<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1999
REGISTRATION NO. 333-79367
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
OBIE MEDIA CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OREGON 7312 93-0966515
(State or (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification
incorporation or No.)
organization)
</TABLE>
4211 WEST 11TH AVENUE, EUGENE, OREGON 97402
(541) 686-8400
(Address and telephone number of registrant's principal executive
offices and principal place of business)
BRIAN B. OBIE
President and Chief Executive Officer
OBIE MEDIA CORPORATION
4211 West 11th Avenue, Eugene, Oregon 97402
(541) 686-8400
(Name, address and telephone number of agent for service)
--------------------------
COPIES TO:
Kenneth D. Stephens Roy W. Tucker
Carol Dey Hibbs David S. Matheson
Jeffrey S. Cronn PERKINS COIE LLP
TONKON TORP LLP 1211 SW Fifth Avenue
888 SW Fifth Avenue Portland, Oregon 97204-3715
Portland, Oregon 97204-2099 (503) 727-2000
(503) 221-1440
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. / /
--------------------------
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 13, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE RELATED REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
1,750,000 SHARES
[LOGO]
OBIE MEDIA CORPORATION
COMMON STOCK
------------------
Of the shares of common stock being offered, Obie Media Corporation is
offering 1,000,000 shares and selling shareholders are offering 750,000 shares.
In addition, Obie Media and the selling shareholders may sell an aggregate of up
to 262,500 additional shares depending on whether the underwriters exercise
their overallotment option. Obie Media will not receive any of the proceeds from
the sale of common stock by the selling shareholders.
Our common stock is quoted on the Nasdaq SmallCap Market under the symbol
"OBIE." We have applied to have our common stock quoted on the Nasdaq National
Market under the same symbol.
OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT OVER- WITH OVER-
PER SHARE ALLOTMENT ALLOTMENT
----------------- --------------- ---------------
<S> <C> <C> <C>
Public Offering Price...................................... $ $ $
Underwriting Discounts and Commissions..................... $ $ $
Proceeds to Obie Media..................................... $ $ $
Proceeds to Selling Shareholders........................... $ $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
WEDBUSH MORGAN SECURITIES PACIFIC CREST SECURITIES INC.
JOINT LEAD MANAGERS
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
[DESCRIPTION OF PHOTOS AND CAPTIONS]
[The photos to be included in this prospectus depict: (1) the side or back
of various transit vehicles, each such surface bearing advertising; and (2) an
outdoor display, a building wall, a walkway diorama (a display similar to a
"cut-out" billboard) and a bus shelter, all bearing advertising. The photos are
superimposed on a map of the United States and Canada indicating the locations
of Obie Media's sales offices. Obie Media's corporate logo is superimposed on
the map.
The captions for each such photo (9 photos total) identify the type of
out-of-home advertising product or transit vehicle shown in the photo.
The inside front cover of this prospectus will include a map of the United
States and Canada indicating the locations of Obie Media's sales offices. Obie
Media's corporate logo is depicted above the map.]
[Photos and captions]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 2
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 12
Price Range of Common Stock................................................................................ 13
Dividend Policy............................................................................................ 13
Capitalization............................................................................................. 14
Selected Consolidated Financial Data....................................................................... 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................................ 17
Business................................................................................................... 28
Management................................................................................................. 40
Certain Transactions....................................................................................... 46
Principal and Selling Shareholders......................................................................... 48
Description of Capital Stock............................................................................... 49
Shares Eligible for Future Sale............................................................................ 51
Underwriting............................................................................................... 53
Legal Matters.............................................................................................. 54
Experts.................................................................................................... 54
Available Information...................................................................................... 55
Index to Financial Statements.............................................................................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. IT IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT
YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. TO UNDERSTAND THIS
OFFERING, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE RISK
FACTORS AND THE FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS. THE
INFORMATION CONTAINED IN THIS PROSPECTUS, OTHER THAN HISTORICAL FINANCIAL
INFORMATION, GIVES EFFECT TO OUR ACQUISITION ON SEPTEMBER 1, 1998 OF PHILBIN &
COINE, INC., A NEW YORK CORPORATION DOING BUSINESS AS P & C MEDIA ("P & C"). FOR
PURPOSES OF THE UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT INFORMATION
CONTAINED IN THIS PROSPECTUS, (1) THE STATEMENT OF INCOME OF OBIE MEDIA FOR OUR
FISCAL YEAR ENDED NOVEMBER 30, 1998 HAS BEEN COMBINED WITH THE STATEMENT OF
OPERATIONS OF P & C FOR THE EIGHT MONTHS ENDED AUGUST 31, 1998 AND (2) THE
STATEMENT OF INCOME OF OBIE MEDIA FOR THE SIX MONTHS ENDED MAY 31, 1998 HAS BEEN
COMBINED WITH THE STATEMENT OF OPERATIONS OF P & C FOR THE SIX MONTHS ENDED JUNE
30, 1998.
UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVERALLOTMENT OPTION OR OUTSTANDING
STOCK OPTIONS. ALL SHARE AND PER-SHARE INFORMATION IN THIS PROSPECTUS HAS BEEN
RESTATED TO GIVE RETROACTIVE EFFECT TO A 10-FOR-1 STOCK SPLIT PRIOR TO OUR
INITIAL PUBLIC OFFERING IN 1996 AND 11-FOR-10 STOCK SPLITS DECLARED IN OCTOBER
1997 AND NOVEMBER 1998. REFERENCES IN THIS PROSPECTUS TO "OBIE MEDIA," "WE,"
"US" OR "OUR" ARE TO OBIE MEDIA CORPORATION AND ITS SUBSIDIARIES. WE HAVE
DERIVED SOME INFORMATION IN THIS PROSPECTUS FROM GOVERNMENT AND INDUSTRY
SOURCES. ALTHOUGH WE BELIEVE THIS INFORMATION IS RELIABLE, WE HAVE NOT
INDEPENDENTLY VERIFIED IT.
OBIE MEDIA
Obie Media Corporation is an out-of-home advertising company that markets
advertising space primarily on transit vehicles and outdoor advertising displays
(billboards and wallscapes). As of May 31, 1999, we had 39 exclusive agreements
with transit districts in the United States and Canada to operate transit
advertising displays on approximately 8,000 transit vehicles. The markets in
which these transit districts are located include seven of the 30 largest U.S.
markets--Dallas; Portland, Oregon; Cleveland; Sacramento; Hartford; Ft.
Lauderdale; and Cincinnati--and the third largest Canadian market, Vancouver,
British Columbia. Since our initial public offering in November 1996, the number
of vehicles on which we have the right to operate transit advertising displays
has increased from approximately 1,100 to approximately 8,700. We also operate
and generally own approximately 720 advertising displays on billboards and walls
in Washington, Oregon, California and Idaho. Giving effect to our acquisition of
P & C as if it had occurred on January 1, 1998, we achieved pro forma net
revenues of $28.2 million and EBITDA of $4.2 million for our 1998 fiscal year.
Obie Media seeks to maximize revenue through a combination of local,
regional and national sales and the use of a wide variety of traditional and
innovative non-traditional out-of-home advertising products. We market our
services to local businesses both through direct sales and advertising agencies.
We offer direct advertisers design and production services usually available
only through agencies. We service national accounts primarily through our
national sales team which operates from certain of our local offices and our
national sales offices in Los Angeles, Chicago and New York City.
Obie Media's overall business strategy is to expand upon our national
presence to become a leader in the out-of-home advertising industry. We bid as
part of a competitive process for exclusive advertising contracts with transit
districts in target markets. Upon obtaining an agreement with a large and
strategically located transit district, we seek to expand our presence in the
market by offering our services to neighboring transit districts and by offering
additional out-of-home advertising products and services in the area. The
following are key features of our strategy:
- MAINTAIN A LARGE, PROACTIVE SALES FORCE. We believe that our large,
proactive sales force, which sells directly to local advertisers and, more
traditionally, to advertising agencies, enables Obie Media to increase
display occupancy levels and maximize our advertising rates. We believe
the size, quality and motivation of our sales force provide us a
competitive advantage.
2
<PAGE>
- ATTRACT NEW ADVERTISERS THROUGH DIRECT LOCAL SALES. By selling directly to
local businesses not represented by advertising agencies, we seek to
obtain a larger share of the overall advertising expenditures in our
markets and broaden the customer base for out-of-home advertising. Obie
Media offers comprehensive sales, marketing and creative services. This
makes it easier for these potential customers to purchase out-of-home
advertising.
