of the Company; (viii) guarantees by the Company or Restricted
Subsidiaries of any Indebtedness permitted to be incurred pursuant to this
Indenture; (ix) Indebtedness in respect of performance bonds, reimbursement
obligations with respect to letters of credit, bankers' acceptances, completion
guarantees and surety or appeal bonds provided by the Company or any of its
Restricted Subsidiaries in the ordinary course of their business or Indebtedness
with respect to reimbursement type obligations regarding workers' compensation
claims; (x) Indebtedness arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or from guarantees or
letters of credit, surety bonds or performance bonds securing any obligations of
the Company or any of its Restricted Subsidiaries pursuant to such agreements,
in each case incurred in connection with the disposition of any business assets
or Subsidiaries of the Company (other than guarantees of Indebtedness or other
obligations incurred by any Person acquiring all or any portion of such business
assets or Restricted Subsidiaries of the Company for the purpose of financing
such acquisition) in a principal amount not to exceed the gross proceeds,
including non-cash proceeds, actually received by the Company or any of its
Restricted Subsidiaries in connection with such disposition; provided, however,
that such Indebtedness is not reflected on the balance sheet of the Company or
any Restricted Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet will not
be deemed to be reflected on such balance sheet for purposes of this clause);
(xi) Indebtedness (including but not limited to Capitalized Lease Obligations,
mortgage financings or purchase money obligations) incurred for the purpose of
financing all or any part of the purchase
<PAGE> 19
12
price or cost of construction or improvement of property or assets (whether
through direct purchase of assets or the Capital Stock of any Person owning such
assets) or incurred to refinance any such purchase price or cost of construction
or improvement; (xii) Indebtedness or Disqualified Capital Stock of Persons that
are acquired by the Company or any of its Restricted Subsidiaries or merged into
a Restricted Subsidiary in accordance with the terms of this Indenture;
provided, however, that such Indebtedness or Disqualified Capital Stock is not
incurred in contemplation of such acquisition or merger; and provided further
that after giving effect to such acquisition or merger, either (i) the Company
would be permitted to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 4.05(a) or (ii) the Leverage Ratio is
less than immediately prior to such acquisition or merger; and (xiii)
Indebtedness incurred in connection with any Real Estate Financing Transaction;
provided, however, that the amount of Indebtedness outstanding under clause (ii)
above and this clause (xiii) shall not exceed $1.22 billion at any time
outstanding.
"Person" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Debentures" has the meaning provided in Section 2.01.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"principal" of a debt security, including the Debentures, means the
principal amount due on the stated maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on the
Debentures in the form set forth in Section 2.02.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Real Estate Financing Transaction" means a financing or series of
financings consisting principally of one or more mortgage financings, real
estate sale or leaseback transactions or an asset-backed program based on real
estate owned by the Company or any of its Subsidiaries (funded by the issuance
of commercial paper, medium term notes or other forms of borrowing and including
credit enhancement facilities), and which may consist of or include such other
forms of financing consistent with the foregoing as the Board of Directors shall
approve in good faith, in each case as such financing or financings may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any
<PAGE> 20
13
amendment extending the maturity of, refinancing, replacing or otherwise
restructuring all or any portion of the Indebtedness under such financing or
financings or any successor or replacement agreement and whether including the
same or any other lender or group of lenders, and whether including or replacing
as borrowers or guarantors one or more Subsidiaries of the Company.
"Redemption Date" means, when used with respect to any Debenture to be
redeemed, the date fixed for such redemption by or in accordance with this
Indenture.
"Redemption Price" means, when used with respect to any Debenture to be
redeemed, the price at which such Debenture is to be redeemed in accordance with
this Indenture.
"Refinancing Indebtedness" means any refinancing by the Company or its
Restricted Subsidiaries of Indebtedness of the Company or any of its Restricted
Subsidiaries incurred in accordance with Section 4.05 that does not (i) result
in an increase in the aggregate principal amount of Indebtedness (such principal
amount to include, for purposes of this definition, any premiums, fees,
penalties or accrued interest paid with the proceeds of the Refinancing
Indebtedness) of such Person or (ii) create Indebtedness with (A) a Weighted
Average Life to Maturity that is less than the Weighted Average Life to Maturity
of the Indebtedness being refinanced or (B) a final maturity earlier than the
final maturity of the Indebtedness being refinanced.
"Refunding Capital Stock" has the meaning provided in Section 4.04(b).
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated December 16, 1998, between the Company and Morgan Stanley & Co.
Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation and certain
permitted assigns specified therein.
"Registration Statement" means the Registration Statement as defined
and described in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the June 1 or December 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
<PAGE> 21
14
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee in its corporate trust department customarily performing
functions similar to those performed by any of the above-designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Senior Indebtedness; provided, however, that
if, and for so long as, any issue of Senior Indebtedness lacks such a
representative, then the Representative for such issue of Senior Indebtedness
shall at all times constitute the holders of a majority in outstanding principal
amount of such issue of Senior Indebtedness.
"Restricted Payment" means (i) the declaration or payment of any
dividend or the making of any other distribution (other than dividends or
distributions payable in Qualified Capital Stock or in options, rights or
warrants to acquire Qualified Capital Stock or dividends or distributions by a
Restricted Subsidiary so long as in the case of any dividend or distribution
payable on or in respect of any class or series of Capital Stock issued by a
Subsidiary other than a Wholly Owned Subsidiary, the Company or a Restricted
Subsidiary receives at least its pro rata share of such dividend or distribution
in accordance with its Capital Stock) on shares of the Company's Capital Stock,
or (ii) the purchase, redemption, retirement or other acquisition for value of
any Capital Stock of the Company, or any warrants, rights or options to acquire
shares of Capital Stock of the Company, other than through the exchange of such
Capital Stock or any warrants, rights or options to acquire shares of any class
of such Capital Stock for Qualified Capital Stock or warrants, rights or options
to acquire Qualified Capital Stock.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The Board of Directors may designate any
Unrestricted Subsidiary or any person that is to become a Subsidiary as a
Restricted Subsidiary if, immediately after giving effect to such action (and
treating any Acquired Indebtedness as having been incurred at the time of such
action), the Company could have incurred at least $1.00 of additional
indebtedness under the first paragraph of Section 4.05 of this Indenture.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. or any successor to the rating agency business
thereof.
"Secured Indebtedness" means any Indebtedness of the Company or a
Restricted Subsidiary secured by a Lien.
<PAGE> 22
15
"Securities Act" means the Securities Act of 1933, as amended.
"Security Register" has the meaning provided in Section 2.04.
"Senior Credit Facilities" means the credit facilities under that
certain Credit Agreement dated as of May 27, 1998, as amended on August 26,
1998, among the Company and The Bank of Nova Scotia, as administrative agent and
collateral agent, BancAmerica Robertson Stephens, as syndication agent, The
Chase Manhattan Bank, as documentation agent, and the other financial
institutions from time to time party thereto, together with the related
documents thereto (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending or shortening the maturity of,
refinancing, replacing or otherwise restructuring (including by way of adding
Subsidiaries of the Company as additional borrowers or guarantors thereunder or
increasing the amount of Indebtedness thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders (or other
institutions).
"Senior Indebtedness" means, whether outstanding on the Issue Date or
thereafter issued, all Indebtedness of the Company, including interest
(including interest accruing on or after the filing of, or which would have
accrued but for the filing of, any petition in bankruptcy or for reorganization
relating to the Company or any Restricted Subsidiary whether or not a claim for
post-filing interest is allowed in such proceeding) and premium, if any,
thereon, and other monetary amounts (including fees, expenses, reimbursement
obligations under letters of credit and indemnities) owing in respect thereof
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that the obligations in respect of such
Indebtedness ranks pari passu with the Debentures; provided, however, that
Senior Indebtedness will not include (1) any obligation of the Company to any
Restricted Subsidiary, (2) any liability for federal, state, foreign, local or
other taxes owed or owing by the Company, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness, Guarantee or obligation of the Company that is expressly
subordinate or junior in right of payment to any other Indebtedness, Guarantee
or obligation of the Company, including any Debenture Obligations and the 9 1/2%
Regal Notes (as to which the Debentures rank pari passu in right of payment) or
(5) obligations in respect of any Capital Stock.
"Senior Subordinated Indebtedness" means the Debentures and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Debentures in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
<PAGE> 23
16
"Significant Restricted Subsidiary" means any Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, through one or more
intermediaries, by such Person or (ii) any other Person of which at least a
majority of the voting interest under ordinary circumstances is at the time,
directly or indirectly, through one or more intermediaries, owned by such
Person. Notwithstanding anything in this Indenture to the contrary, all
references to the Company and its consolidated Subsidiaries or to financial
information prepared on a consolidated basis in accordance with GAAP shall be
deemed to include the Company and its Subsidiaries as to which financial
statements are prepared on a combined basis in accordance with GAAP and to
financial information prepared on such a combined basis. Notwithstanding
anything in this Indenture to the contrary, an Unrestricted Subsidiary shall not
be deemed to be a Restricted Subsidiary for purposes of this Indenture.
"Surviving Person" means, with respect to any Person involved in or
that makes any Disposition, the Person formed by or surviving such Disposition
or the Person to which such Disposition is made.
"Theatre Completion" means any motion picture theatre or screen or
enhancement which was first opened for business during any applicable period.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended (15 U.S. Code Sections 77aaa-77bbbb), as in effect on the date this
Indenture was executed, except as provided in Section 9.06.
"Total Assets" means the total consolidated assets of the Company and
its Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Transaction Date" means, with respect to the incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and as codified in Title 11 of the United States Code, as
amended from time to time hereafter, or any successor federal bankruptcy law.
<PAGE> 24
17
"Unrestricted Subsidiary" means a Subsidiary of the Company created
after the Issue Date and so designated by a resolution adopted by the Board of
Directors; provided, however, that (a) neither the Company nor any of its other
Restricted Subsidiaries (1) provides any credit support for any Indebtedness or
other Obligations of such Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) or (2) is directly or indirectly liable
for any Indebtedness or other Obligations of such Subsidiary and (b) at the time
of designation of such Subsidiary, such Subsidiary has no property or assets
(other than de minimis assets resulting from the initial capitalization of such
Subsidiary). The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could incur $1.00 of additional
Indebtedness under the first paragraph of Section 4.05 of this Indenture and (y)
no Default or Event of Default shall have occurred or be continuing. Any
designation pursuant to this definition by the Board of Directors shall be
evidenced to the Trustee by the filing with the Trustee of a certified copy of
the resolution of the Board of Directors giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"U.S. Global Debentures" has the meaning provided in Section 2.01.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"U.S. Physical Debentures" has the meaning provided in Section 2.01.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the total
of the product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" means, with respect to any Subsidiary of any
Person, the ownership of all of the outstanding Capital Stock of such Subsidiary
(other than any director's qualifying shares or shares owned by foreign
nationals to the extent mandated by applicable law) by such Person or one or
more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
<PAGE> 25
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"indenture securities" means the Debentures;
"indenture security holder" means a Holder or a
Debentureholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Company or any
other obligor on the Debentures.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction . Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in
the plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision;
(vii) all ratios and computations based on GAAP contained in
this Indenture shall be computed in accordance with the definition of
GAAP set forth in Section 1.01; and
(viii) all references to Sections or Articles refer to
Sections or Articles of this Indenture unless otherwise indicated.
<PAGE> 26
19
ARTICLE TWO
THE DEBENTURES
SECTION 2.01. Form and Dating. The Debentures and the Trustee's
certificate of authentication shall be substantially in the form annexed hereto
as Exhibit A with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture. The Debentures
may have notations, legends or endorsements required by law or stock exchange
agreements to which the Company is subject. Each Debenture shall be dated the
date of its authentication.
The terms and provisions contained in the form of the Debentures
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company and the Trustee,
by their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Debentures in registered
form, substantially in the form set forth in Exhibit A (the "U.S. Global
Debentures"), registered in the name of the nominee of the Depositary, deposited
with the Trustee, as custodian for the Depositary, duly executed by the Company
and authenticated by the Trustee as hereinafter provided. The aggregate
principal amount of the U.S. Global Debentures may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, in accordance with the instructions
given by the Holder thereof, as hereinafter provided.
Debentures offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Debentures in registered form substantially in the form set forth in
Exhibit A (the "Temporary Offshore Global Debentures"), registered in the name
of the nominee of the Depositary, deposited with the Trustee, as custodian for
the Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Offshore Global
Debentures may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depositary or its nominee,
as hereinafter provided. At any time after the 40th day following the later of
commencement of the offering of the Debentures and the Issue Date, upon receipt
by the Trustee and the Company of a certificate substantially in the form of
Exhibit B hereto, one or more permanent global Debentures in registered form
substantially in the form set forth in Exhibit A (the "Permanent Offshore Global
Debentures"; and together with the Temporary Offshore Global Debentures, the
"Offshore Global Debentures") duly executed by the Company and authenticated by
the Trustee as hereinafter provided shall be deposited with the Trustee, as
custodian for the Depositary or its nominee, and the Registrar shall reflect on
its books and records the date and a decrease in the principal amount of the
Temporary Offshore Global Debentures in an amount equal to the principal amount
of the beneficial interest in the Temporary Offshore Global Debentures
transferred.
<PAGE> 27
20
Debentures offered and sold to Institutional Accredited Investors after
the Issue Date shall be issued in the form of permanent certificated Debentures
in registered form in substantially the form set forth in Exhibit A (the "U.S.
Physical Debentures").
Debentures issued pursuant to Section 2.07 in exchange for interests in
the Offshore Global Debentures shall be in the form of permanent certificated
Debentures in registered form substantially in the form set forth in Exhibit A
(the "Offshore Physical Debentures").
The Offshore Physical Debentures and U.S. Physical Debentures are
sometimes collectively herein referred to as the "Physical Debentures." The U.S.
Global Debentures and the Offshore Global Debentures are sometimes referred to
herein as the "Global Debentures."
The definitive Debentures shall be typed, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Debentures may be listed, all as determined by the Officers executing such
Debentures, as evidenced by their execution of such Debentures.
SECTION 2.02. Restrictive Legends. Unless and until a Debenture is
exchanged for an Exchange Debenture or otherwise sold in connection with an
effective Registration Statement pursuant to the Registration Rights Agreement,
(i) the U.S. Global Debentures and U.S. Physical Debentures shall bear the
legend set forth below on the face thereof and (ii) the Offshore Physical
Debentures and Offshore Global Debentures shall bear the legend set forth below
on the face thereof until at least the 41st day after the Closing Date and
receipt by the Company and the Trustee of a certificate substantially in the
form of Exhibit B hereto, and the Temporary Offshore Global Debentures shall
bear the legend set forth below on the face thereof.
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS DEBENTURE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER
RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF
TRANSFER OF THIS DEBENTURE, RESELL OR OTHERWISE TRANSFER THIS DEBENTURE
EXCEPT (A) TO THE COMPANY OR ANY
<PAGE> 28
21
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS DEBENTURE (THE FORM OF WHICH LETTER CAN BE OBTAINED
FROM THE TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS DEBENTURE IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH
ANY TRANSFER OF THIS DEBENTURE WITHIN THE TIME PERIOD REFERRED TO
ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN
INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN
TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS DEBENTURE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Debenture, whether or not an Exchange Debenture, shall also
bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN
<PAGE> 29
22
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL DEBENTURE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL DEBENTURE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN SECTION S 2.01, 2.06, 2.07 AND 2.08 OF
THE INDENTURE.
SECTION 2.03. Execution, Authentication and Denominations. Subject to
Article Four and applicable law, the aggregate principal amount of Debentures
which may be authenticated and delivered under this Indenture is unlimited. The
Debentures shall be executed by two Officers of the Company. The signature of
these Officers on the Debentures may be by facsimile or manual signature in the
name and on behalf of the Company.
If an Officer whose signature is on a Debenture no longer holds that
office at the time the Trustee or authenticating agent authenticates the
Debenture, the Debenture shall be valid nevertheless.
A Debenture shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on the Debenture. The
signature shall be conclusive evidence that the Debenture has been authenticated
under this Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
Company Order authenticate for original issue Debentures in the aggregate
principal amount specified in such Company Order; provided that the Trustee
shall be entitled to receive an Officers' Certificate and an Opinion of Counsel
of the Company in connection with such authentication of Debentures. Such
Company Order shall specify the amount of Debentures to be authenticated and the
date on which the original issue of Debentures is to be authenticated and, in
case of an issuance of Debentures pursuant to Section 2.15, shall certify that
such issuance is in compliance with Article Four.
The Trustee may appoint an authenticating agent to authenticate
Debentures. An authenticating agent may authenticate Debentures whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such
<PAGE> 30
23
authenticating agent. An authenticating agent has the same rights as an Agent to
deal with the Company or an Affiliate of the Company.
The Debentures shall be issuable only in registered form without
coupons and only in denominations of $1,000 in principal amount and any integral
multiple thereof.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain
one or more offices or agencies where Debentures may be presented for
registration of transfer or for exchange (each a "Transfer Agent" and such
Transfer Agent in the Borough of Manhattan, The City of New York, the
"Registrar"), one or more offices or agencies where Debentures may be presented
for payment (each a "Paying Agent") and an office or agency where notices and
demands to or upon the Company in respect of the Debentures and this Indenture
may be served, one of which in each case shall be in the Borough of Manhattan,
The City of New York. The Company shall cause the Registrar to keep a register
of the Debentures and of their transfer and exchange (the "Security Register").
The Security Register shall be in written form or any other form capable of
being converted into written form within a reasonable time.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of the Company, or any Affiliate of any of them may act as Paying
Agent, Registrar or Transfer Agent, and/or agent for service of notice and
demands.
The Company initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. The Trustee
shall preserve in as current a form as is reasonably practicable the most recent
list available to it of the names and addresses of Holders and shall otherwise
comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Company
shall furnish to the Trustee as of each Regular Record Date and at such other
times as the Trustee may reasonably request the names and addresses of Holders
as they appear in the Security Register, including the aggregate principal
amount of Debentures held by each Holder.
<PAGE> 31
24
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than
11:00 a.m. (New York City time) each due date of the principal, premium, if any,
and interest on any Debentures, the Company shall deposit with one or more
Paying Agents money in immediately available funds sufficient to pay such
principal, premium, if any, and interest so becoming due. The Company shall
require each Paying Agent other than the Trustee to agree in writing that such
Paying Agent shall hold in trust for the benefit of the Holders or the Trustee
all money held by the Paying Agent for the payment of principal of, premium, if
any, and interest on the Debentures (whether such money has been paid to it by
the Company or any other obligor on the Debentures), and such Paying Agent shall
promptly notify the Trustee of any default by the Company (or any other obligor
on the Debentures) in making any such payment. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and account
for any funds disbursed, and the Trustee may at any time during the continuance
of any payment default, upon written request to a Paying Agent, require such
Paying Agent to pay all money held by it to the Trustee and to account for any
funds disbursed. Upon doing so, the Paying Agent shall have no further liability
for the money so paid over to the Trustee. If the Company or any Subsidiary of
the Company or any Affiliate of any of them acts as a Paying Agent, it will, on
or before each due date of any principal of, premium, if any, or interest on the
Debentures, segregate and hold in a separate trust fund for the benefit of the
Holders a sum of money sufficient, with monies held by all other Paying Agents,
to pay such principal, premium, if any, or interest so becoming due until such
sum of money shall be paid to such Holders or otherwise disposed of as provided
in this Indenture, and will promptly notify the Trustee of its action or failure
to act.
SECTION 2.06. Transfer and Exchange. The Debentures are issuable only
in registered form. A Holder may transfer a Debenture only by written
application to the Registrar or another Transfer Agent stating the name of the
proposed transferee and otherwise complying with the terms of this Indenture. No
such transfer shall be effected until, and such transferee shall succeed to the
rights of a Holder only upon, final acceptance and registration of the transfer
by the Registrar in the Security Register. Prior to the registration of any
transfer by a Holder as provided herein, the Company, the Trustee, and any agent
of the Company shall treat the person in whose name the Debenture is registered
as the owner thereof for all purposes whether or not the Debenture shall be
overdue, and neither the Company, the Trustee, nor any such agent shall be
affected by notice to the contrary. Furthermore, any Holder of a Global
Debenture shall, by acceptance of such Global Debenture, agree that transfers of
beneficial interests in such Global Debenture may be effected only through a
book entry system maintained by the Holder of such Global Debenture (or its
agent) and that ownership of a beneficial interest in the Debenture shall be
required to be reflected in a book entry. When Debentures are presented to the
Registrar or another Transfer Agent with a request to register the transfer or
to exchange them for an equal principal amount of Debentures of other authorized
denominations (including an exchange of Debentures for Exchange Debentures), the
Registrar shall register the transfer or make the exchange as requested if its
requirements for such transactions are met (including that such Debentures are
duly endorsed or accompanied by a written instrument of transfer duly executed
by the Holder thereof or by an attorney who is authorized in writing to act on
behalf of the
<PAGE> 32
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Holder); provided that no exchanges of Debentures for Exchange Debentures shall
occur until a Registration Statement shall have been declared effective by the
Commission and that any Debentures that are exchanged for Exchange Debentures
shall be cancelled by the Trustee. To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate
Debentures at the Registrar's request. No service charge shall be made for any
registration of transfer or exchange or redemption of the Debentures, but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any such
transfer taxes or other similar governmental charge payable upon exchanges
pursuant to Section 2.11, 3.08 or 9.04).
Neither the Registrar nor any other Transfer Agent shall be required
(i) to issue, register the transfer of or exchange any Debenture during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of Debentures selected for redemption under Section 3.03
and ending at the close of business on the day of such mailing, or (ii) to
register the transfer of or exchange any Debenture so selected for redemption in
whole or in part, except the unredeemed portion of any Debenture being redeemed
in part.
SECTION 2.07. Book-Entry Provisions for Global Debentures. (a) The
U.S. Global Debentures and Offshore Global Debentures initially shall (i) be
registered in the name of the Depositary for such Global Debentures or the
nominee of such Depositary, (ii) be delivered to the Trustee as custodian for
such Depositary and (iii) bear legends as set forth in Section 2.02.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Debenture held on
their behalf by the Depositary, or the Trustee as its custodian, or under such
Global Debenture, and the Depositary may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Debenture for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Debenture.
(b) Transfers of a Global Debenture shall be limited to transfers of
such Global Debenture in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in
Global Debentures may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 2.08. In addition, U.S. Physical
Debentures and Offshore Physical Debentures shall be transferred to all
beneficial owners in exchange for their beneficial interests in the U.S. Global
Debentures or the Offshore Global Debentures, as the case may be, if (i) the
Company notifies the Trustee in writing that the Depositary it no longer willing
or able to act as Depositary or the Depositary ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed by the Company within 90 days of such notice, (ii) the Company, at its
option, notifies the
<PAGE> 33
26
Trustee in writing that it elects to cause the issuance of the Debentures in
definitive form under this Indenture, (iii) an Event of Default has occurred and
is continuing and the Registrar has received a request from the Depositary or
(iv) in accordance with the rules and procedures of the Depositary and the
provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Debentures that is
transferred to a person who takes delivery in the form of an interest in another
Global Debenture will, upon transfer, cease to be an interest in such Global
Debenture and become an interest in such other Global Debenture and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interests in such other Global
Debenture for as long as it remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interests in a Global Debenture to beneficial owners pursuant to paragraph (b)
of this Section 2.07, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount of such Global Debenture in an
amount equal to the principal amount of the beneficial interest in such Global
Debenture to be transferred, and the Company shall execute, and the Trustee
shall authenticate and deliver, one or more U.S. Physical Debentures or Offshore
Physical Debentures, as the case may be, of like tenor and amount.
(e) In connection with the transfer of the U.S. Global Debentures or
the Offshore Global Debentures, in whole, to beneficial owners pursuant to
paragraph (b) of this Section 2.07, the U.S. Global Debentures or Offshore
Global Debentures, as the case may be, shall be deemed to be surrendered to the
Trustee for cancellation, and the Company shall execute, and the Trustee shall
authenticate and deliver, to each beneficial owner identified by the Depositary
in exchange for its beneficial interest in the U.S. Global Debentures or
Offshore Global Debentures, as the case may be, an equal aggregate principal
amount of U.S. Physical Debentures or Offshore Physical Debentures, as the case
may be, of authorized denominations.
(f) Any U.S. Physical Debenture delivered in exchange for an interest
in the U.S. Global Debentures pursuant to paragraph (b), (d) or (e) of this
Section 2.07 shall, except as otherwise provided by paragraph (e) of Section
2.08, bear the legend regarding transfer restrictions applicable to the U.S.
Physical Debenture set forth in Section 2.02.
(g) Any Offshore Physical Debenture delivered in exchange for an
interest in the Offshore Global Debentures pursuant to paragraph (b), (d) or (e)
of this Section 2.07 shall, except as otherwise provided by paragraph (e) of
Section 2.08, bear the legend regarding transfer restrictions applicable to the
Offshore Physical Debenture set forth in Section 2.02.
(h) The registered holder of a Global Debenture may grant proxies and
otherwise authorize any Person, including Agent Members and Persons that may
hold interests through
<PAGE> 34
27
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Debentures.
SECTION 2.08. Special Transfer Provisions. Unless and until a
Debenture is exchanged for an Exchange Debenture or otherwise sold in connection
with an effective Registration Statement pursuant to the Registration Rights
Agreement, the following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Debenture to any Institutional Accredited Investor which
is not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any
Debenture, whether or not such Debenture bears the Private Placement
Legend, if (x) the requested transfer is after the time period referred
to in Rule 144(k) under the Securities Act or (y) the proposed
transferee has delivered to the Registrar (A) a certificate
substantially in the form of Exhibit C hereto and (B) if the aggregate
principal amount of the Debentures being transferred is less than
$100,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Debentures, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) above
and (y) instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the U.S.
