AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1998JANUARY 13, 1999

REGISTRATION NO. 333-64399333-69931

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1

FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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REGAL CINEMAS, INC.
(Exact Name of Registrant as Specified in Its Charter)

TENNESSEE 7830 62-1412720
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number) No.)

MICHAEL L. CAMPBELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
REGAL CINEMAS, INC.
7132 COMMERCIAL PARK DRIVE 7132 COMMERCIAL PARK DRIVE
KNOXVILLE, TENNESSEE 37918 KNOXVILLE, TENNESSEE 37918
(423) 922-1123 (423) 922-1123
(Address, Including Zip Code, and Telephone (Name, Address, Including Zip Code, and
Number, Telephone Number,
Including Area Code, of Registrants' Principal Including Area Code, of Agent For Service)
Executive Office)

With a copy to:
JEREMY W. DICKENS
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT, SUITE 1300
DALLAS, TEXAS 75201
(214) 746-7700

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is a compliance
with General Instruction G, check the following box. [ ]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______

If this form is a post-effective amendment filed pursuant to the Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] _______
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CALCULATION OF REGISTRATION FEE

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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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9 1/2% Senior Subordinated
Notes due 2008............. $400,000,000$200,000,000 100% $400,000,000 $118,000$200,000,000 $55,600
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(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.

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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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2

PROSPECTUS

OFFER TO EXCHANGE ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
FOR
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
OF

REGAL CINEMAS, INC.

Regal Cinemas, Inc., a Tennessee corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the letter of transmittal accompanying this Prospectus (the "Letter of
Transmittal," which together with this Prospectus constitute the "Exchange
Offer"), to exchange $1,000 principal amount of 9 1/2% Senior Subordinated Notes
due 2008 (the "Notes") issued by the Company for each $1,000 principal amount of
9 1/2% Senior Subordinated Notes due 2008 (the "Old Notes") issued by the
Company (the "Original Offering"), of which an aggregate principal amount of
$400.0 million is outstanding. The form and terms of the Notes are identical to
the form and terms of the Old Notes, except that the Notes have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and will
not bear any legends restricting their transfer. The Notes will evidence the
same debt as the Old Notes and will be issued pursuant to, and entitled to the
benefits of, the Indenture (as defined herein) governing the Old Notes. The
Exchange Offer is being made in order to satisfy a contractual obligation of the
Company. See "The Exchange Offer" and "Description of the Notes." The Notes and
the Old Notes are sometimes collectively referred to herein as the "Notes".
---------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
---------------------

Interest on the Notes is payable semi-annually on June 1 and December 1 of
each year, commencing on December 1, 1998. The Notes will mature on June 1,
2008. Except as described below, the Company may not redeem the Notes prior to
June 1, 2003. On and after such date, the Company may redeem the Notes, in whole
or in part, at any time at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. In addition, at
any time and from time to time prior to June 1, 2001, the Company may, subject
to certain requirements, redeem up to 35% of the aggregate principal amount of
the Notes with the net cash proceeds received from one or more Equity Offerings
(as defined herein), at a redemption price equal to 109.50% of the principal
amount to be redeemed, together with accrued and unpaid interest, if any, to the
date of redemption, provided that at least $260.0 million aggregate principal
amount of Notes remains outstanding immediately after each such redemption. The
Notes will not be subject to any sinking fund requirement. Upon the occurrence
of a Change of Control (as defined herein), the Company will be required to make
an offer to repurchase the Notes at a price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of repurchase. See "Description of the Notes."

The Notes will be unsecured and rank junior in right of payment to all
Senior Indebtedness (as defined herein) of the Company. The Notes will rank pari
passu in right of payment with all existing and future senior subordinated
indebtedness (as defined herein) of the Company and will rank senior in right of
payment to all Subordinated Indebtedness (as defined herein) of the Company. The
Indenture under which the Notes will be issued (the "Indenture") permits the
Company to incur additional indebtedness, including Senior Indebtedness, subject
to certain limitations. See "Description of the Notes." As of July 2, 1998, on a
pro forma basis after giving effect to the Act III Combination (as defined
herein) as though it had occurred at such date, the aggregate principal amount
of the Company's Senior Indebtedness was approximately $751.4 million (excluding
unused commitments), and the Company had no senior subordinated indebtedness
outstanding other than the Old Notes. In addition, on the same pro forma basis,
the Company had $400.0 million in Subordinated Indebtedness. See "Description of
the Notes -- General" and "-- Ranking and Subordination," and "Description of
Certain Indebtedness."
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THE COMPANY WILL ACCEPT FOR EXCHANGE ANY AND ALL OLD NOTES VALIDLY TENDERED
AND NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON NOVEMBER 16, 1998,
UNLESS EXTENDED (AS SO EXTENDED, SUCH TIME AND DATE BEING THE "EXPIRATION
DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE "THE
EXCHANGE OFFER."

Each broker-dealer that receives Notes for its own account in exchange for
Old Notes pursuant to the Exchange Offer, where such Old Notes 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 Notes. The Letter of Transmittal states that by so
acknowledging 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.
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 Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company has
agreed, for a period of 180 days after the Expiration Date, to make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."

No public market existed for the Old Notes before the Exchange Offer. The
Company currently does not intend to list the Notes on any securities exchange
or to seek approval for quotation through any automated quotation system, and no
active public market for the Notes is currently anticipated. The Company will
pay all the expenses incident to the Exchange Offer.

The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS OCTOBER 16, 1998.

AVAILABLE INFORMATION

Upon completion of the Exchange Offer, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will file reports and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports and other information may be inspected and copied at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 500
West Madison Street, Suite 1400, Chicago, Illinois 60611, and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549.

This Prospectus does not contain all the information set forth in the
Registration Statement filed with the Commission on Form S-4 with respect to the
Notes (the "Registration Statement") and the exhibits and schedules thereto,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is hereby made to such
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. Copies of
the Registration Statement and the exhibits thereto are on file with the
Commission and may be examined without charge at the public reference facilities
of the Commission described above. Copies of such materials can also be obtained
at prescribed rates by writing to the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The reports,
proxy statements and other information filed by the Company with the Commission
may also be obtained from the web site that the Commission maintains at
http://www.sec.gov.

The Company is required by the Indenture to furnish the holders of the
Notes with copies of the annual reports and of the information, documents and
other reports specified in Sections 13 and 15(d) of the Exchange Act, as long as
any Notes are outstanding.

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED FINANCIAL POSITION,
BUSINESS AND FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE
COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED
IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS."
ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY, ITS SUBSIDIARIES OR PERSONS ACTING ON THEIR BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context requires otherwise, references in this Prospectus to the "Company" mean
Regal Cinemas, Inc. and its subsidiaries. Unless otherwise indicated, the
financial information and other statistical information (including information
regarding the number of theatres and/or screens operated or under development or
construction by the Company) and the financial statements and notes thereto of
the Company included elsewhere in this Prospectus have been restated to include
the results of operations of Litchfield Theatres, Ltd. ("Litchfield Theatres"),
Neighborhood Entertainment, Inc. ("Neighborhood"), Georgia State Theatres, Inc.
("Georgia State Theatres") and Cobb Theatres, L.L.C. ("Cobb Theatres"), which
were acquired by the Company on June 15, 1994, April 17, 1995, May 30, 1996 and
July 31, 1997, respectively, and which were accounted for under the pooling of
interests method. The Company's results of operations for or as of the end of
any year refer to its fiscal year ended or ending on the Thursday closest to
December 31. Certain information contained in this Prospectus is provided as of
July 2, 1998, the end of the second quarter of the Company's 1998 fiscal year.
Certain information contained in this Prospectus is provided as of June 30,
1998, the end of the second quarter of Act III Cinemas, Inc.'s ("Act III") 1998
fiscal year.

THE COMPANY

OVERVIEW

After giving pro forma effect to the Act III Combination, the Company is
the largest motion picture exhibitor in the United States based upon the number
of screens in operation. At July 2, 1998, on the same pro forma basis, the
Company operated 392 theatres, with an aggregate of 3,310 screens in 29 states.
The Company operates primarily multiplex theatres and has an average of 8.4
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 (as defined herein). For the twelve
months ended July 2, 1998, the Company, without giving effect to the Act III
Combination, had revenues, operating income and EBITDA of $545.0 million, $17.3
million and $128.0 million, respectively. Act III's consolidated revenues,
operating income and EBITDA for the twelve months ended June 30, 1998, were
$264.6 million, $11.2 million and $68.6 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 Act III Combination, 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 July 2, 1998,
approximately 75% of the Company's screens were located in film licensing zones
in which the Company was the sole exhibitor.

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had 48 new theatres with 727 screens under construction and 47 new screens under
construction at nine 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 54 theatres with 838 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 June 30, 1998, Act III operated 131 theatres, with an aggregate of 843
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, expects to achieve) 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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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.

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 July 2, 1998, after giving
pro forma effect to the Act III Combination, the Company had 48 new theatres
with 727 screens under construction. In addition, on the same pro forma basis,
the Company has entered into leases in connection with its plans to develop an
additional 54 theatres with 838 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 July 2, 1998, after giving pro forma effect to the Act III
Combination, the Company had 47 new screens under construction at nine existing
theatre facilities and anticipates that it will add a total of 115 to 135
screens to

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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 other plans or agreements for any specific acquisitions
or joint ventures.

Develop Complementary Theatre Concepts. To complement the Company's theatre
development, it has opened six FunScapes(TM) entertainment complexes and
currently has 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 is expected to
open 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.

THE TRANSACTIONS

RECAPITALIZATION AND REFINANCINGS

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 the Company (the "Regal Merger"), with the Company continuing as
the surviving corporation of the merger. The consummation of the Regal Merger
resulted in a recapitalization (the "Recapitalization") of the Company. In the
Recapitalization, the Company's existing holders of 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 Original Offering, 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. Under the Senior Credit Facilities, the Company is permitted to borrow
up to $1,212.5 million in the aggregate, consisting of $500.0 million under a
revolving credit facility (the "Revolving Credit Facility") and $712.5 million,
in the aggregate, under three separate term loan facilities. After the
consummation of the Act III Combination, the Company had approximately $461.1
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

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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 Original
Offering, 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."

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 credit facilities (the "Act III Bank Debt") and two senior subordinated
promissory notes in the aggregate principal amount of $75.0 million each (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 own 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.

USE OF PROCEEDS

The Company will not receive any proceeds from the exchange of the Notes
for the Old Notes pursuant to the Exchange Offer. The net proceeds of the
Original Offering, initial borrowings of $375.0 million under the Senior Credit
Facilities and the 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. See
"Use of Proceeds."

5
9

THE EXCHANGE OFFER

THE EXCHANGE OFFER......... The Company hereby offers, upon the terms and
subject to the conditions set forth in this
Prospectus and the Letter of Transmittal, to
exchange $1,000 principal amount of Notes issued by
the Company for each $1,000 principal amount of Old
Notes issued by the Company, of which an aggregate
principal amount of $400.0 million is outstanding.
The form and terms of the Notes are identical to
the form and terms of the Old Notes, except that
the Notes have been registered under the Securities
Act and will not bear any legends restricting their
transfer. The Notes will evidence the same debt as
the Old Notes and will be issued pursuant to, and
entitled to the benefits of, the Indenture
governing the Old Notes. The Exchange Offer is
being made in order to satisfy a contractual
obligation of the Company. See "The Exchange Offer"
and "Description of the Notes."

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 Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any person
receiving such Notes, 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 Notes 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 Notes) without compliance with the registration
and prospectus delivery provisions of the
Securities Act, provided that the Notes 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 Notes. Holders of Old Notes
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 Notes 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. See
"The Exchange Offer -- Purpose and Effect." Each
broker-dealer that receives Notes for its own
account in exchange for Old Notes, where such Old
Notes 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
Notes. See "Plan of Distribution."

EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New
York City time, November 16, 1998 or such later
date and time to which it is extended by the
Company.

WITHDRAWAL................. The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Any Old Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof

6
10

as promptly as practicable after the expiration or
termination of the Exchange Offer.

INTEREST ON THE NOTES AND
THE OLD NOTES.............. Interest on each Note will accrue from the date of
issuance of the Old Note for which the Note is
exchanged or from the date of the last periodic
payment of interest on such Old Note, whichever is
later. No additional interest will be paid on Old
Notes tendered and accepted for exchange.

CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain
conditions, some of which may be waived by the
Company. See "The Exchange Offer -- Conditions to
the Exchange Offer."

PROCEDURES FOR TENDERING
OLD NOTES.................. Each holder of the Old Notes 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 Notes and any other required documentation,
to the Exchange Agent (as defined herein) at the
address set forth herein. Persons holding the Old
Notes 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 ("ATOP"), by which each tendering
participant will 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 the Company that, among other things,
(i) the Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of the person receiving such Notes,
whether or not such person is the registered holder
of the Old Notes, (ii) neither the holder nor any
such other person is engaging in or intends to
engage in a distribution of such Notes, (iii)
neither the holder nor any such other person has an
arrangement or understanding with any person to
participate in the distribution of such Notes 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. If the Company determines that it is not
permitted to effect the Exchange Offer as
contemplated hereby because of any applicable law
or change in Commission policy, or if any holder of
Transfer Restricted Securities (as defined herein)
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 Notes 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 Notes
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 Notes.

The Company will accept for exchange any and all
Old Notes which are properly tendered (and not
withdrawn) in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date.
The Notes issued pursuant to the Exchange Offer
will be delivered promptly

7
11

following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."

EXCHANGE AGENT............. IBJ Schroder Bank & Trust Company is serving as
Exchange Agent (the "Exchange Agent") in connection
with the Exchange Offer.

FEDERAL INCOME TAX
CONSIDERATIONS........... The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."

EFFECT OF NOT TENDERING.... Old Notes 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. Except as described above, the Company
will have no further obligation to provide for the
registration under the Securities Act of such Old
Notes.

THE NOTES

ISSUER..................... Regal Cinemas, Inc.

SECURITIES OFFERED......... $400.0 million principal amount of 9 1/2% Senior
Subordinated Notes due 2008.

MATURITY................... June 1, 2008.

INTEREST................... Payable semi-annually in arrears, on June 1 and
December 1 of each year, commencing December 1,
1998.

OPTIONAL REDEMPTION........ The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after June 1, 2003, initially at 104.75% of their
principal amount, plus accrued and unpaid interest,
declining ratably to 100% of their principal
amount, plus accrued and unpaid interest, on or
after June 1, 2006. In addition, at any time prior
to June 1, 2001, the Company may redeem up to 35%
of the aggregate principal amount of the Notes with
the proceeds of one or more Equity Offerings, at
109.50% of their principal amount, plus accrued and
unpaid interest; provided that after any such
redemption at least $260.0 million aggregate
principal amount of the Notes remains outstanding.
See "Description of the Notes -- Optional
Redemption."

RANKING.................... The Notes will be unsecured and rank junior in
right of payment to all Senior Indebtedness of the
Company. The Notes will rank pari passu in right of
payment with all existing and future senior
subordinated indebtedness of the Company and will
rank senior in right of payment to all Subordinated
Indebtedness of the Company. The Indenture permits
the Company to incur additional indebtedness,
including Senior Indebtedness, subject to certain
limitations. See "Description of the Notes." As of
July 2, 1998, on a pro forma basis after giving
effect to the Act III Combination as though it had
occurred at such date, the aggregate principal
amount of the Company's Senior Indebtedness was
approximately $751.4 million (excluding unused
commitments), and the Company had no senior
subordinated indebtedness outstanding other than
the Old Notes. In addition, on the same pro forma
basis, the Company had $400.0 million in
Subordinated Indebtedness. See "Description of the
Notes -- General" and "-- Ranking and
Subordination," and "Description of Certain
Indebtedness."

8
12

CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
purchase the Notes at a purchase price equal to
101% of their principal amount on the date of
purchase, plus accrued and unpaid interest. See
"Description of the Notes -- Change of Control."

CERTAIN COVENANTS.......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as defined
herein) 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 Notes attain
Investment Grade Status (as defined herein)
substantially all of such covenants shall cease to
apply. See "Description of the Notes -- Certain
Covenants."

USE OF PROCEEDS............ There will be no cash proceeds to the Company from
the Exchange Offer. The net proceeds of the
Original Offering, together with proceeds from the
Equity Investment and initial borrowings under the
Senior Credit Facilities, were used: (i) to fund
the cash payments required to effect the Regal
Merger and the Option/Warrant Redemption; (ii) to
repay and retire outstanding indebtedness under the
Old Credit Facilities; (iii) to repurchase the Old
Regal Notes; and (iv) to pay related fees and
expenses. See "Use of Proceeds."

RISK FACTORS

Prospective investors in the Notes should carefully consider all of the
information set forth in this Prospectus, and in particular, should evaluate the
specific factors set forth under "Risk Factors" for certain risks involved with
an investment in the Notes.

9
13

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The summary historical consolidated financial data set forth below were
derived from the consolidated financial statements of the Company. The summary
historical consolidated statement of income data of the Company for the fiscal
years ended December 30, 1993, December 29, 1994, December 28, 1995, January 2,
1997 and January 1, 1998 and the balance sheet data as of the dates noted, were
derived from the audited consolidated financial statements of the Company. The
summary historical consolidated financial data set forth below as of July 2,
1998 and for the respective six month periods ended July 3, 1997 and July 2,
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 a fair presentation of the
Company's consolidated results of operations and financial condition for such
periods. The operating results for the respective six month periods ended July
3, 1997 and July 2, 1998 are not necessarily indicative of results to be
expected for the full fiscal year. The summary historical consolidated financial
data set forth below should be read in conjunction with, and are qualified in
their entirety by, the "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and notes
thereto included elsewhere in this Prospectus.

FISCAL YEAR ENDED SIX MONTHS ENDED
-------------------------------------------------------------------- -----------------
DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, JULY 3, JULY 2,
1993 1994 1995 1997 1998 1997 1998
------------ ------------ ------------ ---------- ---------- ------- -------
(IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA)

CONSOLIDATED STATEMENT OF INCOME DATA:
Revenue:
Admissions......................... $ 149.4 $ 185.2 $ 213.4 $ 266.0 $ 325.1 $ 150.5 $ 190.9
Concession sales................... 61.4 74.7 87.3 110.2 137.2 63.0 82.0
Other.............................. 3.6 5.1 8.3 13.0 16.8 8.7 15.2
------- ------- ------- ------- ------- ------- -------
Total revenue.................. 214.4 265.0 309.0 389.2 479.1 222.2 288.1
Costs and Expenses:
Operating expenses:
Film rental and advertising...... 82.8 101.0 115.4 145.2 178.2 81.3 104.0
Cost of concessions and other.... 8.8 9.9 11.4 15.1 16.6 10.2 13.0
Rent expense..................... 28.0 32.5 34.5 41.4 53.7 26.0 34.9
Other expense.................... 49.0 60.4 71.2 86.4 102.8 49.1 65.3
General and administrative......... 12.7 14.1 14.8 16.6 16.6 9.5 8.0
------- ------- ------- ------- ------- ------- -------
Total costs and expenses......... 181.3 217.9 247.3 304.7 367.9 176.1 225.2
------- ------- ------- ------- ------- ------- -------
Sub-Total........................ 33.1 47.1 61.7 84.5 111.2 46.1 62.9
Depreciation and amortization...... 11.0 13.6 19.4 24.7 30.5 14.5 19.9
SFAS 121(1)........................ -- -- -- -- 5.0 -- --
Merger expenses.................... -- 5.1 1.2 1.6 7.8 -- --
Recapitalization expenses.......... -- -- -- -- -- -- 62.0
------- ------- ------- ------- ------- ------- -------
Operating income (loss).......... 22.1 28.4 41.1 58.2 67.9 31.6 (19.0)
Interest expense, net.............. 6.5 7.2 10.3 12.2 13.2 6.0 12.9
Other (income) expense, net........ 1.8 -- .7 (.7) .4 .3 .2
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes
and loss (gain) on
extraordinary item............. 13.8 21.2 30.1 46.7 54.3 25.3 (32.1)
Provision for (benefit from) income
taxes............................ 5.1 8.5 12.2 20.8 19.1 9.8 (3.9)
------- ------- ------- ------- ------- ------- -------
Income (loss) before loss (gain)
on extraordinary item.......... 8.7 12.7 17.9 25.9 35.2 15.5 (28.2)
Loss (gain) on extraordinary
item............................. (.2) 1.8 .4 .8 10.0 -- 11.9
------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $ 8.9 $ 10.9 $ 17.5 $ 25.1 $ 25.2 $ 15.5 $ (40.1)
======= ======= ======= ======= ======= ======= =======
OPERATING AND OTHER FINANCIAL DATA:
Cash flow provided by (used in)
operating activities............... $ 29.8 $ 36.5 $ 40.0 $ 67.5 $ 64.0 $ 36.8 $ (1.9)
Cash flow used in investing
activities......................... $ 20.8 $ 106.4 $ 112.6 $ 131.1 $ 202.3 $ 91.2 $ 99.1
Cash flow provided by financing
activities......................... $ 7.3 $ 63.5 $ 69.8 $ 72.2 $ 139.6 $ 51.7 $ 110.1
EBITDA(2)............................ $ 33.1 $ 47.1 $ 61.7 $ 84.5 $ 111.2 $ 46.1 $ 62.9
EBITDAR(2)........................... $ 61.1 $ 79.6 $ 96.2 $ 125.9 $ 164.9 $ 72.1 $ 97.8
EBITDA margin(3)..................... 15.5% 17.8% 20.0% 21.7% 23.2% 20.7% 21.8%
EBITDAR margin(3).................... 28.5% 30.0% 31.1% 32.4% 34.4% 32.4% 33.9%
Ratio of EBITDA to interest
expense(4)......................... 4.7x 6.3x 5.8x 6.6x 8.0x 7.6x 4.7x
Ratio of EBITDAR to interest and rent
expense(4)......................... 1.7x 2.0x 2.1x 2.3x 2.4x 2.2x 2.0x
Capital expenditures and
acquisitions....................... $ 23.6 $ 108.6 $ 113.9 $ 143.7 $ 203.2 $ 90.1 $ 91.1
Ratio of earnings to fixed
charges(5)......................... 1.8x 2.1x 2.2x 2.6x 2.5x 2.5x --
Deficiency of earnings to cover fixed
charges(5)......................... -- -- -- -- -- -- $ 33.5

10
14

OPERATING DATA(6):
Theatre locations.................... 160 195 206 223 256 234 261
Screens.............................. 1,110 1,397 1,616 1,899 2,306 2,060 2,467
Average screens per location......... 6.9 7.2 7.8 8.5 9.0 8.8 9.5
Attendance (in thousands)............ 41,624 49,690 55,091 65,530 76,331 35,946 42,686
Average ticket price................. $ 3.59 $ 3.73 $ 3.87 $ 4.06 $ 4.26 $ 4.19 $ 4.47
Average concessions per patron....... $ 1.47 $ 1.50 $ 1.58 $ 1.68 $ 1.80 $ 1.75 $ 1.92

AS OF
JULY 2, 1998
------------

BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 27.5
Total assets.............................................. 784.4
Long-term obligations (including current maturities)...... 776.3
Stockholders' equity (deficit)............................ (76.1)

- ---------------

(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. EBITDAR represents EBITDA before rent expense.
This definition of EBITDA is consistent with that included in the debt
indenture. 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.