- INCREASE REVENUES FROM EXISTING DISPLAY SPACE. We seek to increase the
revenue potential of our available transit and outdoor advertising display
inventory by offering innovative transit products and increasing the
percentage of time our display space is occupied.
- OBTAIN ADDITIONAL TRANSIT ADVERTISING AGREEMENTS. We believe that by
obtaining additional transit advertising agreements we will increase our
operating efficiencies and geographic diversity and create additional
bases from which to achieve further market penetration. We expect
increased revenue and profitability for additional transit districts to
occur over time as we implement our direct sales and product strategies.
- DEVELOP REGIONAL OPERATING CENTERS ("HUBS"). We seek to increase our
revenues, profitability and operating efficiencies through our development
and use of regional operating centers, or hubs. We believe our hub
strategy results in revenue growth and cost savings.
- SELECTIVELY PURSUE ACQUISITION OPPORTUNITIES. We continuously evaluate
opportunities to enter new markets and increase our presence in existing
markets through the selective acquisition of out-of-home advertising
companies or assets.
- INCREASE INVENTORY OF OUTDOOR DISPLAYS. We expect to increase our market
penetration by acquiring or building additional outdoor displays in new
and existing markets. We emphasize acquiring or constructing displays in
regions where we already have outdoor displays or agreements with transit
districts.
- EXPAND OUR NATIONAL SALES EFFORT. To more effectively coordinate and
expand our national sales efforts, we have established national sales
offices in Los Angeles, Chicago and New York City. We believe that our
further growth and expansion into new markets will continue to increase
our national sales.
------------------------
Obie Media is a corporation formed in 1987 under the laws of Oregon. Our
corporate offices are located at 4211 West 11th Avenue, Eugene, Oregon 97402.
Our telephone number is (541) 686-8400.
3
<PAGE>
RECENT DEVELOPMENTS
ADDITIONAL TRANSIT ADVERTISING AGREEMENTS. To date in 1999, we have begun
operating transit advertising displays on approximately 1,370 additional
vehicles. The following table sets forth certain information about these new
operations:
<TABLE>
<CAPTION>
DATE OPERATIONS BEGAN APPROXIMATE NO.
(1999) LOCATION OF VEHICLES
<S> <C> <C>
July St. Louis, Missouri 670(1)
June Cambridge, Ontario 25
May Niagara Falls, Ontario 25
April Gray Line of Victoria, B.C. 80
St. Catharines, Ontario 50
February Yakima, Washington 20
January Madison, Wisconsin 200
Spokane, Washington 130
London, Ontario 170
-----
Total.................... 1,370
-----
-----
</TABLE>
- ------------------------
(1) The former operator of transit advertising displays for the St. Louis
transit district is contesting the district's award of the St. Louis transit
district agreement to us both judicially and administratively. See
"Business--Litigation."
EARLY TERMINATION OF TRANSIT ADVERTISING AGREEMENT FOR PORTLAND, OREGON. We
have a contract to provide advertising sales services to the Tri-County
Metropolitan Transit District ("Tri-Met") in Portland, Oregon, which, by its
terms, was scheduled to expire in June 2001. We originally began serving Tri-Met
in January 1994, pursuant to a five-year agreement, which was later extended for
an additional two years. The Federal Transit Administration ("FTA"), which
provides substantial monies to transit districts, has taken the position that
transit advertising contracts may not exceed five years in length. At the
request of the FTA, Tri-Met and we agreed that our agreement with Tri-Met would
terminate on June 30, 1999. However, Tri-Met has informed us that our agreement
with it will now terminate on July 30, 1999 or 10 days after notification by
Tri-Met of its award of a new agreement, whichever is later. In December 1998,
Tri-Met entered into a settlement agreement to compensate us for early
termination of the existing contract. Under the terms of the settlement
agreement, we received a one-time cash payment and related financial benefits
which resulted in a pre-tax gain of $886,000 during the first quarter of fiscal
1999. The agreement further provides that we will sell to Tri-Met for $80,000
the transit benches on which we sell advertising. If we are not successful in
obtaining the new Portland contract, we will receive additional lesser cash
payments and other financial benefits, and will receive for a period of up to
one year 20% of the net billings received from unexpired advertising contracts
which extend beyond June 30, 1999.