Global Debentures in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Debentures to be transferred,
and the Company shall execute, and the Trustee shall authenticate and
deliver, one or more U.S. Physical Debentures of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Debenture to a QIB
(excluding Non-U.S. Persons):
(i) If the Debenture to be transferred consists of (x) either
Offshore Physical Debentures prior to the removal of the Private
Placement Legend or U.S. Physical Debentures, the Registrar shall
register the transfer if such transfer is being made by a proposed
transferor who has checked the box provided for on the form of
Debenture stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Debenture stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Debenture for its own account or an account with respect
to which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A and is aware that
the sale to it is being made in reliance on Rule 144A and acknowledges
that it has
<PAGE> 35
28
received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information
and that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration
provided by Rule 144A or (y) an interest in the U.S. Global Debentures,
the transfer of such interest may be effected only through the book
entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the
Debenture to be transferred consists of U.S. Physical Debentures, upon
receipt by the Registrar of the documents referred to in paragraph (i)
above and instructions given in accordance with the Depositary's and
the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of U.S.
Global Debentures in an amount equal to the principal amount of the
U.S. Physical Debentures to be transferred, and the Trustee shall
cancel the U.S. Physical Debentures so transferred.
(c) Transfers of Interests in the Temporary Offshore Global Debentures.
The following provisions shall apply with respect to registration of any
proposed transfer of an interest in a Temporary Offshore Global Debentures:
(i) The Registrar shall register the transfer of any Debenture
(x) if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of Exhibit D hereto or (y) if the proposed transferee is a
QIB and the proposed transferor has checked the box provided for on the
form of Debenture stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Debenture stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Debenture for its own account or an account with respect
to which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon
receipt by the Registrar of the documents referred to in clause (i)(y)
above and instructions given in accordance with the Depositary's and
the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of the
U.S. Global Debentures in an amount equal to the principal amount of
the Temporary Offshore Global Debentures to be transferred, and the
Trustee shall decrease the amount of the Temporary Offshore Global
Debentures.
<PAGE> 36
29
(d) Transfers of Interests in the Permanent Offshore Global Debentures
or Unlegended Offshore Physical Debentures. The following provisions shall apply
with respect to any transfer of interests in Permanent Offshore Global
Debentures or unlegended Offshore Physical Debentures. The Registrar shall
register the transfer of any such Debenture without requiring any additional
certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following provisions
shall apply with respect to any transfer of a Debenture to a Non-U.S. Person:
(i) Prior to the 41st day following the later of commencement
of the offering of the Debentures and the Issue Date, the Registrar
shall register any proposed transfer of a Debenture to a Non-U.S.
Person upon receipt of a certificate substantially in the form of
Exhibit D hereto from the proposed transferor.
(ii) On and after the 41st day following the later of
commencement of the offering of the Debentures and the Issue Date, the
Registrar shall register any proposed transfer to any Non-U.S. Person
if the Debenture to be transferred is a U.S. Physical Debenture or an
interest in U.S. Global Debentures, upon receipt of a certificate
substantially in the form of Exhibit D hereto from the proposed
transferor.
(iii) (a) If the proposed transferor is an Agent Member
holding a beneficial interest in the U.S. Global Debentures, upon
receipt by the Registrar of (x) the documents, if any, required by
paragraph (ii) and (y) instructions in accordance with the Depositary's
and the Registrar's procedures, the Registrar shall reflect on its
books and records the date and a decrease in the principal amount of
the U.S. Global Debentures in an amount equal to the principal amount
of the beneficial interest in the U.S. Global Debentures to be
transferred, and (b) if the proposed transferee is an Agent Member,
upon receipt by the Registrar of instructions given in accordance with
the Depositary's and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an increase in the
principal amount of the Offshore Global Debentures in an amount equal
to the principal amount of the U.S. Physical Debentures or the U.S.
Global Debentures, as the case may be, to be transferred, and the
Trustee shall cancel the Physical Debenture, if any, so transferred or
decrease the amount of the U.S. Global Debentures.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Debentures not bearing the Private Placement Legend, the
Registrar shall deliver Debentures that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Debentures bearing the
Private Placement Legend, the Registrar shall deliver only Debentures that bear
the Private Placement Legend unless either (i) the circumstances contemplated by
the fourth paragraph of Section 2.01 or (a)(i)(x) or (e)(ii) of this Section
2.08 exist or (ii) there is delivered to the Registrar an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee
<PAGE> 37
30
to the effect that neither such legend nor the related restrictions on transfer
are required in order to maintain compliance with the provisions of the
Securities Act.
(g) General. By its acceptance of any Debenture bearing the Private
Placement Legend, each Holder of such a Debenture acknowledges the restrictions
on transfer of such Debenture set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Debenture only as
provided in this Indenture. The Registrar shall not register a transfer of any
Debenture unless such transfer complies with the restrictions on transfer of
such Debenture set forth in this Indenture. The Registrar shall be entitled to
receive and rely on written instructions from the Company verifying that such
transfer complies with such restrictions on transfer. In connection with any
transfer of Debentures, each Holder agrees by its acceptance of the Debentures
to furnish the Registrar or the Company such certifications, legal opinions or
other information as either of them may reasonably require to confirm that such
transfer is being made pursuant to an exemption from, or a transaction not
subject to, the registration requirements of the Securities Act; provided that
the Registrar shall not be required to determine (but may rely on a
determination made by the Company with respect to) the sufficiency of any such
certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Debentures. If a mutilated Debenture is
surrendered to the Trustee or if the Holder claims that the Debenture has been
lost, destroyed or wrongfully taken, then, in the absence of notice to the
Company or the Trustee that such Debenture has been acquired by a bona fide
purchaser, the Company shall issue and the Trustee shall authenticate a
replacement Debenture of like tenor and principal amount and bearing a number
not contemporaneously outstanding; provided that the requirements of this
Section 2.09 are met. If required by the Company, an indemnity bond must be
furnished that is sufficient in the judgment of the Company to protect the
Company, the Trustee or any Agent from any loss that any of them may suffer if a
Debenture is replaced. The Company may charge such Holder for its expenses and
the expenses of the Trustee in replacing a Debenture. In case any such
mutilated, lost, destroyed or wrongfully taken Debenture has become or is about
to become due and payable, the Company in its discretion may pay such Debenture
instead of issuing a new Debenture in replacement thereof.
Every replacement Debenture is an additional obligation of the Company
and shall be entitled to the benefits of this Indenture.
<PAGE> 38
31
SECTION 2.10. Outstanding Debentures. Debentures outstanding at any
time are all Debentures that have been authenticated by the Trustee except for
those cancelled by it, those delivered to it for cancellation and those
described in this Section 2.10 as not outstanding.
If a Debenture is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Debenture is held by a bona fide
purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date money sufficient to pay Debentures payable
on that date, then on and after that date such Debentures cease to be
outstanding and interest on them shall cease to accrue.
A Debenture does not cease to be outstanding because the Company or one
of its Subsidiaries holds such Debenture, provided, however, that in determining
whether the Holders of the requisite principal amount of the outstanding
Debentures have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Debentures owned by the Company or any other
obligor upon the Debentures or any Subsidiaries of the Company or of such other
obligor shall be disregarded and deemed not to be outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Debentures which the Trustee has actual knowledge to be so owned shall be so
disregarded. Debentures so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Debentures and that
the pledgee is not the Company or any other obligor upon the Debentures or any
Subsidiaries of the Company or of such other obligor.
SECTION 2.11. Temporary Debentures. Until definitive Debentures are
ready for delivery, the Company may prepare and execute and the Trustee shall
authenticate temporary Debentures. Temporary Debentures shall be substantially
in the form of definitive Debentures but may have insertions, substitutions,
omissions and other variations determined to be appropriate by the Officers
executing the temporary Debentures, as evidenced by their execution of such
temporary Debentures. If temporary Debentures are issued, the Company will cause
definitive Debentures to be prepared without unreasonable delay. After the
preparation of definitive Debentures, the temporary Debentures shall be
exchangeable for definitive Debentures upon surrender of the temporary
Debentures at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Debentures the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a like
principal amount of definitive Debentures of authorized denominations. Until so
exchanged, the temporary Debentures shall be entitled to the same benefits under
this Indenture as definitive Debentures.
SECTION 2.12. Cancellation. The Company at any time may deliver to the
Trustee for cancellation any Debentures previously authenticated and delivered
hereunder which the Company
<PAGE> 39
32
may have acquired in any manner whatsoever, and may deliver to the Trustee for
cancellation any Debentures previously authenticated hereunder which the Company
has not issued and sold. Each Transfer Agent and Paying Agent shall forward to
the Trustee any Debentures surrendered to them for transfer, exchange or
payment. The Trustee shall cancel all Debentures surrendered for transfer,
exchange, payment or cancellation and shall destroy them in accordance with its
normal procedure.
SECTION 2.13. CUSIP Numbers. The Company in issuing the Debentures may
use "CUSIP", "CINS" or "ISIN" numbers (if then generally in use), and the
Company and the Trustee shall use CUSIP, CINS or ISIN numbers, as the case may
be, in notices of redemption or exchange as a convenience to Holders; provided
that any such notice shall state that no representation is made as to the
correctness of such numbers either as printed on the Debentures or as contained
in any notice of redemption or exchange and that reliance may be placed only on
the other identification numbers printed on the Debentures. The Company shall
promptly notify the Trustee of any change in "CUSIP", "CINS" or "ISIN" numbers
for the Debentures.
SECTION 2.14. Defaulted Interest. If the Company defaults in a payment
of interest on the Debentures, it shall pay, or shall deposit with the Paying
Agent money in immediately available funds sufficient to pay, the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special record date. A
special record date, as used in this Section 2.14 with respect to the payment of
any defaulted interest, shall mean the 15th day next preceding the date fixed by
the Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
SECTION 2.15. Issuance of Additional Debentures. The Company may,
subject to Article Four of this Indenture and applicable law, issue additional
Debentures under this Indenture. The Debentures issued on the Closing Date and
any additional Debentures subsequently issued shall be treated as a single class
for all purposes under this Indenture.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption. (a) The Debentures are redeemable,
at the Company's option, in whole or in part, at any time or from time to time,
on or after December 15, 2003 and prior to maturity, upon not less than 30 nor
more than 60 days' prior notice mailed by first-class mail to each Holder's last
address, as it appears in the Security Register, at the following Redemption
Prices (expressed in percentages of principal amount thereof on the applicable
Redemption Date), plus accrued and unpaid interest to the Redemption
<PAGE> 40
33
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing December 15 of
the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
- ---- -----------
<C> <C>
2003 104.438%
2004 103.328
2005 102.219
2006 101.109
2007 and thereafter 100.000
</TABLE>
(b) In addition, at any time and from time to time prior to December
15, 2001, the Company may, at its option, redeem up to 35% of the aggregate
principal amount of the Debentures originally issued with the proceeds of one or
more Equity Offerings, at a Redemption Price (expressed as a percentage of
principal amount) of 108.875%, plus accrued and unpaid interest to the
Redemption Date (subject to the rights of Holders of record on the relevant
Regular Record Date that is prior to the Redemption Date to receive interest due
on an Interest Payment Date); provided that (i) at least 65% of the aggregate
principal amount of Debentures issued under this Indenture remains outstanding
after each such redemption and (ii) any such redemption shall occur on or prior
to the date that is 90 days after receipt by the Company of the proceeds of an
Equity Offering. The Company shall effect such redemption on a pro rata basis.
SECTION 3.02. Notices to Trustee. If the Company elects to redeem
Debentures pursuant to Section 3.01, it shall notify the Trustee in writing of
the Redemption Date and the principal amount of Debentures to be redeemed and
the clause of this Indenture pursuant to which redemption shall occur.
The Company shall give each notice provided for in this Section 3.02 in
an Officers' Certificate at least 45 days before the Redemption Date (unless a
shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Debentures to Be Redeemed. If less than all
of the Debentures are to be redeemed at any time, the Trustee shall select the
Debentures to be redeemed in compliance with the requirements, as certified to
it by the Company, of the principal national securities exchange, if any, on
which the Debentures are listed or, in the absence of such requirements or if
the Debentures are not listed on a national securities exchange, on a pro rata
basis, by lot or by such other method as the Trustee in its sole discretion
shall deem fair and appropriate; provided that no Debenture of $1,000 in
principal amount or less shall be redeemed in part.
<PAGE> 41
34
The Trustee shall make the selection from the Debentures outstanding
and not previously called for redemption. The Trustee may select for redemption
portions (equal to $1,000 in principal amount or any integral multiple thereof)
of Debentures that have denominations larger than $1,000 in principal amount.
Provisions of this Indenture that apply to Debentures called for redemption also
apply to portions of Debentures called for redemption. The Trustee shall notify
the Company and the Registrar promptly in writing of the Debentures or portions
of Debentures to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any redemption of
Debentures pursuant to Section 3.01, at least 30 days but not more than 60 days
before a Redemption Date, the Company shall mail a notice of redemption by
first-class mail to each Holder whose Debentures are to be redeemed at its
registered address.
The notice shall identify the Debentures to be redeemed and shall
state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of each Paying Agent;
(iv) that Debentures called for redemption must be
surrendered to a Paying Agent in order to collect
the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Debentures called for redemption ceases to accrue
on and after the Redemption Date and the only remaining right of the
Holders is to receive payment of the Redemption Price plus accrued
interest to the Redemption Date upon surrender of the Debentures to a
Paying Agent;
(vi) that, if any Debenture is being redeemed in part, the
portion of the principal amount (equal to $1,000 in principal amount or
any integral multiple thereof) of such Debenture to be redeemed and
that, on and after the Redemption Date, upon surrender of such
Debenture, a new Debenture or Debentures in principal amount equal to
the unredeemed portion thereof will be reissued; and
(vii) that, if any Debenture contains a CUSIP, CINS or ISIN
number as provided in Section 2.13, no representation is being made as
to the correctness of the CUSIP, CINS or ISIN number either as printed
on the Debentures or as contained in the notice of redemption and that
reliance may be placed only on the other identification numbers printed
on the Debentures.
<PAGE> 42
35
At the Company's request (which request may be revoked by the Company
at any time prior to the time at which the Trustee shall have given such notice
to the Holders), made in writing to the Trustee at least 45 days (or such
shorter period as shall be satisfactory to the Trustee) before a Redemption
Date, the Trustee shall give the notice of redemption in the name and at the
expense of the Company. If, however, the Company gives such notice to the
Holders, the Company shall concurrently deliver to the Trustee an Officers'
Certificate stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of
redemption is mailed, Debentures called for redemption become due and payable on
the Redemption Date and at the Redemption Price. Upon surrender of any
Debentures to a Paying Agent, such Debentures shall be paid at the Redemption
Price, plus accrued interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether
or not the Holder receives the notice. In any event, failure to give such
notice, or any defect therein, shall not affect the validity of the proceedings
for the redemption of Debentures held by Holders to whom such notice was
properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to any
Redemption Date, the Company shall deposit with its Paying Agent not later than
11:00 a.m. (New York City time) (or, if the Company is acting as its own Paying
Agent, shall segregate and hold in trust as provided in Section 2.05) money
sufficient to pay the Redemption Price of and accrued interest on all Debentures
to be redeemed on that date other than Debentures or portions thereof called for
redemption on that date that have been delivered by the Company to the Trustee
for cancellation.
SECTION 3.07. Payment of Debentures Called for Redemption. If notice
of redemption has been given in the manner provided above, the Debentures or
portion of Debentures specified in such notice to be redeemed shall become due
and payable on the Redemption Date at the Redemption Price stated therein,
together with accrued interest to such Redemption Date, and on and after such
date (unless the Company shall default in the payment of such Debentures at the
Redemption Price and accrued interest to the Redemption Date, in which case the
principal, until paid, shall bear interest from the Redemption Date at the rate
prescribed in the Debentures), such Debentures shall cease to accrue interest.
Upon surrender of any Debenture for redemption in accordance with a notice of
redemption, such Debenture shall be paid and redeemed by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided that installments of interest whose stated maturity is on or
prior to the Redemption Date shall be payable to the Holders registered as such
at the close of business on the relevant Regular Record Date.
SECTION 3.08. Debentures Redeemed in Part. Upon surrender of any
Debenture that is redeemed in part, the Company shall execute and the Trustee
shall authenticate and deliver by
<PAGE> 43
36
mail to the Holder without service charge, a new Debenture equal in principal
amount to the unredeemed portion of such surrendered Debenture.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Debentures. The Company shall pay the
principal of, premium, if any, and interest on the Debentures on the dates and
in the manner provided in the Debentures and this Indenture. An installment of
principal, premium, if any, or interest shall be considered paid on the date due
if the Trustee or the Paying Agents (other than the Company, a Subsidiary of the
Company, or any Affiliate of any of them) holds on that date money designated
for and sufficient to pay the installment, except that, at the option of the
Company, payment of interest may be made by check mailed to the address of each
Holder as such address is specified in the Security Register. If the Company or
any Subsidiary of the Company or any Affiliate of any of them acts as Paying
Agent, an installment of principal, premium, if any, or interest shall be
considered paid on the due date if the entity acting as Paying Agent complies
with the last sentence of Section 2.05. As provided in Section 6.09, upon any
bankruptcy or reorganization procedure relative to the Company, the Trustee
shall serve as the Paying Agent, if any, for the Debentures.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
the rate per annum specified in the Debentures.
SECTION 4.02. Maintenance of Office or Agency. The Company will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Debentures may be surrendered for registration of transfer or exchange or
for presentation for payment and where notices and demands to or upon the
Company in respect of the Debentures and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the location, and any
change in the location, of any such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee set
forth in Section 11.02.
The Company may also from time to time designate one or more other
offices or agencies where the Debentures may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York, for such purposes. The Company shall give
prompt written
<PAGE> 44
37
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee as such office of the Company in the Borough of Manhattan, The City
of New York in accordance with Section 2.04.
SECTION 4.03. Fall-away Event. The Company's and its Restricted
Subsidiaries' obligations to comply with the provisions of this Indenture under
Sections 4.04, 4.05, 4.06 and 5.01 will terminate if and when the Debentures are
Investment Grade Status (a "Fall-away Event"); provided, however, that the
Company's and its Restricted Subsidiaries' obligations to comply with such
provisions shall be reinstated as to events occurring after such reinstatement
if the Debentures cease to have Investment Grade Status, subject to the terms,
conditions and obligations set forth in this Indenture, provided, further, that
no such Default or Event of Default shall be deemed to have arisen as a result
of such reinstatement or as a result of any action taken or omitted from being
taken during the period that the foregoing covenants were not in effect.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company will
not, and will not cause or permit any of its Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment if at the time of such
Restricted Payment and immediately after giving effect thereto:
(i) a Default or Event of Default shall have occurred and be
continuing; or
(ii) the Company is not able to incur $1.00 of additional
Indebtedness under the first paragraph of Section 4.05 of this
Indenture; or
(iii) the aggregate amount of Restricted Payments made
subsequent to the Issue Date (the amount expended for such purposes, if
other than in cash, being the fair market value of such property as
determined by the Board of Directors in good faith) exceeds the sum of
(a) (x) 100% of Consolidated EBITDA of the Company accrued subsequent
to May 27, 1998 to the most recent date for which financial information
is available to the Company (taken as one accounting period), less (y)
1.75 times Consolidated Interest Expense for the same period, plus (b)
100% of the aggregate net proceeds, including the fair market value of
property other than cash as determined by the Board of Directors in
good faith, received subsequent to the Issue Date by the Company from
any Person (other than a Restricted Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date of Qualified Capital
Stock of the Company (excluding (i) any net proceeds from issuances and
sales financed directly or indirectly using funds borrowed from the
Company or any Restricted Subsidiary of the Company, until and to the
extent such borrowing is repaid, but including the proceeds from the
issuance and sale of any securities convertible
<PAGE> 45
38
into or exchangeable for Qualified Capital Stock to the extent such
securities are so converted or exchanged and including any additional
proceeds received by the Company upon such conversion or exchange, (ii)
any net proceeds received from issuances and sales that are used to
consummate a transaction described in clause (2) of paragraph (b) below
and (iii) any net cash proceeds received from the issuance and sale of
Designated Preferred Stock), plus (c) without duplication of any amount
included in clause (iii)(b) above, 100% of the aggregate net proceeds,
including the fair market value of property other than cash (valued as
provided in clause (iii)(b) above), received by the Company as a
capital contribution subsequent to the Issue Date, plus (d) the greater
of (i) $100 million and (ii) 15% of the Total Assets of the Company and
its consolidated Subsidiaries as determined in accordance with GAAP as
of the date of the most recently prepared internal balance sheet of the
Company.
(b) Notwithstanding the foregoing, these provisions will not prohibit:
(1) the payment of any dividend or the making of any distribution within 60 days
after the date of its declaration if such dividend or distribution would have
been permitted on the date of declaration; (2) (A) the purchase, redemption or
other acquisition or retirement of any Capital Stock of the Company or any
warrants, options or other rights to acquire shares of any class of such Capital
Stock ("Retired Capital Stock") either (x) solely in exchange for shares of
Qualified Capital Stock or other warrants, options or rights to acquire
Qualified Capital Stock or (y) through the application of the net proceeds of a
substantially concurrent sale for cash (other than to a Restricted Subsidiary of
the Company) of shares of Qualified Capital Stock or warrants, options or other
rights to acquire Qualified Capital Stock or (z) in the case of Disqualified
Capital Stock, solely in exchange for, or through the application of the net
proceeds of a substantially concurrent sale for cash (other than to a Restricted
Subsidiary of the Company) of, Disqualified Capital Stock (in each case,
"Refunding Capital Stock") and (B) the declaration and payment of dividends on
Refunding Capital Stock in an aggregate amount per year no greater than the
aggregate amount of dividends per annum that could have been paid on such
Retired Capital Stock pursuant to this covenant (other than this clause
(b)(2)(B)) immediately prior to such retirement; provided, however, that at the
time of the declaration of any such dividends, no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence thereof;
(3) payments made pursuant to any merger, consolidation or sale of assets
effected in accordance with Article Five; provided, however, that no such
payment may be made pursuant to this clause (3) unless, after giving pro forma
effect to such transaction (and the incurrence of any Indebtedness in connection
therewith and the use of the proceeds thereof), the Company would be able to
incur $1.00 of additional Indebtedness under the first paragraph of Section 4.05
of this Indenture; (4)(A) the declaration and payment of dividends to holders of
any class or series of Designated Preferred Stock (other than Disqualified
Capital Stock) issued after the Issue Date or (B) the declaration and payment of
dividends on Refunding Capital Stock in excess of the dividends declarable and
payable thereon pursuant to clause (2)(B) above; provided, however, in either
case, after giving effect to such issuance or declaration on a pro forma basis,
the Company and its Restricted Subsidiaries would
<PAGE> 46
39
be able to incur $1.00 of Indebtedness under the first paragraph of Section 4.05
of this Indenture; (5) repurchases of warrants, options or rights to acquire
Capital Stock deemed to occur upon exercise of warrants, options or rights to
acquire Capital Stock if such warrants, options or rights represent a portion of
the exercise price of such warrants, options or rights; (6) the declaration and
payment of dividends to holders of any class or series of Disqualified Capital
Stock or the declaration and payment of dividends to holders of Preferred Stock
of Restricted Subsidiaries, in each case, issued in accordance with Section 4.05
of this Indenture; (7) commencing on the six month anniversary of the Issue
Date, a Restricted Payment to pay for the repurchase, retirement or other
acquisition or retirement for value of Equity Interests of the Company in
existence on the Issue Date and which are not held by KKR, Hicks Muse or any of
their respective affiliates on the Issue Date (including any Capital Stock
issued in respect of such Capital Stock as a result of a stock split,
recapitalization, merger, combination, consolidation or otherwise, but excluding
any Equity Interests issued pursuant to any management equity plan or stock
option plan or similar agreement); provided that notwithstanding the foregoing,
the Company and its Restricted Subsidiaries shall be permitted to make
Restricted Payments under this clause (7) only if after giving effect thereto,
the Company would be permitted to incur at least $1.00 of additional
Indebtedness under the first paragraph of Section 4.05 of this Indenture; and
(8) dividends on the Company's Capital Stock (other than Disqualified Capital
Stock) after the first underwritten Equity Offering in an annual amount not to
exceed 6.0% of the gross proceeds (before deducting underwriting discounts and
commissions and other fees and expenses of the offering) received from shares of
Capital Stock (other than Disqualified Capital Stock) sold for the account of
the issuer thereof (and not for the account of any stockholder) in such initial
underwritten Equity Offering; provided, however, that in the case of clauses
other than clauses (1) and (2)(A), no Event of Default shall have occurred or be
continuing at the time of such payment or as a result thereof. In determining
the aggregate amount of Restricted Payments made subsequent to the Issue Date,
amounts expended pursuant to clauses (1), 2(B), (3), (4) and (8) shall be
included in such calculation.
To the extent the issuance of Capital Stock and the receipt of capital
contributions are applied to permit the issuance of Indebtedness pursuant to
clause (v) of the definition of Permitted Indebtedness, the issuance of such
Capital Stock and the receipt of such capital contributions shall not be applied
to permit payments under this Section 4.04.
SECTION 4.05. Limitation on the Incurrence of Additional Indebtedness
and Issuance of Capital Stock. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (other than Permitted Indebtedness) and the Company will not issue
any Disqualified Capital Stock and its Restricted Subsidiaries will not issue
any Preferred Stock (except Preferred Stock issued to the Company or a
Restricted Subsidiary of the Company so long as it is so held); provided,
however, that the Company and its Restricted Subsidiaries may incur Indebtedness
or
<PAGE> 47
40
issue shares of such Capital Stock if, in either case, the Company's Leverage
Ratio at the time of incurrence of such Indebtedness or the issuance of such
Capital Stock, as the case may be, after giving pro forma effect to such
incurrence or issuance as of such date and to the use of proceeds therefrom is
less than 7:1.