11
15

SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following summary pro forma consolidated financial data for the fiscal
year ended January 1, 1998, for the six month period ended July 2, 1998 were
derived from the unaudited and audited consolidated financial statements of the
Company and Act III, which are included elsewhere in this Prospectus, and have
been prepared to give effect to the Transactions and the Act III Combination, as
though such transactions had occurred as of January 3, 1997, for the statements
of income. The pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. The pro forma
statement of income data do not purport to present what the Company's results of
operations would actually have been had the Transactions and the Act III
Combination, in fact, occurred 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 Act III Combination, in fact, occurred as of July 2, 1998, or to
project the Company's financial position at any future date. The summary pro
forma consolidated financial data set forth below should be read in conjunction
with, and are qualified in their entirety by, "The Transactions,"
"Capitalization," "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 included elsewhere in this Prospectus.

YEAR SIX MONTHS
ENDED ENDED
JANUARY 1, JULY 2,
1998 1998
----------- -----------
(IN MILLIONS, EXCEPT FOR
PERCENTAGES, RATIOS AND
OPERATING DATA)

CONSOLIDATED STATEMENT OF INCOME DATA:
Revenue:
Admissions.............................................. $ 498.0 $ 279.5
Concession sales........................................ 215.4 124.1
Other................................................... 19.0 16.2
------- -------
Total revenue....................................... 732.4 419.8
Costs and Expenses:
Operating expenses:
Film rental and advertising........................... 271.4 149.9
Cost of concessions and other......................... 29.0 19.0
Rent expense.......................................... 69.4 44.4
Other expense......................................... 165.4 97.8
General and administrative.............................. 19.7 9.0
------- -------
Total costs and expenses............................ 554.9 320.1
------- -------
Sub-Total........................................... 177.5 99.7
Depreciation and amortization........................... 66.9 40.9
SFAS 121(1)............................................. 5.0 --
Merger expenses......................................... 7.8 --
Recapitalization expenses............................... 25.9 62.0
------- -------
Operating income (loss)............................. 71.9 (3.2)
Interest expense, net................................... 101.4 52.9
Other (income) expense.................................. (1.4) 0.3
------- -------
Income (loss) before income taxes and loss on
extraordinary item.................................. (28.1) (56.4)
Provision for (benefit from) income taxes............... (4.0) (11.2)
------- -------
Income (loss) before extraordinary item................. $ (24.1) $ (45.2)
======= =======

12
16

YEAR SIX MONTHS
ENDED ENDED
JANUARY 1, JULY 2,
1998 1998
----------- -----------
(IN MILLIONS, EXCEPT FOR
PERCENTAGES, RATIOS AND
OPERATING DATA)

OPERATING AND OTHER FINANCIAL DATA:
EBITDA(2)................................................. $ 177.5 $ 99.7
EBITDAR(2)................................................ $ 246.9 $144.1
EBITDA margin(3).......................................... 24.2% 23.7%
EBITDAR margin(3)......................................... 33.7% 34.3%
Ratio of EBITDA to interest expense(4).................... 1.7x 1.8x
Ratio of EBITDAR to interest and rent expense(4).......... 1.4x 1.5x
Deficiency of earnings to cover fixed charges(5).......... $ 33.0 $ 59.2
OPERATING DATA (6):
Theatre locations......................................... 388 392
Screens................................................... 3,132 3,310
Average screens per location.............................. 8.1 8.4
Attendance (in thousands)................................. 118,583 63,529
Average ticket price...................................... $ 4.20 $ 4.40
Average concessions per patron............................ $ 1.82 $ 1.95

- ---------------

(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 indenture. 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.

13
17

RISK FACTORS

Prospective investors should carefully consider the risk factors set forth
below, as well as the other information set forth in this Prospectus, before
making an investment in the Notes. This Prospectus contains statements regarding
possible and/or expected future events, which involve risks and uncertainties.
The Company's actual results may differ significantly from the results discussed
in these forward-looking statements. Factors that might cause such differences
include, but are not limited to, the risk factors set forth below.

CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES

Holders of Old Notes who do not exchange their Old Notes for the Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will register
Old Notes under the Securities Act. See "The Exchange Offer -- Purpose and
Effect." Based on interpretations by the staff of the Commission, as set forth
in no-action letters issued to third parties, the Company believes that the
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any such holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Notes are acquired in the ordinary course of such holders' business and such
holders, other than broker-dealers, have no arrangement or understanding with
any person to participate in the distribution of such Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. 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
Notes and has no arrangement or understanding to participate in a distribution
of the Notes. If any holder is an affiliate of the Company or is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the Notes to be acquired pursuant to the Exchange Offer, such
holder (i) may not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Notes for its own account in exchange for Old
Notes pursuant to the Exchange Offer must acknowledge that such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of such Notes. The Letter of Transmittal states that by so acknowledging
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. 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 the Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the Notes may not be
offered or sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with. The Company has agreed, subject to certain limitations, to
cooperate with holders of the Old Notes to register or qualify the Notes for
offer or sale under the securities laws of such jurisdiction as any holder
reasonably requests. Unless a holder so requests, the Company does not currently
intend to register or qualify the sale of the Notes in any such jurisdictions.
See "The Exchange Offer."

DEPENDENCE ON MOTION PICTURE PRODUCTION AND PERFORMANCE; RELATIONSHIP WITH FILM
DISTRIBUTORS

The ability of the Company to operate successfully depends upon a number of
factors, the most important of which are the availability and appeal of motion
pictures, the Company's ability to license motion pictures

14
18

and the performance of such motion pictures in the Company's markets. The
Company predominantly licenses 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 have a material adverse effect on the
Company's business and results of operations. Because film distributors
historically have released those 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 adversely affect
the Company's results for those particular periods or for any fiscal year.

The Company's business also depends to a significant degree on maintaining
good relations with the major film distributors that license films to the
Company's theatres. A deterioration in the Company's relationship with any of
the nine major film distributors could adversely affect the Company's access to
commercially successful films and therefore, could have a material adverse
effect on the Company's business and results of operations. See
"Business -- Film Licensing."

EXPANSION PLANS

The Company's growth strategy involves constructing new theatres and adding
new screens to certain of its existing theatres. The Company seeks to locate its
theatres in markets that it believes are underscreened or that are served by
older theatre facilities. At July 2, 1998, after giving pro forma effect to the
Act III Combination, the Company had 48 new theatres with 727 screens under
construction and 47 new screens under construction at nine existing theatres.
The Company intends to develop approximately 575 to 625 screens during the
balance of 1998 and approximately 750 to 850 screens during 1999. The Company
expects that the capital expenditures in connection with new theatre
construction or renovations to existing theatres will aggregate approximately
$220.0 million for the remainder of 1998 and approximately $200.0 million during
1999. The Company expects to fund these capital expenditures from cash flow from
operations, asset sale proceeds and borrowings under the Senior Credit
Facilities. There can be no assurance, however, that the Company will generate
sufficient cash flow from operations or proceeds from asset sales or that the
Company's future borrowing capacity under the Senior Credit Facilities will be
sufficient to enable it to make these anticipated capital expenditures. In
addition, the Company intends to continue its 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 can be no assurance that such additional
financing will be available to the Company on terms considered reasonable by
management, or at all. The Company's ability to open theatres and complete
screen expansions on a timely and profitable basis is subject to various
contingencies, some of which are beyond the Company's control. There is
significant competition in the United States for site locations from both
theatre companies and other businesses. There can be no assurance that the
Company will be able to obtain attractive theatre sites, negotiate acceptable
lease terms, build theatres and complete screen expansions on a timely and
cost-effective basis, hire, train and retain skilled managers and personnel and
obtain adequate capital resources. There can be no assurance that the Company
will achieve its planned expansion or that new theatres will achieve targeted
levels of profitability.

ACQUISITION RISKS

The Company's growth strategy also may involve the acquisition of
additional theatres and/or theatre companies. There is substantial competition
for attractive acquisition candidates. There can be no assurance that the
Company will be able to successfully acquire suitable acquisition candidates or
integrate acquired operations into its existing operations. There can also be no
assurance that future acquisitions will not have an adverse effect upon the
Company's operating results, particularly in the quarters immediately following
the completion of an acquisition while the operations of an acquired business
are being integrated. Moreover, the Company's acquisition strategy involves, to
a substantial degree, strategies to increase net revenue while at the same time
reducing operating expenses. Although the Company's management believes that its
strategies are reasonable, there can be no assurance that the Company will be
able to implement its plans without delay or that, when implemented, its efforts
will result in the increased profitability, cost savings or other benefits
expected by the Company's management. In addition, the integration of acquired
companies, including

15
19

Act III, will require substantial attention from the Company's senior
management, which may limit the amount of time available to be devoted to the
Company's day-to-day operations or to the execution of its growth strategy.
Additionally, expansion of the Company's theatre circuit involves the risk that
the Company might not effectively manage such growth and that significant
additional debt may be incurred in connection with such acquisitions, which
could have a material adverse effect on the Company's financial position and
results of operations.

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. Many of the
Company's competitors have been in existence significantly longer than the
Company and may be better established in certain of the markets where the
Company's theatres are located or where the Company may choose to open new
theatres. Many of the Company's competitors have sought to increase the number
of their theatres and screens in operation. Such increases may cause certain
local markets or portions thereof to become over screened, resulting in a
negative impact on the earnings of the theatres involved and thus on the
Company's theatres in those markets. Filmgoers are generally not brand conscious
and choose a theatre based on the films showing there.

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. Failure to compete favorably with respect to any of these
factors could have a material adverse effect on the Company's business and
results of operations.

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. See "Business -- Competition."

DEPENDENCE ON SENIOR MANAGEMENT

The Company's success depends upon the continued contributions of its
senior management, including Michael L. Campbell, Chairman, President and Chief
Executive Officer of the Company. The Company currently has employment
agreements with Mr. Campbell and other senior executives, but the Company
maintains key-man life insurance only with respect to Mr. Campbell. The loss of
the services of one or more of the Company's senior management could have a
material adverse effect upon its business and development. See
"Management -- Executive Compensation -- Campbell and Dunn Employment
Agreements."

FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS

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
16
20

years 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."

SUBSTANTIAL INDEBTEDNESS, LEASE COMMITMENTS AND LEVERAGE

The Company has substantial indebtedness. As of July 2, 1998, on a pro
forma basis after giving effect to the Act III Combination, the Company had
approximately $1.19 billion of indebtedness outstanding, with approximately
$461.1 million available for future borrowings under the Senior Credit
Facilities, subject to certain conditions. On a pro forma basis after giving
effect to the Act III Combination, the Company would have a deficiency of
earnings to cover fixed charges of $33.0 million for the year ended January 1,
1998. In addition, the Company may incur additional indebtedness in the future,
including for the purpose of funding future construction and acquisitions as
part of its growth strategy, subject to certain limitations contained in the
Indenture and the Senior Credit Facilities. See "Capitalization," "Description
of the Notes" and "Description of Certain Indebtedness -- Senior Credit
Facilities."

The Company's high degree of leverage could have several important
consequences to the holders of the Notes, including, but not limited to, the
following: (i) the Company will have significant cash requirements to service
debt, reducing funds available for operations and future business opportunities
and increasing the Company's vulnerability to adverse general economic and
industry conditions and competition; (ii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate or other purposes, may be limited; (iii) the
Company's leveraged position and the covenants contained in the Indenture and
the Senior Credit Facilities could limit the Company's ability to compete, as
well as its ability to expand, including through acquisitions, and to make
capital improvements; and (iv) the Company's ability to refinance the Notes in
order to pay the principal of the Notes at maturity or upon a Change of Control
may be adversely affected. In addition, certain indebtedness under the Company's
Senior Credit Facilities bear interest at floating rates and as a result, the
Company's operating results are sensitive to fluctuations in interest rates.
There can be no assurance that the Company's future cash flow will be sufficient
to meet the Company's obligations and commitments, and any insufficiency in this
regard could have a material adverse effect on the Company's business.

During the twelve months ended January 1, 1998, the Company's interest
expense was approximately $14.0 million, which would increase to $103.5 million
on a pro forma basis for such period assuming that the Transactions and the Act
III Combination occurred on January 3, 1997. Accordingly, the Transactions and
the Act III Combination will increase the Company's interest expense. For 1998,
after giving pro forma effect to the Act III Combination, the minimum amount
required to be paid under the Company's non-cancelable operating leases is $73.6
million. See "Unaudited Pro Forma Consolidated Financial Data."

ABILITY TO SERVICE DEBT

The Company's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the Senior Credit
Facilities and the Notes) will depend on the future performance of the Company
and its subsidiaries, which to a certain extent will be subject to economic,
financial, competitive and other factors beyond the Company's control. Based
upon the Company's current operations and anticipated growth, management
believes that future cash flow from operations, together with the Company's
available borrowings under the Senior Credit Facilities, will be adequate to
meet the Company's respective anticipated requirements 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." There can be no assurance, however, that the Company's
business will continue to generate sufficient cash flow from operations in the
future to service its indebtedness and make necessary capital expenditures. In
that event, the Company may be required to refinance all or a portion of its
indebtedness, including the Notes, to sell assets or to obtain additional
financing. There can be no assurance 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 terms acceptable to management, if at all.

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21

SUBORDINATION OF NOTES

The Notes will be general unsecured obligations of the Company subordinated
in right of payment to all existing and future Senior Indebtedness of the
Company, including indebtedness under the Senior Credit Facilities. In addition,
the Notes will be effectively subordinated to all indebtedness and other
liabilities of the Company's subsidiaries. As of July 2, 1998, on a pro forma
basis after giving effect to the Transactions and the Act III Combination, the
Company had approximately $751.4 million of Senior Indebtedness outstanding
(excluding unused commitments of $461.1 million under the Senior Credit
Facilities), and the Company's subsidiaries would have had capital lease
obligations and indebtedness to third parties of approximately $40.0 million
(excluding guarantees of Senior Indebtedness of the Company). In addition, all
of the Company's indebtedness (other than the Notes) has a final maturity date
that is prior to the final maturity date of the Notes. Subject to certain
limitations, the Indenture permits the Company to incur additional indebtedness,
including Senior Indebtedness, and permits its subsidiaries to incur
indebtedness. The Company may not pay principal of, premium, if any, or interest
on the Notes or purchase, redeem or otherwise retire the Notes, if any
principal, premium, if any, 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 certain Senior Indebtedness
(including under the Senior Credit Facilities), the Company may not make any
payments on the Notes for a specified period of time, unless such default is
cured or waived or such Senior Indebtedness has been repaid in full. If the
Company fails to make any payment on the Notes 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 Notes 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, the
assets of the Company will be available to pay obligations on the Notes only
after all Senior Indebtedness and indebtedness and other liabilities of the
Company's 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 Notes then outstanding. See "Description of the
Notes -- Ranking and Subordination" and "Description of Certain
Indebtedness -- Senior Credit Facilities."

RESTRICTIVE DEBT COVENANTS

The Indenture and the Senior Credit Facilities contain certain covenants
that restrict, among other things, the Company's ability to incur additional
indebtedness, pay dividends or make certain other restricted payments, enter
into certain transactions with affiliates, merge or consolidate with any other
person or sell, assign, transfer, lease, convey, or otherwise dispose of all or
substantially all of the assets of the Company. In addition, the Senior Credit
Facilities contain certain other and more restrictive covenants including
restrictions on prepaying indebtedness, such as the Notes, and also require the
Company to maintain specified financial ratios. The financial tests required to
be met under the Senior Credit Facilities can be affected by events beyond its
control and there can be no assurance that the Company will meet those tests. A
breach of any of these covenants could result in a default under the Senior
Credit Facilities, which would allow the lenders thereunder to declare all
amounts outstanding thereunder, together with accrued interest, to be
immediately due and payable. If the Company were unable to pay those amounts,
the lenders thereunder could proceed against the collateral granted to them to
secure that indebtedness. Substantially all the assets of the Company, including
the stock of certain of its subsidiaries, are pledged as collateral to secure
the Company's obligations under the Senior Credit Facilities. If the
indebtedness under the Senior Credit Facilities were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to repay
in full that indebtedness and the other indebtedness of the Company, including
the Notes. In addition, if a default occurs with respect to Senior Indebtedness,
such as the Senior Credit Facilities, the subordination provisions of such
Senior Indebtedness would likely restrict payments to holders of Notes. See
"Description of the Notes -- Certain Covenants" and "Description of Certain
Indebtedness -- Senior Credit Facilities."

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22

LIMITATIONS OF COVENANTS

Although the Indenture limits the incurrence of indebtedness by the Company
and its subsidiaries, such limitation is subject to a number of significant
qualifications. Moreover, the Indenture does not impose any limitation on the
incurrence by the Company and its subsidiaries of liabilities that are not
considered "Indebtedness" under the Indenture. If the Notes attain Investment
Grade Status, substantially all the covenants in the Indenture, including those
covenants limiting the Company's and its subsidiaries' ability to incur
indebtedness, pay dividends or make other distributions or engage in
transactions with affiliates, will cease to apply.

REPURCHASE OF THE NOTES UPON CHANGE OF CONTROL

Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase the Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase. If a Change of Control were to occur, there can be no assurance that
the Company would have sufficient funds to pay the purchase price for all of the
Notes that the Company might be required to purchase. In the event that the
Company were required to purchase Notes pursuant to a Change of Control Offer
(as defined herein), the Company expects that it would require third party
financing; however, there can be no assurance that the Company would be able to
obtain such financing on terms acceptable to management, if at all. In addition,
the Senior Credit Facilities restrict the Company's ability to repurchase the
Notes, 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 other Senior Indebtedness, if any, in which case the
subordination and other provisions of the Notes would require payment in full of
the Senior Credit Facilities and any such Senior Indebtedness before repurchase
of the Notes. See "Description of Certain Indebtedness -- Senior Credit
Facilities," "Description of the Notes -- Change of Control" and "-- Ranking and
Subordination."

ABSENCE OF A PUBLIC MARKET FOR THE NOTES

The Notes are being offered to the holders of the Old Notes. The Notes
constitute a new class of securities with no established trading market. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for the remaining untendered Old Notes could be adversely
affected. There is no existing trading market for the Notes, and there can be no
assurance regarding the future development of a market for the Notes, or the
ability of holders of the Notes to sell their Notes or the price at which such
holders may be able to sell their Notes. If such a market were to develop, the
Notes could trade at prices that may be higher or lower than their principal
amount or purchase price, depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities. Each of Morgan Stanley & Co. Incorporated, Donaldson Lufkin &
Jenrette Securities Corporation and Goldman, Sachs & Co. (collectively, the
"Market Makers") has advised the Company that it currently intends to make a
market in the Notes. The Market Makers are not obligated to do so, however, and
any market-making with respect to the Notes may be discontinued at any time
without notice. Therefore, there can be no assurance as to the liquidity of any
trading market for the Notes or that an active public market for the Notes will
develop. The Company does not intend to apply for listing or quotation of the
Notes on any securities exchange or stock market.

Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Notes will not be
subject to similar disruptions. Any such disruptions may have an adverse effect
on holders of the Notes.

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23

EFFECTIVE CONTROL BY HICKS MUSE AND KKR

Hicks Muse and KKR currently hold approximately 46.3% and 46.3%,
respectively, of the Company's outstanding Common Stock. Therefore, if they vote
together, Hicks Muse and KKR have the power to control all matters submitted to
the stockholders of the Company, elect a majority of the directors of the
Company and exercise control over the business, policies and affairs of the
Company. The interests of Hicks Muse and KKR may differ from each other and from
the holders of the Notes. Concurrently with the consummation of the Regal
Merger, the Company entered into a stockholders agreement with KKR and Hicks
Muse (the "KKR/Hicks Muse Stockholders Agreement"), effectively requires the
Company to obtain the approval of the board designees of each of Hicks Muse and
KKR before the Board of Directors may take any action. The KKR/Hicks Muse
Stockholders Agreement, however, does not contain any "deadlock" resolution
mechanisms.

RISKS ASSOCIATED WITH FRAUDULENT CONVEYANCE LIABILITY

A substantial portion of the proceeds of the Original Offering were used to
refinance indebtedness of the Company. Accordingly, the obligations of the
Company under the Notes may be subject to review under relevant federal and
state fraudulent conveyance statutes ("fraudulent conveyance statutes") in a
bankruptcy, reorganization or rehabilitation case or similar proceeding or a
lawsuit by or on behalf of unpaid creditors of the Company. If a court were to
find under relevant fraudulent conveyance statutes that, at the time the Notes
were issued, (a) the Company issued the Notes with the intent of hindering,
delaying or defrauding current or future creditors or (b)(i) the Company
received less than reasonably equivalent value or fair consideration for issuing
the Notes (including, to the extent the proceeds from the Notes are used to
refinance any indebtedness of the Company or any of its subsidiaries, by virtue
of an invalidation as a fraudulent conveyance of the incurrence of such
indebtedness) and (ii)(A) was insolvent or was rendered insolvent by reason of
such issuance and/or such related transactions, (B) was engaged, or about to
engage, in a business or transaction for which its assets constituted
unreasonably small capital, (C) intended to incur, or believed that it would
incur, obligations beyond its ability to pay as such obligations matured (as all
of the foregoing terms are defined in or interpreted under such fraudulent
conveyance statutes) or (D) was a defendant in an action for money damages, or
had a judgment for money damages docketed against it (if, in either case, after
final judgment, the judgment was unsatisfied), such court could subordinate the
Notes to presently existing and future indebtedness of the Company and take
other action detrimental to the holders of the Notes, including, under certain
circumstances, invalidating the Notes.