In anticipation of the termination of our transit district agreement,
Tri-Met solicited proposals for the operation of the Portland transit district
by means of a competitive bidding process. We were not awarded the right to
continue to operate in Portland in that bidding process. The results of that
initial process were contested and Tri-Met requested submission of new
proposals. We submitted a revised bid to Tri-Met in response. Tri-Met is in the
process of selecting the new operator under the contract to be awarded. We may
not be successful in our bid to continue to operate in Portland. The Portland
agreement covered approximately 726 vehicles as of May 31, 1999, and, giving
effect to the P & C acquisition as if it had occurred on January 1, 1998,
accounted for approximately 15.5% of our pro forma gross revenues for fiscal
1998.
ACQUISITION OF P & C. In September 1998, we acquired P & C, which has
operated in the out-of-home advertising industry for over 50 years. P & C has 19
agreements with transit districts, including districts located in Hartford,
Stamford and New Haven, Connecticut; Fort Lauderdale and West Palm Beach,
Florida; Cincinnati and Cleveland, Ohio; Richmond, Virginia; and Milwaukee,
Wisconsin. As of May 31, 1999, P & C's transit agreements covered approximately
3,200 vehicles.
4
<PAGE>
EXPANSION INTO CANADA. In August 1998, our wholly owned Canadian
subsidiary, Obie Media Limited, began operating transit advertising displays for
BC Transit on approximately 1,500 transit vehicles in British Columbia. BC
Transit is the transit authority for substantially all of the transit districts
in British Columbia, including Vancouver (Canada's third largest market) and
Victoria. As discussed above, we have further expanded our operations in Canada
since August 1998 through operations in British Columbia and Ontario.
THIS OFFERING
<TABLE>
<S> <C>
Common stock offered by Obie Media........ 1,000,000 shares
Common stock offered by the selling
shareholders............................ 750,000 shares
Total offering............................ 1,750,000 shares
Common stock to be outstanding after this
offering................................ 5,322,949 shares(1)
Use of proceeds........................... Repayment of bank borrowings,
including borrowings to finance
the acquisition of P & C
Nasdaq SmallCap Market symbol............. OBIE
Proposed Nasdaq National Market symbol.... OBIE
</TABLE>
- ------------------------
(1) Based on shares outstanding as of May 31, 1999. Excludes: (a) 348,909 shares
of common stock reserved for future issuances under Obie Media's Restated
1996 Stock Incentive Plan (options to purchase an aggregate of 240,322 of
such shares were outstanding under the plan at May 31, 1999, with a weighted
average exercise price of $9.62 per share); (b) 148,500 shares of common
stock issuable upon the exercise of additional options that were granted on
September 1, 1998 in connection with the P & C acquisition, with a weighted
average exercise price of $8.13 per share; and (c) up to 82,500 shares of
common stock which may be issued to Wayne Schur depending on P & C
performance through November 30, 2001. See "Management--Stock Option
Information" and "--Schur Employment and Noncompetition Agreement;
Change-in-Control Arrangement."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER-SHARE AND VEHICLE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------
PRO
FORMA(1)
1994 1995 1996 1997 1998 1998
--------- --------- --------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues(2)....................... $6,026 $8,259 $10,070 $13,303 $22,718 $28,197
Operating expenses:
Direct advertising.................. 3,551 4,801 5,907 8,005 14,793 18,854
General and administrative.......... 858 1,301 1,685 2,242 3,628 5,000
Contract settlement(3).............. -- -- -- -- -- --
Start-up costs...................... -- -- -- 237 106 106
Depreciation and amortization....... 533 529 514 664 936 1,390
--------- --------- --------- --------- --------- -----------
Total operating expenses.......... $4,942 $6,631 $ 8,106 $11,148 $19,463 $25,350
--------- --------- --------- --------- --------- -----------
Operating income...................... 1,084 1,628 1,964 2,155 3,255 2,847
Interest expense...................... 1,371 1,432 1,480 584 776 1,174
Minority interest in subsidiary....... 1 12 2 8 -- --
Other income, net..................... (5) (11) (188) (51) -- (86)
Provision for (benefit from) income
taxes............................... -- (778) 31 614 978 704
Extraordinary item(4)................. -- -- 543 -- -- --
--------- --------- --------- --------- --------- -----------
Net income (loss)..................... $ (283) $ 973 $ 96 $ 1,000 $ 1,501 $ 1,055
Net income (loss) per share(5)