(b) The Company will not incur or suffer to exist, or permit any of its
Restricted Subsidiaries to incur or suffer to exist, any Obligations with
respect to an Unrestricted Subsidiary that would violate the provisions set
forth in the definition of Unrestricted Subsidiary set forth in Section 1.01.
(c) For purposes of determining compliance with this Section 4.05, in
the event that an item of Permitted Indebtedness meets the criteria of more than
one of the categories of Permitted Indebtedness or is entitled to be incurred
pursuant to the first paragraph of this Section 4.05, the Company shall, in its
sole discretion, classify such item of Indebtedness in any manner that complies
with this Section 4.05 and such item of Indebtedness will be treated as having
been incurred pursuant to only one of the clauses of the definition of Permitted
Indebtedness or pursuant to the first paragraph hereof except as otherwise set
forth in clause (v) of the definition of Permitted Indebtedness. Accrual of
interest, the accretion of accreted value and the payment of interest in the
form of additional Indebtedness will not be deemed to be an incurrence of
Indebtedness for purposes of this Section 4.05.
SECTION 4.06. Limitations on Transactions with Affiliates. The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction or series of related
transactions involving aggregate payments or consideration in excess of $5.0
million (including, without limitation, the purchase, sale, lease, contribution
or exchange of any property or the rendering of any service) with or for the
benefit of any of its or any of its Restricted Subsidiary's Affiliates (other
than transactions between the Company and a Restricted Subsidiary of the Company
or among Restricted Subsidiaries of the Company) (an "Affiliate Transaction"),
other than Affiliate Transactions on terms that are no less favorable than those
that might reasonably have been obtained in a comparable transaction on an
arm's-length basis from a person that is not an Affiliate; provided, however,
that for a transaction or series of related transactions involving value of
$10.0 million or more, such determination will be made in good faith by a
majority of members of the Board of Directors and by a majority of the
disinterested members of the Board of Directors, if any. The foregoing
restrictions will not apply to (1) reasonable and customary directors' fees,
indemnification and similar arrangements and payments thereunder; (2) any
obligations of the Company under any employment agreement, noncompetition or
confidentiality agreement with any officer of the Company, as in effect on the
Issue Date (provided that each amendment of any of the foregoing agreements
shall be subject to the limitations of this covenant); (3) any Restricted
Payment permitted to be made pursuant to Section 4.04 of this Indenture; (4) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
<PAGE> 48
41
options and stock ownership plans approved by the Board of Directors; (5) loans
or advances to employees in the ordinary course of business of the Company or
any of its Restricted Subsidiaries consistent with past practices; (6) payments
made in connection with the Transactions, including, without limitation, fees
payable to and expenses of Hicks Muse and KKR; (7) payments by the Company or
any of its Restricted Subsidiaries to KKR or Hicks Muse or their respective
Affiliates made for any financial advisory, financing, underwriting or placement
services or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions or divestitures, which
payments are approved by a majority of the Board of Directors in good faith; (8)
transactions in which the Company or any of its Restricted Subsidiaries, as the
case may be, delivers to the Trustee a letter from an Independent Financial
Advisor stating that such transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view or that is on terms that are no less
favorable than those that might reasonably have been obtained in a comparable
transaction on an arm's-length basis from a person that is not an Affiliate; (9)
the existence of, or the performance by the Company or any of its Restricted
Subsidiaries of its obligations under the terms of, any stockholders agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it is a party as of the Issue Date and any similar agreements
which it may enter into thereafter; provided, however, that the existence of, or
the performance by the Company or any of its Restricted Subsidiaries of
obligations under any future amendment to any such existing agreement or under
any similar agreement entered into after the Issue Date shall only be permitted
by this clause (8) to the extent that the terms (taken as a whole) of any such
amendment or new agreement are not otherwise disadvantageous to the Holders in
any material respect; (10) transactions with customers, clients, suppliers, or
purchasers or sellers of goods or services, in each case in the ordinary course
of business and otherwise in compliance with the terms of this Indenture which
are fair to the Company or its Restricted Subsidiaries, in the reasonable
determination of the Board of Directors or the management thereof, or are on
terms (taken as a whole) at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party; (11) any agreement as in
effect as of the Issue Date or any amendment thereto (so long as any such
amendment, taken as a whole, is not disadvantageous to the Holders in any
material respect) or any transaction contemplated thereby; and (12) any
purchases of Capital Stock (other than Disqualified Capital Stock) of the
Company by Affiliates thereof.
SECTION 4.07. Repurchase of Debentures upon a Change of Control. (a)
Upon the occurrence of a Change of Control, each Holder shall have the right to
require that the Company purchase all or a portion of such Holder's Debentures
in cash pursuant to the offer described in paragraph (c) of this Section 4.07
(the "Change of Control Offer"), at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase.
(b) Prior to the mailing of the notice referred to below, but in any
event within 30 days following the date on which the Company becomes aware that
a Change of Control has occurred,
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42
if the purchase of the Debentures would violate or constitute a default under
any other Indebtedness of the Company, then the Company shall, to the extent
needed to permit such purchase of Debentures, either (i) repay all such
Indebtedness and terminate all commitments outstanding thereunder or (ii) obtain
the requisite consents, if any, under such Indebtedness to permit the purchase
of the Debentures as provided below. The Company will first comply with the
covenant in the preceding sentence before it will be required to make the Change
of Control Offer or purchase the Debentures pursuant to the provisions of
paragraphs (c) and (d) below.
(c) Within 30 days following the date on which the Company becomes
aware that a Change of Control has occurred, the Company shall send, by
first-class mail, postage prepaid, a notice to each Holder, which notice shall
govern the terms of the Change of Control Offer. Such notice shall state, among
other things, the purchase date, which must be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, other than as may be required
by law (the "Change of Control Payment Date"). Holders electing to have any
Debentures purchased pursuant to a Change of Control Offer must surrender such
Debentures to the Transfer Agent and/or Paying Agent for the Debentures at the
addresses specified in the notice prior to the close of business on the business
day prior to the Change of Control Payment Date. The Company will not be
required to make a Change of Control Offer pursuant to this covenant if a third
party makes a Change of Control Offer in compliance with this Section 4.07 and
repurchases all Debentures validly tendered and not withdrawn under such Change
of Control Offer.
(d) The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act, to the extent applicable in connection with the purchase of
Debentures pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Indenture, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations described
in this Indenture by virtue hereof.
SECTION 4.08. Existence. Subject to Articles Four and Five of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each Restricted Subsidiary and the
rights (whether pursuant to charter, partnership certificate, agreement, statute
or otherwise), licenses and franchises of the Company and each Restricted
Subsidiary; provided that the Company shall not be required to preserve any such
right, license or franchise, or the existence of any Restricted Subsidiary, if
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.09. Payment of Taxes and Other Claims . The Company will pay
or discharge and shall cause each of its Subsidiaries to pay or discharge, or
cause to be paid or discharged, before the same shall become delinquent (i) all
material taxes, assessments and
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43
governmental charges levied or imposed upon (a) the Company or any such
Subsidiary, (b) the income or profits of any such Subsidiary which is a
corporation or (c) the property of the Company or any such Subsidiary and (ii)
all material lawful claims for labor, materials and supplies that, if unpaid,
might by law become a lien upon the property of the Company or any such
Subsidiary; provided that the Company shall not be required to pay or discharge,
or cause to be paid or discharged, any such tax, assessment, charge or claim the
amount, applicability or validity of which is being contested in good faith by
appropriate proceedings and for which, if necessary, adequate reserves have been
established.
SECTION 4.10. Maintenance of Properties and Insurance. The Company
will cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided that nothing in
this Section 4.10 shall prevent the Company or any Restricted Subsidiary from
discontinuing the use, operation or maintenance of any of such properties or
disposing of any of them, if such discontinuance or disposal is, in the judgment
of the Company, desirable in the conduct of the business of the Company or such
Restricted Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which the Company or any such Restricted Subsidiary, as the case may
be, is then conducting business.
SECTION 4.11. Notice of Defaults. In the event that any Officer
becomes aware of any Default or Event of Default, the Company shall promptly
deliver to the Trustee an Officers' Certificate specifying such Default or Event
of Default.
SECTION 4.12. Compliance Certificates. (a) The Company shall deliver
to the Trustee, within 45 days after the end of each fiscal quarter (120 days
after the end of the last fiscal quarter of each year), an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal quarter. In the case of the Officers' Certificate
delivered within 120 days after the end of the Company's fiscal year, such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer of the Company that
a review has been conducted of the activities of the
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44
Company and its Restricted Subsidiaries and the Company's and its Restricted
Subsidiaries' performance under this Indenture and that the Company has complied
with all conditions and covenants under this Indenture. For purposes of this
Section 4.12, such compliance shall be determined without regard to any period
of grace or requirement of notice provided under this Indenture. If any of the
Officers signing such certificate has knowledge of such a Default or Event of
Default, the certificate shall describe any such Default or Event of Default and
its status. The first certificate to be delivered pursuant to this Section
4.12(a) shall be for the first fiscal quarter beginning after the execution of
this Indenture.
(b) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year, beginning with the fiscal year in which this Indenture
was executed, a certificate signed by the Company's independent certified public
accountants stating (i) that their audit examination has included a review of
the terms of this Indenture and the Debentures as they relate to accounting
matters, (ii) that they have read the most recent Officers' Certificate
delivered to the Trustee pursuant to paragraph (a) of this Section 4.12 and
(iii) whether, in connection with their audit examination, anything came to
their attention that caused them to believe that the Company was not in
compliance with any of the terms, covenants, provisions or conditions of Article
Four and Section 5.01 of this Indenture as they pertain to accounting matters
and, if any Default or Event of Default has come to their attention, specifying
the nature and period of existence thereof; provided that such independent
certified public accountants shall not be liable in respect of such statement by
reason of any failure to obtain knowledge of any such Default or Event of
Default that would not be disclosed in the course of an audit examination
conducted in accordance with generally accepted auditing standards in effect at
the date of such examination.
SECTION 4.13. Commission Reports and Reports to Holders. Whether or
not the Company is then required to file reports with the Commission, the
Company shall file with the Commission, to the extent such submissions are
accepted for filing, all such reports and other information as it would be
required to file with the Commission by Sections 13(a) or 15(d) under the
Exchange Act if it were subject thereto. The Company shall supply the Trustee
and each Holder or shall supply to the Trustee for forwarding to each such
Holder, without cost to such Holder, copies of such reports and other
information within 15 days after the date it would have been required to file
such reports or other information with the Commission had it been subject to
such Sections. The Company also shall comply with the other provisions of TIA
Section 314(a).
SECTION 4.14. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Debentures as contemplated
herein, wherever enacted, now or at any time hereafter in force, or that may
affect the covenants or the
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45
performance of this Indenture; and (to the extent that it may lawfully do so)
the Company hereby expressly waives all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
SECTION 4.15. Limitation on Layering. The Company will not incur any
Indebtedness if such Indebtedness is subordinate or junior in ranking in any
respect to any Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is contractually subordinated in right of payment
to all Senior Subordinated Indebtedness (including the Debentures).
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. The Company shall not, in a
single transaction or a series of related transactions, consolidate with or
merge with or into, or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of the Company's assets determined on a
consolidated basis for the Company to another Person or adopt a plan of
liquidation unless (i) either (1) the Company is the Surviving Person or (2) the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or the Person that acquires by conveyance, transfer or
lease the properties and assets of the Company substantially as an entirety or,
in the case of a plan of liquidation, the Person to which assets of the Company
have been transferred, shall be a corporation, partnership, limited liability
company or trust organized and existing under the laws of the United States or
any State thereof or the District of Columbia; (ii) such Surviving Person shall
assume all of the obligations of the Company under the Debentures and this
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after giving effect to such transaction and
the use of the proceeds therefrom (on a pro forma basis, including giving effect
to any Indebtedness incurred or anticipated to be incurred in connection with
such transaction and the use of the proceeds therefrom), (1) no Default or Event
of Default shall have occurred and be continuing and (2) either (x) such
Surviving Person shall be able to incur $1.00 of additional Indebtedness under
the first paragraph of Section 4.05 of this Indenture or (y) the Leverage Ratio
for such Surviving Person would be less than the Leverage Ratio of the Company
immediately prior to such transaction; and (iv) the Company has delivered to the
Trustee prior to the consummation of the proposed transaction an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer complies with this Indenture and that all conditions
precedent in this Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties and assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties or assets of the Company, will be deemed to be the transfer of
all or
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46
substantially all of the properties and assets of the Company. Notwithstanding
the foregoing clauses (ii) and (iii), (1) any Restricted Subsidiary of the
Company may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (2) the Company may merge with an
Affiliate thereof organized solely for the purpose of reorganizing the Company
in another jurisdiction in the U.S. to realize tax or other benefits.
SECTION 5.02. Successor Substituted. Upon any consolidation or merger,
or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein, and the Company shall be discharged from its Obligations
under the Debentures; provided that the Company shall not be released from its
obligation to pay the principal of, premium, if any, or interest on the
Debentures in the case of a lease of all or substantially all of its property
and assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default . Any of the following events shall
constitute an "Event of Default" hereunder:
(i) the failure to pay interest on the Debentures when the
same becomes due and payable and the Default continues for a period of
30 days (whether or not such payment is prohibited by the provisions of
Article Ten);
(ii) the failure to pay principal of or premium, if any, on
any Debentures when such principal or premium, if any, becomes due and
payable, at maturity, upon redemption or otherwise (whether or not such
payment is prohibited by the provisions of Article Ten);
(iii) a default in the observance or performance of any other
covenant or agreement contained in the Debentures or this Indenture,
which default continues for a period of 60 days after the Company
receives written notice thereof specifying the default from the Trustee
or holders of at least 30% in aggregate principal amount of outstanding
Debentures;
(iv) the failure to pay at the final stated maturity (after
giving effect to any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the acceleration of the final stated maturity of
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47
any such Indebtedness, if the aggregate principal amount of such
Indebtedness, together with the aggregate principal amount of any other
such Indebtedness in default for failure to pay principal at the final
stated maturity (giving effect to any extensions thereof) or which has
been accelerated, aggregates $20 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of
$20 million (which are not covered by insurance as to which the insurer
has not disclaimed coverage) being rendered against the Company or any
of its Significant Restricted Subsidiaries and such judgment or
judgments remain undischarged or unstayed for a period of 60 days after
such judgment or judgments become final and nonappealable;
(vi) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company or any of its
Significant Restricted Subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency or other similar law for relief of
debtors now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any of its Significant Restricted
Subsidiaries or for all or substantially all of the property and assets
of the Company or any of its Significant Restricted Subsidiaries or (C)
the winding up or liquidation of the affairs of the Company or any of
its Significant Restricted Subsidiaries and, in each case, such decree
or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(vii) the Company or any of its Significant Restricted
Subsidiaries (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law for relief of debtors now
or hereafter in effect, or consents to the entry of an order for relief
in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Company or any of its Significant Restricted Subsidiaries or for all or
substantially all of the property and assets of the Company or any of
its Significant Restricted Subsidiaries or (C) effects any general
assignment for the benefit of creditors.
SECTION 6.02. Acceleration. Upon the occurrence of an Event of Default
(other than an Event of Default specified in clause (vi) or (vii) of Section
6.01 that occurs with respect to the Company), the Trustee may, and the Trustee
upon the request of the Holders of 30% in principal amount of the outstanding
Debentures shall, or the Holders of at least 30% in principal amount of
outstanding Debenture may, declare the principal of all the Debentures, together
with all accrued and unpaid interest and premium, if any, due and payable by
notice in writing to the Company and the Trustee specifying the respective Event
of Default and that it is a "notice of acceleration" (the "Acceleration
Notice"). Upon such a declaration of acceleration, such principal, premium, if
any, and accrued interest (i) shall be immediately due and payable or (ii) if
there are any amounts outstanding under the Senior Credit Facilities, will
become due and payable upon the first to occur of an acceleration under the
Senior Credit Facilities or five Business Days after receipt by the Company and
the agent under the Senior Credit Facilities of
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48
such Acceleration Notice (unless all Events of Default specified in such
Acceleration Notice have been cured or waived). If an Event of Default specified
in clauses (vi) through (vii) of Section 6.01 occurs with respect to the
Company, the principal of, premium, if any, and accrued interest on the
Debentures then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
At any time after such declaration or occurrence of acceleration, but
before a judgment or decree for the payment of the money due has been obtained
by the Trustee, the Holders of at least a majority in principal amount of the
outstanding Debentures by written notice to the Company and to the Trustee, may
rescind and annul a declaration or occurrence of acceleration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and (ii) to the extent that payment of such interest is
lawful, interest upon overdue installments of interest and overdue payments of
principal which has become due otherwise than by such declaration of
acceleration, at the rate prescribed therefor by such Debentures, (b) all
existing Defaults and Events of Default, other than the non-payment of the
principal of, premium, if any, and accrued interest on the Debentures that have
become due solely by such declaration of acceleration, have been cured or
waived, (c) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction and (d) in the event of the cure or waiver of a
Default or Event of Default of the type described in clauses (vi) or (vii) of
Section 6.01, the Trustee has received an Officers' Certificate and Opinion of
Counsel that such Default or Event of Default has been cured or waived.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least a
majority in principal amount of the outstanding Debentures shall, pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of, premium, if any, or interest on the Debentures or to enforce the
performance of any provision of the Debentures or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Debentures or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07
and 9.02, the Holders of at least a majority in principal amount of the
outstanding Debentures, by notice to the Trustee, may waive an existing Default
or Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Debenture as specified in
clause (i) or (ii) of Section 6.01 or in respect of a covenant or provision of
this Indenture which cannot be modified or amended without the consent of the
Holder of each outstanding Debenture affected. Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Indenture; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any
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49
right consequent thereto. In the event of any Event of Default specified in
clauses (iv), (vi) or (vii) of Section 6.01, such Event of Default and all
consequences thereof (including without limitation any acceleration or resulting
payment default) shall be annulled, waived and rescinded, automatically and
without any action by the Trustee or Holders of the Debentures, if within 60
days after such Event of Default arose (x) the Indebtedness that is the basis
for such Event of Default has been discharged or (y) the Holders of such
Indebtedness have rescinded or waived the acceleration, notice or action (as the
case may be) giving rise to such Event of Default, or (z) if the Default that is
the basis for such Event of Default has been cured.
SECTION 6.05. Control by Majority. The Holders of at least a majority
in aggregate principal amount of the outstanding Debentures may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee; provided that
the Trustee may refuse to follow any direction that conflicts with law or this
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Debentures not joining in the giving of such direction; and provided
further that the Trustee may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Debentures.
SECTION 6.06. Limitation on Suits. A Holder may not institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Debentures, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) the Holder has previously given the Trustee written notice
of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount
of outstanding Debentures shall have made a written request to the
Trustee to pursue such remedy;
(iii) such Holder or Holders offer the Trustee indemnity
reasonably satisfactory to the Trustee against any costs, liability or
expense;
(iv) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Debentures do not give
the Trustee a direction that is inconsistent with the request.
For purposes of Section 6.05 of this Indenture and this Section 6.06,
the Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the
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50
required aggregate principal amount of outstanding Debentures have concurred in
any request or direction of the Trustee to pursue any remedy available to the
Trustee or the Holders with respect to this Indenture or the Debentures or
otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder of a Debenture to
receive payment of the principal of, premium, if any, or interest on, such
Debenture or to bring suit for the enforcement of any such payment, on or after
the due date expressed in the Debentures, shall not be impaired or affected
without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (i) or (ii) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor of the Debentures for the whole amount of principal, premium, if any,
and accrued interest remaining unpaid, together with interest on overdue
principal, premium, if any, and, to the extent that payment of such interest is
lawful, interest on overdue installments of interest, in each case at the rate
specified in the Debentures, and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Debentures), its creditors or its
property and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Debentures or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Debentures or
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51
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant
to this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to the holders of Senior Indebtedness, and as to the
extent required by Article Ten;
Third: to Holders for amounts then due and unpaid for
principal of, premium, if any, and interest on the Debentures in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Debentures for
principal, premium, if any, and interest, respectively; and
Fourth: to the Company or any other obligors of the
Debentures, as their interests may appear, or as a court of competent
jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.07, or a suit by Holders of more than 10% in principal amount of the
outstanding Debentures.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then,
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Company, Trustee and the Holders shall continue as though no
such proceeding had been instituted.
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SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Debentures in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article Six or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General. The duties and responsibilities of the Trustee
shall be as provided by the TIA and as set forth herein. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it. Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Article Seven.
SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections
315(a) through (d):
(i) the Trustee may rely, and shall be protected in acting or
refraining from acting, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed in good faith by it to be genuine and to
have been signed or presented by the proper person;
(ii) before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, which shall
conform to Section 11.04. The Trustee
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shall not be liable for any action it takes or omits to take in good
faith in reliance on such certificate or opinion;
(iii) the Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any
attorney or agent appointed with due care by it hereunder;
(iv) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
(v) the Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within
its rights or powers, provided that the Trustee's conduct does not
constitute negligence or bad faith;
(vi) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(vii) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company personally or by agent or
attorney at the sole cost of the Company;
(viii) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(ix) the Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon; and
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54
(x) the Trustee shall not be deemed to have notice of any
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in
fact such a Default is received by the Trustee at its Corporate Trust
Office, and such notice references the Debentures and this Indenture.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Debentures
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the
Debentures, (ii) shall not be accountable for the Company's use or application
of the proceeds from the Debentures and (iii) shall not be responsible for any
statement in the Debentures other than its certificate of authentication.
SECTION 7.05. Notice of Default. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
known to the Trustee, the Trustee shall mail to each Holder in the manner and to
the extent provided in TIA Section 313(c) notice of the Default or Event of
Default within 45 days after it occurs, unless such Default or Event of Default
has been cured; provided, however, that, except in the case of a Default in the
payment of the principal of, premium, if any, or interest on any Debenture, the
Trustee shall be protected in withholding such notice if and so long as the
Board of Directors, the executive committee or a trust committee of directors
and/or Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each
December 1, beginning with December 1, 1999, the Trustee shall mail to each
Holder as provided in TIA Section 313(c) a brief report dated as of such
December 1, if required by TIA Section 313(a).
A copy of each report at the time of its mailing to the Holders of
Securities shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Securities are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Securities are
listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee such compensation as shall be agreed upon in writing from time to time
for its services hereunder. The compensation of the Trustee shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by the Trustee in the administration of its duties
hereunder without negligence, willful misconduct or bad faith on its part. Such
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disubrsements, expenses and advances shall include the reasonable compensation
and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability or expense incurred by it without negligence,
wilful misconduct or bad faith on its part in connection with the acceptance or
administration of this Indenture and its duties under this Indenture and the
Debentures, including the costs and expenses of defending itself against any
claim or liability and of complying with any process served upon it or any of
its officers in connection with the exercise or performance of any of its powers
or duties under this Indenture and the Debentures. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel.
The obligations of the Company under this Section 7.07 shall not be
subordinated to the payment of Senior Indebtedness pursuant to Article Ten. To
secure the Company's payment obligations in this Section 7.07, the Trustee shall
have a lien prior to the Debentures on all money or property held or collected
by the Trustee, in its capacity as Trustee, except money or property held in
trust to pay principal of, premium, if any, and interest on particular
Debentures.
If the Trustee incurs expenses or renders services after the occurrence
of an Event of Default specified in clauses (vi) through (vii) of Section 6.01,
the expenses and the compensation for the services will be intended to
constitute expenses of administration under Title 11 of the United States
Bankruptcy Code or any applicable federal or state law for the relief of
debtors.
The provisions of this Section 7.07 shall survive the termination of
this Indenture.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.08.
The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Debentures may
remove the Trustee by so notifying the Trustee in writing and may appoint a
successor Trustee with the consent of the Company. The Company may remove the
Trustee if: (i) the Trustee is no longer eligible under Section 7.10; (ii) the
Trustee is adjudged
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a bankrupt or an insolvent; (iii) a receiver or other public officer takes
charge of the Trustee or its property; or (iv) the Trustee becomes incapable of
acting.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Debentures may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Holders
of a majority in principal amount of the outstanding Debentures may, at the
expense of the Company, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder and to the
administrative agent under the Senior Credit Facilities. No successor Trustee
shall accept its appointment unless at the time of such acceptance such
successor Trustee shall be qualified and eligible under this Article.
If the Trustee is no longer eligible under Section 7.10 or shall fail
to comply with TIA Section 310(b), any Holder who satisfies the requirements of
TIA Section 310(b) may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee. If at any
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section 7.08, the Trustee shall resign immediately in the manner and with
the effect provided in this Section.
The Company shall give notice of any resignation and any removal of the
Trustee and each appointment of a successor Trustee to all Holders. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the benefit
of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee
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with the same effect as if the successor Trustee had been named as the Trustee
herein, provided such corporation shall be otherwise qualified and eligible
under this Article.
SECTION 7.10. Eligibility. This Indenture shall always have a Trustee
who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have
a combined capital and surplus of at least $25 million as set forth in its most
recent published annual report of condition that is subject to the requirements
of applicable Federal or state supervising or examining authority. If at any
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section, the Trustee shall resign immediately in the manner and with the
effect specified in this Article.
SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law and except for money held in trust
under Article Eight of this Indenture.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations. Except as
otherwise provided in this Section 8.01, the Company may terminate its
obligations under the Debentures and this Indenture if:
(i) all Debentures previously authenticated and delivered
(other than destroyed, lost or stolen Debentures that have been
replaced or Debentures that are paid pursuant to Section 4.01 or
Debentures for whose payment money or securities have theretofore been
held in trust and thereafter repaid to the Company, as provided in
Section 8.05) have been delivered to the Trustee for cancellation and
the Company has paid all sums payable by it hereunder; or
(ii) (A) the Debentures mature within one year or all of them
are to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption, (B)
the Company irrevocably deposits in trust with the Trustee during such
one-year period, under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Trustee, as trust funds solely
for the benefit of the Holders for that purpose, money, U.S. Government
Obligations or a combination thereof sufficient (in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee), without
consideration of any reinvestment of any interest thereon, to pay
principal, premium, if any, and interest on the Debentures to maturity
or redemption, as the case may be, and to pay all other sums payable by
it hereunder, (C) no Default or Event of Default with respect to the
Debentures
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shall have occurred and be continuing on the date of such deposit, (D)
such deposit will not result in a breach or violation of, or constitute
a Default under, this Indenture or any other agreement or instrument to
which the Company is a party or by which it is bound and (E) the
Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Debentures are no longer outstanding. Thereafter, only the Company's obligations
in Sections 7.07, 8.04 and 8.05 and Article Ten (with respect to payments in
respect of Debenture Obligations other than with the assets held in trust as
described in clause (ii) above) shall survive. After any such irrevocable
deposit, the Trustee upon request shall acknowledge in writing the discharge of
the Company's obligations under the Debentures and this Indenture except for
those surviving obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. The Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Debentures on the date of the deposit referred to in clause (A)
of this Section 8.02, and the provisions of this Indenture will no longer be in
effect with respect to the Debentures, and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same if:
(A) with reference to this Section 8.02, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.10) and conveyed all right, title and interest to the Trustee for the
benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit of
the Holders as security for payment of the principal of, premium, if
any, and interest, if any, on the Debentures, and dedicated solely to,
the benefit of the Holders, in and to (1) money in an amount, (2) U.S.
Government Obligations that, through the payment of interest, premium,
if any, and principal in respect thereof in accordance with their
terms, will provide, not later than one day before the due date of any
payment referred to in this clause (A), money in an amount or (3) a
combination thereof in an amount sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest
and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the
principal of, premium, if any, and interest on the outstanding
Debentures on the stated maturity of such principal or interest or any
applicable Redemption Date selected by the Company; provided that the
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Trustee shall have been irrevocably instructed to apply such money or
the proceeds of such U.S. Government Obligations to the payment of such
principal, premium, if any, and interest with respect to the
Debentures;
(B) the Company has delivered to the Trustee (1) either (x) an
Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this Section 8.02 and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such option had
not been exercised, which Opinion of Counsel shall be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service
directed to the Company to the same effect unless there has been a
change in applicable federal income tax law after the Closing Date such
that a ruling is no longer required or (y) a ruling directed to the
Company received from the Internal Revenue Service to the same effect
as the aforementioned Opinion of Counsel and (2) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not
violate the Investment Company Act of 1940 and that after the passage
of 123 days following the deposit (except, with respect to any trust
funds for the account of any Holder who may be deemed to be an
"insider" for purposes of the United States Bankruptcy Code, after one
year following the deposit), the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section
15 of the New York Debtor and Creditor Law in a case commenced by or
against the Company under either such statute, provided, that in
delivering any such Opinion of Counsel, such counsel shall be entitled
to rely upon the statements of experts as to the solvency of the
Company, and either (I) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (II) if a court
were to rule under any such law in any case or proceeding that the
trust funds remained property of the Company, (a) assuming such trust
funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to the Holders, the Trustee will hold,
for the benefit of the Holders, a valid and perfected security interest
in such trust funds that is not avoidable in bankruptcy or otherwise
except for the effect of Section 552(b) of the United States Bankruptcy
Code on interest on the trust funds accruing after the commencement of
a case under such statute and (b) the Holders will be entitled to
receive adequate protection of their interests in such trust funds if
such trust funds are used in such case or proceeding;
(C) immediately after giving effect to such deposit, on a pro
forma basis, no Default or Event of Default shall have occurred and be
continuing on the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, this
Indenture or any other agreement or instrument to which the Company or
any
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of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound and is permitted by Article Ten;
(D) if the Debentures are then listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Debentures will not be delisted as a
result of such deposit, defeasance and discharge; and
(E) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, the Company's obligations in Sections
2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 8.04,
8.05, 8.06 and the rights, powers, trusts, duties and immunities of the Trustee
hereunder and Article Ten (with respect to payments in respect of Debenture
Obligations other than with the assets held in trust as described in this
Section 8.02) shall survive until the Debentures are no longer outstanding.
Thereafter, only the Company's obligations in Sections 7.07, 8.04 and 8.05 shall
survive. If and when a ruling from the Internal Revenue Service or an Opinion of
Counsel referred to in clause (B)(1) of this Section 8.02 is able to be provided
specifically without regard to, and not in reliance upon, the continuance of the
Company's obligations under Section 4.01, then the Company's obligations under
such Section 4.01 shall cease upon delivery to the Trustee of such ruling or
Opinion of Counsel and compliance with the other conditions precedent provided
for herein relating to the defeasance contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Debentures and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company may omit
to comply with any term, provision or condition set forth in clause (iii) of
Section 5.01, the proviso in Section 4.03 and Sections 4.04 through 4.07, 4.13
and 4.15 and clauses (iii) through (vii) of Section 6.01 shall be deemed not to
be Events of Default and Article Ten shall not apply to the money and/or U.S.
Government Obligations held by the trust referred to in clause (i) below, in
each case with respect to the outstanding Debentures if:
(i) with reference to this Section 8.03, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.10) and conveyed all right, title and interest to the Trustee for the
benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit of
the Holders as security for payment of the principal of,
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premium, if any, and interest, if any, on the Debentures, and dedicated
solely to, the benefit of the Holders, in and to (A) money in an
amount, (B) U.S. Government Obligations that, through the payment of
interest, premium, if any, and principal in respect thereof in
accordance with their terms, will provide, not later than one day
before the due date of any payment referred to in this clause (i),
money in an amount or (C) a combination thereof in an amount
sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, without
consideration of the reinvestment of such interest and after payment of
all federal, state and local taxes or other charges and assessments in
respect thereof payable by the Trustee, the principal of, premium, if
any, and interest on the outstanding Debentures on the stated maturity
of such principal or interest or on any applicable Redemption Date
selected by the Company; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to the payment of such principal, premium, if
any, and interest with respect to the Debentures;
(ii) the Company has delivered to the Trustee an Opinion of
Counsel to the effect that (A) the creation of the defeasance trust
does not violate the Investment Company Act of 1940, (B) after the
passage of 123 days following the deposit (except, with respect to any
trust funds for the account of any Holder who may be deemed to be an
"insider" for purposes of the United States Bankruptcy Code, after one
year following the deposit), the trust funds will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section
15 of the New York Debtor and Creditor Law in a case commenced by or
against the Company under either such statute, provided, that in
delivering any such Opinion of Counsel, such counsel shall be entitled
to rely upon the statements of experts as to the solvency of the
Company, and either (1) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (2) if a court
were to rule under any such law in any case or proceeding that the
trust funds remained property of the Company, (x) assuming such trust
funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to the Holders, the Trustee will hold,
for the benefit of the Holders, a valid and perfected security interest
in such trust funds that is not avoidable in bankruptcy or otherwise
(except for the effect of Section 552(b) of the United States
Bankruptcy Code on interest on the trust funds accruing after the
commencement of a case under such statute) and (y) the Holders will be
entitled to receive adequate protection of their interests in such
trust funds if such trust funds are used in such case or proceeding,
(C) the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal
income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had
not occurred and (D) the
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Trustee, for the benefit of the Holders, has a valid first-priority
security interest in the trust funds;
(iii) immediately after giving effect to such deposit on a pro
forma basis, no Default or Event of Default shall have occurred and be
continuing on the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, this
Indenture or any other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound and is permitted by Article Ten;
(iv) if the Debentures are then listed on a national
securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Debentures will not be
delisted as a result of such deposit, defeasance and discharge; and
(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the
Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
and shall apply the deposited money and the money from U.S. Government
Obligations in accordance with the Debentures and this Indenture to the payment
of principal of, premium, if any, and interest on the Debentures; but such money
need not be segregated from other funds except to the extent required by law.
SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the Company
upon request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years; provided that the Trustee
or Paying Agent before being required to make any payment may cause to be
published at the expense of the Company once in a newspaper of general
circulation in The City of New York, or mail to each Holder entitled to such
money at such Holder's address (as set forth in the Security Register) notice
that such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Debentures shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02 or
8.03, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 8.01, 8.02 or 8.03, as the case may be; provided that, if the
Company has made any payment of principal of, premium, if any, or interest on
any Debentures because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Debentures to receive
such payment from the money or U.S. Government Obligations held by the Trustee
or Paying Agent.
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Company, when authorized
by a resolution of its Board of Directors (as evidenced by a Board Resolution
delivered to the Trustee), and the Trustee may amend or supplement this
Indenture or the Debentures without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in this
Indenture;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee;
(5) to provide for uncertificated Debentures in addition to or
in place of certificated Debentures;
(6) to add one or more subsidiary guarantees on the terms
required by this Indenture; or
(7) to make any change that, in the good faith opinion of the
Board of Directors as evidenced by a Board Resolution, does not
materially and adversely affect the rights of any Holder.
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SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, the Company, when authorized by
its Board of Directors (as evidenced by a Board Resolution delivered to the
Trustee), and the Trustee may amend this Indenture and the Debentures with the
written consent of the Holders of a majority in aggregate principal amount of
the Debentures then outstanding, and the Holders of a majority in aggregate
principal amount of the Debentures then outstanding by written notice to the
Trustee may waive future compliance by the Company with any provision of this
Indenture or the Debentures.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) reduce the amount of Debentures whose holders must consent
to an amendment;
(ii) reduce the rate of or change the time for payment of
interest, including defaulted interest, on any Debentures;
(iii) reduce the principal of or change the fixed maturity of
any Debentures, or change the fixed maturity of any Debentures, or
change the date on which any Debentures may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Debentures payable in money other than that
stated in the Debentures and the Indenture;
(v) make any change in provisions of the Indenture protecting
the right each Holder of a Debenture to receive payment of, premium on
and interest on such Debenture on or after the due date thereof or to
bring suit to enforce such payment or permitting Holders of a majority
in principal amount of Debentures to waive a Default or Event of
Default; or
(vi) after the Company's obligation to purchase Debentures
arises under Section 4.07, amend, modify or change the obligation of
the Company to make or consummate a Change of Control Offer or modify
any of the provisions or definitions with respect to any such offer.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
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After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Debenture or portion of a Debenture
that evidences the same debt as the Debenture of the consenting Holder, even if
notation of the consent is not made on any Debenture. However, any such Holder
or subsequent Holder may revoke the consent as to its Debenture or portion of
its Debenture. Such revocation shall be effective only if the Trustee receives
the notice of revocation before the date the amendment, supplement or waiver
becomes effective. An amendment, supplement or waiver shall become effective on
receipt by the Trustee of written consents from the Holders of the requisite
percentage in principal amount of the outstanding Debentures.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies) and only those
persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in the second paragraph of
Section 9.02. In case of an amendment or waiver of the type described in the
second paragraph of Section 9.02, the amendment or waiver shall bind each Holder
who has consented to it and every subsequent Holder of a Debenture that
evidences the same indebtedness as the Debenture of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Debentures. If an amendment,
supplement or waiver changes the terms of a Debenture, the Trustee may require
the Holder to deliver such Debenture to the Trustee. At the Company's expense,
the Trustee may place an appropriate notation on the Debenture about the changed
terms and return it to the Holder and the Trustee may place an appropriate
notation on any Debenture thereafter authenticated. Alternatively, if the
Company or the Trustee so determines, the Company in exchange for the Debenture
shall issue and the Trustee shall authenticate a new Debenture that reflects the
changed terms. Failure to make the appropriate notation, or issue a new
Debenture, shall not affect the validity and effect of such amendment,
supplement or waiver.
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SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and that it will be valid and binding upon the Company. Subject to the
preceding sentence, the Trustee shall sign such amendment, supplement or waiver
if the same does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. The Trustee may, but shall not be obligated to,
execute any such amendment, supplement or waiver that affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
ARTICLE TEN
SUBORDINATION OF DEBENTURES
SECTION 10.01. Debentures Subordinated to Senior Indebtedness. The
Company and the Trustee each covenants and agrees, and each Holder, by its
acceptance of a Debenture, likewise covenants and agrees that all Debentures
shall be issued subject to the provisions of this Article Ten; and each Person
holding any Debenture, whether upon original issue or upon transfer, assignment
or exchange thereof, accepts and agrees that Debenture Obligations shall, to the
extent and in the manner set forth in this Article Ten, be subordinated in right
of payment to the prior payment in full, in cash, of all existing and future
Senior Indebtedness, including, without limitation, the Company's obligations
under the Senior Credit Facilities (including any interest accruing on or
subsequent to, or which would have accrued but for the occurrence of, an event
specified in Sections 6.01(vi) and 6.01(vii) of this Indenture, whether or not
such interest is an allowed claim enforceable against the debtor under the
United States Bankruptcy Code).
SECTION 10.02. No Payment on Debentures in Certain Circumstances. (a)
No direct or indirect payment by or on behalf of the Company of Debenture
Obligations (other than with the money, securities or proceeds held under any
defeasance trust established in accordance with this Indenture), whether
pursuant to the terms of the Debentures or upon acceleration or otherwise, shall
be made if (i) any Senior Indebtedness is not paid when due or (ii) any other
default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived and/or any such acceleration has been
rescinded or such Senior Indebtedness has been paid; provided, however, that the
Company may pay any Debenture Obligation without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from the
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Representative of the Senior Indebtedness with respect to which either of the
events set forth in clause (i) or (ii) above has occurred and is continuing.
(b) During the continuance of any other event of default with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, upon receipt by the Trustee with a copy to the Company of written
notice from the trustee or other representative for the holders of such
Designated Senior Indebtedness (or the holders of at least a majority in
principal amount of such Designated Senior Indebtedness then outstanding
specifying an election to effect a Payment Blockage Period (as defined below) (a
"Blockage Notice")), no payment of Debenture Obligations (other than with the
money, securities or proceeds held under any defeasance trust established in
accordance with this Indenture) may be made by or on behalf of the Company and
except that holders of any Debenture Obligation may receive (i) Qualified
Capital Stock issued by the Company to pay interest on the Debentures or issued
in exchange for the Debentures, (ii) securities substantially identical to the
Debentures issued by the Company in payment of interest accrued thereon or (iii)
securities issued by the Company which are subordinated to Senior Indebtedness
at least to the same extent as the Debentures and having a Weighted Average Life
to Maturity at least equal to the remaining Weighted Average Life to Maturity of
the Debentures) may be made for a period (a "Payment Blockage Period")
commencing on the date of receipt of such notice and ending 179 days thereafter
(or earlier if such Payment Blockage Period shall be terminated (i) by written
notice to the Trustee with a copy to the Company from such trustee of, or other
Representatives who gave such notice, (ii) because the default giving rise to
such Blockage Notice has been cured or waived or is no longer continuing or
(iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence,
but subject to the provisions of paragraphs (a) and (c) of this Section 10.02,
the Company may resume payments on the Debentures after the end of such Payment
Blockage Period. Not more than one Payment Blockage Period may be commenced with
respect to the Debentures during any period of 360 consecutive days,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness (other than the agent under the Senior Credit Facilities), the
agent under the Senior Credit Facilities may give another Blockage Notice within
such period. In no event, however, may the total number of days during which any
Payment Blockage Period or Payment Blockage Periods is in effect exceed 179 days
in the aggregate during any 360-consecutive-day period. No nonpayment default
that existed or was continuing on the date of delivery of any Blockage Notice to
the Trustee shall be, or be made, the basis for a subsequent Blockage Notice
unless such default shall have been cured or waived for a period of not less
than 90 consecutive days. The failure of the Company to pay principal when due
or to pay interest on the Debentures for more than 30 days after the scheduled
payment therefor as a result of the occurrence of a Payment Blockage Period
shall nevertheless constitute an Event of Default under this Indenture.
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For the purposes of this Article Ten (but without limiting the effect of any
other provision of this Article Ten), paying any Debenture Obligation shall
include any payment or distribution of any kind or character by the Company or
its Subsidiaries, by set-off or otherwise, including, without limitation, any
repurchase, redemption or acquisition of the Debentures and any direct or
indirect payment payable by reason of any other Indebtedness or Obligation being
subordinated to the Debentures.
(c) In the event that, notwithstanding the foregoing, any payment shall
be received by the Trustee or any Holder when such payment is prohibited by
Section 10.02(a) or 10.02(b) of this Indenture, the Trustee shall promptly
notify the representatives of such Senior Indebtedness of such prohibited
payment and such payment shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of Senior Indebtedness or their
respective representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, but only to the extent that, upon notice from
the Trustee to the representatives of such Senior Indebtedness that such
prohibited payment has been made, such representatives within 30 days of receipt
of such notice from the Trustee notifies the Trustee of the amounts then due and
owing on the Senior Indebtedness, if any, and only the amounts specified in such
notice to the Trustee shall be paid to the representatives of such Senior
Indebtedness and any excess above such amounts due and owing on Senior
Indebtedness shall be paid to the Company.
SECTION 10.03. Payment over of Proceeds upon Dissolution, Etc. (a) Upon
any payment or distribution of assets or securities of the Company of any kind
or character, whether in cash, property or securities (other than with the
money, securities or proceeds held under any defeasance trust established in
accordance with this Indenture), in connection with any dissolution or
winding-up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other similar proceedings, any assignment for the benefit of creditors or any
marshalling of assets for the benefit of creditors, all amounts due or to become
due upon all Senior Indebtedness (including any interest accruing on or
subsequent to, or which would have accrued but for the occurrence of, an event
specified in paragraphs (vi) and (vii) of Section 6.01, whether or not such
interest is an allowed claim enforceable against the debtor under the United
States Bankruptcy Code) shall first be paid in full, in cash, before the Holders
or the Trustee on their behalf shall be entitled to receive any payment by (or
on behalf of) the Company on account of Debenture Obligations, or any payment to
acquire any of the Debentures for cash, property or securities, or any
distribution with respect to the Debentures of any cash, property or securities.
Before any payment may be made by, or on behalf of, the Company on any Debenture
Obligations (other than with the money, securities or proceeds held under any
defeasance trust established in accordance with this Indenture) in connection
with any such dissolution, winding-up, liquidation, reorganization, assignment,
marshalling or proceeding, any payment or distribution of assets or securities
for the Company of any kind or character, whether in cash, property or
securities, to which the Holders or the
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Trustee on their behalf would be entitled, but for the provisions of this
Article Ten, shall be made by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person making such
payment or distribution, or by the Holders or the Trustee if received by them or
it, directly to the representatives of such Senior Indebtedness (pro rata to
such holders on the basis of the respective amounts of Senior Indebtedness held
by such holders) or their representatives or to any trustee or trustees under
any other indenture pursuant to which any such Senior Indebtedness may have been
issued, as their respective interests appear, to the extent necessary to pay all
such Senior Indebtedness in full, in cash or cash equivalents after giving
effect to any concurrent payment, distribution or provision therefor to or for
the representatives of such Senior Indebtedness (except that Holders of the
Debentures may receive (i) Qualified Capital Stock issued by the Company to pay
interest on the Debentures or issued in exchange for the Debentures, (ii)
securities substantially identical to the Debentures issued by the Company in
payment of interest accrued thereon or (iii) securities issued by the Company
which are subordinated to Senior Indebtedness at least to the same extent as the
Debentures and having a Weighted Average Life to Maturity at least equal to the
remaining Weighted Average Life to Maturity of the Debentures).
(b) To the extent any payment of Senior Indebtedness (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee or other
similar Person, the Senior Indebtedness or part thereof originally intended to
be satisfied shall be deemed to be reinstated and outstanding as if such payment
had not occurred. To the extent the obligation to repay any Senior Indebtedness
is declared to be fraudulent, invalid, or otherwise set aside under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
the obligation so declared fraudulent, invalid or otherwise set aside (and all
other amounts that would come due with respect thereto had such obligation not
been so affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
(c) In the event that, notwithstanding the foregoing provision
prohibiting such payment or distribution, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities, shall be received by the Trustee or any Holder at a time when
such payment or distribution is prohibited by Section 10.03(a) of this Indenture
and before all obligations in respect of Senior Indebtedness are paid in full,
in cash, such payment or distribution shall be received and held in trust for
the benefit of, and shall be paid over or delivered to, the representatives of
such Senior Indebtedness (pro rata to such holders on the basis of such
respective amount of Senior Indebtedness held by such holders) or their
representatives, or to the trustee or trustees under any indenture pursuant to
which any such Senior Indebtedness
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may have been issued, as their respective interests appear, for application to
the payment of Senior Indebtedness remaining unpaid until all such Senior
Indebtedness has been paid in full, in cash, after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Indebtedness.
(d) For purposes of this Section 10.03, the words "cash, property or
securities" shall not be deemed to include, so long as the effect of this clause
is not to cause the Debentures to be treated in any case or proceeding or
similar event described in this Section 10.03 as part of the same class of
claims as the Senior Indebtedness or any class of claims pari passu with, or
senior to, the Senior Indebtedness for any payment or distribution, securities
of the Company or any other corporation provided for by a plan of reorganization
or readjustment that are subordinated, at least to the extent that the
Debentures are subordinated, to the payment of all Senior Indebtedness then
outstanding; provided that (1) if a new corporation results from such
reorganization or readjustment, such corporation assumes the Senior Indebtedness
and (2) the rights of the holders of the Senior Indebtedness are not, without
the consent of such holders, altered by such reorganization or readjustment. The
consolidation of the Company with, or the merger of the Company with or into,
another corporation or the liquidation or dissolution of the Company following
the sale, conveyance, transfer, lease or other disposition of all or
substantially all of its property and assets to another corporation upon the
terms and conditions provided in Article Five of this Indenture shall not be
deemed a dissolution, winding-up, liquidation or reorganization for the purposes
of this Section 10.03 if such other corporation shall, as a part of such
consolidation, merger, sale, conveyance, transfer, lease or other disposition,
comply (to the extent required) with the conditions stated in Article Five of
this Indenture.
SECTION 10.04. Subrogation. (a) Upon the payment in full of all Senior
Indebtedness in cash, the Holders shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of cash,
property or securities of the Company made on such Senior Indebtedness until the
principal of, premium, if any, and interest on the Debentures shall be paid in
full; and, for the purposes of such subrogation, no payments or distributions to
the representatives of the holders of the Senior Indebtedness of any cash,
property or securities to which the Holders or the Trustee on their behalf would
be entitled except for the provisions of this Article Ten, and no payment
pursuant to the provisions of this Article Ten to the holders of Senior
Indebtedness by Holders or the Trustee on their behalf shall, as between the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders, be deemed to be a payment by the Company to or on account of the Senior
Indebtedness. It is understood that the provisions of this Article Ten are
intended solely for the purpose of defining the relative rights of the Holders,
on the one hand, and the holders of the Senior Indebtedness, on the other hand.
(b) If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article Ten shall have been
applied, pursuant to the provisions of this Article Ten, to the payment of all
amounts payable under Senior Indebtedness,
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then, and in such case, the Holders shall be entitled to receive from the
holders of such Senior Indebtedness any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount required to make
payment in full, in cash, of such Senior Indebtedness of such holders.
SECTION 10.05. Obligations of Company Unconditional. (a) Nothing
contained in this Article Ten or elsewhere in this Indenture or in the
Debentures is intended to or shall impair, as among the Company and the Holders,
the obligation of the Company, which is absolute and unconditional, to pay to
the Holders the principal of, premium, if any, and interest on the Debentures as
and when the same shall become due and payable in accordance with their terms,
or is intended to or shall affect the relative rights of the Holders and
creditors of the Company other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Holders or the Trustee on their
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
Ten of the holders of the Senior Indebtedness.
(b) Without limiting the generality of the foregoing, nothing contained
in this Article Ten will restrict the right of the Trustee or the Holders to
take any action to declare the Debentures to be due and payable prior to their
stated maturity pursuant to Section 6.01 of this Indenture or to pursue any
rights or remedies hereunder; provided, however, that all Senior Indebtedness
then due and payable or thereafter declared to be due and payable shall first be
paid in full, in cash, before the Holders or the Trustee on behalf of the
Holders are entitled to receive any direct or indirect payment from the Company
of Debenture Obligations.
SECTION 10.06. Notice to Trustee. (a) The Company shall give prompt
written notice to the Trustee of any fact known to the Company that would
prohibit the making of any payment to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article Ten. The Trustee shall not
be charged with the knowledge of the existence of any default or event of
default with respect to any Senior Indebtedness or of any other facts that would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing at its Corporate Trust Office to
that effect signed by an Officer of the Company, or by a holder of Senior
Indebtedness or trustee or agent thereof; and prior to the receipt of any such
written notice, the Trustee shall, subject to Article Seven, be entitled to
assume that no such facts exist; provided that, if the Trustee shall not have
received the notice provided for in this Section 10.06 at least three Business
Days prior to the date upon which, by the terms of this Indenture, any monies
shall become payable for any purpose (including, without limitation, the payment
of the principal of, premium, if any, or interest on any Debenture), then,
notwithstanding anything herein to the contrary, the Trustee shall have full
power and authority to receive any monies from the Company and to apply the same
to the purpose for which they were received, and shall not be affected by any
notice to the contrary that may be received by it on or after such prior date
except for an acceleration of the Debentures prior to such application. Nothing
contained in this
<PAGE> 79
72
Section 10.06 shall limit the right of the holders of Senior Indebtedness to
recover payments as contemplated by this Article Ten. The foregoing shall not
apply if the Paying Agent is the Company. The Trustee shall be entitled to rely
in good faith on the delivery to it of a written notice by a Person representing
himself or itself to be a holder of any Senior Indebtedness (or a trustee on
behalf of, or other representative of, such holder) to establish that such
notice has been given by a holder of such Senior Indebtedness or a trustee or
representative on behalf of any such holder.
(b) In the event that the Trustee determines in good faith that any
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article Ten, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness
held by such Person, the extent to which such Person is entitled to participate
in such payment or distribution and any other facts pertinent to the rights of
such Person under this Article Ten and, if such evidence is not furnished to the
Trustee, the Trustee may defer any payment to such Person pending judicial
determination as to the right of such Person to receive such payment.