The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the federal or state law that is being applied in any such
proceeding. Generally, however, the Company would be considered insolvent if, at
the time it incurs the obligations constituting the Notes, either (i) the fair
market value (or fair saleable value) of its assets is less than the amount
required to pay the probable liability on its total existing indebtedness and
liabilities (including contingent liabilities) as they become absolute and
mature or (ii) it is incurring obligations beyond its ability to pay as such
obligations mature.

The Board of Directors and management of the Company believe that at the
time of issuance of the Notes the Company (i) will be (a) neither insolvent nor
rendered insolvent thereby, (b) in possession of sufficient capital to meet
their obligations as the same mature or become due and to operate their
businesses effectively and (c) incurring obligations within their ability to pay
as the same mature or become due and (ii) will have sufficient assets to satisfy
any probable money judgment against them in any pending action. In reaching the
foregoing conclusions, such Board of Directors and management have relied upon
their analysis of internal cash flow projections and estimated values of assets
and liabilities of the Company. There can be no assurance, however, that such
analyses will prove to be correct or that a court passing on such questions
would reach the same conclusions.

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24

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, 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.

The net proceeds of the Original Offering, 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. Under the Senior Credit Facilities, the
Company is permitted to borrow up to $1,212.5 million in the aggregate,
consisting of $500.0 million under the Revolving Credit Facility and $712.5
million, in the aggregate, under three separate term loan facilities. After the
consummation of the Act III Combination, the Company had approximately $461.1
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
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 ACT III COMBINATION

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. As a result of the Transactions and the Act III
Combination, 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. The Recapitalization and the Financing were not conditioned on 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.

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USE OF PROCEEDS

CAPITALIZATION

The following table sets forth the actual capitalization of the Company at
July 2, 1998 and the pro forma capitalization of the Company as adjusted to give
effect as of that date to the Act III Combination. This table should be read in
conjunction the "Selected Historical Consolidated Financial Data," the
"Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company and Act III and the respective notes thereto
appearing elsewhere in this Prospectus.

AS OF JULY 2, 1998
-------------------
ACTUAL PRO FORMA
------ ---------
(IN MILLIONS)

Debt (including current maturities):
Senior Credit Facilities(1)............................... $375.0 $ 751.4
Notes..................................................... 400.0 400.0
Other indebtedness(2)..................................... 1.3 38.8
------ --------
Total Debt........................................ 776.3 1,190.2
Stockholders' Equity (Deficit).............................. (76.1) 235.3
------ --------
Total Capitalization.............................. $700.2 $1,425.5
====== ========

- ---------------

(1) After giving pro forma effect to the Act III Combination, the Company had
$461.1 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.

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26

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma consolidated financial statements (the
"Unaudited Pro Forma Consolidated Financial Data") of the Company are based on
the unaudited and audited consolidated financial statements of the Company and
Act III, which are included elsewhere in this Prospectus, and have been prepared
to give effect to the Act III Combination, as though such transactions had
occurred as of July 2, 1998, for the balance sheet, and to the Transactions and
the Act III Combination, as though such transactions had occurred as of January
3, 1997, for the statements of income. 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 and the Act III Combination, 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 does not purport to present what the Company's
financial position actually would have been had the Act III Combination, in
fact, occurred as of July 2, 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 will
be accounted for as a purchase applying the provisions of Accounting Principles
Board Opinion No. 16 ("APB 16").

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27

REGAL CINEMAS, INC.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JULY 2, 1998
(IN MILLIONS)

[CAPTION]

REGAL ACT III PRO FORMA CONSOLIDATED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- -------------- ------------

ASSETS

Current assets:
Cash and cash equivalents......................... $ 27.5 $ 1.9 $ 3.5(1) $ 32.9
Accounts receivable............................... 1.1 1.4 2.5
Prepaids and other current assets................. 10.4 3.3 13.7
Refundable income taxes........................... 7.7 7.7
------ ------ ------- --------
Total current assets......................... 46.7 6.6 3.5 56.8
Property and equipment, net.......................... 638.2 357.1 995.3
Goodwill, net........................................ 55.5 3.0 (3.0)(2) 55.5
Excess purchase cost over net book value of assets
acquired.......................................... 366.4(2) 366.4
Other assets......................................... 44.0 39.3 (14.3)(2) 69.0
------ ------ ------- --------
Total assets................................. $784.4 $406.0 $ 352.6 $1,543.0
====== ====== ======= ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Current maturities of long-term debt.............. $ .3 $ 4.3 $ 4.6
Accounts payable.................................. 38.6 21.1 59.7
Accrued expenses.................................. 35.5 9.6 $ (7.1)(2)(3) 38.0
------ ------ ------- --------
Total current liabilities.................... 74.4 35.0 (7.1) 102.3
Long-term debt:
Credit facility................................... 375.0 220.4 156.0(3) 751.4
Subordinated Notes................................ 400.0 150.0 (150.0)(3) 400.0
Other long-term debt and capital lease
obligations..................................... .9 33.3 34.2
Other liabilities.................................... 10.2 9.6 19.8
------ ------ ------- --------
Total liabilities............................ 860.5 448.3 (1.1) 1,307.7
Stockholders' equity (deficit)....................... (76.1) (42.3) 353.7(4) 235.3
------ ------ ------- --------
Total liabilities and stockholders' equity... $784.4 $406.0 $ 352.6 $1,543.0
====== ====== ======= ========

See Accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.

24
28

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JULY 2, 1998
(IN MILLIONS)

(1) Adjustment reflects the net cash remaining after the Act III Refinancing and
the payment of fees and expenses resulting from the Act III Combination.

(2) The Act III Combination will be accounted for as a purchase, applying the
provisions of APB 16. The purchase cost will be allocated to the acquired
assets and liabilities of Act III based on their relative fair values as of
the closing date, based on valuations and studies which are not yet
complete. Accordingly, the excess of purchase cost over historical book
value of the net assets acquired has not yet been allocated to the
individual assets and liabilities of Act III. However, the Company believes
that a portion of the excess will be allocated to property plant and
equipment and identifiable intangible assets and the remainder to goodwill.
The pro forma purchase cost and determination of the excess of cost over
book value of net assets acquired are as follows:

Fair value of Regal stock and options issued in the Act III
Merger.................................................... $ 311.4
Estimated fees and expenses................................. 1.0
---------
Total purchase cost............................... 312.4
---------
Pro forma book value of net assets acquired:
Historical book value of net assets of Act III............ (42.3)
Eliminate existing goodwill of Act III.................... (3.0)
Eliminate deferred financing fees on debt repaid in the
Act III Refinancing.................................... (14.3)
Accrued income taxes (tax benefit of write-off of deferred
financing fees) (accrued expenses)..................... 5.6
---------
Pro forma book value of net assets acquired............... (54.0)
---------
Excess of cost over book value of net assets acquired....... $ 366.4
=========

(3) Adjustments reflect: (i) the borrowings of $376.4 million under the Senior
Credit Facilities, net of the repayment of $220.4 million of the Act III
Bank Debt; (ii) the repayment of the Act III Notes of $150.0 million; and
(iii) payment of accrued interest of $1.5 million.

(4) Adjustment reflects the net effect of the items noted below:

Equity issued to acquire Act III............................ $ 311.4
Eliminate Act III historical equity......................... 42.3
---------
Net equity adjustment....................................... $ 353.7
=========

25
29

REGAL CINEMAS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JULY 2, 1998
(IN MILLIONS)

THE TRANSACTIONS ACT III COMBINATION
----------------------- ------------------------
REGAL PRO FORMA ACT III PRO FORMA CONSOLIDATED
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ------------

Revenue:
Admissions........................ $190.9 $190.9 $ 88.6 $279.5
Concession sales.................. 82.0 82.0 42.1 124.1
Other............................. 15.2 15.2 1.0 16.2
------ ------ ------ ------
Total revenue.............. 288.1 288.1 131.7 419.8
Costs and Expenses:
Operating expenses:
Film rental and advertising..... 104.0 104.0 45.9 149.9
Cost of concessions and other... 13.0 13.0 6.0 19.0
Rent expense.................... 34.9 34.9 9.5 44.4
Other expense................... 65.3 65.3 32.5 97.8
General and administrative........ 8.0 8.0 3.5 $(2.5) (4) 9.0
------ ------ ------ ----- ------
Total costs and expenses... 225.2 225.2 97.4 (2.5) 320.1
------ ------ ------ ----- ------
Sub-Total.................. 62.9 62.9 34.3 2.5 99.7
Depreciation and amortization..... 19.9 19.9 15.8 5.2(5) 40.9
Recapitalization expenses......... 62.0(1) 62.0 62.0
------ ------ ------ ----- ------
Operating income (loss).... (19.0) (19.0) 18.5 (2.7) (3.2)
Interest expense.................. 13.3 $ 22.6(2) 35.9 20.1 (2.0)(6) 54.0
Interest income................... (0.5) (0.5) (.6) (1.1)
Other, net........................ .3 .3 .3
------ ------ ------ ------ ----- ------
Income (loss) before income
taxes and loss on
extraordinary item............ (32.1) (22.6) (54.7) (1.0) (.7) (56.4)
Provision for (benefit from)
income taxes.................... (3.9) (8.8)(3) (12.7) (.3) 1.8(3) (11.2)
------ ------ ------ ------ ----- ------
Income (loss) before extraordinary
loss.............................. $(28.2) $(13.8) $(42.0) $ (.7) $(2.5) $(45.2)
====== ====== ====== ====== ===== ======

See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income.

26
30
REGAL CINEMAS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEAR ENDED JANUARY 1, 1998
(IN MILLIONS)

THE TRANSACTIONS ACT III COMBINATION
----------------------- ---------------------------
REGAL PRO FORMA ACT III PRO FORMA CONSOLIDATED
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
------------- ----------- --------- ---------- -------------- ------------

Revenue:
Admissions........................ $325.1 $325.1 $172.9 $498.0
Concession sales.................. 137.2 137.2 78.2 215.4
Other............................. 16.8 16.8 2.2 19.0
------ ------ ------ ------
Total revenue.............. 479.1 479.1 253.3 732.4
Costs and Expenses:
Operating expenses:
Film rental and advertising..... 178.2 178.2 93.2 271.4
Cost of concessions and other... 16.6 16.6 12.4 29.0
Rent expense.................... 53.7 53.7 15.7 69.4
Other expense................... 102.8 102.8 62.6 165.4
General and administrative........ 16.6 16.6 8.1 $ (5.0)(4) 19.7
------ ------ ------ ------ ------
Total costs and expenses... 367.9 367.9 192.0 (5.0) 554.9
------ ------ ------ ------ ------
Sub-Total.................. 111.2 111.2 61.3 5.0 177.5
Depreciation and amortization..... 30.5 30.5 25.9 10.5(5) 66.9
SFAS 121.......................... 5.0 5.0 5.0
Merger expenses................... 7.8 7.8 7.8
Recapitalization expenses......... 25.9(7) 25.9
------ ------ ------ ------ ------
Operating income (loss).... 67.9 67.9 9.5 (5.5) 71.9
Interest expense.................. 14.0 $ 57.7(2) 71.7 28.1 3.7(6) 103.5
Interest income................... (.8) (0.8) (1.3) (2.1)
Other (income) expense, net....... .4 0.4 (1.8) -- (1.4)
------ ------ ------ ------ ------ ------
Income (loss) before income
taxes and loss on
extraordinary item............ 54.3 (57.7) (3.4) (15.5) (9.2) (28.1)
Provision for (benefit from)
income taxes.................... 19.1 (22.5)(3) (3.4) (1.1) .5(3) (4.0)
------ ------ ------ ------ ------ ------
Income (loss) before extraordinary
item............................ $ 35.2 $(35.2) $ -- $(14.4) $ (9.7) $(24.1)
====== ====== ====== ====== ====== ======

See Accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income.

27
31

NOTES TO UNAUDITED PRO FORMA

CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)

(1) The Regal historical income statement for the six months ended July 2, 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 Original Offering; and (iii) $1.3 million of capital lease
obligations of the Company as follows:

SIX MONTHS ENDED YEAR ENDED
JULY 2, 1998 JANUARY 1, 1998
---------------- ---------------

Interest expense before amortization of deferred
financing fees.................................... $ 33.9 $ 67.8
Amortization of deferred financing fees.............. 2.0 3.9
Historical interest expense.......................... (13.3) (14.0)
------ ------
Net adjustment............................... $ 22.6 $ 57.7
====== ======

The estimated weighted average interest rate of the Company's borrowings and
capital lease obligations is 8.7%.

(3) Reflects the tax effect of deductible adjustments at the Company's effective
income tax rate of 39%.

(4) Reflects reduced personnel costs realized as the result of the Act III
Combination.

(5) The pro forma adjustment to depreciation and amortization expense results
from the amortization of the excess purchase cost over book value of net
assets acquired in the Act III Combination. The excess purchase cost over
the book value of assets acquired has not been fully allocated to individual
assets or liabilities acquired. However, the Company believes a portion will
be allocated to property plant and equipment and identifiable intangibles
and the remainder, representing goodwill, will be amortized over 40 years.
Accordingly, a composite life of 35 years has been used.

(6) Adjusts interest expense to reflect interest expense resulting from the Act
III Combination on (i) additional borrowings under the Senior Credit
Facilities of approximately $375.0 million at 7.9%; and (ii) non-recourse
debt and capital lease obligations of Act III which were not repaid in the
Act III Refinancing as follows:

SIX MONTHS ENDED YEAR ENDED
JULY 2, 1998 JANUARY 1, 1998
---------------- ---------------

Interest expense...................................... $ 18.1 $ 31.8
Historical interest expense........................... (20.1) (28.1)
------ ------
Net adjustment.............................. $ (2.0) $ 3.7
====== ======

A .125% change in the interest rate on total indebtedness would change
annual pro forma interest expense by $1.5 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.

28
32

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 Coopers & Lybrand L.L.P., 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 were derived from the audited consolidated financial statements of the
Company as of and for each of the six months ended July 3, 1997 and July 2, 1998
were derived from the unaudited consolidated financial statements of the Company
which, in the opinion of management, include all adjustments (consisting only of
normally 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 six month periods ended July 3, 1997 and
July 2, 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 notes thereto included
elsewhere in this Prospectus.

SIX MONTHS
FISCAL YEAR ENDED ENDED
-------------------------------------------------------------------- -------------------
DECEMBER 30, DECEMBER 29, DECEMBER 28, JANUARY 2, JANUARY 1, JULY 3, JULY 2,
1993 1994 1995 1997 1998 1997 1998
------------ ------------ ------------ ---------- ---------- -------- --------
(IN MILLIONS, EXCEPT FOR PERCENTAGES, RATIOS AND OPERATING DATA)

STATEMENT OF INCOME DATA:
Revenue:
Admissions....................... $ 149.4 $ 185.2 $ 213.4 $ 266.0 $ 325.1 $150.5 $190.9
Concession sales................. 61.4 74.7 87.3 110.2 137.2 63.0 82.0
Other............................ 3.6 5.1 8.3 13.0 16.8 8.7 15.2
------- ------- ------- ------- ------- ------ ------
Total revenue................ 214.4 265.0 309.0 389.2 479.1 222.2 288.1
Costs and Expenses:
Operating expenses:
Film rental and advertising.... 82.8 101.0 115.4 145.2 178.2 81.3 104.0
Cost of concessions and
other........................ 8.8 9.9 11.4 15.1 16.6 10.2 13.0
Rent expense................... 28.0 32.5 34.5 41.4 53.7 26.0 34.9
Other expense.................. 49.0 60.4 71.2 86.4 102.8 49.1 65.3
General and administrative....... 12.7 14.1 14.8 16.6 16.6 9.5 8.0
------- ------- ------- ------- ------- ------ ------
Total costs and expenses..... 181.3 217.9 247.3 304.7 367.9 176.1 225.2
------- ------- ------- ------- ------- ------ ------
Sub-Total.................... 33.1 47.1 61.7 84.5 111.2 46.1 62.9
Depreciation and amortization.... 11.0 13.6 19.4 24.7 30.5 14.5 19.9
SFAS 121(1)...................... -- -- -- -- 5.0 -- --
Merger expenses.................. -- 5.1 1.2 1.6 7.8 -- --
Recapitalization expenses........ -- -- -- -- -- -- 62.0
------- ------- ------- ------- ------- ------ ------
Operating income (loss)...... 22.1 28.4 41.1 58.2 67.9 31.6 (19.0)
Interest expense, net............ 6.5 7.2 10.3 12.2 13.2 6.0 12.9
Other (income) expense, net...... 1.8 -- .7 (.7) .4 .3 .2
------- ------- ------- ------- ------- ------ ------
Income (loss) before income
taxes and loss (gain) on
extraordinary item........... 13.8 21.2 30.1 46.7 54.3 25.3 (32.1)
Provision for (benefit from)
income taxes................... 5.1 8.5 12.2 20.8 19.1 9.8 (3.9)
------- ------- ------- ------- ------- ------ ------
Income (loss) before loss
(gain) on extraordinary
item......................... 8.7 12.7 17.9 25.9 35.2 15.5 (28.2)
Loss (gain) on extraordinary
item........................... (.2) 1.8 .4 .8 10.0 -- 11.9
------- ------- ------- ------- ------- ------ ------
Net income (loss).................. $ 8.9 $ 10.9 $ 17.5 $ 25.1 $ 25.2 $ 15.5 $(40.1)
======= ======= ======= ======= ======= ====== ======

29
33

OPERATING AND OTHER FINANCIAL DATA:
Cash flow provided by (used in)
operating activities............. $ 29.8 $ 36.5 $ 40.0 $ 67.5 $ 64.0 $ 36.8 $ (1.9)
Cash flow used in investing
activities....................... $ 20.8 $ 106.4 $ 112.6 $ 131.1 $ 202.3 $ 91.2 $ 99.1
Cash flow provided by financing
activities....................... $ 7.3 $ 63.5 $ 69.8 $ 72.2 $ 139.6 $ 51.7 $110.1
EBITDA(2).......................... $ 33.1 $ 47.1 $ 61.7 $ 84.5 $ 111.2 $ 46.1 $ 62.9
EBITDAR(2)......................... $ 61.1 $ 79.6 $ 96.2 $ 125.9 $ 164.9 $ 72.1 $ 97.8
EBITDA margin(3)................... 15.5% 17.8% 20.0% 21.7% 23.2% 20.7% 21.8%
EBITDAR margin(3).................. 28.5% 30.0% 31.1% 32.4% 34.4% 32.4% 33.9%
Ratio of EBITDA to interest
expense(4)....................... 4.7x 6.3x 5.8x 6.6x 8.0x 7.6x 4.7x
Ratio of EBITDAR to interest and
rent expense(4).................. 1.7x 2.0x 2.1x 2.3x 2.4x 2.2x 2.0x
Capital expenditures and
acquisitions..................... $ 23.6 $ 108.6 $ 113.9 $ 143.7 $ 203.2 $ 90.1 $ 91.1
Ratio of earnings to fixed
charges(5)....................... 1.8x 2.1x 2.2x 2.6x 2.5x 2.5x --
Deficiency of earnings to cover
fixed charges(5)................. -- -- -- -- -- -- $ 33.5
OPERATING DATA(6):
Theatre locations.................. 160 195 206 223 256 234 261
Screens............................ 1,110 1,397 1,616 1,899 2,306 2,060 2,467
Average screens per location....... 6.9 7.2 7.8 8.5 9.0 8.8 9.5
Attendance (in thousands).......... 41,624 49,690 55,091 65,530 76,331 35,946 42,686
Average ticket price............... $ 3.59 $ 3.73 $ 3.87 $ 4.06 $ 4.26 $ 4.19 $ 4.47
Average concessions per patron..... $ 1.47 $ 1.50 $ 1.58 $ 1.68 $ 1.80 $ 1.75 $ 1.92
BALANCE SHEET DATA:
Cash and cash equivalents.......... $ 16.3 $ 9.9 $ 7.0 $ 17.1 $ 18.4 $ 14.4 $ 27.5
Total assets....................... $ 162.1 $ 252.6 $ 349.0 $ 488.8 $ 660.6 $559.5 $784.4
Long-term obligations (including
current maturities).............. $ 73.5 $ 117.5 $ 188.5 $ 144.6 $ 288.6 $195.5 $776.3
Stockholders' equity (deficit)..... $ 26.6 $ 88.1 $ 109.0 $ 279.3 $ 306.6 $295.6 $(76.1)

- ---------------

(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 indenture. 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.

(6) Operating theatres and screens represent the number of theatres and screens
operated at the end of the period.

30
34

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 Act III 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
Prospectus.