Basic............................... (.09) .32 .03 .24 .35 .24
Diluted............................. (.09) .32 .03 .23 .35 .24
Weighted average shares outstanding
Basic............................... 3,025 3,025 3,055 4,237 4,263 4,305
Diluted............................. 3,025 3,025 3,057 4,290 4,323 4,383
OTHER DATA:
EBITDA(6)............................. $1,617 $2,157 $ 2,478 $ 2,819 $ 4,191 $ 4,237
EBITDA margin(7)...................... 26.8% 26.1% 24.6% 21.2% 18.4% 15.0%
After-tax cash flow(8)................ $ 250 $ 724 $ 1,184 $ 2,278 $ 2,936 $ 2,944
Number of transit vehicles(9)......... 969 1,029 1,135 2,374 7,352 7,352
<CAPTION>
SIX MONTHS ENDED MAY 31,
---------------------------------------
PRO
FORMA(1)
1998 1998 1999
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues(2)....................... $8,358 $12,402 $15,730
Operating expenses:
Direct advertising.................. 5,263 8,240 11,296
General and administrative.......... 1,454 2,440 2,312
Contract settlement(3).............. -- -- (886)
Start-up costs...................... 43 43 296
Depreciation and amortization....... 354 670 723
----------- ----------- -----------
Total operating expenses.......... $7,114 $11,393 $13,741
----------- ----------- -----------
Operating income...................... 1,244 1,009 1,989
Interest expense...................... 331 594 562
Minority interest in subsidiary....... 32 32 --
Other income, net..................... -- (30) --
Provision for (benefit from) income
taxes............................... 335 157 556
Extraordinary item(4)................. -- -- --
----------- ----------- -----------
Net income (loss)..................... $ 546 $ 256 $ 871
Net income (loss) per share(5)
Basic............................... .13 .06 .20
Diluted............................. .13 .06 .20
Weighted average shares outstanding
Basic............................... 4,241 4,296 4,322
Diluted............................. 4,311 4,337 4,412
OTHER DATA:
EBITDA(6)............................. $1,598 $ 1,679 $ 2,712
EBITDA margin(7)...................... 19.1% 13.5% 17.5%
After-tax cash flow(8)................ $ 900 $ 926 $ 1,594
Number of transit vehicles(9)......... 2,658 5,452 7,978
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------------------------------------
1995 1996 1997 1998
--------- --------- --------- --------- MAY 31, 1999
-------------
1994 ACTUAL
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash....................................... $ 81 $ 55 $ 475 $ -- $ 326 $ 78
Working capital............................ 45 273 380 647 1,033 261
Total assets............................... 9,491 10,535 12,533 14,284 27,647 28,142
Long-term debt, less current portion....... 11,310 11,001 6,555 5,695 13,354 11,720
Shareholders' equity (deficit)............. (3,466) (2,652) 2,784 3,796 5,547 6,518
<CAPTION>
AS ADJUSTED(10)
---------------
(UNAUDITED)
<S> <C>
Cash....................................... $ 78
Working capital............................ 3,509
Total assets............................... 28,142
Long-term debt, less current portion....... 5,470
Shareholders' equity (deficit)............. 16,016
</TABLE>
- --------------------------
(1) Represents actual amounts as adjusted to give effect to the acquisition of
P & C as if it had occurred on January 1, 1998. See unaudited pro forma
consolidated financial statements. The primary adjustments were to record
the amortization of goodwill, the interest expense related to acquisition
debt and the income tax effects of the transaction.
(2) Net revenues are gross revenues less advertising agency commissions.
(3) At the request of the Federal Transit Administration, Tri-Met and we agreed
that our transit district agreement with Tri-Met would terminate on June
30, 1999, rather than in June 2001 as originally scheduled. However, Tri-
Met has informed us that our agreement with it will now terminate on July
30, 1999 or 10 days after notification by Tri-Met of its award of a new
agreement, whichever is later. In December 1998, Tri-Met entered into a
settlement agreement to compensate us for early termination of our existing
contract. Under the terms of the settlement agreement, we received a
one-time cash payment and other financial benefits which resulted in a
6
<PAGE>
pre-tax gain of $886,000 during the first quarter of fiscal 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments."
(4) The extraordinary item in fiscal 1996 resulted from debt prepayment
penalties and the write-off of previously capitalized loan costs, net of
income tax benefit.
(5) In fiscal 1996, net income per share (basic and diluted) before the
extraordinary item was $.21 per share. Weighted average shares outstanding
are used in the per-share calculations.