SECTION 10.07. Reliance on Judicial Order or Certificate of Liquidating
Agent. Upon any payment or distribution of assets or securities referred to in
this Article Ten, the Trustee and the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which bankruptcy,
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or upon a certificate of the receiver, trustee in bankruptcy, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other
similar Person making such payment or distribution, delivered to the Trustee or
to the Holders for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article Ten, provided that such court, trustee, receiver,
custodian, assignee, agent or other Person has been apprised of, or the order,
decree or certificate makes reference to, the provisions of this Article.
SECTION 10.08. Trustee's Relation to Senior Indebtedness. (a) The
Trustee and any Paying Agent shall be entitled to all the rights set forth in
this Article Ten with respect to any Senior Indebtedness that may at any time be
held by it in its individual or any other capacity to the same extent as any
other holder of Senior Indebtedness and nothing in this Indenture shall deprive
the Trustee or any Paying Agent of any of its rights as such holder.
(b) With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article Ten, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness (except as provided in
<PAGE> 80
73
Sections 10.02(c) and 10.03(c) of this Indenture) and shall not be liable to any
such holders if the Trustee shall in good faith mistakenly pay over or
distribute to Holders of Debentures or to the Company or to any other person
cash, property or securities to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article Ten or otherwise.
SECTION 10.09. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness. No right of any present or
future holders of any Senior Indebtedness to enforce subordination as provided
in this Article Ten will at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms of this Indenture, regardless of any knowledge thereof that any
such holder may have or otherwise be charged with. The provisions of this
Article Ten are intended to be for the benefit of, and shall be enforceable
directly by, the holders of Senior Indebtedness.
SECTION 10.10. Holders Authorize Trustee to Effectuate Subordination of
Debentures. Each Holder by his acceptance of any Debentures authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Ten, and appoints the Trustee his attorney-in-fact for such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency, receivership,
reorganization or similar proceedings or upon an assignment for the benefit of
creditors or otherwise) tending towards liquidation of the property and assets
of the Company, the filing of a claim for the unpaid balance of its Debentures
in the form required in those proceedings. If the Trustee does not file a proper
claim or proof in indebtedness in the form required in such proceeding at least
30 days before the expiration of the time to file such claim or claims, each
holder of Senior Indebtedness is hereby authorized to file an appropriate claim
for and on behalf of the Holders.
SECTION 10.11. Not to Prevent Events of Default. The failure to make a
payment on account of principal of, premium, if any, or interest on the
Debentures by reason of any provision of this Article Ten will not be construed
as preventing the occurrence of an Event of Default.
SECTION 10.12. Trustee's Compensation Not Prejudiced. Nothing in this
Article Ten will apply to amounts due to the Trustee pursuant to other sections
of this Indenture, including without limitation Section 7.07.
SECTION 10.13. No Waiver of Subordination Provisions. Without in any
way limiting the generality of Section 10.09, the holders of Senior Indebtedness
may, at any time and from time to time, without the consent of or notice to the
Trustee or the Holders, without incurring responsibility to the Holders and
without impairing or releasing the subordination provided in this Article Ten or
the obligations hereunder of the Holders to the holders of Senior Indebtedness,
do any one or more of the following: (a) change the manner, place or terms of
payment or extend
<PAGE> 81
74
or shorten the time of payment of, or renew or alter, Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior Indebtedness
is outstanding or secured; (b) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (d) exercise or refrain from exercising any rights against the
Company and any other Person.
SECTION 10.14. Payments May Be Paid Prior to Dissolution. Nothing
contained in this Article Ten or elsewhere in this Indenture shall prevent (i)
the Company except under the conditions described in Section 10.02 or 10.03,
from making payments of principal of, premium, if any, and interest on the
Debentures, or from depositing with the Trustee any money for such payments, or
(ii) the application by the Trustee of any money deposited with it for the
purpose of making such payments of principal of, premium, if any, and interest
on the Debentures to the holders entitled thereto unless, at least three
Business Days prior to the date upon which such payment becomes due and payable,
the Trustee shall have received the written notice provided for in Section
10.02(b) of this Indenture (or there shall have been an acceleration of the
Debentures prior to such application) or in Section 10.06 of this Indenture. The
Company shall give prompt written notice to the Trustee of any dissolution,
winding up, liquidation or reorganization of, or similar proceeding (including
any assignment for the benefit of creditors or any marshalling of assets) with
respect to, the Company.
SECTION 10.15. Consent of Holders of Senior Indebtedness Under the
Senior Credit Facilities. The provisions of this Article Ten (including the
definitions contained in this Article and references to this Article contained
in this Indenture) shall not be amended in a manner that would adversely affect
the rights of the holders of Senior Indebtedness under the Senior Credit
Facilities, and no such amendment shall become effective unless the holders of
Senior Indebtedness under the Senior Credit Facilities shall have consented (in
accordance with the provisions of the Senior Credit Facilities) to such
amendment. The Trustee shall be entitled to receive and rely on an Officers'
Certificate stating that such consent has been given.
SECTION 10.16. Trust Moneys Not Subordinated. Notwithstanding anything
contained herein to the contrary, payments from money or the proceeds of U.S.
Government Obligations held in trust under Article Eight by the Trustee for the
payment of principal of, premium, if any, and interest on the Debentures shall
not be subordinated to the prior payment of any Senior Indebtedness (provided
that, at the time deposited, such deposit did not violate any then outstanding
Senior Indebtedness), and none of the Holders shall be obligated to pay over any
such amount to any holder of Senior Indebtedness.
SECTION 10.17. Notice to Representative of Designated Senior
Indebtedness. If payment of the Debentures is accelerated because of an Event
of Default, the Company or the Trustee shall promptly notify the Representative
(if any) of any issue of Designated Senior
<PAGE> 82
75
Indebtedness which is then outstanding; provided, however, that the Company and
the Trustee shall be obligated to notify such a Representative (other than with
respect to the Senior Credit Facilities) only if such Representative has
delivered or caused to be delivered an address for the service of such a notice
to the Company and the Trustee (and the Company and the Trustee shall be
obligated only to deliver the notice to the address so specified). If a notice
is required pursuant to the immediately preceding sentence, the Company may not
pay the Debentures (except payment (i) in Qualified Capital Stock issued by the
Company to pay interest on the Debentures or issued in exchange for the
Debentures, (ii) in securities substantially identical to the Debentures issued
by the Company in payment of interest accrued thereon or (iii) in securities
issued by the Company which are subordinated to the Senior Indebtedness at least
to the same extent as the Debentures and have a Weighted Average Life to
Maturity at least equal to the remaining Weighted Average Life to Maturity of
the Debentures), until five Business Days after the respective Representative of
the Designated Senior Indebtedness receives notice (at the address specified in
the preceding sentence) of such acceleration and, thereafter, may pay the
Debentures only if the subordination provisions of the Indenture otherwise
permit payment at that time.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939. Prior to the effectiveness
of the Registration Statement, this Indenture shall incorporate and be governed
by the provisions of the TIA that are required or deemed to be part of and to
govern indentures qualified under the TIA. After the effectiveness of the
Registration Statement, this Indenture shall be subject to the provisions of the
TIA that are required or deemed to be a part of this Indenture and shall, to the
extent applicable, be governed by such provisions.
SECTION 11.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person, mailed by first-class
mail or sent by telecopier transmission addressed as follows:
if to the Company:
Regal Cinemas, Inc.
7132 Commercial Park Drive
Knoxville, Tennessee 37918
Telecopier No.: 423-922-6085
Attention: Chief Financial Officer
<PAGE> 83
76
if to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Telecopier No.: 212-858-2952
Attention: Corporate Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to it at
its address as it appears on the Security Register by first-class mail and shall
be sufficiently given to him if so mailed within the time prescribed. Any notice
or communication shall also be so mailed to any Person described in TIA Section
313(c), to the extent required by the TIA. Copies of any such communication or
notice to a Holder shall also be mailed to the Trustee and each Agent at the
same time.
Failure to mail a notice or communication to a Holder as provided
herein or any defect in any such notice or communication shall not affect its
sufficiency with respect to other Holders. Except for a notice to the Trustee,
which is deemed given only when received, and except as otherwise provided in
this Indenture, if a notice or communication is mailed in the manner provided in
this Section 11.02, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Debentures. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
SECTION 11.03. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
<PAGE> 84
77
(i) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent have been complied with.
SECTION 11.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of each
such person, such condition or covenant has been complied with;
provided, however, that, with respect to matters of fact, an Opinion of
Counsel may rely on an Officers' Certificate or certificates of public
officials.
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The
Trustee may make reasonable rules for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 11.06. Payment Date Other Than a Business Day. If an Interest
Payment Date, Redemption Date, Payment Date, stated maturity or date of maturity
of any Debenture shall not be a Business Day, then payment of principal of,
premium, if any, or interest on such Debenture, as the case may be, need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date, Payment Date or
Redemption Date, or at the stated maturity or date of maturity of such
Debenture; provided that no interest shall accrue for the period from and after
such Interest Payment Date, Payment Date, Redemption Date, stated maturity or
date of maturity, as the case may be.
<PAGE> 85
78
SECTION 11.07. Governing Law. This Indenture and the Debentures shall
be governed by the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby. The Trustee, the
Company and the Holders agree to submit to the jurisdiction of the courts of the
State of New York in any action or proceeding arising out of or relating to this
Indenture or the Debentures.
SECTION 11.08. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.09. No Recourse Against Others. No recourse for the payment
of the principal of, premium, if any, or interest on any of the Debentures, or
for any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of the Company contained in
this Indenture or in any of the Debentures, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, stockholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Debentures.
SECTION 11.10. Successors. All agreements of the Company in this
Indenture and the Debentures shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.11. Duplicate Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 11.12. Separability. In case any provision in this Indenture
or in the Debentures shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 11.13. Table of Contents, Headings, Etc. The Table of Contents,
Cross-Reference Table and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
and provisions hereof.
<PAGE> 86
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
REGAL CINEMAS, INC.
By: /s/ D. MARK MONROE
--------------------------------------
Name: D. Mark Monroe
Title: Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ STEPHEN J. GUIRLANDO
--------------------------------------
Name: Stephen J. Guirlando
Title: Assistant Vice President
<PAGE> 87
EXHIBIT A
[APPLICABLE LEGENDS]
[FACE OF DEBENTURE]
REGAL CINEMAS, INC.
8 7/8% Senior Subordinated Debenture due 2010
CUSIP [__________]
No. ____ $_________
REGAL CINEMAS, INC., a Tennessee corporation (the "Company", which term
includes any successor under the Indenture hereinafter referred to), for value
received, promises to pay to _____________, or its registered assigns, the
principal sum of ______________________ ($____________) on December 15, 2010.
Interest Payment Dates: June 15 and December 15, commencing June 15,
1999.
Regular Record Dates: June 1 and December 1.
Reference is hereby made to the further provisions of this Debenture
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
manually or by facsimile by its duly authorized officers.
Date: December 16, 1998 REGAL CINEMAS, INC.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title:
<PAGE> 88
A-2
(Trustee's Certificate of Authentication)
This is one of the 8 7/8% Senior Subordinated Debentures due 2010 described in
the within-mentioned Indenture.
IBJ SCHRODER BANK & TRUST
COMPANY,
as Trustee
By:
--------------------------------------
Authorized Signatory
<PAGE> 89
A-3
[REVERSE SIDE OF DEBENTURE]
REGAL CINEMAS, INC.
8 7/8% Senior Subordinated Debenture due 2010
1. Principal and Interest.
The Company will pay the principal of this Debenture on December 15,
2010.
The Company promises to pay interest on the principal amount of this
Debenture on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually (to the holders of record of the
Debentures at the close of business on the June 1 or December 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
June 15, 1999.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Debentures is not declared effective by the Commission, on or before _________,
1999 in accordance with the terms of the Registration Rights Agreement dated
December 16, 1998 between the Company and Morgan Stanley & Co. Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation, the annual interest rate
borne by the Debentures shall be increased by 0.5% per annum from the rate shown
above accruing from the date that is 225 days after _________, payable in cash
semiannually, in arrears, on each Interest Payment Date, commencing December 15,
1999 until the Exchange Offer is consummated or the Shelf Registration Statement
is declared effective. The Holder of this Debenture is entitled to the benefits
of such Registration Rights Agreement.
Interest on the Debentures will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from December 16,
1998, provided that, if there is no existing default in the payment of interest
and this Debenture is authenticated between a Regular Record Date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such Interest Payment Date. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
<PAGE> 90
A-4
2. Method of Payment.
The Company will pay interest on the principal amount of the Debentures
as provided above on each June 15 and December 15, commencing June 15, 1999 to
the persons who are Holders (as reflected in the Security Register at the close
of business on the June 1 or December 1 immediately preceding the Interest
Payment Date), in each case, even if the Debenture is cancelled on registration
of transfer or registration of exchange after such record date; provided that,
with respect to the payment of principal, the Company will make payment to the
Holder that surrenders this Debenture to a Paying Agent on or after December 15,
2010.
The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, a Paying Agent
and the Registrar. The Company may change any authenticating agent, Paying Agent
or Transfer Agent without notice. The Company, any Subsidiary or any Affiliate
of any of them may act as a Paying Agent or a Transfer Agent.
4. Indenture; Limitations.
The Company issued the Debentures under an Indenture dated as of
December 16, 1998 (the "Indenture"), between the Company and IBJ Schroder Bank &
Trust Company, as trustee (the "Trustee"). Capitalized terms herein are used as
defined in the Indenture unless otherwise indicated. The terms of the Debentures
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Debentures are subject to all such
terms, and Holders are referred to the Indenture and the Trust Indenture Act for
a statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Debenture and the terms of
the Indenture, the terms of the Indenture shall control.
The Debentures are general unsecured obligations of the Company.
The Company may, subject to Article Four of the Indenture and
applicable law, issue additional Debentures under the Indenture.
<PAGE> 91
A-5
5. Optional Redemption.
The Debentures are redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after December 15, 2003 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount thereof on the applicable Redemption Date), plus accrued and
unpaid interest to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date that is prior to the Redemption Date
to receive interest due on an Interest Payment Date), if redeemed during the
12-month period commencing December 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
- ---- ----------
<C> <C>
2003 104.438%
2004 103.328
2005 102.219
2006 101.109
2007 and thereafter 100.000
</TABLE>
At any time and from time to time prior to December 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Debentures
with the proceeds of one or more Equity Offerings, at a Redemption Price
(expressed as a percentage of principal amount) of 108.875%, plus accrued and
unpaid interest to the Redemption Date (subject to the rights of Holders of
record on the relevant Regular Record Date that is prior to the Redemption Date
to receive interest due on an Interest Payment Date); provided that (i) at least
65% of the aggregate principal amount of Debentures issued under the Indenture
remains outstanding after each such redemption and (ii) any such redemption
shall occur on or prior to the date that is 90 days after receipt by the Company
of the proceeds of an Equity Offering. The Company shall effect such redemption
on a pro rata basis.
Debentures in original denominations larger than $1,000 may be redeemed
in part. On and after the Redemption Date, interest ceases to accrue on
Debentures or portions of Debentures called for redemption, unless the Company
defaults in the payment of the Redemption Price.
6. Repurchase upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder shall have
the right to require that the Company purchase all or a portion of such Holder's
Debentures in cash pursuant to the offer described in Section 4.07(c) of the
Indenture, at a purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase.
<PAGE> 92
A-6
(b) Prior to the mailing of the notice referred to below, but in any
event within 30 days following the date on which the Company becomes aware that
a Change of Control has occurred, if the purchase of the Debentures would
violate or constitute a default under any other Indebtedness of the Company,
then the Company shall, to the extent needed to permit such purchase of
Debentures, either (i) repay all such Indebtedness and terminate all commitments
outstanding thereunder or (ii) obtain the requisite consents, if any, under such
Indebtedness to permit the purchase of the Debentures as provided below. The
Company will first comply with the covenant in the preceding sentence before it
will be required to make the Change of Control Offer or purchase the Debentures
pursuant to the provisions of Section 4.07(c) and Section 4.07(d) of the
Indenture.
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at its last address as it appears in
the Security Register. Debentures in original denominations larger than $1,000
may be sold to the Company in part. On and after the Payment Date, interest
ceases to accrue on Debentures or portions of Debentures surrendered for
purchase by the Company, unless the Company defaults in the payment of the
purchase price.
7. Denominations; Transfer; Exchange.
The Debentures are in registered form without coupons in denominations
of $1,000 of principal amount and multiples of $1,000 in excess thereof. A
Holder may register the transfer or exchange of Debentures in accordance with
the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Registrar need not
register the transfer or exchange of any Debentures selected for redemption.
Also, it need not register the transfer or exchange of any Debentures for a
period of 15 days before the day of mailing of a notice of redemption of
Debentures selected for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Debenture for all purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
<PAGE> 93
A-7
10. Discharge Prior to Redemption or Maturity.
Under certain circumstances, if the Company deposits with the Trustee
money, U.S. Government Obligations or a combination thereof sufficient to pay
the then outstanding principal of, premium, if any, and accrued interest on the
Debentures to redemption or maturity of the Debentures, the Company may, under
certain circumstances, be discharged from the Indenture and the Debentures,
except in certain circumstances for certain provisions thereof, or from certain
covenants set forth in the Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Debentures then outstanding, and any existing default
or compliance with any provision may be waived with the consent of the Holders
of at least a majority in principal amount of the Debentures then outstanding.
Without notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Debentures to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries, among other things, to incur additional
Indebtedness, make Restricted Payments, issue Preferred Stock of Restricted
Subsidiaries, Guarantee Indebtedness of the Company, engage in transactions with
Affiliates, or merge, consolidate or transfer substantially all of its assets.
Within 45 days after the end of each fiscal quarter (90 days after the end of
the last fiscal quarter of each year), the Company shall deliver to the Trustee
an Officers' Certificate stating whether or not the signers thereof know of any
Default or Event of Default under such restrictive covenants.
13. Successor Persons.
When a successor person or other entity assumes all the obligations of
its predecessor under the Debentures and the Indenture, the predecessor person
will be released from those obligations.
14. Defaults and Remedies.
Any of the following events constitutes an "Event of Default" under the
Indenture:
<PAGE> 94
A-8
(i) the failure to pay interest on the Debentures when the
same becomes due and payable and the Default continues for a period of
30 days (whether or not such payment is prohibited by the provisions of
Article Ten);
(ii) the failure to pay principal of or premium, if any, on
any Debentures when such principal or premium, if any, becomes due and
payable, at maturity, upon redemption or otherwise (whether or not such
payment is prohibited by the provisions of Article Ten);
(iii) a default in the observance or performance of any other
covenant or agreement contained in the Debentures or this Indenture,
which default continues for a period of 60 days after the Company
receives written notice thereof specifying the default from the Trustee
or holders of at least 30% in aggregate principal amount of outstanding
Debentures;
(iv) the failure to pay at the final stated maturity (after
giving effect to any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness, if the aggregate principal amount of such Indebtedness,
together with the aggregate principal amount of any other such
Indebtedness in default for failure to pay principal at the final
stated maturity (giving effect to any extensions thereof) or which has
been accelerated, aggregates $20 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of
$20 million (which are not covered by insurance as to which the insurer
has not disclaimed coverage) being rendered against the Company or any
of its Significant Restricted Subsidiaries and such judgment or
judgments remain undischarged or unstayed for a period of 60 days after
such judgment or judgments become final and nonappealable;
(vi) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company or any of its
Significant Restricted Subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency or other similar law for relief of
debtors now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any of its Significant Restricted
Subsidiaries or for all or substantially all of the property and assets
of the Company or any of its Significant Restricted Subsidiaries or (C)
the winding up or liquidation of the affairs of the Company or any of
its Significant Restricted Subsidiaries and, in each case, such decree
or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(vii) the Company or any of its Significant Restricted
Subsidiaries (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law for relief of debtors now
or hereafter in effect, or consents to the entry of an order for relief
in an
<PAGE> 95
A-9
involuntary case under any such law, (B) consents to the appointment of
or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of the Company or any of its
Significant Restricted Subsidiaries or for all or substantially all of
the property and assets of the Company or any of its Significant
Restricted Subsidiaries or (C) effects any general assignment for the
benefit of creditors.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 30%
in aggregate principal amount of the Debentures then outstanding shall, declare
all the Debentures to be due and payable. If a bankruptcy or insolvency default
with respect to the Company occurs and is continuing, the Debentures
automatically become due and payable. Holders may not enforce the Indenture or
the Debentures except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Debentures.
Subject to certain limitations, Holders of at least a majority in principal
amount of the Debentures then outstanding may direct the Trustee in its exercise
of any trust or power.
15. Subordination.
The payment of the Debentures will, to the extent set forth in the
Indenture, be subordinated in right of payment to the prior payment in full, in
cash, of all Senior Indebtedness.
16. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No incorporator or any past, present or future partner, stockholder,
other equityholder, officer, director, employee or controlling person, as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under the Debentures or the Indenture or for any
claim based on, in respect of or by reason of, such obligations or their
creation. Each Holder by accepting a Debenture waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Debentures.
18. Authentication.
This Debenture shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Debenture.
<PAGE> 96
A-10
19. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish a copy of the Indenture to any Holder upon
written request and without charge. Requests may be made to Regal Cinemas, Inc.,
7132 Commercial Park Drive, Knoxville, Tennessee 37918; Attention:
Chief Financial Officer.
<PAGE> 97
A-11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- --------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- --------------------------------------------------------------------------------
the within Debenture and all rights thereunder, hereby irrevocably constituting
and appointing
attorney
- --------------------------------------------------------------------
to transfer said Debenture on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL DEBENTURES OTHER THAN EXCHANGE DEBENTURES,
UNLEGENDED OFFSHORE GLOBAL DEBENTURES AND
UNLEGENDED OFFSHORE PHYSICAL DEBENTURES]
In connection with any transfer of this Debenture occurring prior to
the date which is the earlier of (i) the date the Shelf Registration Statement
is declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
[ ] (a) this Debenture is being transferred in compliance with the exemption
from registration under the Securities Act of 1933 provided by Rule
144A thereunder.
or
[ ] (b) this Debenture is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Debenture and the Indenture.
<PAGE> 98
A-12
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Debenture in the name of any Person other than
the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:
--------------- -----------------------------------------------------
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
Signature Guarantee:
---------------------------------
Signature must be guaranteed by a participant in a recognized signature guaranty
medallion program or other signature guarantor acceptable to the Trustee.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Debenture for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933 and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Date:
--------------- -----------------------------------------------------
NOTICE: To be executed by an executive officer
<PAGE> 99
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Debenture purchased by the Company pursuant to
Section 4.07 of the Indenture, check the Box: [ ]
If you wish to have a portion of this Debenture purchased by the
Company pursuant to Section 4.07 of the Indenture, state the amount:
$___________________.
Date:
---------------
Your Signature:
-----------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Debenture)
Signature Guarantee:
--------------------------------
Signature must be guaranteed by a participant in a recognized signature guaranty
medallion program or other signature guarantor acceptable to the Trustee.
<PAGE> 100
EXHIBIT B
Form of Certificate
,
----------------- --
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Administration
Regal Cinemas, Inc.
7132 Commercial Park Drive
Knoxville, Tennessee 37918
Attention: Chief Financial Officer
Re: Regal Cinemas, Inc. (the "Company")
8 7/8% Senior Subordinated Debentures due 2010 (the "Debentures")
Dear Sirs:
This letter relates to U.S. $______ principal amount of Debentures
represented by a Debenture (the "Legended Debenture") which bears a legend
outlining restrictions upon transfer of such Legended Debenture. Pursuant to
Section 2.02 of the Indenture dated as of December 16, 1998 (the "Indenture")
relating to the Debentures, we hereby certify that we are (or we will hold such
securities on behalf of) a person outside the United States to whom the
Debentures could be transferred in accordance with Rule 904 of Regulation S
promulgated under the U.S. Securities Act of 1933. Accordingly, you are hereby
requested to exchange the legended certificate for an unlegended certificate
representing an identical principal amount of Debentures, all in the manner
provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
--------------------------------------
Authorized Signatory
<PAGE> 101
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
,
---------------- ---
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Administration
Re: Regal Cinemas, Inc. (the "Company")
8 7/8% Senior Subordinated Debentures due 2010 (the "Debentures")
Dear Sirs:
In connection with our proposed purchase of $__________________
aggregate principal amount of the Debentures, we confirm that:
1. We understand that any subsequent transfer of the Debentures is
subject to certain restrictions and conditions set forth in the Indenture dated
as of December 16, 1998 (the "Indenture") relating to the Debentures and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Debentures except in compliance with such restrictions and
conditions and the Securities Act of 1933, amended (the "Securities Act").
2. We understand that the offer and sale of the Debentures have not been
registered under the Securities Act, and that the Debentures may not be offered
or sold except as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell any Debentures within the time period referred to
in Rule 144(k) of the Securities Act, we will do so only (A) to the Company or
any subsidiary thereof, (B) in accordance with Rule 144A under the Securities
Act to a "qualified institutional buyer" (as defined therein), (C) to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
you and to the Company a signed letter substantially in the form of this letter
and, if such transfer is in respect of an aggregate principal amount of less
than $100,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act, (D) outside the United States
in accordance with Rule 904 of Regulation S under the Securities Act, (E)
pursuant to the exemption from registration provided by Rule 144 under the
Securities Act (if available) or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to any
person purchasing any of the Debentures
<PAGE> 102
C-2
from us a notice advising such purchaser that resales of the Debentures are
restricted as stated herein.
3. We understand that, on any proposed resale of any Debentures, we will
be required to furnish to you and the Company such certifications, legal
opinions and other information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing restrictions. We
further understand that the Debentures purchased by us will bear a legend to the
foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Debentures, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or its investment.
