Regal Entertainment Group (RGC)

Regal 3¾% Convertible Senior Notes—On May 28, 2003, Regal issued $240.0 million aggregate principal amount of 3¾% Convertible Senior Notes due May 15, 2008 (the “3 ¾% Convertible Senior Notes”). Interest on the 3¾% Convertible Senior Notes is payable semi-annually in arrears on May 15 and November 15 of each year, beginning November 15, 2003. The 3¾% Convertible Senior Notes are senior unsecured obligations of Regal and rank on parity with all of our existing and future senior unsecured indebtedness and prior to all of our subordinated indebtedness. The 3¾% Convertible Senior Notes are effectively subordinated to all of our future secured indebtedness to the extent of the assets securing that indebtedness and to any indebtedness and other liabilities of our subsidiaries. None of our subsidiaries have guaranteed any of our obligations with respect to the 3¾% Convertible Senior Notes. Our note holders have the option to convert their 3¾% Convertible Senior Notes, in whole or in part, into shares of our Class A common stock at any time prior to maturity, subject to certain limitations, unless previously purchased by us at the note holder’s option upon a change in control, at the then existing conversion price per share.

 

On March 27, 2008, at the then current conversion price of $12.4688 per share (which conversion price has been and may be further adjusted pursuant to the antidilution provisions of the 3¾% Convertible Senior Notes in connection with the payment by Regal of dividends on its common stock), each $1,000 of aggregate principal amount of 3¾% Convertible Senior Notes is convertible into approximately 80.2 shares of our Class A common stock. Upon conversion, we have elected to deliver cash in lieu of shares of Class A common stock or a combination of cash and shares of Class A common stock. As explained below, with respect to the par amount of the conversion obligation and the conversion spread (the excess conversion value over the accrued rate), we intend to deliver cash to note holders upon conversion. The conversion price and the number of shares delivered on conversion are subject to adjustment upon certain events.

 

In connection with the issuance of the 3¾% Convertible Senior Notes, we used approximately $18.8 million of the net proceeds of the offering to enter into convertible note hedge and warrant transactions with respect to our Class A common stock to reduce the potential dilution from conversion of the 3¾% Convertible Senior Notes. Under the terms of the convertible note hedge arrangement (the “2003 Convertible Note Hedge”) with Credit Suisse, we paid $36.2 million for a forward purchase option contract under which we are entitled to purchase from Credit Suisse a fixed number of shares of our Class A common stock (at March 27, 2008, at a price per share of $12.4688). In the event of the conversion of the 3¾% Convertible Senior Notes, this forward purchase option contract allows us to purchase, at a fixed price equal to the implicit conversion price of shares issued under the 3¾% Convertible Senior Notes, a number of shares of Class A common stock equal to the shares that we issue to a note holder upon conversion. Settlement terms of this forward purchase option allow the Company to elect cash or share settlement based on the settlement option it chooses in settling the conversion feature of the 3¾% Convertible Senior Notes. We accounted for the 2003 Convertible Note Hedge pursuant to the guidance in EITF 00-19. Accordingly, the $36.2 million purchase price of the forward stock purchase option contract was recorded as an increase to consolidated stockholders’ deficit.

 

We also sold to Credit Suisse a warrant (the “2003 Warrant”) to purchase shares of our Class A common stock. The 2003 Warrant is currently exercisable for approximately 2.7 million shares of our Class A common stock at a March 27, 2008 exercise price of $14.3871 per share (which exercise price has been and may be further adjusted pursuant to the antidilution provisions of the 2003 Warrant in connection with the payment by Regal of dividends on its common stock). We received $17.4 million in cash from Credit Suisse in return for the sale of this forward share purchase option contract. Credit Suisse cannot exercise the 2003 Warrant unless and until a conversion event occurs. We have the option of settling the 2003 Warrant in cash or shares of our Class A common stock. We accounted for the sale of the 2003 Warrant as the sale of a permanent equity instrument pursuant to the guidance in EITF 00-19. Accordingly, the $17.4 million sales price of the forward stock purchase option contract was recorded as a debit to consolidated stockholders’ deficit.

 

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