(6) "EBITDA" (earnings before interest, taxes, depreciation and amortization)
is defined as operating income before depreciation and amortization
expense. While EBITDA should not be considered in isolation or as a
substitute for net income, cash provided by operating activities or other
income or cash flow statement data prepared in accordance with generally
accepted accounting principles, or as a measure of profitability or
liquidity, we believe that it is widely used by certain investors as one
measure to evaluate the financial performance of companies in the
out-of-home advertising industry. It assists in comparing out-of-home
advertising company performance on a consistent basis without regard to
depreciation and amortization, which can vary significantly depending upon
accounting methods used (particularly when acquisitions are involved) or
non-operating factors (such as historical cost basis). Accordingly, this
information has been disclosed in this prospectus to facilitate the
comparative analysis of our operating performance relative to other
companies in the out-of-home advertising industry.
(7) "EBITDA margin" is EBITDA stated as a percentage of net revenues.
(8) "After-tax cash flow" is defined as net income before extraordinary loss
plus depreciation and amortization expense and deferred tax expense.
After-tax cash flow is not presented here as a measure of operating results
and does not purport to represent cash provided by operating activities.
After-tax cash flow should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles such as net income and cash
provided by operating activities.
(9) At the end of the period.
(10) As adjusted to reflect the sale of 1,000,000 shares of common stock
offered by Obie Media in this offering at an assumed price of $10.75 per
share and the use of the net proceeds we receive from this offering (after
deducting the underwriting discounts and commissions and our estimated
offering expenses) to reduce our indebtedness. See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
OWNERSHIP OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK.
OUR FUTURE GROWTH DEPENDS IN PART ON FACTORS BEYOND OUR CONTROL, AND WE MAY NOT
BE SUCCESSFUL IN IMPLEMENTING OUR GROWTH STRATEGY
Our growth strategy is to increase our penetration within our existing
markets and to enter new markets. We may not be successful in expanding in our
existing markets or entering new markets. A principal component of our growth
strategy is to obtain exclusive agreements with additional transit districts
while renewing our existing transit agreements. Other components of our growth
strategy include increasing our inventory of outdoor displays, expanding our
national presence and selectively acquiring other out-of-home advertising
companies or assets.
The implementation of our growth strategy will depend upon a number of
factors, both within and outside our control. These factors include:
- Our identification of new geographic markets in which we can effectively
compete.
- Our ability to successfully bid for new transit district agreements and
renew existing transit district agreements on terms favorable to us.
- Our ability to obtain required performance bonds or other guarantees of
our obligations under transit district agreements.
- Acceptance of Obie Media and our products by customers in new markets.
- Our receipt of any required governmental authorizations for any proposed
expansion.
- Our identification and acquisition on favorable terms of suitable
acquisition candidates.
- Our ability to hire, train and retain qualified personnel.
- Our ability to obtain required financing on acceptable terms, if at all.
We may not be successful in expanding our operations and any expansion may
not be profitable. Further, our results to date may not be indicative of our
prospects or our ability to penetrate new markets, many of which may have
different competitive conditions and demographic characteristics than our
current markets. See "Business--Obie Media Strategy."
WE MAY BE UNABLE TO GENERATE SUFFICIENT ADVERTISING REVENUES TO PROFIT FROM
TRANSIT DISTRICT AGREEMENTS
Giving effect to Obie Media's acquisition of P & C as if it had occurred on
January 1, 1998, 81.5% of our pro forma gross revenues for fiscal 1998 were
attributable to our agreements with transit districts. Under such agreements, we
typically agree to pay the transit district the greater of a minimum guaranteed
amount or a percentage (usually over 50%) of the advertising revenues generated
by our use of the district's vehicles. We may not be able to profitably operate
under any transit agreement. When awarding contracts, transit districts rely
heavily on the amount of revenue the applicant guarantees it will pay to the
district in upcoming years. If our revenues from advertising displays are lower
than anticipated, we still must pay to the districts the guaranteed amounts each
year. Also, in order to expand into new geographic markets and renew our
existing transit agreements, we may face competitive pressure to increase the
amounts or change the payment schedules of our guarantees or increase the
percentage of revenues we pay to transit districts. Any such increase could
result in financial losses or lower profits under our transit district
agreements. In addition, some of our agreements with transit districts provide
that the transit district may terminate the agreement before the end of the
specified term at the convenience of the transit
8
<PAGE>
district, or if the transit district determines that such termination is in its
best interest or the public interest. See "Business--Products and Markets."