BACKGROUND OF REGAL

The Company has achieved significant growth in theatres and screens since
its formation in November 1989. Since inception through July 2, 1998 and after
giving pro forma effect to the Act III Combination, the Company has acquired 322
theatres with 2,353 screens, developed 70 new theatres with 879 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 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 July 2, 1998, approximately 45.2% 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
35

The following table sets forth for the fiscal periods indicated the
percentage of total revenues represented by certain items reflected in the
Company's consolidated statements of income:

PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
-------------------------------------- -------------------
DECEMBER 28, JANUARY 2, JANUARY 1, JULY 3, JULY 2,
1995 1997 1998 1997 1998
------------ ---------- ---------- -------- --------

Revenue:
Admissions................................ 69.1% 68.4% 67.9% 67.7% 66.2%
Concession sales.......................... 28.2 28.3 28.6 28.4 28.5
Other operating revenue................... 2.7 3.3 3.5 3.9 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 36.6 36.1
Cost of concessions and other............. 3.7 3.9 3.5 4.6 4.5
Theatre operating expenses................ 34.2 32.8 32.7 33.8 34.8
General and administrative expenses....... 4.8 4.3 3.5 4.3 2.8
Depreciation and amortization............. 6.3 6.3 6.4 6.5 6.9
Merger expenses........................... .4 .4 1.6 -- --
Recapitalization expenses................. -- -- -- -- 21.5
SFAS 121.................................. -- -- 1.0 -- --
----- ----- ----- ----- -----
Total operating expenses.......... 86.7 85.0 85.8 85.8 106.6
----- ----- ----- ----- -----
Operating income (loss)..................... 13.3 15.0 14.2 14.2 (6.6)
Other (income) expense:
Interest expense.......................... 3.5 3.3 2.9 2.7 4.6
Interest income........................... (.1) (.2) (.2) -- (0.2)
Other..................................... .2 .2 .1 .1 .1
----- ----- ----- ----- -----
Income (loss) before taxes and extraordinary
loss...................................... 9.7 12.1 11.4 11.4 (11.1)
Provision for (benefit from) income taxes... 3.9 5.4 4.0 4.4 (1.3)
----- ----- ----- ----- -----
Income (loss) before extraordinary loss..... 5.8 6.7 7.4 7.0 (9.8)
Extraordinary loss:
Loss on extinguishment of debt............ .1 .2 2.1 -- 4.1
----- ----- ----- ----- -----
Net income (loss)........................... 5.7% 6.5% 5.3% 7.0% (13.9)%
===== ===== ===== ===== =====

SIX MONTHS ENDED JULY 2, 1998 AND JULY 3, 1997

Total Revenues. Total revenues for the six months ended July 2, 1998
increased by 29.7% to $288.1 million from $222.2 million in the comparable 1997
period. This increase was due to an 18.8% increase in attendance attributable
primarily to the net addition of 407 screens in the last 12 months. Of the $65.9
million net increase in revenues for the period, a $16.3 million increase was
attributed to theatres previously operated by the Company, a $11.2 million
increase was attributed to theatres acquired by the Company and a $38.4 million
increase was attributed to new theatres constructed by the Company. Average
ticket prices increased 6.9% 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
9.7% 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 30.4% to $217.2
million for the six months ended July 2, 1998 from $166.6 million in the
comparable 1997 period. Direct theatre costs as a percentage of total revenues
increased to 75.4% in the 1998 period from 75.0% in the 1997 period. The
increase of direct theatre

32
36

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
decreased by 16.1% to $8.0 million for the six months ended July 2, 1998 from
$9.5 million in the comparable 1997 period. As a percentage of total revenues,
general and administrative expenses decreased to 2.8% in the 1998 period from
4.3% in the 1997 period.

Depreciation and Amortization. Depreciation and amortization expense
increased for the six months ended July 2, 1998 by 37.7% to $19.9 million from
$14.5 million in the comparable 1997 period. This increase was primarily the
result of theatre property additions associated with the Company's expansion
efforts.

Operating Income. Operating income (loss) for the six months ended July 2,
1998 decreased to $(19.0) million, or (6.6)% of total revenues, from $31.6
million, or 14.2% of total revenues, in the comparable 1997 period. Before
nonrecurring expenses associated with the Recapitalization, operating income for
the six month period ended July 2, 1998 was $43.1 million or 14.9% of total
revenues.

Interest Expense. Interest expense increased for the six months ended July
2, 1998 by 119.3% to $13.3 million from $6.1 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 (benefit from) income taxes for the six
months ended July 2, 1998 was $(3.9) million as compared to $9.8 million in the
1997 period. The effective tax rate was (12.2)% in the 1998 period as compared
to 38.7% in the 1997 period as the 1998 period reflected certain
Recapitalization expenses which were not deductible for tax purposes.

Net Income (Loss). The net income (loss) for the six months ended July 2,
1998 was $(40.1) million as compared to $15.5 million in the 1997 period. Net
income before nonrecurring and extraordinary items was $18.2 million or 6.3% of
total revenues in the six months ended July 2, 1998 as compared to $15.5 million
or 7.0% 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

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37

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.

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.

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38

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" 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. Concurrently with the consummation of the
Regal Merger, the Company entered into the Senior Credit Facilities, which
permits borrowings of up to $1,212.5 million and which 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 $337.5 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. After giving
effect to the Transactions and pro forma effect to the Act III Combination, the
Company had $461.1 million of capacity available under the Revolving Credit
Facility on the closing date of the Regal Merger. 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 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

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39

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.

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.

Interest payments on the Notes and interest payments and amortization with
respect to the Senior Credit Facilities represent significant liquidity
requirements for the Company. The Notes and the loans funded in connection with
the Recapitalization require annual interest payments totaling approximately
$67.8 million. In addition, for 1998, the minimum amount required to be paid
under the Company's non-cancelable operating leases is $73.6 million.

At July 2, 1998, after giving pro forma effect to the Act III Combination,
the Company had 48 new theatres with 727 screens and 47 screens at nine existing
locations under construction. The Company intends to develop approximately 575
to 625 screens during the balance of 1998 and approximately 750 to 850 screens
during 1999. The Company expects that the capital expenditures in connection
with its development plan will aggregate approximately $220.0 million for the
balance of 1998 and approximately $200.0 million during 1999. As of July 2,
1998, after giving pro forma effect to the Act III Combination, the Company had
approximately $327.5 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.

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

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40

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 Notes 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 Indenture 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 Notes" and "Description
of Certain Indebtedness -- Senior Credit Facilities."

INFLATION

The Company does not believe that inflation has had a material impact on
its financial position or results of operations.

SEASONALITY

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 No. 130 ("SFAS 130"), Reporting
Comprehensive Income, and Statement of Financial Accounting Standards No. 131
("SFAS 131"), Disclosures About Segment of an Enterprise and Related
Information. SFAS 130 requires disclosure of comprehensive income and its
components in a company's financial

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41

statements and is effective for fiscal years beginning after December 15, 1997.
SFAS 131 requires new disclosures of segment information in a company's
financial statements and is effective for fiscal years beginning after December
15, 1997. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows.

On June 15, 1998, the Financial Accounting Standards Board issued FAS No.
133, Accounting for Derivative and Financial Instruments and Hedging Activities.
FAS 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
and is not expected to have a material effect on the Company's financial
position or results of operations.

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BUSINESS

THE COMPANY

After giving pro forma effect to the Act III Combination, the Company is
the largest motion picture exhibitor in the United States based upon the number
of screens in operation. At July 2, 1998, on the same pro forma basis, the
Company operated 392 theatres, with an aggregate of 3,310 screens in 29 states.
The Company operates primarily multiplex theatres and has an average of 8.4
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 July 2,
1998, the Company, without giving effect to the Act III Combination, had
revenues, operating income and EBITDA of $545.0 million, $17.3 million and
$128.0 million, respectively. Act III's consolidated revenues, operating income
and EBITDA for the twelve months ended June 30, 1998, were $264.6 million, $11.2
million and $68.6 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 Act III Combination, 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%.

Since its inception and after giving pro forma effect to the Act III
Combination, the Company has grown by acquiring a net of 322 theatres with 2,353
screens, constructing 70 theatres with 879 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 July 2, 1998, after giving pro forma effect to the Act III
Combination, the Company had 48 new theatres with 727 screens under construction
and 47 new screens under construction at nine 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 54 theatres with 838 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).

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BUSINESS STRATEGY

Operating Strategy

Management believes that the following are the key elements of the
Company's operating strategy:

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 July 2,
1998, 78% 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.

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Growth Strategy

Management believes that the following characteristics are the key elements
of the Company's growth strategy:

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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.

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

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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.
Since January 1994, the number of large budget films and the level of marketing
support provided by the production companies has risen, 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

After giving pro forma effect to the Act III Combination, 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 twelve month period ended July 2, 1998, without giving pro forma
effect to the Act III Combination, the Company generated 62.5% of its revenues
from theatres in five states. The following table sets forth, for the same
period and on the same pro forma basis, the number of theatres and screens owned
and operated by the Company, providing certain operating data for the five
states where the Company has its largest presence.

NUMBER NUMBER PERCENT OF
OF OF TOTAL
STATE THEATRES SCREENS THEATRE REVENUE*
----- -------- ------- ----------------

Florida........................................... 70 748 29.4%
Virginia.......................................... 39 268 12.1
Ohio.............................................. 35 299 10.6
Georgia........................................... 16 158 6.1
Alabama........................................... 13 126 4.3
Other............................................. 88 868 37.5
--- ----- -----
Total................................... 261 2,467 100.0%
=== ===== =====

- ---------------

* For the twelve month period ended July 2, 1998.

For the twelve month period ended June 30, 1998, Act III generated 98.5% of
its revenues from theatres in five states. The following table sets forth, for
the same period, the number of theatres and screens owned and operated by Act
III, providing certain operating data for the five states where Act III has its
largest presence.

NUMBER NUMBER PERCENT OF
OF OF TOTAL
STATE THEATRES SCREENS THEATRE REVENUE*
----- -------- ------- ----------------

Oregon............................................ 48 245 29.9%
Washington........................................ 41 252 34.1
Texas............................................. 25 211 21.4
Alaska............................................ 8 49 6.6
Nevada............................................ 4 54 6.5
Other............................................. 5 32 1.5
--- --- -----
Total................................... 131 843 100.0%
=== === =====

- ---------------

* For the twelve month period ended June 30, 1998.

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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 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

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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 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 July 2, 1998, the Company operated 27 theatres with an aggregate of
178 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 July 2, 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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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. The Company currently operates 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.

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 is expected to open 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.

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COMPETITION

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 theater provide comprehensive information to the corporate
office by 8:00 a.m. each morning. These daily management reports address all
aspects of theater operations, including concession sales, fraud detection and
film booking. Payroll information is gathered daily from theaters through the
use of automated time keeping systems, enabling a daily comparison of actual to
budgeted labor for each theater. The Company's systems allow it to properly
schedule and manage its hourly workforce. A corporate help desk is also
available to monitor and resolve any processing problems that might arise in the
theatres.

PROPERTIES

As of July 2, 1998, after giving pro forma effect to the Act III
Combination, the Company operated 247 of its 392 theatres pursuant to lease
agreements, owned the land and buildings for 101 theatres and operated 44
locations pursuant to ground leases. Of the 392 theatres operated by the Company
as of July 2, 1998, 322 were acquired as existing theatres and 70 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 July 2, 1998, after giving pro forma effect to the Act III
Combination, the Company employed 12,819 persons, of which 1,463 were full-time
and 11,356 were part-time employees. Of the Company's employees, as of the same
date and on the same pro forma basis, 285 were corporate personnel, 1,539 were
theatre management personnel and the remainder were hourly theatre personnel.
Film projectionists at 16 of

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51

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 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 July 2, 1998, approximately
45.2% 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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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following persons are the directors and executive officers of the
Company. Certain information relating to the directors and executive officers,
which has been furnished to the Company by the individuals named, is set forth
below.

NAME AGE POSITION
---- --- --------

Michael L. Campbell.............. 44 Chairman, President, Chief Executive Officer and Director
Gregory W. Dunn.................. 39 Executive Vice President and Chief Operating Officer
R. Keith Thompson................ 36 Senior Vice President Real Estate and Construction
D. Mark Monroe................... 36 Vice President, Acting Chief Financial Officer and
Treasurer
Susan Seagraves.................. 41 Vice President, Corporate Controller and Assistant
Secretary
David Deniger.................... 53 Director
Thomas O. Hicks.................. 52 Director
Henry R. Kravis.................. 54 Director
Michael J. Levitt................ 39 Director
John R. Muse..................... 47 Director
Alexander Navab, Jr.............. 32 Director
Clifton S. Robbins............... 40 Director
George R. Roberts................ 55 Director

Michael L. Campbell founded the Company in November 1989 and has served as
Chairman of the Board, President and Chief Executive Officer since inception.
Prior thereto, Mr. Campbell was the Chief Executive Officer of Premiere Cinemas
Corporation ("Premiere"), which he co-founded in 1982, and served in such
capacity until Premiere was sold in October 1989. Mr. Campbell serves on the
Executive Committee of the Board of Directors of the National Association of
Theatre Owners.

Gregory W. Dunn has served as Executive Vice President and Chief Operating
Officer since 1995. From 1991 to 1995, Mr. Dunn was Vice President Marketing and
Concessions. From 1989 to 1991, Mr. Dunn was the Purchasing and Operations
Manager for Goodrich Quality Theaters, a Grand Rapids, Michigan based theatre
chain. From 1986 to 1989, he was a film buyer for Tri-State Theatre Service,
Inc.

R. Keith Thompson has served as Senior Vice President Real Estate and
Construction since February 1993. Prior thereto, he served as Vice President
Finance since joining the Company in 1991. From June 1984 to July 1991, Mr.
Thompson was a Vice President of Corporate Lending at PNC Commercial
Corporation.

D. Mark Monroe is a certified public accountant and has served as Acting
Chief Financial Officer since October 1, 1998 and as Vice President and
Treasurer since November 1997. From September 1995 to October 1997, Mr. Monroe
served as the 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.

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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 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 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., Glass's Group, International Home Foods,
Inc., LIN Television Corporation, 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.

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54

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 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 Amended and 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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EXECUTIVE COMPENSATION

The following table provides information as to annual, long-term or other
compensation during the last three fiscal years for the Company's Chief
Executive Officer and each of the Company's other executive officers whose
salary and bonus exceeded $100,000 during fiscal 1997 (collectively the "Named
Executive Officers").

SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ---------------
SECURITIES
UNDERLYING
FISCAL YEAR SALARY($) BONUS($)(1) OPTIONS/SARS(#)
----------- --------- ----------- ---------------

Michael L. Campbell......................... 1997 $241,500 $671,941 190,000
Chairman, President and Chief 1996 209,463 716,988 150,000
Executive Officer 1995 179,236 441,252 112,500
Gregory W. Dunn............................. 1997 $125,000 $135,000 60,000
Executive Vice President and Chief 1996 115,358 130,000 52,500
Operating Officer 1995 87,536 75,000 61,875
Lewis Frazer III(2)......................... 1997 $120,000 $120,000 60,000
Former Executive Vice President, Chief 1996 108,413 124,950 45,000
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 Film and 1996 85,540 55,000 30,000
Advertising 1995 77,033 45,000 22,500

- ---------------

(1) For fiscal years 1997 and 1996, reflects cash bonus earned in fiscal 1997
and 1996, respectively, and paid the following fiscal year. For fiscal year
1995, reflects bonuses earned in the fiscal year indicated and paid in the
following fiscal year one-half in cash and one-half in restricted stock
purchased in the name of the executive officer. Shares of restricted stock
vested on January 2, 1997, one year after the grant date. Restricted stock
was awarded as follows: Mr. Campbell -- 10,227 shares for fiscal 1995; Mr.
Dunn -- 1,738 shares for fiscal 1995; Mr. Frazer -- 1,623 shares for fiscal
1995; Mr. Thompson -- 1,159 shares for fiscal 1995; and Mr. Engel -- 1,042
shares for fiscal 1995. Such shares for fiscal 1995 represent the total
aggregate holdings of restricted stock by the Named Executive Officers for
fiscal 1995 and had a fair market value of approximately $192,574, $32,727,
$30,561, $21,824 and $19,621, for Messrs. Campbell, Dunn, Frazer, Thompson
and Engel, respectively, based on a price of $18.83, the closing price of
the Common Stock on The Nasdaq Stock Market on December 28, 1995 (as
adjusted for a three-for-two stock split in September 1996). Dividends are
paid on all restricted shares to the same extent as on any other shares of
Common Stock.

(2) As of October 1, 1998, Messrs. Frazer and Engel were no longer employees of
the Company.

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The following table summarizes certain information regarding stock options
issued to the Named Executive Officers during fiscal 1997. No stock appreciation
rights have been granted by the Company.

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS
------------------------------------------------
PERCENT OF
NUMBER OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK APPRECIATION
OPTIONS EMPLOYEES EXERCISE OPTION TERM(2)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#)(1) 1997 ($/SHARE) DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ---------- ----------

Michael L. Campbell........ 150,000 14.90% $31.875 08/08/07 $3,006,885 $7,620,069
40,000 3.97 22.75 11/07/07 572,290 1,450,303
Gregory W. Dunn............ 50,000 4.97 31.875 08/08/07 1,002,295 2,540,023
10,000 .99 22.75 11/07/07 143,072 362,575
Lewis Frazer III........... 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............ -- -- -- -- -- --

- ---------------

(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.

The following table summarizes certain information with respect to stock
options exercised by the Named Executive Officers pursuant to the Company's
stock option plans.

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS HELD AT MONEY OPTIONS HELD AT
SHARES JANUARY 1, 1998(#) JANUARY 1, 1998(1)($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------

Michael L. Campbell... -- -- 222,357 674,857 $4,966,121 $6,724,840
Gregory W. Dunn....... -- -- 42,749 226,969 943,477 2,126,744
Lewis Frazer III...... -- -- 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....... -- -- 59,701 89,795 1,403,604 1,202,416

- ---------------

(1) Reflects the market value of the underlying securities at exercise or at
$27.875, the closing price on The Nasdaq Stock Market on December 31, 1997,
less the exercise price.

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

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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 the KKR/Hicks Muse Stockholders Agreement with KKR and Hicks Muse. 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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PRINCIPAL STOCKHOLDERS

The following table and the accompanying footnotes set forth, as of
September 28, 1998, the beneficial ownership of the Common Stock of the Company
by (i) each person who is known to the Company to own beneficially more than 5%
of the Common Stock, (ii) each director and Named Executive Officer of the
Company and (iii) all directors and executive officers as a group. Unless noted
otherwise, the address for each executive officer is in care of the Company at
7132 Commercial Park Drive, Knoxville, Tennessee 37918.

NUMBER OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) OF CLASS(1)
------------------------------------ ----------- -----------

5% STOCKHOLDERS:(1)
Hicks Muse Parties(2)....................................... 100,000,000 46.3
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............................................ 566,463 *
Robert A. Engel, Jr......................................... --
R. Keith Thompson........................................... 272,769 *
All directors and executive officers as a group (15
persons).................................................. 3,794,083 1.7

- ---------------

* 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 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

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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 members of which are
Henry R. Kravis, George R. Roberts, 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 members of the Executive Committee of KKR 1996 GP
L.L.C. Messrs. Kravis, Roberts and Robbins will also be directors of the
Company after the Closing Date. Mr. Alexander Navab, Jr. is a limited
partner of KKR Associates 1996 L.P. and will also be 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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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. 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 $712.5 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 (or, if the amount of
the Revolving Credit Facility is increased, to amounts corresponding
proportionately to such increase). 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. The maximum
amount available for borrowing under the Term A Facility was $240.0 million.
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 Act III Combination to the Company pursuant to which Term
loans ("Term B Loans") were made. The maximum amount available for borrowing
under the Term B Facility was $337.5 million. 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. The maximum amount available for borrowing under the Term C
Facility was $135.0 million. 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.

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Interest. The Loans bear interest at the Administrative Agent's alternate
base rate or reserve adjusted LIBOR rate plus, in each case, the applicable
margins set forth below, determined in accordance with the Company's Total
Leverage Ratio.

REVOLVING LOANS AND
TERM A LOANS
TOTAL ----------------------
LEVERAGE RATIO LIBOR RATE BASE RATE
- -------------- ---------- ---------

> or = 5.5:1 2.250% 1.000%
> or = 5.0:1 < 5.5:1 2.000% .750%
> or = 4.5:1 < 5.0:1 1.625% .375%
> or = 4.0:1 < 4.5:1 1.375% .125%
> or = 3.5:1 < 4.0:1 1.125% .000%
> or = 3.0:1 < 3.5:1 .875% .000%
< 3.0:1 .625% .000%

TERM B LOANS TERM C LOANS
TOTAL ---------------------- ----------------------
LEVERAGE RATIO LIBOR RATE BASE RATE LIBOR RATE BASE RATE
- -------------- ---------- --------- ---------- ---------

> or = 5.5:1 2.500% 1.250% 2.750% 1.500%
> or = 4.5:1 < 5.5:1 2.250% 1.000% 2.500% 1.250%
< 4.5:1 2.000% .750% 2.250% 1.000%

Interest periods for LIBOR Rate Loans shall be, at the Company's option, one,
two, three or six months or, if available, nine or twelve months, and shall be
payable on the last business day of the applicable interest period therefor (or,
if earlier, on each third-month date following the commencement of such interest
period). Interest on Base Rate Loans shall be payable quarterly in arrears.

Optional and Mandatory Prepayments. Outstanding Loans are voluntarily
payable without penalty; provided, however, that LIBOR rate breakage costs, if
any, shall be for the account of the Company. Mandatory prepayments will be
required from 100% of net cash proceeds from the sale of assets other than in
the course of ordinary business (subject to certain exceptions) to the extent
such proceeds are not reinvested in the business of the Company and its
subsidiaries within 18 months after receipt. Mandatory prepayments shall be
applied pro rata among the Term Facilities and shall be applied to scheduled
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 which may
be agreed upon.

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 which may be agreed upon.

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.

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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.

THE EXCHANGE OFFER

PURPOSE AND EFFECT

The Old Notes were sold by the Company on May 27, 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 Notes and,
upon the effectiveness of that Registration Statement, offer to the holders of
the Old Notes the opportunity to exchange their Old Notes for a like principal
amount of Notes, 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 Notes not tendered
will not have any further registration rights and those Old Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old Notes 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 Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving the Notes, (ii) neither the holder nor any such other person is
engaging in or intends to engage in a distribution of the Notes, (iii) neither
the holder nor any such other person has an arrangement or understanding with
any person to participate in the distribution of the Notes 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 Notes
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 Notes 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 Notes. For purposes of the
foregoing, "Transfer Restricted Securities" means each Old Note until (i) the
date on which such Old Note has been exchanged for a Note in the Exchange Offer,
(ii) the date on which such Old Note 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 Note is sold pursuant to Rule 144
under circumstances in which any legend borne by such Old Note relating to
restrictions on transferability thereof, under the Securities Act or otherwise,
is removed or such Old Note is eligible to be sold pursuant to paragraph (k) of
Rule 144, or (iv) such Old Note 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 Notes under the Securities Act. See "-- Procedures
for Tendering."

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delivery provisions of the Securities Act, provided that the Notes 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 Notes. Holders of Old
Notes 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 Notes
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 Notes for its own account in exchange for Old Notes, where such Old
Notes 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 Notes. See "Plan of
Distribution."

Each broker-dealer that receives Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes as a result of
market-making activities or other trading activities and will deliver a
prospectus in connection with any resale of such Notes. 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
Notes received in exchange for Old Notes where such Old Notes 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 Notes.

The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes 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 Notes not
tendered will not have any further registration rights and those Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for a holder's Old Notes 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 Notes
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 Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000 in principal amount.