5. We are acquiring the Debentures purchased by us for our own account
or for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
--------------------------------------
Authorized Signatory
<PAGE> 103
EXHIBIT D
Form of Certificate to Be Delivered in
Connection with Transfers Pursuant to Regulation S
,
--------------- ---
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Corporate Administration
Re: Regal Cinemas, Inc.(the "Company")
8 7/8% Senior Subordinated Debentures due 2010 (the "Debentures")
Dear Sirs:
In connection with our proposed sale of U.S. $___________ aggregate
principal amount of the Debentures, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of 1933
and, accordingly, we represent that:
(1) the offer of the Debentures was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
--------------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 10.18
EXECUTION COPY
- -------------------------------------------------------------------------------
PLACEMENT AGREEMENT
$200,000,000
REGAL CINEMAS, INC.
8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010
December 9, 1998
- ------------------------------------------------------------------------------
<PAGE> 2
December 9, 1998
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Ladies and Gentlemen:
Regal Cinemas, Inc., a Tennessee corporation (the "COMPANY"),
proposes to issue and sell to Morgan Stanley & Co. Incorporated and Donaldson,
Lufkin & Jenrette Securities Corporation (the "PLACEMENT AGENTS") $200,000,000
million principal amount of its 8 7/8% Senior Subordinated Debentures due 2010
(the "SECURITIES") to be issued pursuant to the provisions of an Indenture dated
as of December 16, 1998 (the "INDENTURE") between the Company and IBJ Schroder
Bank & Trust Company, as Trustee (the "TRUSTEE"). Capitalized terms used herein
not otherwise defined herein shall have the meanings given such terms in the
Final Memorandum (as defined below).
The Securities will be offered without being registered under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to "qualified
institutional buyers" in compliance with the exemption from registration
provided by Rule 144A under the Securities Act ("QIBS"), in offshore
transactions in reliance on Regulation S under the Securities Act ("REGULATION
S") and to institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) ("INSTITUTIONAL ACCREDITED INVESTORS")
that deliver a letter in the form of Annex A to the Final Memorandum.
The Placement Agents and their direct and indirect transferees
will be entitled to the benefits of a Registration Rights Agreement dated the
Closing Date between the Company and the Placement Agents (the "REGISTRATION
RIGHTS AGREEMENT").
In connection with the sale of the Securities, the Company has
prepared an offering memorandum (the "FINAL MEMORANDUM") including a description
of the terms of the Securities, the terms of the Offering and a description of
the Company.
1. Representations and Warranties. The Company represents and
warrants to, and agrees with, you that:
(a) The Final Memorandum in the form provided by the Company
to the Placement Agents to confirm sales and on the Closing Date (as
defined in Section 4), will not contain any untrue statement of a
material fact or omit to state a material fact
<PAGE> 3
2
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph do not
apply to statements or omissions in such Final Memorandum based upon
information relating to any Placement Agent furnished to the Company in
writing by such Placement Agent through you expressly for use therein.
(b) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Final Memorandum and is duly qualified to transact business and
is in good standing as a foreign corporation in each jurisdiction in
which the conduct of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified or in good standing would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole.
(c) Each Restricted Subsidiary of the Company, including,
without limitation, Act III Cinemas, Inc., a Delaware corporation ("Act
III"), has been duly incorporated, is validly existing as a corporation
in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Final
Memorandum and is duly qualified to transact business and is in good
standing as a foreign corporation in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so
qualified or in good standing would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole; all of the
issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly by the Company, free and clear of
all liens, encumbrances, equities or claims other than those described
in the Final Memorandum.
(d) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) The Securities have been duly authorized and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Placement Agents in
accordance with the terms of this Agreement, will be valid and binding
obligations of the Company, enforceable in accordance with their terms,
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity and
insofar as the same contains any waiver of usury laws as to
enforceability, and will be entitled to the benefits of the Indenture
and the Registration Rights Agreement.
<PAGE> 4
3
(f) The Indenture has been duly authorized by the Company, and
when executed and delivered by the Company will be a valid and binding
agreement of the Company, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally and general principles of equity and
insofar as the same contains any waiver of usury laws as to
enforceability.
(g) The Registration Rights Agreement has been duly authorized
by the Company, and when executed and delivered by the Company will be
a valid and binding agreement of the Company, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally and general principles of
equity and except as rights to indemnification and contribution under
the Registration Rights Agreement may be limited under applicable law.
(h) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Indenture, the Registration Rights Agreement and the Securities
will not contravene any provision of applicable law or the certificate
of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, the Indenture, the
Registration Rights Agreement or the Securities, except those already
obtained and such as may be required by the securities or Blue Sky laws
of the various states in connection with the offer and sale of the
Securities and by federal and state securities laws with respect to the
Company's obligations under the Registration Rights Agreement.
(i) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Final Memorandum.
(j) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the
business of the Company and its subsidiaries, taken as a whole, in each
case free and clear of all liens, encumbrances and defects except such
as are described in the Final Memorandum or such as do not materially
affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries which are material to the business
<PAGE> 5
4
of the Company and its subsidiaries, taken as a whole, are held by them
under valid and subsisting leases with such exceptions as are not
material to the business of the Company and its subsidiaries, taken as
a whole, and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries, in
each case except as described in the Final Memorandum.
(k) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened to which the Company or any
of its subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject other than proceedings
accurately described in all material respects in the Final Memorandum
and proceedings that would not reasonably be expected to have a
material adverse effect on the Company and its subsidiaries, taken as a
whole, or on the power or ability of the Company to perform its
obligations under this Agreement, the Indenture, the Registration
Rights Agreement or the Securities.
(l) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not reasonably be expected, singly or in
the aggregate, to have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would reasonably be expected,
singly or in the aggregate, to have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(o) The Company is not, and after giving effect to the
offering and sale of the Securities and the application of the proceeds
thereof as described in the Final Memorandum, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
<PAGE> 6
5
(p) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act, an "AFFILIATE") of the
Company has directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any
security (as defined in the Securities Act) which is or will be
integrated with the sale of the Securities in a manner that would
require the registration under the Securities Act of the Securities or
(ii) engaged in any form of general solicitation or general advertising
in connection with the offering of the Securities (as those terms are
used in Regulation D under the Securities Act), or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act.
(q) None of the Company, its Affiliates or any person acting
on its or their behalf has engaged or will engage in any directed
selling efforts (within the meaning of Regulation S) with respect to
the Securities and the Company and its Affiliates and any person acting
on its or their behalf have complied and will comply with the offering
restrictions requirement of Regulation S, except no representation,
warranty or agreement is made by the Company in this paragraph with
respect to the Placement Agents.
(r) Assuming the truth of representations and warranties of
the Placement Agents in this Agreement, it is not necessary in
connection with the offer, sale and delivery of the Securities to the
Placement Agents in the manner contemplated by this Agreement to
register the Securities under the Securities Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended.
(s) The Securities satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(t) The Securities conform in all material respects to the
description thereof contained in the Final Memorandum under the heading
"Description of the Debentures."
(u) (i) The merger of an affiliate of Kohlberg Kravis Roberts
& Co. L.P. and an affiliate of Hicks, Muse, Tate & Furst Incorporated
with and into the Company, with the Company continuing as the surviving
corporation, was consummated pursuant to an Agreement and Plan of
Merger dated May 27, 1998, as amended (the "Regal Merger"), (ii) the
merger of a wholly owned subsidiary of the Company with and into Act
III, with Act III surviving as a wholly owned subsidiary of the
Company, was consummated pursuant to an Agreement and Plan of Merger
dated August 26, 1998 (the "Act III Merger", and together with the
Regal Merger, the "Transactions") and (iii) all required consents,
waivers and agreements in connection with the Transactions,
<PAGE> 7
6
including any such consents, waivers and agreements from suppliers and
lessors of Act III, have been obtained, except where the failure to
obtain such consents, waivers or agreements would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(v) The statements in the Final Memorandum will not differ in
any material respect from the statements contained in the Offering
Memorandum dated November 4, 1998 for the 9 1/2% Senior Subordinated
Notes due 2008, except for financial statements for the quarter ended
October 1, 1998 included in the Company's quarterly report on Form 10-Q
filed November 16, 1998 and matters described by the Company to the
Placement Agents prior to the date hereof.
2. Agreements to Sell and Purchase. The Company hereby agrees
to sell to the several Placement Agents, and each Placement Agent, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from the Company the respective principal amount of Securities set forth in
Schedule I hereto opposite its name at a purchase price of 97.625% of the
principal amount thereof (the "PURCHASE PRICE") plus accrued interest, if any,
to the Closing Date.
The Company hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Placement Agents,
it will not, during the period beginning on the date hereof and continuing to
and including the Closing Date, offer, sell, contract to sell or otherwise
dispose of any debt of the Company or warrants to purchase debt of the Company
substantially similar to the Securities (other than the sale of the Securities
under this Agreement).
3. Terms of Offering. You have advised the Company that the
Placement Agents will make an offering of the Securities purchased by the
Placement Agents hereunder on the terms to be set forth in the Final Memorandum,
as soon as practicable after this Agreement is entered into as in your judgment
is advisable.
4. Payment and Delivery. Payment for the Securities shall be
made to the Company in Federal or other funds immediately available in New York
City against delivery of such Securities for the respective accounts of the
several Placement Agents at 10:00 a.m., New York City time, on December 16,
1998, or at such other time on the same or such other date, not later than
December 23, 1998, as shall be designated in writing by you. The time and date
of such payment are hereinafter referred to as the "CLOSING DATE."
Certificates for the Securities shall be in definitive form or
global form, as specified by you, and registered in such names and in such
denominations as you shall request
<PAGE> 8
7
in writing not later than one full business day prior to the Closing Date. The
certificates evidencing the Securities shall be delivered to you on the Closing
Date for the respective accounts of the several Placement Agents, with any
transfer taxes payable in connection with the transfer of the Securities to the
Placement Agents duly paid, against payment of the Purchase Price therefor plus
accrued interest, if any, to the Closing Date.
5. Conditions to the Placement Agents' Obligations. The
several obligations of the Placement Agents to purchase and pay for the
Securities on the Closing Date are subject to the following conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded for the Company's 9 1/2% Senior
Subordinated Notes due 2008 issued on May 27, 1998, the
Company's 9 1/2% Senior Subordinated Notes due 2008 issued on
November 10, 1998 or any of the Company's other securities by
any "nationally recognized statistical rating organization,"
as such term is defined for purposes of Rule 436(g)(2) under
the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Final Memorandum (exclusive
of any amendments or supplements thereto subsequent to the
date of this Agreement) that, in your judgment, is material
and adverse and that makes it, in your judgment, impracticable
to market the Securities on the terms and in the manner
contemplated in the Final Memorandum.
(b) The Placement Agents shall have received on the Closing
Date a certificate, dated the Closing Date and signed by an executive
officer of the Company, to the effect set forth in Section 5(a)(i) and
to the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and the Company has complied with all of the agreements and satisfied
all of the conditions on its part to be performed or satisfied
hereunder on or before the Closing Date.
<PAGE> 9
8
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(c) The Placement Agents shall have received on the Closing
Date an opinion of Bass Berry & Sims PLC, local counsel for the
Company, dated the Closing Date, to the effect set forth in Exhibit A.
Such opinion shall be rendered to the Placement Agents at the request
of the Company and shall so state therein.
(d) The Placement Agents shall have received on the Closing
Date an opinion of Weil, Gotshal & Manges LLP, outside counsel for the
Company, dated the Closing Date, to the effect set forth in Exhibit B.
Such opinion shall be rendered to the Placement Agents at the request
of the Company and shall so state therein.
(e) The Placement Agents shall have received on the Closing
Date an opinion of Shearman & Sterling, counsel for the Placement
Agents, dated the Closing Date, in form and substance satisfactory to
you.
(f) The Placement Agents shall have received on the Closing
Date a letter, dated the Closing Date, in form and substance
satisfactory to the Placement Agents, from PricewaterhouseCoopers LLP,
independent public accountants for the Company, containing statements
and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Final
Memorandum for each of the three years in the period ended January 1,
1998 and the six month period ended July 2, 1998; provided that the
letter delivered on the Closing Date shall use a "cut-off date" not
earlier than the date hereof.
(g) The Placement Agents shall have received on the Closing
Date a letter, dated the Closing Date, in form and substance
satisfactory to the Placement Agents, from Deloitte & Touche LLP,
independent public accountants for the Company, containing statements
and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Final
Memorandum for the three month period ended October 1, 1998; provided
that the letter delivered on the Closing Date shall use a "cut-off
date" not earlier than the date hereof.
(h) The Placement Agents shall have received on the Closing
Date a letter, dated the Closing Date, in form and substance
satisfactory to the Placement Agents, from PricewaterhouseCoopers LLP,
independent public accountants for Act III, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain
<PAGE> 10
9
financial information contained in the Final Memorandum for the year
ended December 31, 1996; provided that the letter delivered on the
Closing Date shall use a "cut-off date" not earlier than the date
hereof.
(i) The Placement Agents shall have received on the Closing
Date a letter, dated the Closing Date, in form and substance
satisfactory to the Placement Agents, from Deloitte & Touche LLP,
independent public accountants for Act III, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Final Memorandum for
each of the years in the two year period ended December 31, 1998, for
the six month period ended June 30, 1998, and for the period from July
1, 1998 through August 26, 1998; provided that the letter delivered on
the Closing Date shall use a "cut-off date" not earlier than the date
hereof.
(j) The Indenture and the Registration Rights Agreement shall
have been executed by the parties thereto and shall be in full force
and effect on the Closing Date.
(k) The Placement Agents shall have received such other
documents and certificates as are reasonably requested by you or your
counsel.
6. Covenants of the Company. In further consideration of the
agreements of the Placement Agents contained in this Agreement, the Company
covenants with each Placement Agent as follows:
(a) To furnish to you in New York City, without charge, prior
to 10:00 a.m. New York City time on the business day next succeeding
the date of this Agreement and during the period mentioned in Section
6(c), as many copies of the Final Memorandum and any supplements and
amendments thereto as you may reasonably request.
(b) Before amending or supplementing the Final Memorandum, to
furnish to you a copy of each such proposed amendment or supplement and
not to use any such proposed amendment or supplement to which you
reasonably object.
(c) If, during such period after the date hereof and prior to
the date on which all of the Securities shall have been sold by the
Placement Agents, any event shall occur or condition shall exist as a
result of which it is necessary to amend or supplement the Final
Memorandum in order to make the statements therein, in the light of the
circumstances when the Final Memorandum is delivered to a purchaser,
not misleading, or if, in the opinion of counsel for the Placement
Agents, it is necessary to amend or supplement the Final Memorandum to
comply with applicable law, forthwith
<PAGE> 11
10
to prepare and furnish, at the Company's own expense, to the Placement
Agents, either amendments or supplements to the Final Memorandum so
that the statements in the Final Memorandum as so amended or
supplemented will not, in the light of the circumstances when the Final
Memorandum is delivered to a purchaser, be misleading or so that the
Final Memorandum, as amended or supplemented, will comply with
applicable law.
(d) To endeavor to qualify the Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request.
(e) Whether or not any sale of the Securities is consummated
or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
issuance and sale of the Securities and all other fees or expenses in
connection with the preparation of the Final Memorandum and all
amendments and supplements thereto, including all printing costs
associated therewith, and the delivering of copies thereof to the
Placement Agents, in the quantities herein above specified, (ii) all
costs and expenses related to the transfer and delivery of the
Securities to the Placement Agents, including any transfer or other
taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or legal investment memorandum in connection with the offer and
sale of the Securities under state securities laws and all expenses in
connection with the qualification of the Securities for offer and sale
under state securities laws as provided in Section 6(d) hereof,
including filing fees and the reasonable fees and disbursements of
counsel for the Placement Agents in connection with such qualification
and in connection with the Blue Sky or legal investment memorandum,
(iv) any fees charged by rating agencies for the rating of the
Securities, (v) all document production charges and expenses of counsel
for the Placement Agents (but not including their fees for professional
services) in connection with the preparation of this Agreement, (vi)
the fees and expenses, if any, incurred in connection with the
admission of the Securities for trading in PORTAL or any appropriate
market system, (vii) the costs and charges of the Trustee and any
transfer agent, registrar or depositary, (viii) the cost of the
preparation, issuance and delivery of the Securities, and (ix) all
other costs and expenses incident to the performance of the obligations
of the Company hereunder for which provision is not otherwise made in
this Section. It is understood, however, that except as provided in
this Section, Section 8, and the last paragraph of Section 10, the
Placement Agents will pay all of their costs and expenses, including
fees and disbursements of their counsel, transfer taxes payable on
resale of any of the Securities by them and any advertising expenses
connected with any offers they may make.
<PAGE> 12
11
(f) Neither the Company nor any Affiliate will sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) which could be integrated
with the sale of the Securities in a manner which would require the
registration under the Securities Act of the Securities.
(g) Not to solicit any offer to buy or offer or sell the
Securities by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the
Securities Act) or in any manner involving a public offering within the
meaning of Section 4(2) of the Securities Act.
(h) While any of the Securities remain "restricted securities"
within the meaning of the Securities Act, to make available, upon
request, to any seller of the Securities the information specified in
Rule 144A(d)(4) under the Securities Act, unless the Company is then
subject to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT").
(i) If requested by you, to use its best efforts to permit the
Securities to be designated PORTAL securities in accordance with the
rules and regulations adopted by the National Association of Securities
Dealers, Inc. relating to trading in the PORTAL Market.
(j) To refrain from, and to cause its Affiliates or any person
acting on its or their behalf (other than the Placement Agents) to
refrain from, engaging in any directed selling efforts (as that term is
defined in Regulation S) with respect to the Securities, and to comply,
and to cause its Affiliates and each person acting on its or their
behalf (other than the Placement Agents) to comply, with the offering
restrictions requirement of Regulation S.
(k) During the period of two years after the Closing Date, not
to resell, and to cause its Affiliates (as defined in Rule 144 under
the Securities Act) not to resell, any of the Securities which
constitute "restricted securities" under Rule 144 that have been
reacquired by any of them.
7. Offering of Securities; Restrictions on Transfer. (a) Each
Placement Agent, severally and not jointly, represents and warrants that such
Placement Agent is a QIB. Each Placement Agent, severally and not jointly,
represents and warrants to the Company that (i) it has not solicited and will
not solicit offers for, and has not offered or sold and will not offer or sell,
such Securities by any form of general solicitation or general advertising (as
those terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act and (ii) it has solicited and will solicit offers for such Securities only
from, and has offered and will offer such Securities
<PAGE> 13
12
only to, persons that it reasonably believes to be (A) in the case of offers
inside the United States, (1) QIBs or (2) other institutional accredited
investors that, prior to their purchase of the Securities, deliver to such
Placement Agent a letter containing the representations and agreements set forth
in Appendix A to the Final Memorandum and (B) in the case of offers outside the
United States, to persons other than U.S. persons ("FOREIGN PURCHASERS," which
term shall include dealers or other professional fiduciaries in the United
States acting on a discretionary basis for foreign beneficial owners (other than
an estate or trust)) in reliance upon Regulation S under the Securities Act
that, in each case, in purchasing such Securities are deemed to have represented
and agreed as provided in the Final Memorandum under the caption "Transfer
Restrictions."
(b) Each Placement Agent, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales outside the
United States that:
(i) such Placement Agent understands that no action has been
or will be taken in any jurisdiction by the Company that would permit a
public offering of the Securities, or possession or distribution of the
Final Memorandum or any other offering or publicity material relating
to the Securities, in any country or jurisdiction where action for that
purpose is required;
(ii) such Placement Agent will comply with all applicable laws
and regulations in each jurisdiction in which it acquires, offers,
sells or delivers Securities or has in its possession or distributes
the Final Memorandum or any such other material, in all cases at its
own expense;
(iii) the Securities have not been registered under the
Securities Act and may not be offered or sold within the United States
or to, or for the account or benefit of, U.S. persons except in
accordance with Rule 144A or Regulation S under the Securities Act or
pursuant to another exemption from the registration requirements of the
Securities Act;
(iv) such Placement Agent has offered the Securities and will
offer and sell the Securities (A) as part of their distribution at any
time and (B) otherwise until 40 days after the later of the
commencement of the Offering and the Closing Date, only in accordance
with Rule 903 of Regulation S or as otherwise permitted in Section
7(a); accordingly, neither such Placement Agent, its Affiliates nor any
persons acting on its or their behalf have engaged or will engage in
any directed selling efforts (within the meaning of Regulation S) with
respect to the Securities, and any such Placement Agent, its Affiliates
and any such persons have complied and will comply with the offering
restrictions requirement of Regulation S;
<PAGE> 14
13
(v) such Placement Agent has (A) not offered or sold and,
prior to the date six months after the Closing Date, will not offer or
sell any Securities to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995;
(B) complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United
Kingdom; and (C) only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with
the issue of the Securities to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on;
(vi) such Placement Agent understands that the Securities have
not been and will not be registered under the Securities and Exchange
Law of Japan, and represents that it has not offered or sold, and
agrees not to offer or sell, directly or indirectly, any Securities in
Japan or for the account of any resident thereof except pursuant to any
exemption from the registration requirements of the Securities and
Exchange Law of Japan and otherwise in compliance with applicable
provisions of Japanese law; and
(vii) such Placement Agent agrees that, at or prior to
confirmation of sales of the Securities, it will have sent to each
distributor, dealer or person receiving a selling concession, fee or
other remuneration that purchases Securities from it during the
restricted period a confirmation or notice to substantially the
following effect:
"The Securities covered hereby have not been registered under
the U.S. Securities Act of 1933 (the "Securities Act") and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 40 days after the later of the commencement of
the offering and the closing date, except in either case in accordance
with Regulation S (or Rule 144A if available) under the Securities Act.
Terms used above have the meaning given to them by Regulation S."
Terms used in this Section 7(b) have the meanings given to
them by Regulation S.
8. Indemnity and Contribution. (a) The Company agrees to
indemnify and hold harmless each Placement Agent and each person, if any, who
controls any Placement Agent within the meaning of either Section 15 of the
Securities Act or Section 20 of the
<PAGE> 15
14
Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Final Memorandum (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
necessary to make the statements therein in the light of the circumstances under
which they were made not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Placement Agent furnished to the Company in writing by such Placement Agent
through you expressly for use therein.
(b) Each Placement Agent agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Placement Agent, but only with
reference to information relating to such Placement Agent furnished to the
Company in writing by such Placement Agent through you expressly for use in the
Final Memorandum or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 8(a) or 8(b), such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 8(a), and by the Company, in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
be liable for
<PAGE> 16
15
any settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in Section
8(a) or 8(b) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Placement Agents on the
other hand from the offering of the Securities or (ii) if the allocation
provided by clause 8(d)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(d)(i) above but also the relative fault of the Company on the one
hand and of the Placement Agents on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Placement
Agents on the other hand in connection with the offering of the Securities shall
be deemed to be in the same respective proportions as the net proceeds from the
offering of the Securities (before deducting expenses) received by the Company
and the total discounts and commissions received by the Placement Agents in
respect thereof, bear to the aggregate offering price of the Securities. The
relative fault of the Company on the one hand and of the Placement Agents on the
other hand shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Placement Agents and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Placement Agents' respective obligations to contribute pursuant to
<PAGE> 17
16
this Section 8 are several in proportion to the respective principal amount of
Securities they have purchased hereunder, and not joint.
(e) The Company and the Placement Agents agree that it would
not be just or equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation (even if the Placement Agents were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in Section 8(d) shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, no Placement Agent shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities resold by
it in the initial placement of such Securities were offered to investors exceeds
the amount of any damages that such Placement Agent has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in
this Section 8 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Placement Agent or any person
controlling any Placement Agent or by or on behalf of the Company, its officers
or directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Securities.
9. Termination. This Agreement shall be subject to termination
by notice given by you to the Company, if (a) after the execution and delivery
of this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of
<PAGE> 18
17
any of the events specified in clauses 9(a)(i) through 9(a)(iv), such event,
singly or together with any other such event, makes it, in your judgment,
impracticable to market the Securities on the terms and in the manner
contemplated in the Final Memorandum.
10. Effectiveness; Defaulting Placement Agents. This Agreement
shall become effective upon the execution and delivery hereof by the parties
hereto.
If, on the Closing Date, any one or more of the Placement
Agents shall fail or refuse to purchase Securities that it or they have agreed
to purchase hereunder on such date, and the aggregate principal amount of
Securities which such defaulting Placement Agent or Placement Agents agreed but
failed or refused to purchase is not more than one-tenth of the aggregate
principal amount of Securities to be purchased on such date, the other Placement
Agents shall be obligated severally in the proportions that the principal amount
of Securities set forth opposite their respective names in Schedule I bears to
the aggregate principal amount of Securities set forth opposite the names of all
such non-defaulting Placement Agents, or in such other proportions as you may
specify, to purchase the Securities which such defaulting Placement Agent or
Placement Agents agreed but failed or refused to purchase on such date; provided
that in no event shall the principal amounts of Securities that any Placement
Agent has agreed to purchase pursuant to this Agreement be increased pursuant to
this Section 10 by an amount in excess of one-ninth of such principal amount of
Securities without the written consent of such Placement Agent. If, on the
Closing Date any Placement Agent or Placement Agents shall fail or refuse to
purchase Securities which it or they have agreed to purchase hereunder on such
date and the aggregate principal amount of Securities with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of
Securities to be purchased on such date, and arrangements satisfactory to you
and the Company for the purchase of such Securities are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Placement Agent or of the Company. In any such case either
you or the Company shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any, in
the Final Memorandum or in any other documents or arrangements may be effected.
Any action taken under this paragraph shall not relieve any defaulting Placement
Agent from liability in respect of any default of such Placement Agent under
this Agreement.