A SUBSTANTIAL PORTION OF OUR REVENUES IS DERIVED FROM AGREEMENTS WITH A LIMITED
NUMBER OF TRANSIT DISTRICTS, THE LOSS OF ANY OF WHICH COULD ADVERSELY AFFECT
US
A substantial portion of our revenues is derived from agreements with a
limited number of transit districts, particularly our transit district
agreements for Portland, Oregon; Dallas, Texas; and Vancouver, British Columbia.
Our inability to renew any of these or our other significant transit agreements
on favorable terms, if at all, or the early termination of any such agreements,
could adversely affect us. Giving effect to the P & C acquisition as if it had
occurred on January 1, 1998, the transit district agreements for Portland and
Dallas accounted for 15.5% and 15.7%, respectively, of our pro forma gross
revenues for fiscal 1998. No other agreement accounted for over 10% of our pro
forma gross revenues for fiscal 1998. We expect that the transit district
agreement for Vancouver, where we commenced operations in August 1998, will
account for over 10% of our gross revenues for fiscal 1999. The agreements for
Vancouver and Dallas are scheduled to terminate in 2000 and 2002, respectively.
The agreement for Portland will terminate on July 30, 1999 or 10 days after
notification by the Portland transit district of its award of a new agreement,
whichever is later. We were not awarded the right to continue to operate in
Portland in the initial competitive proposal process related to the upcoming
termination of the Portland agreement. The results of the initial process were
contested and the transit district requested submission of new proposals. We
submitted a revised bid in response. The transit district is in the process of
selecting the new operator under the contract to be awarded. We may not be
successful in our bid to continue to operate in Portland.
WE MAY NOT BE ABLE TO MAKE DESIRED ACQUISITIONS OR INTEGRATE ACQUIRED COMPANIES
INTO OUR OPERATIONS
A component of Obie Media's growth strategy is to selectively acquire
out-of-home advertising companies or assets, such as our recent acquisition of P
& C. We may not be successful in integrating the P & C acquisition or completing
and integrating any future acquisitions. In addition, we may not be able to
complete acquisitions on terms acceptable to us. Any acquisitions by Obie Media
would involve risks commonly encountered in acquisitions of companies,
including:
- The difficulty of assimilating the operations and personnel of the
acquired company into our existing structure.
- Potential disruption of our ongoing business.
- Diversion of the time and resources of our management.
- An increase in our administrative costs.
- Our potential loss of key employees of the acquired company.
Our failure to effectively integrate any acquired businesses could adversely
affect us. In addition, future acquisitions by Obie Media may require additional
debt or equity financing. Debt financing, if available, may increase our
leverage and cash required to service debt. Equity financing may cause dilution
to our shareholders. We may not be able to obtain required financing when needed
on terms favorable to us, if at all.
OUR GROWTH MAY PLACE STRAINS ON OUR SYSTEMS AND MANAGEMENT RESOURCES THAT COULD
ADVERSELY AFFECT OUR BUSINESS
Obie Media has grown both internally and as a result of the P & C
acquisition. This growth, and further anticipated growth, could place a strain
on our management, systems and other resources. To
9
<PAGE>
manage our growth, we will need to continue to invest in and expand our
operational, financial and information systems and to attract, retain, motivate
and effectively manage our employees. We may not be able to do so.
CHANGES IN ADVERTISING TRENDS AND GENERAL ECONOMIC CONDITIONS COULD REDUCE OUR
REVENUES
We rely on sales of advertising space for our revenues. Changes in general
economic conditions and trends in the advertising industry affect sales of
advertising space. A general decline in economic conditions, a decline in
economic conditions in particular markets where we conduct business or a
reallocation of advertising expenditures by advertisers using our displays or
services could result in a reduction in our advertising revenues.
LOSS OF ANY KEY EXECUTIVE COULD ADVERSELY AFFECT OUR BUSINESS
Obie Media's success depends to a significant extent upon the continued
services of our executive officers and other key management and sales personnel.