The form and terms of the Notes are substantially the same as the form and
terms of the Old Notes except that the Notes have been registered under the
Securities Act and will not bear legends restricting their transfer. The Notes
will evidence the same debt as the Old Notes and will be issued pursuant to, and
entitled to the benefits of, the Indenture pursuant to which the Old Notes were
issued.

As of September 25, 1998, Old Notes representing $400.0 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 Notes. 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.

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The Company shall be deemed to have accepted validly tendered Old Notes
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 Notes from the Company. If any tendered Old
Notes 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 Notes will be returned, without expense, to the tendering holder
thereof as promptly as practicable after the Expiration Date.

Holders who tender Old Notes 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 Notes
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
November 16, 1998, 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 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 Notes, 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 Notes may tender the Old Notes 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 Notes 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
Notes, 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. In addition, in case the Old Notes are under
definitive form such Old Notes can be surrendered to Banque Generale du
Luxembourg and any related service, including the delivery of newly issued
Notes, may be effected through Banque Generale du Luxembourg. For so long as the
Old Notes remain under book-entry form, Banque Generale du Luxembourg will act
as intermediary only between the Exchange Agent and the holders of Old Notes for
advising holders in order to correctly complete documents and forwarding all
such documents to the Exchange Agent.

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 NOTES 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 NOTES SHOULD BE SENT
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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 Notes 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 Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a 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 Notes 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 Notes listed therein, the Old Notes 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 Notes.

If the Letter of Transmittal or any Old Notes 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 Notes 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 Notes
not properly tendered or any Old Notes 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 Notes. 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 Notes 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
Notes, neither the Company, the Exchange Agent, nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes 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 Notes 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 Notes in the open market, in 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 Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving

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such Notes, 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 Notes, (iii) neither the holder nor any such other person
has an arrangement or understanding with any person to participate in the
distribution of such Notes 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 Notes for Old Notes 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 Notes or a timely Book-Entry
Confirmation of such Old Notes 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 Notes are not accepted for any reason set forth
in the terms and conditions of the Exchange Offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Old Notes 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 Notes 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 Notes for its own account in exchange for
Old Notes, where such Old Notes 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 Notes. See
"Plan of Distribution."

BOOK-ENTRY TRANSFER

The Exchange Agent will make a request to establish an account with respect
to the Old Notes 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 Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes 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 Notes 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 5:00 p.m., New York City time, on the Expiration Date or
the guaranteed delivery procedures described below must be complied with.

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 Notes 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 Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes 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),

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setting forth the name and address of the holder of Old Notes and the amount of
Old Notes 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 Notes, 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 Notes, 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 Notes 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 Notes 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 Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers and principal amount
of such Old Notes), (iii) be signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such Old Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Notes 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 Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Old Notes 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 Notes 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 Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
Notes for such Old Notes, 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 Notes
tendered, and no Notes will be issued in exchange for any such Old Notes, 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

By Registered or Certified Mail: By Hand or Overnight Delivery before 4:30
p.m.:

IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing Window,
Attn: Reorganization Dept. SC-1

By Facsimile (for Eligible Institutions):
(212) 858-2611

For Information or
Confirmation by Telephone:
(212) 858-2103

(Originals of all documents sent by facsimile should be sent promptly by
registered or certified mail,
by hand or by overnight delivery service.)

All documentation with respect to the Exchange Offer (including the
Registration Statement) will also be available at the office of Banque Generale
du Luxembourg. For holders of Old Notes listed on the Luxembourg Stock Exchange,
questions, requests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal may also be directed to Banque
Generale du Luxembourg as follows:

BANQUE GENERALE DU LUXEMBOURG

50, Avenue J.F. Kennedy

L-2951 Luxembourg

Telephone: 352-4242-4530

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 Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register Notes in the name of, or request that Old Notes 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 NOTES

GENERAL

The Notes 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
available upon request to the Company. The Old Notes were also issued pursuant
to the Indenture. The following summary of certain provisions of the Indenture
and the Notes 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 the Trust Indenture Act of 1939, as amended) and the Notes, copies of
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part. Capitalized terms used herein and not otherwise defined
shall have the meanings given to them in the Indenture. 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 Notes will be payable,
and the Notes 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) and at the
office of the Luxembourg Paying Agent, 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 Note Register.

The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Currently, the Trustee
acts as a Paying Agent and the Registrar for the Notes. The Notes may be
presented for registration of transfer and exchange at the offices of the
Registrar, which currently is the Trustee's corporate trust office. The Company
may change any Paying Agent and Registrar without notice to holders of the
Notes.

Subject to the covenants described below under "Certain Covenants" and
applicable law, the Company may issue additional Notes under the Indenture. The
Notes offered hereby and any additional Notes subsequently issued would be
treated as a single class for all purposes under the Indenture.

PRINCIPAL, MATURITY AND INTEREST

The Notes will be unsecured, senior subordinated obligations of the
Company, initially limited to $400.0 million aggregate principal amount, and
will mature on June 1, 2008. Interest on the Notes will accrue at a rate of
9 1/2% per annum and will be payable in cash semi-annually on each June 1 and
December 1, commencing December 1, 1998 to the holders of record of Notes at the
close of business on the May 15 and November 15, respectively, immediately
preceding such interest payment date. Interest on the Notes will accrue from the
most recent interest payment date to which interest has been paid or, if no
interest has been paid, from May 27, 1998. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.

OPTIONAL REDEMPTION

The Notes may be redeemed at any time on or after June 1, 2003, in whole or
in part, at the option of the Company, at the redemption prices (expressed as a
percentage of the principal amount thereof on the applicable redemption date)
set forth below, plus accrued and unpaid interest, if any, to the redemption
date, if redeemed during the 12-month period beginning on June 1 of each of the
years set forth below:

REDEMPTION
YEAR PRICE
---- ----------

2003........................................................ 104.750%
2004........................................................ 103.167
2005........................................................ 101.583
2006 and thereafter......................................... 100.000

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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 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 $260.0 million
of the aggregate principal amount of the Notes 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 Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, in the absence of such requirements or if the Notes 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 Notes 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 Notes to be redeemed at its registered address and will
be published in Luxembourg. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest ceases to accrue on Notes 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 Notes in cash pursuant to the offer described below
(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.

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
Notes 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
Notes, 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 Notes 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 Notes 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 Notes (and publish notice in
Luxembourg), 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 Notes purchased pursuant to a Change of Control
Offer will be required to surrender such Notes to the U.S. Paying Agent and the
Registrar (or the Luxembourg Paying Agent and Transfer Agent) for the Notes 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 Notes 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 Notes
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

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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 Notes protection in the
event of certain highly leveraged transactions, reorganizations, restructurings,
mergers and other similar transactions that might adversely affect the holders
of Notes, 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 Notes, 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 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 Notes 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 Notes 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 Notes 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 Notes
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 Notes
upon a Change of Control is waivable by the board of directors of the Company.
Without the consent of each holder of Notes 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 Notes 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
Notes, any liquidated damages ("Additional Amounts") under the Registration
Rights Agreement and all other Obligations with respect to the Notes, 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; provided, however, payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described under
"-- Satisfaction and Discharge of Indenture; Defeasance" below is not
subordinate to any Senior Indebted-
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ness or subject to the restrictions described herein. The Notes 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 July
2, 1998 on a pro forma basis after giving effect to the Act III Combination, the
Company would have had $1,185.6 million of Indebtedness outstanding, of which
$751.4 million would have been Senior Indebtedness, and the Company's
subsidiaries would have had capital lease obligations and indebtedness to third
parties of approximately $40.0 million (excluding guarantees of certain 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 Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. 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
other Obligations with respect to, the Notes 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 Notes
(collectively, "pay the Notes") 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 Notes 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 Notes (except that holders of the Notes may
receive (i) Qualified Capital Stock issued by the Company to pay interest on the
Notes or issued in exchange for the Notes, (ii) securities substantially
identical to the Notes 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 Notes and having a
Weighted Average Life to Maturity at least equal to the remaining Weighted
Average Life to Maturity of the Notes) 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 Notes 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

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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 Notes 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
Notes 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 Notes 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 Notes may receive (i) Qualified
Capital Stock issued by the Company to pay interest on the Notes or issued in
exchange for the Notes, (ii) securities substantially identical to the Notes
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 Notes and having a Weighted Average Life to Maturity at
least equal to the remaining Weighted Average Life to Maturity of the Notes). If
a distribution is made to the Trustee or to holders of the Notes 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 Notes 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 Notes (except payment (i) in Qualified
Capital Stock issued by the Company to pay interest on the Notes or issued in
exchange for the Notes, (ii) in securities substantially identical to the Notes
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 Notes and have a Weighted
Average Life to Maturity at least equal to the remaining Weighted Average Life
to Maturity of the Notes), 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 Notes 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 Notes,
and creditors of the Company who are not holders of Senior Indebtedness
(including holders of the Notes) 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 Notes 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 Addi-

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tional 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 Notes 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 future events if the Notes
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 Notes will be entitled to substantially no covenant
protection.

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 Notes 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 Notes).

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 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 the Issue
Date to the most recent date for

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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 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

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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 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 Notes 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
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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 Notes and the Indenture
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 Notes.

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 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.

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Reports. The Indenture provides that so long as any of the Notes are
outstanding, the Company will provide to the Trustee and the holders of Notes
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. All
such reports sent to Holders will be available at the office of the Luxembourg
Paying Agent.

EVENTS OF DEFAULT

The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on the Notes 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 Notes 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 Notes 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 Notes; (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.

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 Notes shall, or the holders of at least
30% in principal amount of outstanding Notes may, declare the principal of all
the Notes, 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 Notes.

At any time after a declaration of acceleration with respect to the Notes
as described in the preceding paragraph, the holders of a majority in principal
amount of the Notes 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 Notes 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 Notes) 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

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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 Notes 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 Notes. 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 Notes, 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 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
Notes 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 Notes 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 Notes 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 Notes (except for
certain obligations of the Company to register the transfer or exchange of such
Notes, replace stolen, lost or mutilated Notes, 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 Notes 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 Notes, 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 Notes 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 Notes 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

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(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.

MODIFICATION OF THE INDENTURE

From time to time, the Company and the Trustee, together, without the
consent of the holders of the Notes, 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 Notes, except that, without the consent of each holder of the Notes
affected thereby, no amendment may, directly or indirectly: (i) reduce the
amount of Notes 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 Notes; (iii) reduce the principal of or change the fixed maturity of any
Notes, or change the date on which any Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor; (iv) make any
Notes payable in money other than that stated in the Notes and the Indenture;
(v) make any change in provisions of the Indenture protecting the right of each
holder of a Note to receive payment of principal of, premium on and interest on
such Note 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 Notes to
waive a Default or Event of Default; or (vi) after the Company's obligation to
purchase the Notes 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 Notes 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 Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. 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 Notes
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, 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 Notes, 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 Notes 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.

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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.

"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,

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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 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 Notes 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.

"Contemplated Acquisition" means the business combination, by the Act III
Merger or otherwise, of Act III and the Company.

"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 Notes by Moody's or
S&P, as the case may be.

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"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 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 Notes 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 Notes; 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 Notes 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 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

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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 the date of original issuance of the Notes.

"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 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

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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.

"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; (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 $725.0 million, which amount shall be
increased to $1.22 billion upon the consummation of the Contemplated
Acquisition; (iii) Indebtedness evidenced by or arising under the Notes and the
Indenture in respect of the Notes; (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

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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 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 $725.0 million (which amount shall be increased to $1.22 billion upon
consummation of the Contemplated Acquisition) 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 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.

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"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.

"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 Regal Merger (the "Closing
Date"), 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

85
89

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 Notes; 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 Existing Regal Notes or (5) obligations in
respect of any Capital Stock.

"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes 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 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

86
90

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 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.

87
91

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for Notes, 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 Notes. 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 NOTES FOR NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.

EXCHANGE OF OLD NOTES FOR NOTES

The exchange of Old Notes for Notes pursuant to the Exchange Offer should
not constitute a significant modification of the terms of the Old Notes 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 Notes.

PLAN OF DISTRIBUTION

Each broker-dealer that receives Notes for its own account in exchange for
Old Notes pursuant to the Exchange Offer, where such Old Notes 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 Notes. 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 Notes received in exchange for Old Notes where such Old
Notes 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 January 14, 1999, all dealers effecting
transactions in the Notes may be required to deliver a Prospectus.

The Company will not receive any proceeds from any sale of Notes by
broker-dealers. Notes 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 Notes 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 Notes. Any broker-dealer that resells the Notes 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 Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act, and any profit on any
such resale of the Notes 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 Notes) other than commissions or
concessions of any broker-dealers and will indemnify holders of the Old Notes
(including any broker-dealers) against certain liabilities, including certain
liabilities under the Securities Act.

88
92

LEGAL MATTERS

The validity of the Notes 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 audited by Coopers &
Lybrand L.L.P., independent accountants, as stated in their report appearing
herein in reliance upon the authority of said firm as experts in accounting and
auditing.

The report of Coopers & Lybrand L.L.P. 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 Coopers & Lybrand L.L.P. 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 elsewhere in the Prospectus, and have been so
included in reliance upon the reports 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 Price Waterhouse 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.

89
93

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REGAL CINEMAS, INC.

PAGE
----

Report of 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 July 2, 1998
(Unaudited) and January 1, 1998........................... F-19
Condensed Consolidated Statements of Operations for the Six
Months Ended July 2, 1998 and July 3, 1997 (Unaudited).... F-20
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended July 2, 1998 and July 3, 1997 (Unaudited).... F-21
Notes to Condensed Consolidated Financial Statements........ F-22

F-1
94

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
95

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
96

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.

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
97

REGAL CINEMAS, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

JANUARY 2, JANUARY 1,
1997 1998
----------- -----------
(IN THOUSANDS OF DOLLARS,
EXCEPT SHARE AMOUNTS)

Current assets:
Cash and equivalents...................................... $ 17,116 $ 18,398
Accounts receivable....................................... 2,892 4,791
Inventories............................................... 2,024 2,159
Prepaids and other current assets......................... 6,168 6,377
Refundable income taxes................................... 3,477 2,424
-------- ---------
Total current assets.............................. 31,677 34,149
-------- ---------
Property and equipment:
Land...................................................... 41,793 53,955
Buildings and leasehold improvements...................... 260,184 366,323
Equipment................................................. 167,475 211,465
Construction in progress.................................. 43,539 46,529
-------- ---------
512,991 678,272
Accumulated depreciation and amortization................. (93,227) (112,927)
-------- ---------
Total property and equipment, net................. 419,764 565,345
Goodwill, net............................................... 28,804 52,619
Other assets................................................ 8,580 8,537
-------- ---------
Total assets...................................... $488,825 $ 660,650
======== =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt...................... $ 761 $ 306
Accounts payable.......................................... 36,101 38,982
Accrued expenses.......................................... 14,325 13,739
-------- ---------
Total current liabilities......................... 51,187 53,027
-------- ---------
Long-term debt, less current maturities..................... 143,865 288,277
Other liabilities........................................... 14,471 12,771
-------- ---------
Total liabilities................................. 209,523 354,075
-------- ---------
Commitments (Note 4)
Shareholders' equity:
Preferred stock, no par; 1,000,000 shares authorized, none
issued................................................. -- --
Common stock, no par; 100,000,000 shares authorized;
35,977,325 issued and outstanding in 1996; 36,113,524
issued and outstanding in 1997......................... 221,613 223,707
Retained earnings........................................... 57,689 82,868
-------- ---------
Total shareholders' equity........................ 279,302 306,575
-------- ---------
Total liabilities and shareholders' equity........ $488,825 $ 660,650
======== =========

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
98

REGAL CINEMAS, INC.

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED
----------------------------------------
DECEMBER 28, JANUARY 2, JANUARY 1,
1995 1997 1998
------------ ---------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)

Revenues:
Admissions............................................. $213,388 $266,003 $325,118
Concessions............................................ 87,272 110,237 137,173
Other operating revenues............................... 8,362 12,953 16,806
-------- -------- --------
Total revenues................................. 309,022 389,193 479,097
Operating expenses:
Film rental and advertising costs...................... 115,408 145,247 178,173
Cost of concessions and other.......................... 11,363 15,129 16,573
Theatre operating expenses............................. 105,688 127,706 156,588
General and administrative expenses.................... 14,848 16,581 16,609
Depreciation and amortization.......................... 19,359 24,695 30,535
Merger expenses........................................ 1,246 1,639 7,789
Loss on impairment of assets........................... -- -- 4,960
-------- -------- --------
Total operating expenses....................... 267,912 330,997 411,227
-------- -------- --------
Operating income......................................... 41,110 58,196 67,870
-------- -------- --------
Other income (expense):
Interest expense....................................... (10,672) (12,844) (13,959)
Interest income........................................ 368 619 816
Other.................................................. (653) 676 (407)
-------- -------- --------
Income before income taxes and extraordinary item........ 30,153 46,647 54,320
Provision for income taxes............................... (12,200) (20,830) (19,121)
-------- -------- --------
Income before extraordinary item......................... 17,953 25,817 35,199
Extraordinary item:
Loss on extinguishment of debt, net of applicable
taxes............................................... (448) (751) (10,020)
-------- -------- --------
Net income............................................... 17,505 25,066 25,179
GST and Neighborhood dividends........................... (433) (229) --
-------- -------- --------
Net income applicable to common stock.................... $ 17,072 $ 24,837 $ 25,179
======== ======== ========
Earnings per common share before effect of extraordinary
item:
Basic.................................................. $ 0.57 $ 0.76 $ 0.98
Diluted................................................ $ 0.56 $ 0.73 $ 0.95
Extraordinary item:
Basic.................................................. $ (0.01) $ (0.02) $ (0.28)
Diluted................................................ $ (0.01) $ (0.02) $ (0.27)
Earnings per common share:
Basic.................................................. $ 0.56 $ 0.74 $ 0.70
Diluted................................................ $ 0.55 $ 0.71 $ 0.68

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
99

REGAL CINEMAS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

COMMON RETAINED
STOCK EARNINGS TOTAL
-------- -------- --------
(IN THOUSANDS OF DOLLARS,
EXCEPT SHARE AMOUNTS)

Balances at December 29, 1994............................. $ 70,641 $17,414 $ 88,055
Payment of GST dividends and partnership
distributions........................................ -- (490) (490)
Issuance of 241,313 shares of common stock.............. 2,426 -- 2,426
Issuance of 194,142 shares upon exercise of stock
options and restricted stock awards.................. 407 -- 407
Issuance of Neighborhood stock prior to merger.......... 150 -- 150
Income tax benefits related to exercised stock
options.............................................. 817 -- 817
Stock option amortization............................... 150 -- 150
Net income.............................................. -- 17,505 17,505
-------- ------- --------
Balances at December 28, 1995............................. 74,591 34,429 109,020
Payment of GST dividends and partnership
distributions........................................ -- (263) (263)
Issuance of 5,015,741 shares of common stock, net of
offering costs....................................... 140,651 -- 140,651
Issuance of 457,902 shares upon exercise of stock
options and restricted stock awards.................. 1,177 -- 1,177
Income tax benefits related to exercised stock
options.............................................. 5,017 -- 5,017
Conformation of Cobb Theatres fiscal year (see Note
2)................................................... -- (1,543) (1,543)
Stock option amortization............................... 177 -- 177
Net income.............................................. -- 25,066 25,066
-------- ------- --------
Balances at January 2, 1997............................... 221,613 57,689 279,302
Issuance of 136,228 shares upon exercise of stock
options and restricted stock awards.................. 723 -- 723
Income tax benefits related to exercised stock
options.............................................. 1,306 -- 1,306
Stock option amortization............................... 65 -- 65
Net income.............................................. -- 25,179 25,179
-------- ------- --------
Balances at January 1, 1998............................... $223,707 $82,868 $306,575
======== ======= ========

The accompanying notes are an integral part of these consolidated financial
statements.

F-7
100

REGAL CINEMAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED
----------------------------------------
DECEMBER 28, JANUARY 2, JANUARY 1,
1995 1997 1998
------------ ---------- ----------
(IN THOUSANDS OF DOLLARS)

Cash flows from operating activities:
Net income........................................... $ 17,505 $ 25,066 $ 25,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 19,359 24,695 30,535
Noncash loss on extinguishment of debt............ 448 751 2,575
Loss on impairment of assets...................... -- -- 4,960
Deferred income taxes............................. 3,309 4,112 1,293
Changes in operating assets and liabilities:
Accounts receivable............................. 125 (1,182) (1,899)
Current taxes receivable........................ (1,037) 4,757 2,359
Inventories..................................... (215) (365) (135)
Prepaids and other current assets............... (1,009) (236) (209)
Accounts payable................................ 4,625 10,878 2,881
Accrued expenses and other liabilities.......... (3,137) (946) (3,579)
--------- --------- ---------
Net cash provided by operating activities.... 39,973 67,530 63,960
Cash flows from investing activities:
Capital expenditures................................. (105,284) (124,068) (178,099)
Investment in goodwill and other assets.............. (7,352) (7,077) (24,198)
--------- --------- ---------
Net cash used in investing activities................ (112,636) (131,145) (202,297)
Cash flows from financing activities:
GST and Neighborhood dividends paid.................. (332) (500) --
Net proceeds from issuance of stock.................. -- 126,763 --
Borrowings under long-term debt...................... 81,334 161,500 358,418
Payments on long-term debt........................... (10,248) (211,623) (214,460)
Debt issuance costs.................................. (257) (5,127) (5,127)
Partnership distribution............................. (57) (34) --
Exercise of warrants and options..................... 557 1,177 788
Redemption of preferred stock........................ (1,150) -- --
--------- --------- ---------
Net cash provided by financing activities.... 69,847 72,156 139,619
Net increase (decrease) in cash and equivalents........ (2,816) 8,541 1,282
Cash and equivalents at beginning of period............ 9,851 8,575 17,116
--------- --------- ---------
Cash and equivalents at end of period.................. $ 7,035 $ 17,116 $ 18,398
========= ========= =========

The accompanying notes are an integral part of these consolidated financial
statements.

F-8
101

REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND BASIS OF PRESENTATION

Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries,
Neighborhood Entertainment Inc. ("Neighborhood"), Georgia State Theatres, Inc.
("GST") and the entities through which Cobb Theatres, L.L.C. and Tricob
Partnership, an entity controlled by the members of Cobb Theatres, L.L.C.,
conducted their business ("Cobb Theatres"), collectively referred to as the
"Company" operate multi-screen motion picture theatres principally throughout
the eastern United States. The Company formally operates on a fiscal year ending
on the Thursday closest to December 31. Neighborhood and GST were merged with
and into Regal during May 1997.