If this Agreement shall be terminated by the Placement Agents,
or any one of them, because of any failure or refusal on the part of the Company
to comply with the terms or to fulfill any of the conditions of this Agreement,
or if for any reason the Company shall be unable to perform its obligations
under this Agreement, the Company will reimburse the Placement Agents or such
Placement Agents as have so terminated this Agreement with respect to
themselves, severally, for all out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by the Placement Agents in
connection with this Agreement or the offering contemplated hereunder.
<PAGE> 19
18
11. Notices. All notices and other communications under this
Agreement shall be in writing and mailed, delivered or sent by facsimile
transmission to: if sent to the Placement Agents, Morgan Stanley & Co.
Incorporated, 1585 Broadway, New York, New York 10036, attention: High Yield New
Issues Group, facsimile number (212) 761-0587, and if sent to the Company, Regal
Cinemas, Inc., attention: Chief Financial Officer, facsimile number (423)
922-6085.
12. Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
14. Headings. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
<PAGE> 20
Very truly yours,
REGAL CINEMAS, INC.
By: /s/ D. MARK MONROE
----------------------------------
Name: D. Mark Monroe
Title: Vice President
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Acting on behalf of themselves and
the several Placement Agents named in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By: /s/ CLIFTON E. STRAIN
--------------------------------------
Name: Clifton E. Strain
Title: Principal
<PAGE> 21
<TABLE>
<CAPTION>
SCHEDULE I
PRINCIPAL AMOUNT OF
PLACEMENT AGENT SECURITIES TO BE PURCHASED
--------------- --------------------------
<S> <C>
Morgan Stanley & Co. Incorporated..................................... $140,000,000
Donaldson, Lufkin & Jenrette Securities Corporation................... 60,000,000
-------------
Total................................................................. $200,000,000
============
</TABLE>
<PAGE> 22
EXHIBIT A
OPINION OF LOCAL COUNSEL
FOR THE COMPANY
Attach draft opinion of the counsel for the Company to be
delivered pursuant to Section 5(c) of the Placement Agreement to the effect
that:
A. The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Final Memorandum and is duly qualified
to transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
B. Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Final Memorandum
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure to
be so qualified or in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole; all of the issued shares of
capital stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable, and are owned directly
by the Company, free and clear of all liens, encumbrances, equities or claims.
C. The Placement Agreement has been duly authorized, executed and
delivered by the Company.
D. The Securities have been duly authorized by the Company.
E. Each of the Indenture and Registration Rights Agreement has been
duly authorized, executed and delivered by the Company.
F. After due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject other than proceedings fairly summarized in
all material respects in the Final Memorandum and proceedings which such counsel
believes are not likely to have a material adverse effect on the
<PAGE> 23
A-2
Company and its subsidiaries, taken as a whole, or on the power or ability of
the Company to perform its obligations under the Placement Agreement, the
Indenture, the Registration Rights Agreement or the Securities or to consummate
the transactions contemplated by the Final Memorandum.
<PAGE> 1
EXHIBIT 10.19
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated December 16, 1998
between
REGAL CINEMAS, INC.
and
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
- --------------------------------------------------------------------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into December 16, 1998, between REGAL CINEMAS, INC., a Tennessee
corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION (the "Placement Agents").
This Agreement is made pursuant to the Placement Agreement
dated December 9, 1998, between the Company and the Placement Agents (the
"Placement Agreement"), which provides for the sale by the Company to the
Placement Agents of an aggregate of $200,000,000 principal amount of the
Company's 8 7/8% Senior Subordinated Debentures Due 2010 (the "Securities"). In
order to induce the Placement Agents to enter into the Placement Agreement, the
Company has agreed to provide to the Placement Agents and their direct and
indirect transferees the registration rights set forth in this Agreement. The
execution of this Agreement is a condition to the closing under the Placement
Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended
from time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Closing Date" shall mean the Closing Date as defined in the
Placement Agreement.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Exchange Offer" shall mean the exchange offer by the Company
of Exchange Securities for Registrable Securities pursuant to Section
2(a) hereof.
"Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Section 2(a) hereof.
<PAGE> 3
2
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such
registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by
reference therein.
"Exchange Securities" shall mean securities issued by the
Company under the Indenture containing terms identical to the
Securities (except that the Exchange Securities will not contain
restrictions on transfer) and to be offered to Holders of Securities in
exchange for Securities pursuant to the Exchange Offer.
"Holder" shall mean the Placement Agents, for so long as they
own any Registrable Securities, and each of their successors, assigns
and direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture; provided that for purposes
of Sections 4 and 5 of this Agreement, the term "Holder" shall include
Participating Broker-Dealers (as defined in Section 4(a)).
"Indenture" shall mean the Indenture relating to the
Securities dated as of May 27, 1998 between the Company and IBJ
Schroder Bank and Trust Company, as trustee, and as the same may be
amended from time to time in accordance with the terms thereof.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities;
provided that whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or any of its affiliates (as
such term is defined in Rule 405 under the 1933 Act) (other than the
Placement Agents or subsequent Holders of Registrable Securities if
such subsequent holders are deemed to be such affiliates solely by
reason of their holding of such Registrable Securities) shall not be
counted in determining whether such consent or approval was given by
the Holders of such required percentage or amount.
"Person" shall mean an individual, partnership, limited
liability company, corporation, trust or unincorporated organization,
or a government or agency or political subdivision thereof.
"Placement Agents" shall have the meaning set forth in the
preamble.
"Placement Agreement" shall have the meaning set forth in the
preamble.
<PAGE> 4
3
"Prospectus" shall mean the prospectus included in a
Registration Statement and any such prospectus as amended or
supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of
the Registrable Securities covered by a Shelf Registration Statement,
and by all other amendments and supplements to such prospectus, and in
each case including all material incorporated by reference therein.
"Registrable Securities" shall mean the Securities; provided,
however, that the Securities shall cease to be Registrable Securities
(i) when a Registration Statement with respect to such Securities shall
have been declared effective under the 1933 Act and such Securities
shall have been disposed of pursuant to such Registration Statement,
(ii) when such Securities have been sold to the public pursuant to Rule
144(k) (or any similar provision then in force, but not Rule 144A)
under the 1933 Act or (iii) when such Securities shall have ceased to
be outstanding.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company with this
Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc. registration and
filing fees, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws (including reasonable
fees and disbursements of counsel for any underwriters or Holders in
connection with blue sky qualification of any of the Exchange
Securities or Registrable Securities), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any Prospectus,
any amendments or supplements thereto, any underwriting agreements,
securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi)
the fees and disbursements of the Trustee and its counsel, (vii) the
fees and disbursements of counsel for the Company and, in the case of a
Shelf Registration Statement, the fees and disbursements of one counsel
for the Holders (which counsel shall be selected by the Majority
Holders and which counsel may also be counsel for the Placement Agents)
and (viii) the fees and disbursements of the independent public
accountants of the Company, including the expenses of any special
audits or "cold comfort" letters required by or incident to such
performance and compliance, but excluding fees and expenses of counsel
to the underwriters (other than fees and expenses set forth in clause
(ii) above) or the Holders and underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of
Registrable Securities by a Holder.
"Registration Statement" shall mean any registration statement
of the Company that covers any of the Exchange Securities or
Registrable Securities pursuant to the
<PAGE> 5
4
provisions of this Agreement and all amendments and supplements to any
such Registration Statement, including post-effective amendments, in
each case including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Securities" shall have the meaning set forth in the preamble.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of
Section 2(b) of this Agreement which covers all of the Registrable
Securities (but no other securities unless approved by the Holders
whose Registrable Securities are covered by such Shelf Registration
Statement) on an appropriate form under Rule 415 under the 1933 Act, or
any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
"Trustee" shall mean the trustee with respect to the
Securities under the Indenture.
"Underwriter" shall have the meaning set forth in Section 3
hereof.
"Underwritten Registration" or "Underwritten Offering" shall
mean a registration in which Registrable Securities are sold to an
Underwriter for reoffering to the public.
2. Registration Under the 1933 Act.
(a) To the extent not prohibited by any applicable law or
applicable interpretation of the Staff of the SEC, the Company shall use its
reasonable best efforts to cause to be filed an Exchange Offer Registration
Statement covering the offer by the Company to the Holders to exchange all of
the Registrable Securities for Exchange Securities and to have such Registration
Statement remain effective until the closing of the Exchange Offer. The Company
shall commence the Exchange Offer promptly after the Exchange Offer Registration
Statement has been declared effective by the SEC and use its reasonable best
efforts to have the Exchange Offer consummated not later than 60 days after such
effective date. The Company shall commence the Exchange Offer by mailing the
related exchange offer Prospectus and
<PAGE> 6
5
accompanying documents to each Holder stating, in addition to such other
disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities
validly tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a
period of at least 20 business days from the date such notice is
mailed) (the "Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security
exchanged pursuant to the Exchange Offer will be required to surrender
such Registrable Security, together with the enclosed letters of
transmittal, to the institution and at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice
prior to the close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election,
not later than the close of business on the last Exchange Date, by
sending to the institution and at the address (located in the Borough
of Manhattan, The City of New York) specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for
exchange and a statement that such Holder is withdrawing his election
to have such Securities exchanged.
As soon as practicable after the last Exchange Date, the
Company shall:
(i) accept for exchange Registrable Securities or portions
thereof tendered and not validly withdrawn pursuant to the Exchange
Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted
for exchange by the Company and issue, and cause the Trustee to
promptly authenticate and mail to each Holder, an Exchange Security
equal in principal amount to the principal amount of the Registrable
Securities surrendered by such Holder.
The Company shall use its reasonable best efforts to complete the Exchange Offer
as provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and
<PAGE> 7
6
other applicable laws and regulations in connection with the Exchange Offer. The
Exchange Offer shall not be subject to any conditions, other than that the
Exchange Offer does not violate applicable law or any applicable order or
interpretation of the Staff of the SEC. The Company shall inform the Placement
Agents of the names and addresses of the Holders to whom the Exchange Offer is
made, and the Placement Agents shall have the right, subject to applicable law,
to contact such Holders and otherwise facilitate the tender of Registrable
Securities in the Exchange Offer. Each Holder who participates in the Exchange
Offer will be required to represent that any Exchange Securities received by it
will be acquired in the ordinary course of its business, that at the time of the
consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any person to participate in the distribution of the Exchange
Securities, and that such Holder is not an affiliate of the Company within the
meaning of Rule 405 promulgated under the 1933 Act or if it is such an
affiliate, that it will comply with the registration and prospectus delivery
requirements of the 1933 Act, to the extent applicable.
(b) In the event that (i) the Company determines that the
Exchange Offer Registration provided for in Section 2(a) above is not available
or may not be consummated as soon as practicable after the last Exchange Date
because it would violate applicable law or the applicable interpretations of the
Staff of the SEC, (ii) the Exchange Offer is not for any other reason
consummated by the 225th day after the Closing Date or (iii) any Holder of
Registrable Securities shall provide the Company prior to the 20th day following
the consummation of the Exchange Offer an opinion of counsel that (A) such
Holder is prohibited by applicable law or applicable interpretation of the Staff
of the SEC from participating in the Exchange Offer, or (B) such Holder may not
resell the Securities acquired by it in the Exchange Offer to the public without
delivering a prospectus and that the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, the Company shall use its reasonable best efforts to cause to be filed
as soon as practicable after such determination date or opinion of counsel is
given to the Company, as the case may be, a Shelf Registration Statement
providing for the sale by the Holders of all of the Registrable Securities and
to have such Shelf Registration Statement declared effective by the SEC. In the
event the Company is required to file a Shelf Registration Statement solely as a
result of the matters referred to in clause (iii) of the preceding sentence, the
Company shall use its reasonable best efforts to file and have declared
effective by the SEC both an Exchange Offer Registration Statement pursuant to
Section 2(a) with respect to all Registrable Securities and a Shelf Registration
Statement (which may be a combined Registration Statement with the Exchange
Offer Registration Statement) with respect to offers and sales of Registrable
Securities after completion of the Exchange Offer. The Company agrees to use its
reasonable best efforts to keep the Shelf Registration Statement continuously
effective until the expiration of the period referred to in Rule 144(k) with
respect to the Registrable Securities or such shorter period that will terminate
when all of the Registrable Securities covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement. The
<PAGE> 8
7
Company further agrees to supplement or amend the Shelf Registration Statement
if required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement or
by the 1933 Act or by any other rules and regulations thereunder for shelf
registration or if reasonably requested by a Holder with respect to information
relating to such Holder, and to use its reasonable best efforts to cause any
such amendment to become effective and such Shelf Registration Statement to
become usable as soon as thereafter practicable. The Company agrees to furnish
to the Holders of Registrable Securities copies of any such supplement or
amendment promptly after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) or Section 2(b). Each
Holder shall pay all underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that, if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume.
(e) Without limiting the remedies available to the Placement
Agents and the Holders, the Company acknowledges that any failure by the Company
to comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Placement Agents or the Holders for
which there is no adequate remedy at law, and that it will not be possible to
measure damages for such injuries precisely. In the event the Exchange Offer is
not consummated and, if required pursuant to Section (b) (i) or (b) (ii) hereof,
the Shelf Registration Statement is not declared effective on or prior to the
225th day after the Closing Date, the interest rate on the Securities will be
increased by .5% per annum until the date the Exchange Offer is consummated or
the Shelf Registration Statement is declared effective by the SEC.
3. Registration Procedures.
In connection with the obligations of the Company with respect
to the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof,
the Company shall as expeditiously as possible:
<PAGE> 9
8
(a) prepare and file with the SEC a Registration Statement on
the appropriate form under the 1933 Act, which form (x) shall be
selected by the Company and (y) shall, in the case of a Shelf
Registration, be available for the sale of the Registrable Securities
by the selling Holders thereof and (z) shall comply as to form in all
material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed
therewith, and use its reasonable best efforts to cause such
Registration Statement to become effective and remain effective in
accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
applicable period and cause each Prospectus to be supplemented by any
required prospectus supplement and, as so supplemented, to be filed
pursuant to Rule 424 under the 1933 Act; to keep each Prospectus
current during the period described under Section 4(3) and Rule 174
under the 1933 Act that is applicable to transactions by brokers or
dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, to counsel for the Placement Agents,
to counsel for the Holders and to each Underwriter of an Underwritten
Offering of Registrable Securities, if any, without charge, as many
copies of each Prospectus and any amendment or supplement thereto and
such other documents as such Holder or Underwriter may reasonably
request, in order to facilitate the public sale or other disposition of
the Registrable Securities; and the Company consents to the use of such
Prospectus and any amendment or supplement thereto in accordance with
this Agreement and applicable law by each of the selling Holders of
Registrable Securities and any such Underwriters in connection with the
offering and sale of the Registrable Securities covered by and in the
manner described in such Prospectus or any amendment or supplement
thereto in accordance with applicable law;
(d) use its reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue
sky" laws of such jurisdictions as any Holder of Registrable Securities
covered by a Registration Statement shall reasonably request in writing
by the time the applicable Registration Statement is declared effective
by the SEC, to cooperate with such Holders in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc. and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate
the disposition in each such jurisdiction of such Registrable
Securities owned by such Holder; provided, however, that the Company
shall not be required to (i) qualify as a foreign corporation or as a
dealer in
<PAGE> 10
9
securities in any jurisdiction where it would not otherwise be required
to qualify but for this Section 3(d), (ii) file any general consent to
service of process or (iii) subject itself to taxation in any such
jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, and if requested by such Holders, counsel for
the Holders promptly and, if requested by any such Holder or its
counsel, confirm such advice in writing (i) when a Registration
Statement has become effective and when any post-effective amendment
thereto has been filed and becomes effective, (ii) of any request by
the SEC or any state securities authority for amendments and
supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities covered
thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and
correct in all material respects or if the Company receives any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation
of any proceeding for such purpose, (v) of the happening of any event
during the period a Shelf Registration Statement is effective which
makes any statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires the making
of any changes in such Registration Statement or Prospectus in order to
make the statements therein not misleading and (vi) of any
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement at
the earliest possible moment and provide immediate notice to each
Holder of the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, without charge, at least one
conformed copy of each Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference
or exhibits thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends and
enable such Registrable Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in
such names as the selling Holders may
<PAGE> 11
10
reasonably request at least one business day prior to the closing of
any sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence
of any event contemplated by Section 3(e)(v) hereof, use its reasonable
best efforts to prepare and file with the SEC a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify the Holders to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and the
Holders hereby agree to suspend use of the Prospectus until the Company
has amended or supplemented the Prospectus to correct such misstatement
or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus, provide copies of such
document to the Placement Agents and their counsel (or, in the case of
a Shelf Registration Statement, the Holders and their counsel) (subject
to, in each case, each such person acknowledging the confidentiality of
the information therein) and make such of the representatives of the
Company as shall be reasonably requested by the Placement Agents or
their counsel (or, in the case of a Shelf Registration Statement, the
Holders or their counsel) available for discussion of such document,
and shall not at any time file or make any amendment to the
Registration Statement, any Prospectus or any amendment of or
supplement to a Registration Statement or a Prospectus, of which the
Placement Agents and their counsel (or, in the case of a Shelf
Registration Statement, the Holders and their counsel) shall not have
previously been advised and furnished a copy or to which the Placement
Agents or their counsel (and, in the case of a Shelf Registration
Statement, the Holders or their counsel) shall reasonably object;
(k) obtain a CUSIP number for all Exchange Securities or
Registrable Securities, as the case may be, not later than the
effective date of a Registration Statement;
(l) to the extent not already qualified pursuant to the
Registration Statement on Form S-4 (File No. 333-64399) filed by the
Company with the SEC on September 28, 1998, as amended on October 14,
1998 and declared effective on October 16, 1998, cause the Indenture to
be qualified under the Trust Indenture Act of 1939, as amended (the
"TIA"), in connection with the registration of the Exchange Securities
or
<PAGE> 12
11
Registrable Securities, as the case may be, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be
required for the Indenture to be so qualified in accordance with the
terms of the TIA and execute, and use its reasonable best efforts to
cause the Trustee to execute, all documents as may be required to
effect such changes and all other forms and documents required to be
filed with the SEC to enable the Indenture to be so qualified in a
timely manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant
to such Shelf Registration Statement, and attorneys and accountants
designated by the Holders, at reasonable times and in a reasonable
manner, all financial and other records, pertinent documents and
properties of the Company, and cause the respective officers, directors
and employees of the Company to supply all information reasonably
requested by any such representative, Underwriter, attorney or
accountant in connection with a Shelf Registration Statement, subject,
to, in each case, each such person acknowledging the confidentiality of
the information made available;
(n) in the case of a Shelf Registration, use its reasonable
best efforts to cause all Registrable Securities to be listed on any
securities exchange or any automated quotation system on which similar
securities issued by the Company are then listed if requested by the
Majority Holders, to the extent such Registrable Securities satisfy
applicable listing requirements;
(o) use its reasonable best efforts to cause the Exchange
Securities or Registrable Securities, as the case may be, to be rated
by two nationally recognized statistical rating organizations (as such
term is defined in Rule 436(g)(2) under the 1933 Act);
(p) if reasonably requested by any Holder of Registrable
Securities covered by a Registration Statement, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information with respect to such Holder as such Holder reasonably
requests to be included therein and (ii) make all required filings of
such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters
to be incorporated in such filing; and
(q) in the case of a Shelf Registration, enter into such
customary agreements and take all such other actions in connection
therewith (including those requested by the Holders of a majority of
the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities including,
but not limited to, an
<PAGE> 13
12
Underwritten Offering and in such connection, (i) to the extent
possible, make such representations and warranties to the Holders and
any Underwriters of such Registrable Securities with respect to the
business of the Company and its subsidiaries, the Registration
Statement, Prospectus and documents incorporated by reference or deemed
incorporated by reference, if any, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in
Underwritten Offerings and confirm the same if and when requested, (ii)
in the case of an Underwritten Offering, obtain opinions of counsel to
the Company (which counsel and opinions, in form, scope and substance,
shall be reasonably satisfactory to the Holders and such Underwriters
and their respective counsel) addressed to each Underwriter of
Registrable Securities, covering the matters customarily covered in
opinions requested in underwritten offerings, (iii) obtain "cold
comfort" letters from the independent certified public accountants of
the Company (and, if necessary, any other certified public accountant
of any subsidiary of the Company, or of any business acquired by the
Company for which financial statements and financial data are or are
required to be included in the Registration Statement) addressed to
each Underwriter and, if permitted by the relevant pronouncements of
the accounting industry, to each selling Holder, of Registrable
Securities, such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters in connection
with Underwritten Offerings, and (iv) deliver such documents and
certificates as may be reasonably requested by the Holders of a
majority in principal amount of the Registrable Securities being sold
or the Underwriters, and which are customarily delivered in
underwritten offerings, to evidence the continued validity of the
representations and warranties of the Company made pursuant to clause
(i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement.
In the case of a Shelf Registration Statement and as a
condition to the inclusion of any Holder's Registrable Securities in such
Registration Statement, the Company may require such Holder of Registrable
Securities to furnish to the Company such information regarding the Holder and
the proposed distribution by such Holder of such Registrable Securities as the
Company may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e)(v) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. If the Company shall give any
such notice to suspend the disposition of Registrable Securities
<PAGE> 14
13
pursuant to a Registration Statement, the Company shall extend the period during
which the Registration Statement shall be maintained effective pursuant to this
Agreement by the number of days during the period from and including the date of
the giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions. Any such suspensions may not exceed 120 days in the aggregate
during any 365-day period.
The Holders of Registrable Securities covered by a Shelf
Registration Statement who desire to do so may sell such Registrable Securities
in an Underwritten Offering. In any such Underwritten Offering, the investment
banker or investment bankers and manager or managers (the "Underwriters") that
will administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
4. Participation of Broker-Dealers in Exchange Offer.
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within the
meaning of the 1933 Act and must deliver a prospectus meeting the requirements
of the 1933 Act in connection with any resale of such Exchange Securities.
The Company understands that it is the Staff's position that
if the Prospectus contained in the Exchange Offer Registration Statement
includes a plan of distribution containing a statement to the above effect and
the means by which Participating Broker-Dealers may resell the Exchange
Securities, without naming the Participating Broker-Dealers or specifying the
amount of Exchange Securities owned by them, such Prospectus may be delivered by
Participating Broker-Dealers to satisfy their prospectus delivery obligation
under the 1933 Act in connection with resales of Exchange Securities for their
own accounts, so long as the Prospectus otherwise meets the requirements of the
1933 Act.
(b) In light of the above, notwithstanding the other
provisions of this Agreement, the Company agrees that the provisions of this
Agreement as they relate to a Shelf Registration other than Sections 3(m) and
3(q), shall also apply to an Exchange Offer Registration to the extent, and with
such reasonable modifications thereto as may be, reasonably requested by the
Placement Agents or by one or more Participating Broker-Dealers, in each case as
provided in clause (ii) below, in order to expedite or facilitate the
disposition of any Exchange Securities by Participating Broker-Dealers
consistent with the positions of the Staff recited in Section 4(a) above;
provided that:
<PAGE> 15
14
(i) the Company shall not be required to amend or supplement
the Prospectus contained in the Exchange Offer Registration Statement,
as would otherwise be contemplated by Section 3(i), for a period
exceeding 180 days after the last Exchange Date (as such period may be
extended pursuant to the penultimate paragraph of Section 3 of this
Agreement) and Participating Broker-Dealers shall not be authorized by
the Company to deliver and shall not deliver such Prospectus after such
period in connection with the resales contemplated by this Section 4;
and
(ii) the application of the Shelf Registration procedures set
forth in Section 3 of this Agreement to an Exchange Offer Registration,
to the extent not required by the positions of the Staff of the SEC or
the 1933 Act and the rules and regulations thereunder, will be in
conformity with the reasonable request to the Company by the Placement
Agents or with the reasonable request in writing to the Company by one
or more broker-dealers who certify to the Placement Agents and the
Company in writing that they anticipate that they will be Participating
Broker-Dealers; and provided further that, in connection with such
application of the Shelf Registration procedures set forth in Section 3
to an Exchange Offer Registration, the Company shall be obligated to
deal only with one entity representing the Participating
Broker-Dealers, which shall be Morgan Stanley & Co. Incorporated unless
it elects not to act as such representative.
(c) The Placement Agents shall have no liability to the
Company or any Holder with respect to any request that it may make pursuant to
Section 4(b) above.
(d) Each Holder who wishes to exchange Securities for Exchange
Securities in the Exchange Offer and who is not a Broker-Dealer shall represent
that it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Securities.
(e) Each Holder who wishes to exchange Securities for Exchange
Securities in the Exchange Offer and who is a Broker-Dealer that will receive
Exchange Securities for its own account in exchange for Securities that were
acquired as a result of market-making activities or other trading activities
shall acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Securities.