On April 17, 1995, Regal issued 814,755 shares of its common stock for all
of the outstanding common stock of Neighborhood. On May 30, 1996, Regal issued
1,410,213 shares of its common stock for all of the outstanding common stock of
GST. On July 31, 1997, Regal issued 2,837,594 shares of its common stock for the
Cobb Theatres acquisition. The mergers have been accounted for as poolings of
interests and, accordingly, these consolidated financial statements have been
restated for all periods to include the results of operations and financial
positions of Neighborhood, GST and Cobb Theatres.

Separate results of the combining entities for the fiscal years ended 1995,
1996 and 1997 are as follows:

1995 1996 1997
-------- -------- --------
(IN THOUSANDS)

Revenues:
Regal.................................................. $184,958 $265,127 $397,946
Neighborhood (through April 27 for 1995)............... 5,135 -- --
GST (through May 30 for 1996).......................... 13,321 4,709 --
Cobb Theatres, L.L.C. and Tricob Partnership (through
July 31 for 1997).................................... 105,608 119,357 81,151
-------- -------- --------
$309,022 $389,193 $479,097
======== ======== ========
Net income (loss):
Regal.................................................. $ 19,061 $ 29,935 $ 27,940
Neighborhood (through April 27 for 1995)............... (1,824) -- --
GST (through May 30 for 1996).......................... 866 90 --
Cobb Theatres, L.L.C. and Tricob Partnership (through
July 31 for 1997).................................... (598) (4,959) (2,761)
-------- -------- --------
$ 17,505 $ 25,066 $ 25,179
======== ======== ========

The net loss for Neighborhood for the four months ended April 27, 1995, and
the net loss for Cobb Theatres for the seven months ended July 31, 1997, reflect
approximately $1.2 million and $3.5 million, respectively, of expenses (net of
applicable income taxes) 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.

F-9
102
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.
F-10
103
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 operations which would
actually have occurred had the combination been in effect on the dates
indicated, or which may occur in the future.

1995 1996
----------- -----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)

1996 ACQUISITION:
Revenues.................................................. $329,824 $396,598
Operating income.......................................... 42,234 58,280
Income before extraordinary item.......................... 31,399 45,451
Net income applicable to common stock..................... 18,196 24,921
Earnings per common share:
Basic.................................................. $ 0.60 $ 0.74
======== ========
Diluted................................................ $ 0.58 $ 0.72
======== ========
1997 ACQUISITIONS:
Revenues.................................................. $413,743 $499,223
Operating income.......................................... 62,533 70,108
Income before extraordinary item.......................... 28,463 36,564
Net income applicable to common stock..................... 27,483 26,544
Earnings per common share:
Basic.................................................. $ 0.81 $ 0.74
======== ========
Diluted................................................ $ 0.79 $ 0.71
======== ========

4. LEASES

Leases entered into by the Company, principally for theatres, are accounted
for as operating leases. The Company, at its option, can renew a substantial
portion of the leases at defined or then fair rental rates for various periods.
Certain leases for Company theatres provide for contingent rentals based on
revenues. Minimum rentals payable under all noncancelable operating leases with
terms in excess of one year as of January 1, 1998, are summarized for the
following fiscal years:

(IN THOUSANDS)

1998........................................................ $ 58,790
1999........................................................ 58,542
2000........................................................ 57,409
2001........................................................ 56,678
2002........................................................ 55,380
Thereafter.................................................. 642,069

F-11
104
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rent expense under such operating leases was $34,459, $41,427 and $52,632
for fiscal years 1995, 1996 and 1997, respectively.

5. LONG-TERM DEBT

Long-term debt at January 2, 1997 and January 1, 1998, consists of the
following:

JANUARY 2, JANUARY 1,
1997 1998
---------- ----------
(IN THOUSANDS)

$125,000,000 Regal senior subordinated notes due
October 1, 2007, with interest payable
semiannually at 8.5%. Notes are redeemable, in
whole or in part, at the option of the Company at
any time on or after October 1, 2002, at the
redemption prices (expressed as percentages of
the principal amount thereof) set forth below
together with accrued and unpaid interest to the
redemption date, if redeemed during the 12 month
period beginning on October 1 of the years
indicated:

REDEMPTION
YEAR PRICE
---- ----------

2002............... 104.250%
2003............... 102.033%
2004............... 101.417%
2005 and
thereafter......... 100.000% .......... $ -- $125,000

$250,000,000 Regal senior reducing revolving credit facility
which expires on June 30, 2003, with interest payable
quarterly, at LIBOR (5.8% at January 1, 1998) plus .65%.
Draw capability will expire on June 30, 1999. Repayment of
the outstanding balance on the credit facility will begin
September 30, 1999, and consist of 5% of the outstanding
balance on a quarterly basis through June 30, 2001.
Thereafter, payments will be 7.5% of the outstanding
balance quarterly through June 30, 2003................... 51,000 162,000

$85,000,000 Cobb Theatres notes due March 1, 2003, with
interest payable semiannually at 10 5/8%.................. 85,000 170

Notes payable to banks at rates ranging from prime plus 0.5%
to 2.0%................................................... 6,908 --

Other....................................................... 1,718 1,413
-------- --------
144,626 288,583
Less current maturities..................................... (761) (306)
-------- --------
$143,865 $288,277
======== ========

F-12
105
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's debt at January 1, 1998, is scheduled to mature as follows:

(IN THOUSANDS)

1998........................................................ $ 306
1999........................................................ 821
2000........................................................ --
2001........................................................ --
2002........................................................ --
Thereafter.................................................. 287,456
--------
Total............................................. $288,583
========

On August 14, 1997, the Company commenced a tender offer for all of the
Cobb Notes and a consent solicitation in order to effect certain changes in the
Indenture. Upon completion of the tender offer, holders had tendered and given
consents with respect to 96.86% of the outstanding principal amount of the Cobb
Notes. In addition, the Company and the trustee executed a supplement to the
Indenture, effecting the proposed amendments which included, among other things,
the elimination of all financial covenants and the release of security for the
Cobb Notes. On September 18, 1997, the Company paid, for each $1,000 principal
amount, $1,136.97 for Cobb Notes tendered on or prior to August 28, 1997 and
$1,126.97 for Cobb Notes tendered after August 28, 1997, plus, in each case,
accrued and unpaid interest of $5.02. After completion of the tender offer, the
Company purchased an additional $2,500,000 of the aggregate principal amount of
the Cobb Notes. Regal financed the purchase price of the Cobb Notes with
borrowings under a loan agreement with a bank. All such borrowings were repaid
with a portion of the net proceeds of the offering of the $125,000,000 Regal
Senior Subordinated Notes. Regal recognized an extraordinary charge totaling
approximately $10.0 million (net of tax) in 1997, relating to the purchase of
the Cobb Notes. The fair value of the senior subordinated notes was $126,250,000
at January 1, 1998.

Upon consummation of the Neighborhood merger, Regal refinanced all existing
debt of the acquired company, recognizing a loss on extinguishment of debt (net
of applicable income taxes) of $448,000 in 1995. Additionally, Cobb Theatres
refinanced existing debt, recognizing a loss on extinguishment of debt (net of
applicable income taxes) of $751,000 in 1996. Such losses are reported as
extraordinary items in the accompanying consolidated statements of income.

In March 1995, Regal entered into a seven-year interest rate swap agreement
for the management of interest rate exposure. At January 1, 1998, the agreement
had effectively converted $20 million of LIBOR floating rate debt under the
reducing revolving credit facility to a 7.32% fixed rate obligation. Regal
continually monitors its position and the credit rating of the interest swap
counterparty. The fair value of the interest swap agreement was $(955,000) at
January 1, 1998.

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.

F-13
106
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK OPTIONS -- The Company has three employee stock option plans under
which 4,929,064 options are authorized and reserved. The options vest over
three-to-five year periods and expire ten years after the respective grant
dates. Activity within the plans is summarized as follows:

WEIGHTED OPTIONS
AVERAGE EXERCISABLE AT
SHARES EXERCISE PRICE YEAR END
--------- -------------- --------------

Under option at December 29, 1994............. 1,993,081 $ 5.54
Options granted in 1995....................... 808,875 $14.16
Options exercised in 1995..................... (174,709) $ 2.09
Options canceled in 1995...................... (29,524) $ 2.37
---------
Under option at December 28, 1995............. 2,597,723 $ 8.49 32,927
=======
Options granted in 1996....................... 952,750 $25.06
Options exercised in 1996..................... (370,915) $ 2.86
---------
Under option at January 2, 1997............... 3,179,558 $14.11 56,330
=======
Options granted in 1997....................... 977,000 $28.18
Options exercised in 1997..................... (112,603) $ 5.44
Options canceled in 1997...................... (72,500) $22.96
---------
Under option at January 1, 1998............... 3,971,455 $17.72 576,604
========= ====== =======

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 1/1/98 CONTRACTUAL LIFE EXERCISE PRICE AT 1/1/98 EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------

$ 1.21.................. 14,625 4.25 $ 1.21 11,812 $1.21
$ 2.37.................. 212,233 4.52 $ 2.37 184,810 $2.37
$ 3.86.................. 323,366 5.52 $ 3.86 153,348 $3.86
$ 9.78-$10.08........... 755,106 6.62 $ 9.79 226,634 $9.79
$12.34-$17.06........... 795,375 7.57 $14.11 -- --
$22.00-$31.88........... 1,870,750 9.14 $26.71 -- --
--------- -------
3,971,455 576,604
========= =======

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
F-14
107
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The pro forma
results do not purport to indicate the effects on reported net income for
recognizing compensation expense which are expected to occur in future years.
The Company's pro forma information for 1995, 1996 and 1997 option grants
follows:

1995 1996 1997
------- ------- -------

Pro forma net income................................. $17,276 $23,930 $22,883
Pro forma earnings per share:
Basic.............................................. $ 0.55 $ 0.70 $ 0.63
Diluted............................................ $ 0.54 $ 0.68 $ 0.62

F-15
108
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES

Deferred income taxes reflect the impact of temporary differences between
amounts recorded for assets and liabilities for financial reporting purposes and
amounts utilized for measurement in accordance with tax laws. The tax effects of
the temporary differences giving rise to the Company's net deferred tax
liability are as follows:

1996 1997
------- -------
(IN THOUSANDS)

Assets:
Net operating loss carryforward........................... $ 4,431 $ 4,036
Alternative minimum tax credits........................... 893 627
Accrued expenses.......................................... 2,213 1,230
Tax operating lease....................................... 623 524
State income taxes........................................ 531 632
Other..................................................... -- 296
------- -------
8,691 7,345
------- -------
Liabilities:
Property and equipment.................................... 13,927 16,313
Other..................................................... 620 490
------- -------
14,547 16,803
------- -------
Deferred tax liability...................................... (5,856) (9,458)
Cobb Theatres valuation allowance for deferred tax asset.... (2,309) --
------- -------
Net deferred tax............................................ $(8,165) $(9,458)
======= =======

The 1995, 1996 and 1997 provisions for income taxes before extraordinary
items (see Note 5) consist of the following:

1995 1996 1997
------- ------- -------
(IN THOUSANDS)

Current............................................... $ 8,969 $16,718 $17,828
Deferred.............................................. 3,309 1,803 3,602
Increase (decrease) in deferred income tax valuation
allowance........................................... (78) 2,309 (2,309)
------- ------- -------
$12,200 $20,830 $19,121
======= ======= =======

A reconciliation of the Company's income tax provision to taxes computed by
applying the statutory Federal rate of 35% to pretax financial reporting income
before extraordinary items is as follows:

1995 1996 1997
------- ------- -------
(IN THOUSANDS)

Tax at statutory Federal rate......................... $10,837 $16,244 $19,012
state income taxes, net of Federal benefit............ 1,105 1,870 2,161
Increase (decrease) in deferred income tax valuation
allowance........................................... (78) 2,309 (2,309)
Nondeductible merger expenses and other............... 336 407 257
------- ------- -------
$12,200 $20,830 $19,121
======= ======= =======

F-16
109
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Cobb Theatres leased office and warehouse facilities from a related party.
The related rent expense amounted to approximately $266,000, $509,000 and
$186,826 in 1995, 1996 and 1997, respectively.

Cobb Theatres had an agreement with a corporation owned by a related party,
to provide aircraft services. The fees for such services amounted to
approximately $335,000, $432,000 and $257,250 for 1995, 1996 and 1997,
respectively.

9. EARNINGS PER SHARE

In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which changes
the calculations used for earnings per share ("EPS") and makes them comparable
to international EPS standards. It replaces the presentation of primary EPS with
a presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. The Statement is effective for financial statements
issued for periods ending after December 15, 1997; earlier application was not
permitted. All per share data has also been adjusted to give effect to the
December 1995 and September 1996 common stock splits.

The following reconciliation details the numerators and denominators used
to calculate basic and diluted earnings per share for 1995, 1996 and 1997 (in
000's).

1995
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------

Basic EPS net income applicable to common
stock........................................ $17,072 30,428 $0.56
=====
Effect of dilutive securities.................. 883
------- ------
Diluted EPS net income......................... $17,072 31,311 $0.55
======= ====== =====

F-17
110
REGAL CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1996
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------

Basic EPS net income applicable to common
stock........................................ $24,837 33,726 $0.74
=====
Effect of dilutive securities.................. 1,074
------- ------
Diluted EPS net income......................... $24,837 34,800 $0.71
======= ====== =====

1997
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------

Basic EPS net income applicable to common
stock........................................ $25,179 36,113 $0.70
=====
Effect of dilutive securities.................. 1,072
------- ------
Diluted EPS net income......................... $25,179 37,185 $0.68
======= ====== =====

10. SUBSEQUENT EVENT

Regal has entered into an Agreement and Plan of Merger as of January 19,
1998 (the "Merger Agreement"), among Screen Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of KKR 1996 Fund L.P. (the "KKR
Fund"), Monarch Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of an affiliate of Hicks, Muse, Tate & Furst Incorporated (the "HMTF
Fund" and together with the KKR Fund, the "Funds"), and the Company. Pursuant to
and subject to the terms and conditions of the Merger Agreement, Screen
Acquisition Corp. and Monarch Acquisition Corp. will be merged with and into the
Company (the "Merger") and the Company will continue after the Merger as a
corporation owned by the Funds (the "Surviving Corporation"). Each share of
Company common stock will be converted into the right to receive $31.00 in cash
from the Surviving Corporation.

The Merger is subject to termination or expiration of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
approval by Company shareholders, the obtaining of necessary financing to
consummate the Merger and certain other conditions. The waiting period under the
HSR Act expired on March 1, 1998.

F-18
111

REGAL CINEMAS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)

ASSETS

JULY 2, JANUARY 1,
1998 1998
----------- ----------
(UNAUDITED)

Current assets:
Cash and equivalents...................................... $ 27,480 $ 18,398
Accounts receivable....................................... 1,080 4,791
Inventories............................................... 2,194 2,159
Prepaids and other current assets......................... 8,255 6,377
Refundable income taxes................................... 7,744 2,424
--------- ---------
Total current assets.............................. 46,753 34,149
--------- ---------
Property and equipment:
Land...................................................... 54,330 53,955
Buildings and leasehold improvements...................... 415,345 366,323
Equipment................................................. 244,428 211,465
Construction in progress.................................. 55,310 46,529
--------- ---------
769,413 678,272
Accumulated depreciation and amortization................. (131,232) (112,927)
--------- ---------
Total property and equipment, net................. 638,181 565,345
Goodwill, net............................................... 55,475 52,619
Other assets................................................ 44,005 8,537
--------- ---------
Total assets...................................... $ 784,414 $ 660,650
========= =========

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
Current maturities of long-term debt (Note 4)............. $ 306 $ 306
Accounts payable.......................................... 38,582 38,982
Accrued expenses.......................................... 35,517 13,739
--------- ---------
Total current liabilities......................... 74,405 53,027
--------- ---------
Long-term debt, less current maturities (Note 4)............ 775,963 288,277
Other liabilities........................................... 10,184 12,771
--------- ---------
Total liabilities................................. 860,552 354,075
--------- ---------
Commitments (Note 4)
Shareholders' equity (deficit) (Note 1):
Preferred stock, no par; 100,000,000 shares authorized,
none issued............................................ -- --
Common stock, no par; 500,000,000 shares authorized;
155,494,566 and 223,903,849 shares issued and
outstanding at July 2, 1998 and January 1, 1998........ (118,941) 223,707
Retained earnings........................................... 42,803 82,868
--------- ---------
Total shareholders' equity (deficit).............. $ (76,138) $ 306,575
--------- ---------
Total liabilities and shareholders' equity........ $ 784,414 $ 660,650
========= =========

See accompanying notes to condensed consolidated financial statements.

F-19
112

REGAL CINEMAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

SIX MONTHS ENDED
-------------------
JULY 2, JULY 3,
1998 1997
-------- --------

Revenue:
Admissions................................................ $190,918 $150,455
Concessions............................................... 82,041 62,996
Other operating revenue................................... 15,184 8,739
-------- --------
Total revenues.................................... 288,143 222,190
-------- --------
Operating expenses:
Film rental and advertising costs......................... 103,987 81,298
Cost of concessions and other............................. 12,995 10,217
Theatre operating expenses................................ 100,177 75,112
General and administrative expenses....................... 8,011 9,544
Depreciation and amortization............................. 19,917 14,460
Recapitalization expenses (Note 1)........................ 62,047 --
-------- --------
Total operating expenses.......................... 307,134 190,631
-------- --------
Operating income (loss)..................................... (18,991) 31,559
Other income (expense):
Interest expense.......................................... (13,327) (6,077)
Interest income........................................... 467 173
Other..................................................... (236) (331)
-------- --------
Income (loss) before income taxes and extraordinary loss.... (32,087) 25,324
Provision for (benefit from) income taxes (Note 5).......... (3,912) 9,799
-------- --------
Income (loss) before extraordinary loss).................... (28,175) 15,525
Extraordinary loss -- loss on retirement of debt, net of
income tax benefit of $7,602 (Note 4).................. (11,890)
-------- --------
Net income (loss)........................................... $(40,065) $ 15,525
======== ========

See accompanying notes to condensed consolidated financial statements.

F-20
113

REGAL CINEMAS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)

SIX MONTHS ENDED
-----------------------
JULY 2, JULY 3,
1998 1997
----------- --------

Cash flows from operating activities:
Net income (loss)(1)........................................ $ (40,065) $ 15,525
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Noncash loss on extinguishment of debt................. 3,026 --
Depreciation and amortization.......................... 19,917 14,460
Loss (gain) on sale of assets.......................... (23) 331
Deferred income taxes.................................. (9,664) 133
Changes in operating assets and liabilities:
Accounts receivable.................................. 3,711 1,139
Inventories.......................................... (35) (534)
Prepaids and other current assets.................... (7,198) (554)
Accounts payable..................................... (400) 1,594
Accrued expenses and other liabilities............... 28,855 4,693
----------- --------
Net cash provided (used) by operating
activities(1)................................... (1,876) 36,787
Cash flows from investing activities:
Capital expenditures, net................................. (91,119) (77,387)
Investment in goodwill and other assets................... (8,030) (13,775)
----------- --------
Net cash used in investing activities............. (99,149) (91,162)
Cash flows from financing activities:
Long-term debt borrowings................................. 790,000 50,868
Payments made on long-term debt........................... (302,314) --
Deferred financing costs.................................. (34,931) --
Proceeds from issuance of common stock.................... 774,717 751
Purchase and retirement of common stock................... (1,117,407) --
Stock compensation expense................................ 42 60
----------- --------
Net cash provided by financing activities......... 110,107 51,679
----------- --------
Net increase (decrease) in cash and equivalents............. 9,082 (2,696)
Cash and equivalents at beginning of period................. 18,398 17,116
----------- --------
Cash and equivalents at end of period....................... $ 27,480 $ 14,420
=========== ========

- ---------------

(1) Includes $46,451 of Recapitalization expenses, net of tax benefit.

See accompanying notes to condensed consolidated financial statements.

F-21
114

REGAL CINEMAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. 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. (the "Merger"), with the Company continuing as
the surviving corporation of 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 the $400 million senior subordinated notes, initial
borrowings of $375.0 million under the senior credit facility 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 was
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 existing Regal 8.5% senior
subordinated notes; (iv) to pay related fees 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
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"). Upon completion of the Recapitalization and the conversion of the
Convertible Preferred Stock, KKR, Hicks Muse and DLJ own approximately 46.6%,
46.6% and 6.4%, respectively, of the Company's Common Stock.

During 1998, nonrecurring costs of approximately $62.0 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
Recapitalization costs above, $19.5 million was paid to KKR and Hicks Muse.

2. THE COMPANY AND BASIS OF PRESENTATION

Regal Cinemas, Inc. ("Regal") and its wholly owned subsidiaries,
collectively referred to as the "Company" operates multi-screen motion picture
theatres principally throughout the eastern United States. The Company formally
operates on a fiscal year ending on the Thursday closest to December 31.

On July 31, 1997, Regal 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.

F-22
115
REGAL CINEMAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Separate results of the combining entities for the three and six-month
periods ended July 3, 1997 are as follows:

SIX
MONTHS
ENDED
JULY 3, 1997
--------------
(IN THOUSANDS)

Revenues:
Regal..................................................... $157,129
Cobb Theatres, L.L.C. and Tricob Partnership.............. 65,061
--------
$222,190
========
Net (loss):
Regal..................................................... $ 16,348
Cobb Theatres, L.L.C. and Tricob Partnership.............. (823)
--------
$ 15,525
========

3. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The condensed consolidated balance sheet as of July 2, 1998, the condensed
consolidated statements of operations for the three months and six months ended
July 2, 1998 and July 3, 1997 and the condensed consolidated statements of cash
flows for the six months ended July 2, 1998 and July 3, 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 six-month periods ended July 2, 1998 are not
necessarily indicative of the operating results for the full year.

F-23
116
REGAL CINEMAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. LONG-TERM DEBT

Long-term debt at July 2, 1998 and January 1, 1998, consists of the
following:

JULY 2, JANUARY 1,
1998 1998
-------- ----------
(IN THOUSANDS)

$400,000 Regal 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:

YEAR REDEMPTION PRICE
- ---- ----------------

2003............................................ 104.750%
2004............................................ 103.167%
2005............................................ 101.583%
2006 and thereafter............................. 100.000% $400,000 --
Term Loans........................................................ 375,000 --
Revolving credit facility......................................... -- --
$125,000 Regal senior subordinated notes, due October 1, 2007 with
interest payable semiannually at 8.5%........................... 125,000
$250,000 Regal senior reducing revolving credit facility.......... -- 162,000
Other............................................................. 1,269 1,583
-------- --------
776,269 288,583
Less current maturities........................................... (306) (306)
-------- --------
$775,963 $288,277
======== ========

The Company's debt at July 2, 1998, is scheduled to mature as follows:

(IN THOUSANDS)
--------------

1998........................................................ $ 306
1999........................................................ 2,093
2000........................................................ 2,400
2001........................................................ 3,750
2002........................................................ 3,750
Thereafter.................................................. $763,970
--------
Total............................................. $776,269
========

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. Such credit facilities (the "Credit
Facilities") include a $350,000 Revolving Credit Facility (including the
availability of Revolving Loans, Swing Line Loans, and Letters of Credit) and
three term loan facilities: Term A ($120,000), Term B ($120,000), and

F-24
117
REGAL CINEMAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, of the unused portion of the Revolving Credit Facility. The
Revolving Credit Facility expires in June 2005. No borrowings were outstanding
under the Revolving Credit Facility at July 2, 1998.

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 July 2, 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 Regal 8.5% senior subordinated notes
("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
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 Regal Notes. On May
27, 1998, the Company paid, for each $1,000 principal amount, $1,116.24 for
Regal Notes tendered plus, in each case, accrued and unpaid interest of $13.22.
Regal financed the purchase price of the 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 Regal
Notes as well as for the write-off of deferred financing costs related to the
Company's previous credit facility.

F-25
118
REGAL CINEMAS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INCOME TAXES

The effective income tax rate on income (loss) before extraordinary items
for the six month periods ended July 2, 1998 and July 3, 1997 differs from the
statutory federal income tax rate of 35% as follows:

SIX MONTHS
ENDED
-----------------
JULY 2, JULY 3,
1998 1997
------- -------

Federal statutory tax rate.................................. 35.0% 35.0%
Nondeductible recapitalization costs........................ (26.8)% --
State taxes, net of federal effect.......................... 4.0% 3.7%
----- ----
Effective rate.................................... 12.2% 38.7%
===== ====

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.

F-26
119

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

ACT III CINEMAS, INC.

PAGE
----

Report of Deloitte & Touche LLP Independent Auditors........ B-2
Report of PricewaterhouseCoopers LLP Independent
Accountants............................................... B-3
Consolidated Balance Sheets at December 31, 1996 and 1997... B-4
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997.......................... B-6
Consolidated Statements of Shareholders' Deficit for the
Years Ended December 31, 1995, 1996 and 1997.............. B-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997.......................... B-8
Notes to Consolidated Financial Statements.................. B-9
Consolidated Balance Sheets at December 31, 1997 and June
30, 1998 (Unaudited)...................................... B-19
Consolidated Statements of Operations for the Three Months
and Six Months Ended June 30, 1997 and 1998 (Unaudited)... B-20
Consolidated Statement of Shareholders' Deficit for the Six
Months Ended June 30, 1998 (Unaudited).................... B-21
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1998 (Unaudited).................. B-22
Notes to Consolidated Financial Statements for the Six
Months Ended June 30, 1997 and 1998 (Unaudited)........... B-23

B-1
120

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.

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

B-2
121

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

B-3
122

ACT III CINEMAS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997

ASSETS

1996 1997
-------- --------
(AMOUNTS IN
THOUSANDS)

CURRENT ASSETS:
Cash and cash equivalents................................. $ 8,720 $ 2,015
Restricted cash and cash equivalents...................... -- 95,094
Accounts receivable....................................... 1,324 1,948
Inventories............................................... 2,122 2,180
Prepaids and other current assets......................... 641 1,121
Income tax receivable..................................... -- 5,424
-------- --------
Total current assets.............................. 12,807 107,782
CONTRACTS RECEIVABLE (Note 3)............................... 2,007 658
PROPERTY AND EQUIPMENT, Net (Note 4)........................ 231,621 329,880
INTANGIBLE ASSETS:
Favorable lease terms acquired, net of accumulated
amortization of $19,789 and $22,108.................... 26,791 24,473
Excess of purchase price over the fair value of net
tangible assets acquired, net of accumulated
amortization of $3,751 and $4,241...................... 4,962 4,472
DEFERRED FINANCING COSTS AND OTHER ASSETS, Net.............. 3,239 15,346
-------- --------
TOTAL....................................................... $281,427 $482,611
======== ========

(Continued)
See notes to consolidated financial statements.

B-4
123

ACT III CINEMAS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997

LIABILITIES AND SHAREHOLDERS' DEFICIT

1996 1997
-------- ---------
(AMOUNTS IN
THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

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................................ 4,979 607
Loans to shareholders..................................... -- (501)
Accumulated deficit....................................... (38,259) (104,342)
-------- ---------
Total shareholders' deficit....................... (33,279) (104,236)
-------- ---------
TOTAL....................................................... $281,427 $ 482,611
======== =========

(Concluded)

See notes to consolidated financial statements.

B-5
124

ACT III CINEMAS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

1995 1996 1997
-------- -------- --------
(AMOUNTS IN THOUSANDS)

REVENUES:
Admissions............................................... $133,522 $152,257 $172,940
Concessions.............................................. 60,554 69,184 78,190
Other.................................................... 2,115 2,108 2,150
-------- -------- --------
Total revenues................................... 196,191 223,549 253,280
-------- -------- --------
EXPENSES:
Costs of operations:
Film rental........................................... 70,232 81,015 93,243
Cost of concessions................................... 9,292 10,589 12,432
Other theatre operating expenses...................... 55,486 65,935 78,294
General and administrative expenses (Notes 7 and 10)..... 6,341 7,169 8,095
Depreciation and amortization............................ 12,705 19,862 21,821
Amortization of intangibles and other assets............. 9,457 5,955 4,083
Recapitalization expenses (Note 2)....................... -- -- 25,851
-------- -------- --------
Total expenses................................... 163,513 190,525 243,819
-------- -------- --------
INCOME FROM OPERATIONS..................................... 32,678 33,024 9,461
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income.......................................... 1,395 838 1,281
Interest expense (Note 5)................................ (25,281) (23,475) (28,119)
Other.................................................... 153 188 1,826
-------- -------- --------
(23,733) (22,449) (25,012)
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS... 8,945 10,575 (15,551)
PROVISION FOR (BENEFIT FROM) INCOME TAXES (Note 8)......... 3,759 4,690 (1,142)
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS.................... 5,186 5,885 (14,409)
EXTRAORDINARY LOSS -- Loss on early retirement of debt, net
of income tax benefit of $1,391 (Note 9)................. -- -- 7,700
-------- -------- --------
NET INCOME (LOSS).......................................... 5,186 5,885 (22,109)
ACCRETION OF MANDATORILY REDEEMABLE SECURITIES (Note 6).... 24 19 13
DIVIDENDS ON MANDATORILY REDEEMABLE SECURITIES (Note 6).... 1,492 1,717 1,425
-------- -------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK............... $ 3,670 $ 4,149 $(23,547)
======== ======== ========

See notes to consolidated financial statements.

B-6
125

ACT III CINEMAS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

COMMON STOCK ADDITIONAL LOANS TO
---------------- PAID-IN SHARE- ACCUMULATED
SHARES AMOUNT CAPITAL HOLDERS DEFICIT TOTAL
------- ------ ---------- -------- ----------- ---------
(AMOUNTS IN THOUSANDS)

BALANCE, DECEMBER 31, 1994..... 49,314 $ 1 $ 4,779 $ -- $ (45,578) $ (40,798)
Accretion of mandatorily
redeemable securities........ -- -- -- -- (24) (24)
Dividends on mandatorily
redeemable securities........ -- -- -- -- (1,492) (1,492)
Net income..................... -- -- -- -- 5,186 5,186
Redemption of common stock..... (267) -- (300) -- -- (300)
------- --- --------- ----- --------- ---------
BALANCE, DECEMBER 31, 1995..... 49,047 1 4,479 -- (41,908) (37,428)
Accretion of mandatorily
redeemable securities........ -- -- -- -- (19) (19)
Dividends on mandatorily
redeemable securities........ -- -- -- -- (1,717) (1,717)
Net income..................... -- -- -- -- 5,885 5,885
------- --- --------- ----- --------- ---------
BALANCE, DECEMBER 31, 1996..... 49,047 1 4,479 -- (37,759) (33,279)
Accretion of mandatorily
redeemable securities........ -- -- -- -- (13) (13)
Dividends on mandatorily
redeemable securities........ -- -- -- -- (1,425) (1,425)
Conversion of mandatorily
redeemable securities........ 10,698 -- 14,570 -- -- 14,570
Stock compensation............. -- -- 1,500 -- -- 1,500
Issuance of common stock, net
of issuance costs of
$3,520....................... 42,531 -- 209,135 -- -- 209,135
Purchase and retirement of
common stock................. (54,545) (1) (229,684) -- (43,036) (272,721)
Issuance of common stock....... 21 -- 106 -- -- 106
Issuance of common stock in
exchange for notes........... 100 -- 501 (501) -- --
Net loss....................... -- -- -- -- (22,109) (22,109)
------- --- --------- ----- --------- ---------
BALANCE, DECEMBER 31, 1997..... 47,852 $-- $ 607 $(501) $(104,342) $(104,236)
======= === ========= ===== ========= =========

See notes to consolidated financial statements.

B-7
126

ACT III CINEMAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997

1995 1996 1997
--------- -------- --------
(AMOUNTS IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 5,186 $ 5,885 $(22,109)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 22,162 25,817 25,904
Amortization of debt discount.......................... 1,038 937 823
Loss on sale of assets................................. 22 -- 289
Gain on installment sale............................... -- -- (2,301)
Deferred income taxes.................................. 674 1,502 3,459
Stock compensation..................................... -- -- 1,500
Other.................................................. -- -- 432
Extraordinary loss -- loss on early retirement of
debt................................................. -- -- 7,700
Change in current assets and liabilities:
Accounts receivable.................................. 371 (458) (624)
Inventories.......................................... (502) (268) (58)
Prepaids and other current assets.................... (63) (196) (480)
Accounts payable..................................... 69 5,618 8,209
Accrued film rentals................................. 850 1,131 2,035
Interest payable..................................... 832 60 1,539
Taxes other than income taxes........................ 452 (318) 541
Other current liabilities............................ 103 1,402 (339)
Income taxes......................................... 1,675 (1,406) (5,331)
--------- -------- --------
Net cash provided by operating activities......... 32,869 39,706 21,189
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (32,222) (73,608) (120,518)
Increase in restricted cash and cash equivalents.......... -- -- (95,094)
Proceeds from sale of assets.............................. 329 -- 149
Payments received on contracts receivable, net............ 380 8 3,650
--------- -------- --------
Net cash used in investing activities............. (31,513) (73,600) (211,813)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings................................. -- 25,000 476,336
Deferred financing costs.................................. -- -- (16,807)
Proceeds from issuance of common stock.................... -- -- 209,241
Purchase and retirement of common stock................... (300) -- (272,721)
Payments made on long-term debt........................... (9,485) (1,388) (212,130)
--------- -------- --------
Cash provided by (used in) financing activities... (9,785) 23,612 183,919
--------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (8,429) (10,282) (6,705)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 27,431 19,002 8,720
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 19,002 $ 8,720 $ 2,015
========= ======== ========

See notes to consolidated financial statements.

B-8
127

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.

PREPAIDS AND OTHER CURRENT ASSETS consist primarily of theatre leasehold
improvements paid by the Company, which will be reimbursed by the lessor, and
prepaid interest expense.

PROPERTY AND EQUIPMENT are stated at cost. The Company uses the
straight-line method to compute depreciation and amortization over the estimated
useful lives of the assets as follows:

Buildings and improvements.................................. 20 to 31.5 years
Fixtures and equipment...................................... 5 to 7 years
Leasehold improvements...................................... 4 to 20 years

Leasehold improvements are amortized using the lesser of the useful life of
the improvement or the remaining lease term.

B-9
128
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

STATEMENT OF CASH FLOWS -- The Company made the following cash payments:

1995 1996 1997
------- ------- -------

Interest............................. $23,411 $23,342 $24,477
Income taxes......................... 1,979 4,364 1,767

Interest capitalized totaled zero, $864, and $2,240 for each of the years
ended December 31, 1995, 1996, and 1997, respectively.

As reported in the consolidated statements of shareholders' deficit, the
Company's mandatorily redeemable securities accrued dividends and accretion in
all periods, which have been excluded from the accompanying consolidated
statements of cash flows.

STOCK-BASED COMPENSATION -- SFAS No. 123, Accounting for Stock-Based
Compensation, allows companies to choose whether to account for stock-based
compensation on a fair value method or to continue accounting for such
compensation under the method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25"). The Company has
chosen to continue to account for stock compensation using APB 25 (see Note 7).

SFAS NO. 130, REPORTING COMPREHENSIVE INCOME, requires that all items
required to be recognized as a component of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. The new standard is effective for the Company's year
ending December 31, 1998. Adoption of SFAS No. 130 will not impact previously
reported net income (loss) or affect the comparability of financial statements.

B-10
129
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 $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.

B-11
130
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT

Property and equipment consist of:

1996 1997
-------- --------

Land........................................................ $ 39,389 $ 43,639
Buildings and improvements.................................. 156,007 212,708
Fixtures and equipment...................................... 89,981 144,884
Leasehold improvements...................................... 17,805 17,805
-------- --------
303,182 419,036
Accumulated depreciation and amortization................... (71,561) (89,156)
-------- --------
Property and equipment, net....................... $231,621 $329,880
======== ========

At December 31, 1996 and 1997, property and equipment include $23,127 of
buildings and improvements held under capital leases with related accumulated
amortization of $10,198 and $11,378, respectively.

5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

Long-term debt consists of:

1996 1997
-------- --------

Term loans.................................................. $ -- $250,000
Subordinated note........................................... -- 150,000
Revolving line of credit.................................... 135,025 --
11 7/8% Senior Subordinated Notes, due February 1, 2003..... 85,000 90,047
-------- --------
220,025 490,047
Less debt discount.......................................... (1,442) --
Other nonrecourse debt, generally payable in monthly
installments, plus interest at approximately 10%.......... 12,619 12,862
-------- --------
231,202 502,909
Capital lease obligations, payable in monthly installments,
plus interest at approximately 14%........................ 24,906 23,894
-------- --------
256,108 526,803
Current portion............................................. (1,978) (94,831)
-------- --------
Total long-term debt and capital lease
obligations..................................... $254,130 $431,972
======== ========

Under the Company's previous $250,000 credit facility (the "revolving line
of credit"), interest was payable monthly at prime plus .25% or LIBOR plus 1.75%
(at the Company's option). The margin added to prime or LIBOR was determined
based upon 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.

B-12
131
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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 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.

B-13
132
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1997, scheduled maturities of long-term debt, including
capital lease obligations, are summarized as follows:

CAPITAL LEASES
YEAR ENDING LONG-TERM ------------------------------- TOTAL
DECEMBER 31, DEBT PAYMENTS INTEREST PRINCIPAL PRINCIPAL
- ------------ --------- -------- -------- --------- ---------

1998............................... $ 93,638 $ 4,360 $ 3,167 $ 1,193 $ 94,831
1999............................... 3,623 4,377 2,990 1,387 5,010
2000............................... 3,461 4,377 2,643 1,734 5,195
2001............................... 3,556 4,402 2,530 1,872 5,428
2002............................... 3,660 4,747 2,517 2,230 5,890
Thereafter......................... 394,971 20,400 4,922 15,478 410,449
-------- ------- ------- ------- --------
$502,909 $42,663 $18,769 $23,894 $526,803
======== ======= ======= ======= ========

6. MANDATORILY REDEEMABLE SECURITIES

Mandatorily redeemable securities consist of:

MANDATORILY REDEEMABLE SECURITIES
-----------------------------------
CARRYING REDEMPTION
SHARES VALUE VALUE
------- --------- -----------

Balance, December 31, 1994........................... 200 $ 9,880 $ 9,949
Accretion to redemption value........................ -- 24 --
Accretion of dividends............................... -- 1,492 1,492
---- -------- --------
Balance, December 31, 1995........................... 200 11,396 11,441
Accretion to redemption value........................ -- 19 --
Accretion of dividends............................... -- 1,717 1,717
---- -------- --------
Balance, December 31, 1996........................... 200 13,132 13,158
Accretion to redemption value........................ -- 13 --
Accretion of dividends............................... -- 1,425 1,425
Conversion of securities into common stock........... (200) (14,570) (14,583)
---- -------- --------
Balance, December 31, 1997........................... -- $ -- $ --
==== ======== ========

MANDATORILY REDEEMABLE SECURITIES -- During 1990, Cinemas authorized and
issued shares of its mandatorily redeemable senior subordinated convertible
preferred stock ("Senior Subordinated Convertible Preferred Stock"), par value
$.01 per share.

The holders of the Senior Subordinated Convertible Preferred Stock were
entitled to annual dividends, payable on September 30, at the rate of 15% per
annum of the base amount of each share. The base amount was defined as $25,000
per share, adjusted by the amount of any dividends on such shares accrued to
date and not previously paid or added to the base amount.

Cinemas was required to redeem the Senior Subordinated Convertible
Preferred Stock on February 8, 2000 at the base amount per share. Accretion to
record the value of the Senior Subordinated Convertible Preferred Stock at its
redemption value on its scheduled redemption date was calculated using the
effective interest method.

Each share of Senior Subordinated Convertible Preferred Stock was
convertible into one share (prior to the stock split referred to below) of
common stock at the holder's option. In connection with the Merger and
Recapitalization, the holders of all 200 outstanding shares of Senior
Subordinated Convertible Preferred Stock elected to convert their shares to
common stock.

B-14
133
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. SHAREHOLDERS' DEFICIT

STOCK SPLIT -- Effective December 3, 1997, the Company declared a 53,488.9
to one stock split. Share data for all periods presented has been restated to
reflect the effects of the split.

STOCK OPTION AND INCENTIVE COMPENSATION PLANS -- Prior to the Merger,
certain members of management of the Company and its subsidiaries were granted
either nonqualified stock options or incentive stock options to purchase shares
of common stock under the Management Stock Option Plan. All options issued under
the Management Stock Option Plan became fully vested upon consummation of the
Merger, and all participants either received cash, for the difference between
the per share price inherent in the Merger and Recapitalization and the exercise
price of their options, or retained their existing options. In addition, certain
members of management were issued options under the newly formed 1997 Stock
Option Plan for Key Employees of Act III Cinemas, Inc. (the "Plan").

Under the Plan, the Compensation Committee of the Board of Directors of the
Company may award either nonqualified stock options or incentive stock options
to purchase shares of common stock. The number of shares of common stock which
may be issued pursuant to such options may not exceed 20% of common shares
outstanding. The option price per share is determined by the Compensation
Committee, provided that, in the case of incentive stock options, the purchase
price per share shall not be less than 100% of the fair market value of the
Company's common stock on the grant date.

The following table summarizes the stock option activity under the stock
option plans:

WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- --------

December 31, 1994........................................... 1,631,411 $0.09
Granted................................................... 1,872,112 0.34
---------- -----
December 31, 1995........................................... 3,503,523 0.22
Granted................................................... 1,738,389 0.37
---------- -----
December 31, 1996........................................... 5,241,912 0.27
Granted................................................... 6,419,923 4.92
Exercised................................................. (3,057,199) 0.20
---------- -----
December 31, 1997........................................... 8,604,636 $3.77
========== =====

Additional information regarding options outstanding as of December 31,
1997 is as follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -----------------------
OUTSTANDING WEIGHTED AVG. WEIGHTED EXERCISABLE WEIGHTED
AS OF REMAINING AVERAGE AS OF AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1997 LIFE (YRS) PRICE 1997 PRICE
- --------------- ------------ ------------- -------- ------------ --------

$.34 to $.37 2,291,691 8.8 $0.37 2,291,691 $0.37
$5.00 6,312,945 9.9 5.00 -- 5.00
--------- --- ----- --------- -----
8,604,636 9.6 $3.77 2,291,691 $0.37
========= === ===== ========= =====

As discussed in Note 1, the Company has adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, no compensation cost has been
recognized for stock options granted at the fair value on the date of grant. Had
compensation cost for the Company's stock option plans been determined based on
the estimated fair value of the options at the date of grant, the effect on
1995, 1996, and 1997 net income or loss of applying SFAS No. 123 would not have
been material.

B-15
134
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

8. INCOME TAXES

The income tax provision (benefit) associated with income (loss) before
extraordinary items consists of the following:

1995 1996 1997
------ ------ -------

Current:
Federal............................................... $2,838 $2,945 $(4,601)
State................................................. 247 243 --
------ ------ -------
Total current................................. 3,085 3,188 (4,601)
------ ------ -------
Deferred:
Federal............................................... 620 1,386 3,867
State................................................. 54 116 (408)
------ ------ -------
Total deferred................................ 674 1,502 3,459
------ ------ -------
Total income tax provision (benefit).......... $3,759 $4,690 $(1,142)
====== ====== =======

The effective income tax rate on income before extraordinary items for the
years ended December 31, 1995, 1996, and 1997 differs from the statutory federal
income tax rate of 34% as follows:

1995 1996 1997
---- ---- -----

Federal statutory tax rate.................................. 34.0% 34.0% 34.0%
Nondeductible recapitalization costs........................ -- -- (25.5)
Purchase accounting amortization adjustments................ 2.4 4.6 (1.0)
State taxes, net of federal effect.......................... 3.1 2.8 0.5
Other....................................................... 2.5 2.9 (0.7)
---- ---- -----
Effective rate.................................... 42.0% 44.3% 7.3%
==== ==== =====

B-16
135
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DEFERRED INCOME TAXES -- The components of the net deferred tax liability
are:

1996 1997
------- -------

Deferred tax assets:
Capital lease obligation.................................. $ 9,215 $ 9,212
Intangibles............................................... 206 45
Debt discount associated with warrants.................... 2,459 --
Net operating loss and tax credit carryforwards........... -- 3,097
Other..................................................... 503 245
------- -------
Total deferred tax asset.......................... 12,383 12,599
------- -------
Deferred tax liabilities:
Property and equipment and accumulated depreciation....... 17,536 20,849
Intangibles and accumulated amortization.................. 4,020 4,382
------- -------
Total deferred tax liability...................... 21,556 25,231
------- -------
Net deferred tax liability........................ $ 9,173 $12,632
======= =======

Net operating loss and tax credit carryforwards, if unused, will expire in
2012.