5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Placement Agents, each Holder and each Person, if any, who controls any
Placement Agent or any Holder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act, or is under common control with, or is
controlled by, any Placement Agent or any Holder, from and against all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred by such Placement Agent, any Holder or any
such
<PAGE> 16
15
controlling or affiliated Person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Exchange Securities or Registrable
Securities were registered under the 1933 Act, including all documents
incorporated therein by reference, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or caused by any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to the Placement Agents or any Holder furnished to the Company in
writing through Morgan Stanley & Co. Incorporated or any selling Holder
expressly for use therein; provided that the foregoing indemnity agreement with
respect to any Registration Statement or Prospectus shall not inure to the
benefit of any Placement Agent or Holder from whom the person asserting any such
losses, claims, damages or liabilities purchased Securities, or any person
controlling such Placement Agent or Holder, if a copy of the Registration
Statement or Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Placement Agent to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the sale of the
Securities to such person, and if the Registration Statement or Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 3(c) hereof. In connection with any
Underwritten Offering permitted by Section 3, the Company will also indemnify
the Underwriters, if any, selling brokers, dealers and similar securities
industry professionals participating in the distribution, their officers and
directors and each Person who controls such Persons (within the meaning of the
1933 Act and the 1934 Act) to the same extent as provided above with respect to
the indemnification of the Holders, if requested in connection with any
Registration Statement.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Placement Agents and the other
selling Holders, and each of their respective directors, officers who sign the
Registration Statement and each Person, if any, who controls the Company, any
Placement Agent and any other selling Holder within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as
the foregoing indemnity from the Company to the Placement Agents and the
Holders, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
<PAGE> 17
16
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all indemnified parties, and that all
such fees and expenses shall be reimbursed as they are incurred. In any such
case involving the Holders and such Persons who control Holders, such firm shall
be designated in writing by the Majority Holders. In all other cases, such firm
shall be designated by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but,
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party for such fees and expenses of
counsel in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which such indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of
<PAGE> 18
17
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities in such proportion as is appropriate to reflect the
relative fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative fault of the
Company and the Holders shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Holders' respective obligations to contribute
pursuant to this Section 5(d) are several in proportion to the respective
principal amount of Registrable Securities of such Holder that were registered
pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would not be
just or equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, no Holder shall be required to indemnify or
contribute any amount in excess of the amount by which the total price at which
Registrable Securities were sold by such Holder exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 5 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this
Section 5 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Placement Agents, any Holder or any Person controlling any Placement
Agent or any Holder, or by or on behalf of the Company, its officers or
directors or any Person controlling the Company, (iii) acceptance of any of the
Exchange Securities and (iv) any sale of Registrable Securities pursuant to a
Shelf Registration Statement.
<PAGE> 19
18
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered
into, and on or after the date of this Agreement will not enter into, any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's other issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or consent; provided, however, that no amendment, modification,
supplement, waiver or consent to any departure from the provisions of Section 5
hereof shall be effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Placement Agents,
the address set forth in the Placement Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Placement Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(c).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustee, at
the address specified in the Indenture.
<PAGE> 20
19
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Placement Agreement. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof. The
Placement Agents (in its capacity as Placement Agents) shall have no liability
or obligation to the Company with respect to any failure by any other Holder to
comply with, or any breach by any other Holder of, any of the obligations of
such Holder under this Agreement.
(e) Purchases and Sales of Securities. The Company shall not,
and shall use its best efforts to cause its affiliates (as defined in Rule 405
under the 1933 Act) not to, purchase and then resell or otherwise transfer any
Securities.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Placement Agents, on the other hand, and shall have the right to
enforce such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. This Agreement shall be governed by the
laws of the State of New York.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
REGAL CINEMAS, INC.
By: /s/ D. MARK MONROE
-------------------------------
Name: D. Mark Monroe
Title: Vice President
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: Morgan Stanley & Co. Incorporated
By: /s/ CLIFTON E. STRAIN
----------------------------------
Name: Clifton E. Strain
Title: Principal
<PAGE> 1
EXHIBIT 12
<TABLE>
<CAPTION>
Historical Costs
------------------------------------------------------------------------------------------
Fiscal Year Ended Nine Months Ended
--------------------------------------------------------------------- ------------------
December 30, December 29, December 28, January 2, January 1, October 2, October 1,
1993 1994 1995 1997 1998 1997 1998
------------ ------------ ------------ ---------- ---------- ------- -------
(in millions, except for ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes and
loss (gain) on extraordinary item $ 13.8 $ 21.2 $ 30.1 $ 46.7 $ 54.3 $ 35.9 $ (24.0)
Adjustments:
Interest expense 7.0 7.5 10.7 12.8 14.0 9.5 32.8
Amortization of debt issuance costs 0.4 0.3 0.3 0.6 0.5 0.6 1.5
Portion of rent expense related to
Interest cost 9.3 10.8 11.5 13.8 17.9 13.1 18.9
------- ------- ------- ------- ------- ------- -------
Earnings $ 30.5 $ 39.8 $ 52.6 $ 73.9 $ 86.7 $ 59.1 $ 29.2
======= ======= ======= ======= ======= ======= =======
Fixed charges:
Interest expense $ 7.0 $ 7.5 $ 10.7 $ 12.8 $ 14.0 $ 9.5 $ 32.8
Interest capitalized -- 0.4 1.2 1.7 2.6 2.0 3.3
Amortization of debt issuance costs 0.4 0.3 0.3 0.6 0.5 0.6 1.5
Portion of rent expense related to
Interest cost 9.3 10.8 11.5 13.8 17.9 13.1 18.9
------- ------- ------- ------- ------- ------- -------
Fixed charges $ 16.7 $ 19.0 $ 23.7 $ 28.9 $ 35.0 $ 25.2 $ 56.5
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 1.8 2.1 2.2 2.6 2.5 2.3 --
Deficiency of earnings to cover
fixed charges -- -- -- -- -- -- $ 27.3
<CAPTION>
Pro Forma
------------------------
January 1, October 1,
1998 1998
---------- ----------
<S> <C> <C>
Income (loss) before income taxes and
loss (gain) on extraordinary item $ (42.4) $ (51.2)
Adjustments:
Interest expense 117.6 87.3
Amortization of debt issuance costs 3.9 2.9
Portion of rent expense related to
Interest cost 21.4 24.0
------- -------
Earnings $ 100.5 $ 63.0
Fixed charges:
Interest expense $ 117.6 $ 87.3
Interest capitalized 2.7 4.4
Amortization of debt issuance costs 3.9 2.9
Portion of rent expense related to
Interest cost 21.4 24.0
------- -------
Fixed charges $ 145.6 $ 118.6
======= =======
Deficiency of earnings to cover
fixed charges $ 45.1 $ 55.6
</TABLE>
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Regal Cinemas, Inc. on
Form S-4 for $200,000,000 8-7/8% Senior Subordinated Debentures due 2010 of our
report on the financial statements of Act III Cinemas, Inc. dated March 25,
1998, appearing in the Prospectus, which is part of such Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Portland, Oregon
December 29, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Regal Cinemas, Inc. of our report dated
February 28, 1997, relating to the financial statements of Act III Cinemas,
Inc., which appears in such Prospectus. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Portland, Oregon
December 29, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Regal Cinemas, Inc. on Form S-4 of our report dated February 6, 1998, on our
audits of the consolidated financial statements of Regal Cinemas, Inc. as of
January 2, 1997 and January 1, 1998, and for each of the three years in the
period ended January 1, 1998, which report is included in the Annual Report on
Form 10-K of Regal Cinemas, Inc. for the year ended January 1, 1998, filed with
the Securities and Exchange Commission. We also consent to the references to
our firm under the captions "Experts" and "Selected Historical Consolidated
Financial Data."
PricewaterhouseCoopers LLP
Knoxville, Tennessee
December 29, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and (i) to
the use of our report dated July 2, 1997, with respect to the consolidated
financial statements of Cobb Theatres, L.L.C. for the year ended December 31,
1996 included in the Current Report on Form 8-K/A (Amendment No. 1) of Regal
Cinemas, Inc. and (ii) to the use of our report dated October 23, 1996, with
respect to the consolidated financial statements of Cobb Theatres, L.L.C. for
the years ended August 31, 1996 and 1995 included in the Annual Report (Form
10-K) for the year ended August 31, 1996 of Cobb Theatres, L.L.C., filed with
the Securities and Exchange Commission, in this Registration Statement (Form
S-4) and related Prospectus of Regal Cinemas, Inc. for the registration of
$200,000,000 of its 8 7/8% Senior Subordinated Debentures due 2010.
ERNST & YOUNG LLP
Birmingham, Alabama
December 28, 1998
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
------------------------
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-5375195
(State of Incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
ONE STATE STREET, NEW YORK, NEW YORK 10004
(Address of principal executive offices) (Zip code)
</TABLE>
STEPHEN GIURLANDO, ASSISTANT VICE PRESIDENT
IBJ SCHRODER BANK & TRUST COMPANY
ONE STATE STREET
NEW YORK, NEW YORK 10004
(212) 858-2000
(Name, Address and Telephone Number of Agent for Service)
REGAL CINEMAS, INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
TENNESSEE 62-1412720
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7132 COMMERCIAL PARK DRIVE
KNOXVILLE, TN 37918
(Address of principal executive office) (Zip code)
</TABLE>
8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010
(Title of Indenture Securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Two Rector Street, New York, New
York
Federal Deposit Insurance Corporation, Washington, D.C.
Federal Reserve Bank of New York Second District, 33 Liberty
Street, New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
ITEM 2. AFFILIATIONS WITH THE OBLIGORS.
If the obligors are an affiliate of the trustee, describe each such
affiliation.
The obligors are not an affiliate of the trustee.
ITEM 13. DEFAULTS BY THE OBLIGORS.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the obligors are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, state whether there has
been a default under any such indenture or series, identify the indenture or
series affected, and explain the nature of any such default.
None
1
<PAGE> 3
List of exhibits.
List below all exhibits filed as part of this statement of eligibility.
<TABLE>
<C> <S>
*1. -- A copy of the Charter of IBJ Schroder Bank & Trust
Company as amended to date. (See Exhibit 1A to Form T-1,
Securities and Exchange Commission File No. 22-18460).
*2. -- A copy of the Certificate of Authority of the trustee to
Commence Business (Included in Exhibit 1 above).
*3. -- A copy of the Authorization of the trustee to exercise
corporate trust powers, as amended to date (See Exhibit 4
to Form T-1, Securities and Exchange Commission File No.
22-19146).
*4. -- A copy of the existing By-Laws of the trustee, as amended
to date (See Exhibit 4 to Form T-1, Securities and
Exchange Commission File No. 22-19146).
5. -- Not Applicable
6. -- The consent of United States institutional trustee
required by Section 321(b) of the Act.
7. -- A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
</TABLE>
- ---------------
* The Exhibits thus designated are incorporated herein by reference as exhibits
hereto. Following the description of such Exhibits is a reference to the copy
of the Exhibit heretofore filed with the Securities and Exchange Commission,
to which there have been no amendments or changes.
NOTE
In answering any item in this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligors and its directors or
officers, the trustee has relied upon information furnished to it by the
obligors.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Item 2, the answer
to said Item is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an
amendment to this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2
and 16 of this form since to the best knowledge of the trustee as indicated in
Item 13, the obligors are not in default under any indenture under which the
applicant is trustee.
2
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 16th day
of December, 1998.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ STEPHEN J. GIURLANDO
------------------------------------------
Stephen J. Giurlando
Assistant Vice President
3
<PAGE> 5
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the issue by Regal Cinemas, Inc., of
it's 8 7/8% Senior Subordinated Debentures due 2010, we hereby consent that
reports of examinations by Federal, State, Territorial, or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ STEPHEN J. GIURLANDO
------------------------------------------
Stephen J. Giurlando
Assistant Vice President
Dated: December 16, 1998
4
<PAGE> 6
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
OF NEW YORK, NEW YORK
AND FOREIGN AND DOMESTIC SUBSIDIARIES
REPORT AS OF SEPTEMBER 30, 1998
ASSETS
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
--------------
<S> <C> <C>
1. Cash and balance due from depository institutions:
a. Non-interest-bearing balances and currency and coin..... $ 42,702
b. Interest-bearing balances............................... $ 13,444
2. Securities:
a. Held-to-maturity securities............................. $ 191,921
b. Available-for-sale securities........................... $ 118,931
3. Federal funds sold and securities purchased under agreements
to resell in domestic offices of the bank and of its Edge
and Agreement subsidiaries and in IBFs:
Federal Funds sold and Securities purchased under agreements
to resell................................................... $ 79,838
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income................ $1,938,005
b. LESS: Allowance for loan and lease losses............... $ 63,361
c. LESS: Allocated transfer risk reserve................... $ -0-
d. Loans and leases, net of unearned income, allowance, and
reserve..................................................... $1,874,644
5. Trading assets held in trading accounts..................... $ 462
6. Premises and fixed assets (including capitalized leases).... $ 1,922
7. Other real estate owned..................................... $ 819
8. Investments in unconsolidated subsidiaries and associated
companies................................................... $ -0-
9. Customers' liability to this bank on acceptances
outstanding................................................. $ 371
10. Intangible assets........................................... $ 11,167
11. Other assets................................................ $ 68,097
12. TOTAL ASSETS................................................ $2,404,318
LIABILITIES
13. Deposits:
a. In domestic offices..................................... $ 682,904
(1) Noninterest-bearing..................................... $ 135,253
(2) Interest-bearing........................................ $ 547,651
b. In foreign offices, Edge and Agreement subsidiaries, and
IBFs.................................................... $1,154,887
(1) Noninterest-bearing..................................... $ 17,024
(2) Interest-bearing........................................ $1,137,863
14. Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its
Edge and Agreement subsidiaries, and in IBFs:
Federal Funds purchased and Securities sold under agreements
to repurchase............................................... $ 91,000
15. a. Demand notes issued to the U.S. Treasury................ $ 12,693
b. Trading Liabilities..................................... $ 239
16. Other borrowed money:
a. With a remaining maturity of one year or less........... $ 31,002
b. With a remaining maturity of more than one year......... $ 1,375
c. With a remaining maturity of more than three years...... $ 1,550
17. Not applicable.
18. Bank's liability on acceptances executed and outstanding.... $ 371
19. Subordinated notes and debentures........................... $ 100,000
20. Other liabilities........................................... $ 76,658
21. TOTAL LIABILITIES........................................... $2,152,679
22. Limited-life preferred stock and related surplus............ $ N/A
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus............... $ -0-
24. Common stock................................................ $ 29,649
25. Surplus (exclude all surplus related to preferred stock).... $ 217,008
26. a. Undivided profits and capital reserves.................. $ 4,112
b. Net unrealized gains (losses) on available-for-sale
securities.................................................. $ 870
27. Cumulative foreign currency translation adjustments......... $ -0-
28. TOTAL EQUITY CAPITAL........................................ $ 251,639
29. TOTAL LIABILITIES AND EQUITY CAPITAL........................ $2,404,318
</TABLE>
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF REGAL CINEMAS, INC. FOR THE NINE MONTHS ENDED OCTOBER 1,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> OCT-01-1998
<CASH> 15,161
<SECURITIES> 0
<RECEIVABLES> 7,686
<ALLOWANCES> 0
<INVENTORY> 4,258
<CURRENT-ASSETS> 52,955
<PP&E> 1,225,684
<DEPRECIATION> 143,674
<TOTAL-ASSETS> 1,591,221
<CURRENT-LIABILITIES> 91,446
<BONDS> 1,226,122
0
0
<COMMON> 193,459
<OTHER-SE> 46,406
<TOTAL-LIABILITY-AND-EQUITY> 1,591,221
<SALES> 315,481
<TOTAL-REVENUES> 477,868
<CGS> 170,355
<TOTAL-COSTS> 191,906
<OTHER-EXPENSES> 277,502
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,835
<INCOME-PRETAX> (23,971)
<INCOME-TAX> 100
<INCOME-CONTINUING> (24,071)
<DISCONTINUED> 0
<EXTRAORDINARY> (11,890)
<CHANGES> 0
<NET-INCOME> (35,961)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010
OF
REGAL CINEMAS, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED , 1999
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
Deliver to:
IBJ Schroder Bank & Trust Company, Exchange Agent
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery before 4:30
p.m.:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing Window,
Attn: Reorganization Dept. SC-1
</TABLE>
By Facsimile (for Eligible Institutions):
(212) 858-2611
For Information or
Confirmation by Telephone:
(212) 858-2103
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail,
by hand or by overnight delivery service.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 8 7/8% SENIOR SUBORDINATED DEBENTURES
DUE 2010 FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF REGISTERED 8 7/8% SENIOR
SUBORDINATED DEBENTURES DUE 2010, PURSUANT TO THE EXCHANGE OFFER, YOU MUST
VALIDLY TENDER (AND NOT WITHDRAW) OLD DEBENTURES TO THE EXCHANGE AGENT PRIOR TO
THE EXPIRATION DATE.
SIGNATURES MUST BE PROVIDED.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE COMPLETING
THIS LETTER OF TRANSMITTAL.
<PAGE> 2
DESCRIPTION OF TENDERED OLD DEBENTURES
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) AGGREGATE
AS IT APPEARS ON THE 8 7/8% SENIOR SUBORDINATED DEBENTURES CERTIFICATE PRINCIPAL AMOUNT
DUE 2010 NUMBER(S) OF OLD DEBENTURES
(PLEASE FILL IN, IF BLANK) OF OLD DEBENTURES TENDERED
- --------------------------------------------------------------------------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
TOTAL PRINCIPAL
AMOUNT OF OLD
DEBENTURES TENDERED
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to Regal Cinemas, Inc., a Tennessee
corporation (the "Company"), the 8 7/8% Senior Subordinated Debentures due 2010
(the "Old Debentures") described above pursuant to the Company's offer of $1,000
principal amount of 8 7/8% Senior Subordinated Debentures due 2010 (the
"Debentures") in exchange for each $1,000 principal amount of the Old
Debentures, upon the terms and subject to the conditions contained in the
Prospectus dated , 1999 (the "Prospectus"), receipt of which is
hereby acknowledged, and in this Letter of Transmittal (which together
constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has full
authority to tender the Old Debentures described above. The undersigned will,
upon request, execute and deliver any additional documents deemed by the Company
to be necessary or desirable to complete the tender of Old Debentures.
3. The undersigned understands that the tender of the Old Debentures
pursuant to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that:
(i) the Debentures acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the undersigned, whether or
not the undersigned is the holder;
(ii) neither the undersigned nor any such other person is engaging in
or intends to engage in a distribution of such Debentures;
(iii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such Debentures; and
(iv) neither the holder nor any such other person is an "affiliate,"
as such term is defined under Rule 405 promulgated under the Securities Act
of 1933, as amended (the "Securities Act"), of the Company.
5. The undersigned may, if, and only if, unable to make all of the
representations and warranties contained in Item 4 above, elect to have its Old
Debentures registered in the shelf registration described in the Registration
Rights Agreement, dated as of December 16, 1998, between the Company and Morgan
Stanley & Co. Incorporated and Donaldson, Lufkin & Jenrette Securities
Corporation in the form filed as an exhibit to the Registration Statement (the
"Registration Rights Agreement") (all terms used in this Item 5 with their
initial letters capitalized, unless otherwise defined herein, shall have the
meanings given them in the Registration Rights Agreement). Such election may be
made by checking the box under "Special Registration Instructions" on page 5. By
making such election, the undersigned agrees, as a holder of Transfer Restricted
Securities participating in a shelf registration, to indemnify and hold harmless
the Company, its directors, officers who sign the Registration Statement and
each person, if any, who controls the Company, and any other selling holder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages and liabilities whatsoever
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim), joint
or several, or any action in respect thereof, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such loss, claim, damage or
liability arises out of, or is based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Shelf Registration
Statement or the Prospectus or in any amendment thereof or supplement thereto or
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in
<PAGE> 4
conformity with information relating to the undersigned furnished to the Company
in writing by or on behalf of the undersigned expressly for use therein. Any
such indemnification shall be governed by the terms and subject to the
conditions set forth in the Registration Rights Agreement, including, without
limitation, the provisions regarding notice, retention of counsel, contribution
and payment of expenses set forth therein. The above summary of the
indemnification provision of the Registration Rights Agreement is not intended
to be exhaustive and is qualified in its entirety by reference to the
Registration Rights Agreement.
6. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Debentures. If the undersigned is a broker-dealer that will receive Debentures
for its own account in exchange for Old Debentures that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such
Debentures; however, by so acknowledging and delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. If the undersigned is a broker-dealer and Old
Debentures held for its own account were not acquired as a result of
market-making or other trading activities, such Old Debentures cannot be
exchanged pursuant to the Exchange Offer.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
8. Unless otherwise indicated herein under "Special Delivery Instructions,"
the certificates for the Debentures will be issued in the name of the
undersigned.
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the Debentures are to be issued or sent to someone
other than the undersigned or to the undersigned at an address other than that
provided above.
Mail [ ] Issue [ ] (check appropriate boxes) certificates to:
Name:
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Address:
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(See Item 5)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in Item 5 above, (ii) the undersigned elects to register its Old
Debentures in the shelf registration described in the Registration Rights
Agreement, and (iii) the undersigned agrees to indemnify certain entities and
individuals as set forth in the Registration Rights Agreement and summarized in
Item 5 above.
[ ] By checking this box the undersigned hereby (i) represents that it is
unable to make all of the representations and warranties set forth in Item 4
above, (ii) elects to have its Old Debentures registered pursuant to the shelf
registration described in the Registration Rights Agreement, and (iii) agrees to
indemnify certain entities and individuals identified in, and to the extent
provided in, the Registration Rights Agreement and summarized in Item 5 above.
<PAGE> 5
SPECIAL BROKER-DEALER INSTRUCTIONS
(See Item 6)
[ ] Check here if you are a broker-dealer and wish to receive 10 additional
copies of the Prospectus and 10 copies of any amendments or supplements thereto.
<TABLE>
<S> <C>
Name:
------------------------------------------------------------
(PLEASE PRINT)
Address:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(INCLUDING ZIP CODE)
</TABLE>
<PAGE> 6
SIGNATURE
To be completed by all exchanging debentureholders. Must be signed by
registered holder exactly as name appears on Old Debentures. If signature is by
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth full title. See Instruction 3.
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE
Dated:
- --------------------------------------------------------------------------------
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
Area Code and Telephone No.:
- -------------------------------------------------------------------------
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- --------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
Dated:
- --------------------------------------------------------------------------------
PLEASE READ THE INSTRUCTIONS BELOW,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
<PAGE> 7
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must
be guaranteed by an eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or by an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 promulgated under the Exchange
Act (an "Eligible Institution") unless the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" above has not been completed or
the Old Debentures described above are tendered for the account of an Eligible
Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD DEBENTURES. The Old
Debentures, together with a properly completed and duly executed Letter of
Transmittal (or copy thereof), should be mailed or delivered to the Exchange
Agent at the address set forth above.
THE METHOD OF DELIVERY OF OLD DEBENTURES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD DEBENTURES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Debentures, such Old Debentures must be endorsed or accompanied by
appropriate bond powers, signed by such registered holder exactly as such
registered holder's name appears on such Old Debentures.
If this Letter of Transmittal or any Old Debentures or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted with this Letter of Transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old
Debentures will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any or all Old Debentures not properly tendered or any
Old Debentures the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities, or conditions of tender as to particular Old
Debentures. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in this Letter of Transmittal) will
be final and binding. Unless waived, any defects or irregularities in connection
with tenders of Old Debentures must be cured within such time as the Company
shall determine. Neither the Company, the Exchange Agent, nor any other person
shall be under any duty to give notification of defects in such tenders or shall
incur any liability for failure to give such notification. Tenders of Old
Debentures will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Debentures received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holder thereof as soon as practicable following the
Expiration Date.
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 8 7/8% SENIOR SUBORDINATED DEBENTURES DUE 2010
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
REGAL CINEMAS, INC.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED ,
1999
As set forth in the Prospectus (as defined below), this form or one
substantially equivalent hereto must be used to accept the Exchange Offer (i) if
certificates for unregistered 8 7/8% Senior Subordinated Debentures due 2010
(the "Old Debentures") of Regal Cinemas, Inc., a Tennessee corporation (the
"Company"), are not immediately available, (ii) time will not permit a holder's
Old Debentures or other required documents to reach the Exchange Agent on or
prior to the Expiration Date (as defined below) or (iii) the procedure for
book-entry transfer cannot be completed on a timely basis. This form may be
delivered by facsimile transmission, registered or certified mail, by hand or by
overnight delivery service to the Exchange Agent. See "The Exchange
Offer -- Procedures for Tendering" in the Prospectus.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1999 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE
OFFER IS EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
IBJ SCHRODER BANK & TRUST COMPANY
Deliver to:
IBJ Schroder Bank & Trust Company, Exchange Agent
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery before 4:30
p.m.:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing Window,
Attn: Reorganization Dept. SC-1
</TABLE>
By Facsimile (for Eligible Institutions):
(212) 858-2611
For Information or
Confirmation by Telephone:
(212) 858-2103
(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail, by hand or by overnight delivery service.)
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OR
TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, in accordance with the
Company's offer, upon the terms and subject to the conditions set forth in the
Prospectus dated , 1999 (the "Prospectus"), and in the
accompanying Letter of Transmittal, receipt of which is hereby acknowledged,
$ in aggregate principal amount of Old Debentures pursuant to the
guaranteed delivery procedures described in the Prospectus.
Name(s) of Registered
Holder(s):
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code & Telephone No.:
- ---------------------------------------------------------------------------
Certificate Number(s) for
Old Debentures (if available):
- ---------------------------------------------------------------------------
Total Principal Amount
Tendered and Represented
by Certificate(s): $
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Signature of Registered Holders(s):
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Dated:
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[ ] The Depository Trust Company
(Check if Old Debentures will be tendered
by book-entry transfer)
Account Number
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THE GUARANTEE ON THE NEXT PAGE MUST BE COMPLETED.
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, being a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office in the United States, hereby
guarantees (a) that the above named person(s) "own(s)" the Old Debentures
tendered hereby within the meaning of Rule 14e-4 ("Rule 14e-4") under the
Securities Exchange Act of 1934, as amended, (b) that such tender of such Old
Debentures complies with Rule 14e-4, and (c) to deliver to the Exchange Agent
the certificates representing the Old Debentures tendered hereby or confirmation
of book-entry transfer of such Old Debentures into the Exchange Agent's account
at The Depository Trust Company, in proper form for transfer, together with the
Letter of Transmittal, properly completed and duly executed, with any required
signature guarantees and any other required documents, within three New York
Stock Exchange trading days after the execution of the Notice of Guaranteed
Delivery.
Name of Firm:
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Address:
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Area Code and Telephone No.:
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Authorized Signature:
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Name:
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Title:
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Dated:
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NOTE: DO NOT SEND CERTIFICATES OF OLD DEBENTURES WITH THIS FORM. CERTIFICATES OF
OLD DEBENTURES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL.