9. EXTRAORDINARY LOSS

An extraordinary loss of $7,700, net of income taxes of $1,391, was
recognized for the write-off of deferred financing costs and prepayment
penalties incurred in connection with redeeming the 11 7/8% Notes as well as for
the write-off of deferred financing costs related to the Company's previous
credit facility.

10. RELATED-PARTY TRANSACTIONS

Pursuant to a management agreement between the Company and its former
indirect parent, Act III Communications Holdings L.P. ("Holdings, L.P."),
beginning in 1993 and amended February 14, 1997, Holdings L.P. charged annual
management fees of $600, $600, and $917 for the years ended December 31, 1995,
1996, and 1997, respectively.

Holdings L.P. has also charged the Company additional amounts of $517,
$677, and $1,027 for the years ended December 31, 1995, 1996, and 1997,
respectively, for the allocation of salaries of certain Holdings L.P. employees,
including Cinemas' Chief Executive Officer, rent and other charges. The annual
base fee and additional charges, which were permitted by the principal creditor,
are included in general and administrative expenses in the accompanying
consolidated statement of operations.

In connection with the Merger, the above agreements were terminated.

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.

B-17
136
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1997, minimum annual rentals under long-term operating
leases are:

1998........................................................ $ 14,794
1999........................................................ 14,926
2000........................................................ 14,846
2001........................................................ 12,559
2002........................................................ 12,080
Thereafter.................................................. 178,010
--------
Total............................................. $247,215
========

Rent expense under these long-term operating leases aggregated $10,472,
$12,964, and $15,725 and included $1,389, $3,161, and $3,987 of rents based on
specific theatre revenues for the years ended December 31, 1995, 1996, and 1997,
respectively. Operating lease rent expense is included in other theatre
operating expenses and general and administrative expenses in the accompanying
consolidated statement of operations.

The Company had entered into commitments as of December 31, 1997 totaling
approximately $59.7 million for the construction of new theaters.

CONTINGENCIES -- From time to time, the Company is involved in legal
proceedings arising in the ordinary course of its business operations, such as
personal injury claims, employment matters and contractual disputes. Management
believes that the Company's potential liability with respect to such proceedings
is not material in the aggregate to the Company's consolidated financial
position, results of operations, or liquidity.

12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments are as
follows:

1996 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------

Cash and cash equivalents..................... $ 8,720 $ 8,720 $ 2,015 $ 2,015
Restricted cash and cash equivalents.......... -- -- 95,094 95,094
Contracts receivable.......................... 2,294 2,294 658 658
Long-term debt, excluding capital lease
obligations (Note 5)........................ 231,202 238,002 502,909 502,909
Mandatorily redeemable securities -- Not
practicable to estimate (Note 6)............ 13,132 -- -- --

Excluding the $85,000 of 11 7/8% Notes, the carrying amount of the
Company's long-term debt approximates its fair value, since the debt is
primarily variable rate debt. The fair value of the 11 7/8% Notes was
approximately $91,800 at December 31, 1996, based on quoted market prices. The
carrying value of the 11 7/8% Notes at December 31, 1997 approximates fair
value, based on their subsequent repayment.

It was not practicable to determine the fair value of the mandatorily
redeemable securities at December 31, 1996 due to the lack of a readily
available market for these securities.

* * * * * *

B-18
137

ACT III CINEMAS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND JUNE 30, 1998 (UNAUDITED)

ASSETS

DECEMBER 31 JUNE 30
1997 1998
------------ ----------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)

CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,015 $ 1,942
Restricted cash and cash equivalents...................... 95,094 --
Accounts receivable....................................... 1,948 1,403
Prepaid expenses and other receivables.................... 1,121 696
Inventories............................................... 2,180 2,576
Income tax receivable..................................... 5,424 --
--------- ---------
Total current assets.............................. 107,782 6,617
CONTRACTS RECEIVABLE........................................ 658 359
PROPERTY AND EQUIPMENT, Net................................. 329,880 357,123
INTANGIBLES, Net............................................ 28,945 27,540
OTHER ASSETS, Net........................................... 15,346 14,385
--------- ---------
TOTAL............................................. $ 482,611 $ 406,024
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Current portion of long-term debt and capital lease
obligations............................................ $ 94,831 $ 4,261
Accounts payable.......................................... 18,251 $ 9,630
Accrued film rentals...................................... 12,098 11,428
Taxes other than income taxes............................. 3,380 2,630
Interest payable.......................................... 6,628 1,538
Other current liabilities................................. 6,623 5,528
--------- ---------
Total current liabilities......................... 141,811 35,015
DEFERRED INCOME TAXES....................................... 12,632 8,861
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS................ 431,972 403,734
OTHER NONCURRENT LIABILITIES................................ 432 692
--------- ---------
Total liabilities................................. 586,847 448,302
COMMITMENTS AND CONTINGENCIES (Note 4)...................... -- --

COMMON SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value, 150,000 shares authorized,
47,852 shares outstanding.............................. -- --
Additional paid-in capital................................ 607 63,262
Loans to shareholders..................................... (501) (501)
Accumulated deficit....................................... (104,342) (105,039)
--------- ---------
Total common shareholders' equity (deficit)....... (104,236) (42,278)
--------- ---------
TOTAL............................................. $ 482,611 $ 406,024
========= =========

See notes to consolidated financial statements.

B-19
138

ACT III CINEMAS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1997 1998 1997 1998
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)

REVENUES:
Admissions......................................... $39,415 $43,899 $ 82,168 $ 88,619
Concessions........................................ 17,952 20,890 37,117 42,058
Other.............................................. 481.... 441 1,104 990
------- ------- -------- --------
Total revenues............................. 57,848 65,230 120,389 131,667
------- ------- -------- --------
EXPENSES:
Costs of operations:
Film rental..................................... 21,581 24,290 43,416 45,886
Cost of concessions............................. 3,187 3,062 6,440 6,029
Other theatre operating expenses................ 18,591 20,656 37,107 41,844
General and administrative expenses................ 2,166 1,457 4,255 3,561
Depreciation and amortization...................... 6,265 7,952 12,342 15,801
------- ------- -------- --------
Total expenses............................. 51,790 57,417 103,560 113,121
------- ------- -------- --------
INCOME FROM OPERATIONS............................... 6,058 7,813 16,829 18,546
------- ------- -------- --------
OTHER EXPENSES:
Interest expense, net.............................. 6,321 9,896 11,972 19,502
Loss on sale of assets............................. 174 -- 289 --
------- ------- -------- --------
6,495 9,896 12,261 19,502
------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.................... (437) (2,083) 4,568 (956)
PROVISION FOR (BENEFIT FROM) INCOME TAXES............ (228) (676) 1,659 (259)
------- ------- -------- --------
NET INCOME (LOSS).................................... (209) (1,407) 2,909 (697)
ACCRETION OF MANDATORILY REDEEMABLE SECURITIES....... 4 -- 8 --
PREFERRED DIVIDENDS.................................. 475 -- 950 --
------- ------- -------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK......... $ (688) $(1,407) $ 1,951 $ (697)
======= ======= ======== ========

See notes to consolidated financial statements.

B-20
139

ACT III CINEMAS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

COMMON STOCK ADDITIONAL
--------------- PAID-IN LOANS TO ACCUMULATED
SHARES AMOUNT CAPITAL SHAREHOLDERS DEFICIT TOTAL
------ ------ ---------- ------------ ----------- ---------
(AMOUNTS IN THOUSANDS)

BALANCE, DECEMBER 31, 1997......... 47,852 $ -- $ 607 $(501) $(104,342) $(104,236)
Equity contribution................ -- -- 62,655 -- -- 62,655
Net income (loss).................. -- -- -- -- (697) (697)
------ ---- ------- ----- --------- ---------
BALANCE, JUNE 30, 1998............. 47,852 $ -- $63,262 $(501) $(105,039) $ (42,278)
====== ==== ======= ===== ========= =========

See notes to consolidated financial statements.

B-21
140

ACT III CINEMAS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)

1997 1998
--------- ---------
(AMOUNTS IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 2,909 $ (697)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 12,754 15,801
Loss on sale of assets................................. 289 --
Deferred income taxes.................................. 657 3,771
Change in certain working capital items and other...... 3,135 (4,922)
-------- --------
Net cash provided by operating activities......... 19,744 6,411
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (44,457) (40,678)
Net change in contracts receivable........................ (275) 299
Proceeds from sale of assets.............................. 150 --
-------- --------
Net cash used in investing activities............. (44,582) (40,379)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made on long-term debt........................... (957) (91,105)
Borrowings on long-term debt.............................. 39,975 62,345
Deferred financing costs.................................. (1,575) --
Equity contributions...................................... -- 62,655
-------- --------
Cash provided by financing activities............. 37,443 33,895
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 12,605 (73)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 8,720 2,015
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 21,325 $ 1,942
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Repayment of debt and accrued interest with restricted
cash and cash equivalents.............................. $ -- $ 95,094
======== ========

See notes to consolidated financial statements.

B-22
141

ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (UNAUDITED)
(AMOUNTS IN THOUSANDS)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) which are, in the opinion
of management, necessary for a fair presentation of the consolidated results of
operations for the interim periods. Certain information and footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The interim
consolidated financial information and notes thereto should be read in
conjunction with the Company's consolidated financial statements as of and for
the year ended December 31, 1997.

The consolidated results of operations for the three and six months ended
June 30, 1998 are not necessarily indicative of results to be expected for the
year ending December 31, 1998.

2. EARNINGS PER SHARE

Earnings per share information is not presented as the Company's shares do
not trade in a public market.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of:

DECEMBER 31, JUNE 30,
1997 1998
------------ ---------

Land........................................................ $ 43,639 $ 44,958
Buildings and improvements.................................. 212,708 236,689
Fixtures and equipment...................................... 144,884 160,262
Leasehold improvements...................................... 17,805 17,805
-------- ---------
419,036 459,714
Accumulated depreciation and amortization................... (89,156) (102,591)
-------- ---------
Property and equipment, net............................... $329,880 $ 357,123
======== =========

At December 31, 1997 and June 30, 1998, property and equipment include
$23,127 of buildings and improvements held under capital leases with related
accumulated amortization of $11,378 and $11,969, respectively.

4. COMMITMENTS AND CONTINGENCIES

COMMITMENTS -- See Note 11 of the Notes to Consolidated Financial
Statements in the Company's financial statements for the year ended December 31,
1997 for a 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.

B-23
142
ACT III CINEMAS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

B-24
143

------------------------------------------------------------
------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR ANY OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

PAGE
----

Available Information...................... i
Cautionary Statement Regarding Forward- i
Looking Statements.......................
Prospectus Summary......................... 1
Risk Factors............................... 14
The Transactions........................... 21
Use of Proceeds............................ 22
Capitalization............................. 22
Unaudited Pro Forma Consolidated Financial 23
Data.....................................
Selected Historical Consolidated Financial 29
Data.....................................
Management's Discussion and Analysis of 31
Financial Condition and Results of
Operations...............................
Business................................... 39
Management................................. 49
Certain Transactions....................... 55
Principal Stockholders..................... 56
Description of Certain Indebtedness........ 58
The Exchange Offer......................... 60
Description of the Notes................... 67
Certain Federal Income Tax 88
Considerations...........................
Plan of Distribution....................... 88
Legal Matters.............................. 89
Experts.................................... 89
Change in Accountants...................... 89
Index to Consolidated Financial Statements
of Regal Cinemas, Inc. .................. F-1
Index to Consolidated Financial Statements
of Act III Cinemas, Inc. ................ B-1

------------------------

UNTIL JANUARY 14, 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

OFFER TO EXCHANGE ALL OUTSTANDING
9 1/2% SENIOR SUBORDINATED
NOTES DUE 2008
FOR
9 1/2% SENIOR SUBORDINATED
NOTES DUE 2008
---------------------

PROSPECTUS
---------------------

OCTOBER 16, 1998

------------------------------------------------------------
------------------------------------------------------------
144

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.

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
3

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.

II-1
145

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

EXHIBIT
NO. DESCRIPTION
------- -----------

II-2
4

EXHIBIT
NO. DESCRIPTION
------- -----------

10.3 -- Credit Agreement, dated as of May 27, 1998, by and
between Regal Cinemas, Inc., its subsidiaries and the
lenders named therein.(4)(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)
10.3-2 -- Second Amendment, dated as of December 30, 1998, by and
between Regal Cinemas, Inc., its subsidiaries and the
lenders named therein.+
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.(3)(7)
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.(2)(8)
10.6 -- 1993 Employee Stock Incentive Plan.(1)(4)
10.7 -- Regal Cinemas, Inc. Participant Stock Option Plan.(1)(4)
10.8 -- Regal Cinemas, Inc. Employee Stock Option Plan.(1)(4)
10.9 -- 1998 Stock Purchase and Option Plan for Key Employees of
Regal Cinemas, Inc.(6)(9)
10.10 -- Form of Management Stockholder's Agreement.(6)(9)
10.11 -- Form of Non-Qualified Stock Option Agreement.(6)(9)
10.12 -- Form of Sale Participation Agreement.(6)(9)
10.13 -- Form of Registration Rights Agreement.(6)(9)
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.*
10.17 -- Registration Rights Agreement, dated as of November 10,
1998, by and between Regal Cinemas, Inc. and Morgan
Stanley & Co. Incorporated.*
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.(6)
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.(6)

II-3
5

EXHIBIT
NO. DESCRIPTION
------- -----------

12 -- Statement regarding computation of ratio of earnings to
fixed charges.**

II-2
146

EXHIBIT
NO. DESCRIPTION
------- -----------

16.1 -- Letter from PricewaterhouseCoopers LLP.(8)(10)
16.2 -- Letter from PricewaterhouseCoopers LLP.(9)(11)
21 -- Subsidiaries.*(3)
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5 to the Registration
Statement)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.*
25Registrant (included on signature pages).
25.1 -- Statement of Eligibility and Qualification of IBJ
Whitehall Bank & Trust Company (formerly IBJ Schroder
Bank & Trust Company,Company), as trustee,Trustee, under the Indenture
listed as Exhibit 4.3 hereto on Form T-1.*(3)
25.2 -- Statement of Eligibility and Qualification of IBJ
Whitehall Bank & Trust Company (formerly IBJ Schroder
Bank & Trust Company), as Trustee, under the Indenture
listed as Exhibit 4.5 hereto on Form T-1.(6)
27 -- Financial Data Schedule (for SEC use only).*
99.1 -- Form of Letter of Transmittal.**+
99.2 -- Form of Notice of Guaranteed Delivery.*+

- ----------------------------------------

* Previously filed.

**+ Filed herewith.

(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.

(2)(5) Incorporated by reference to the Registrant's CurrentQuarterly Report on Form 8-K
dated August 14, 1997.

(3)10-Q
for the quarter ended July 2, 1998.

(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-4, Registration No. 333-69943.

(7) Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on
Form 10-Q for the quarter ended May 31, 1997.

(4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended July 2, 1998.

(5)II-4
6

(8) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated September 1, 1998.

(6)August 14, 1997.

(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, Registration No. 333-52943.

(7) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated January 20, 1998.

(8)(10) Incorporated by reference to the Registrant's Current Report on Form 8-K/A
dated September 16, 1998.

(9)(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

II-3
147 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-4II-5
1487

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Knoxville, State of Tennessee, on October 14, 1998.January 13, 1999.

REGAL CINEMAS, INC.

By: /s/ MICHAEL L. CAMPBELL
---------------------------------------------------------------------------
Michael L. Campbell
President and Chief Executive Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ MICHAEL L. CAMPBELL President, Chief Executive October 14, 1998January 13, 1999
- ----------------------------------------------------------------------------------------------- Officer and Director
Michael L. Campbell (Principal Executive
Officer)

/s/ D. MARK MONROE Vice President, October 14, 1998January 13, 1999
- ----------------------------------------------------------------------------------------------- Acting Chief Financial
Officer
D. Mark Monroe Officer and Treasurer
(Principal Financial and
Accounting Officer)

* Director October 14, 1998January 13, 1999
- -----------------------------------------------------------------------------------------------
David Deniger

* Director October 14, 1998January 13, 1999
- -----------------------------------------------------------------------------------------------
Thomas O. Hicks

* Director October 14, 1998January 13, 1999
- -----------------------------------------------------------------------------------------------
Henry R. Kravis

* Director October 14, 1998January 13, 1999
- -----------------------------------------------------------------------------------------------
Michael J. Levitt

* Director October 14, 1998January 13, 1999
- -----------------------------------------------------------------------------------------------
John R. Muse

* Director October 14, 1998January 13, 1999
- -----------------------------------------------------------------------------------------------
Alexander Navab, Jr.

* Director October 14, 1998January 13, 1999
- -----------------------------------------------------------------------------------------------
Clifton S. Robbins

* Director October 14, 1998January 13, 1999
- -----------------------------------------------------
George R. Roberts

*By: /s/ MICHAEL L. CAMPBELL
-------------------------------------------------------------------------
George R. Roberts

*By: /s/ MICHAEL L. CAMPBELL
- ------------------------------------------
Michael L. Campbell
Attorney-in-Fact
II-5

II-6
1498

INDEX TO EXHIBITS

EXHIBIT
NO. DESCRIPTION
------- -----------

2.1 -- Agreement and Plan of Merger, dated as of January 19,
1998, by and among Regal Cinemas, Inc., Screen
Acquisition Corp. and Monarch Acquisition Corp.(7)(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.(5)(2)
3.1 -- Amended and Restated Charter of the Registrant.**(3)
3.2 -- Restated Bylaws of the Registrant.(1)(4)
4.1 -- Specimen Common Stock certificate.(1)(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)3.1 hereto).
4.3 -- Indenture, dated as of May 27, 1998, by and between Regal
Cinemas, Inc. and IBJ Whitehall Bank & Trust Company
(formerly IBJ Schroder Bank & Trust Company.(4)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)4.3 hereto).(4)
4.5 -- Indenture, dated as of December 16, 1998, by and between
Regal Cinemas, Inc. and IBJ Whitehall Bank & Trust
Company (formerly IBJ Schroder Bank & Trust Company).(6)
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.(4)(5)
10.2 -- Employment Agreement, dated as of May 27, 1998, by and
between Regal Cinemas, Inc. and Gregory W. Dunn.(4)(5)
10.3 -- Credit Agreement, dated as of May 27, 1998, by and
between Regal Cinemas, Inc., its subsidiaries and the
lenders named therein.(4)(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)
10.3-2 -- Second Amendment, dated as of December 30, 1998, by and
between Regal Cinemas, Inc., its subsidiaries and the
lenders named therein.+
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.(3)(7)
9

EXHIBIT
NO. DESCRIPTION
------- -----------

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.(2)(8)
10.6 -- 1993 Employee Stock Incentive Plan.(1)(4)
10.7 -- Regal Cinemas, Inc. Participant Stock Option Plan.(1)(4)
10.8 -- Regal Cinemas, Inc. Employee Stock Option Plan.(1)(4)
10.9 -- 1998 Stock Purchase and Option Plan for Key Employees of
Regal Cinemas, Inc.(6)(9)
10.10 -- Form of Management Stockholder's Agreement.(6)(9)
10.11 -- Form of Non-Qualified Stock Option Agreement.(6)(9)
10.12 -- Form of Sale Participation Agreement.(6)(9)
10.13 -- Form of Registration Rights Agreement.(6)(9)
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.*
10.17 -- Registration Rights Agreement, dated as of November 10,
1998, by and between Regal Cinemas, Inc. and Morgan
Stanley & Co. Incorporated.*
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.(6)
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.(6)
12 -- Statement regarding computation of ratio of earnings to
fixed charges.**
16.1 -- Letter from PricewaterhouseCoopers LLP.(8)
150

EXHIBIT
NO. DESCRIPTION
------- -----------
(10)
16.2 -- Letter from PricewaterhouseCoopers LLP.(9)(11)
21 -- Subsidiaries.*(3)
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5 to the Registration
Statement)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.**
10

EXHIBIT
NO. DESCRIPTION
------- -----------

24 -- Powers of Attorney of directors and executive officers of
the Registrant.*
25Registrant (included on signature pages).
25.1 -- Statement of Eligibility and Qualification of IBJ
Whitehall Bank & Trust Company (formerly IBJ Schroder
Bank & Trust Company,Company), as trustee,Trustee, under the Indenture
listed as Exhibit 4.3 hereto on Form T-1.*(3)
25.2 -- Statement of Eligibility and Qualification of IBJ
Whitehall Bank & Trust Company (formerly IBJ Schroder
Bank & Trust Company), as Trustee, under the Indenture
listed as Exhibit 4.5 hereto on Form T-1.(6)
27 -- Financial Data Schedule (for SEC use only).*
99.1 -- Form of Letter of Transmittal.**+
99.2 -- Form of Notice of Guaranteed Delivery.*+

- ----------------------------------------

* Previously filed.

**+ Filed herewith.

(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.

(2)(5) Incorporated by reference to the Registrant's CurrentQuarterly Report on Form 8-K
dated August 14, 1997.

(3)10-Q
for the quarter ended July 2, 1998.

(6) Incorporated by reference to the Registrant's Registration Statement on
Form S-4, Registration No. 333-69943.

(7) Incorporated by reference to Cobb Theatres, L.L.C.'s Quarterly Report on
Form 10-Q for the quarter ended May 31, 1997.

(4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended July 2, 1998.

(5)(8) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated September 1, 1998.

(6)August 14, 1997.
11

(9) Incorporated by reference to the Registrant's Registration Statement on
Form S-8, Registration No. 333-52943.

(7) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated January 20, 1998.

(8)(10) Incorporated by reference to the Registrant's Current Report on Form 8-K/A
dated September 16, 1998.

(9)(11) Incorporated by reference to the Registrant's Current Report on Form 8-K/A
dated September 23, 1998.