In particular, Obie Media relies on Brian Obie, our Chairman of the Board,
President and Chief Executive Officer, Wayne Schur, our Executive Vice President
and the President of P & C, and Stephen Grover, our Vice President and General
Manager and the President of Obie Media Limited, our wholly owned Canadian
subsidiary. We have no long-term employment agreements with any of our
employees, other than Mr. Schur. The loss of the services of any of our
executive officers or other key management and sales personnel could adversely
affect us. We carry life insurance on Mr. Obie in the amount of $2.0 million,
but do not carry life insurance on any other employee. See "Management."
INTENSE COMPETITION MAY LEAD TO REDUCED REVENUES OR PROFITS
Obie Media's markets are highly competitive, particularly in large
advertising markets. Several of our competitors, including diversified media
companies, are substantially larger, better capitalized, more widely known and
have access to substantially greater resources than we do. Obie Media may not be
able to compete successfully either with other out-of-home companies or with
other advertising media. See "Business--Competition."
In the transit advertising market, we compete with other out-of-home
advertising companies that submit proposals for exclusive agreements with
transit districts by means of a formal proposal process. In larger markets, we
encounter direct competition for transit district agreements from major transit
advertising companies such as TDI Worldwide, Inc., one of the largest transit
advertising companies in the United States and a dominant competitor in the
larger markets. In the outdoor advertising display market, we compete with other
out-of-home advertising companies for customers. Obie Media also competes for
customers with other advertising media, including broadcast and cable
television, radio, print media, direct mail marketing, and displays in shopping
centers and malls, airports, stadiums, movie theaters and supermarkets and on
taxis, trains and subways. In recent years, there has been consolidation among
our competitors, including consolidation between out-of-home advertising
companies and broadcast or other media.
GOVERNMENT REGULATIONS MAY LIMIT OUR ABILITY TO EXPAND OUR OUTDOOR ADVERTISING
BUSINESS
Government extensively regulates the outdoor advertising industry at the
federal, state and local levels. Regulations limit the location, relocation,
height and size of outdoor advertising displays. In addition, some jurisdictions
prohibit the construction of new outdoor advertising displays or the
replacement, relocation, enlargement or upgrading of existing displays.
Governmental regulations, tobacco industry agreements and our transit district
agreements may also restrict the content of the advertisements displayed by Obie
Media. For example, some states have banned all outdoor advertising of tobacco
products. In November 1998, 46 states signed a settlement agreement with the
four largest American
10
<PAGE>
tobacco companies. Among other things, the agreement bans transit and outdoor
advertising of the companies' tobacco products in the 46 states. Congress has
also considered legislation that would severely restrict or ban tobacco
advertising. Existing or future laws or regulations could adversely affect Obie
Media, and may limit our ability to increase our inventory of outdoor
advertising displays or display particular types of advertisements. See
"Business--Customers" and "--Government Regulation."
OUR CREDIT AGREEMENTS LIMIT OUR FINANCIAL AND OPERATIONAL FLEXIBILITY
Obie Media's primary lender has a lien on substantially all of our assets to
collateralize our indebtedness. Our credit agreements restrict our ability to
incur additional debt, create additional liens, sell assets and make
acquisitions. The credit agreements also contain financial covenants. These
restrictions and covenants may limit our ability to implement our growth
strategy, pay dividends or engage in other activities that would benefit us or
our shareholders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
AFTER THE OFFERING, BRIAN OBIE WILL CONTINUE TO HAVE SIGNIFICANT CONTROL OF OBIE
MEDIA
Following completion of this offering, Brian Obie, our Chairman of the
Board, President and Chief Executive Officer, will beneficially own 33.8% of the
outstanding shares of common stock (31.0% if the overallotment option is fully
exercised). Mr. Obie may be able to control the management and affairs of Obie
Media and the outcome of certain corporate actions submitted for approval to our
shareholders, including the election of our board of directors. As a result of
such control, certain transactions may not be possible without Mr. Obie's
approval. These transactions include proxy contests, mergers involving Obie
Media and tender offers or other purchases of our common stock that could give
our shareholders the opportunity to realize a premium over the then-prevailing
market price for their shares.
OUR REVENUES AND PROFITS MAY FLUCTUATE AND BECOME MORE SEASONAL AS OUR TRANSIT
ADVERTISING BUSINESS INCREASES
Obie Media's revenues and operating results historically have fluctuated by
season. Typically, our results of operations are strongest in the fourth quarter
and weakest in the first quarter of our fiscal year ending November 30. Our
transit advertising operations are more seasonal than our outdoor advertising
operations, because our outdoor advertising display space, unlike our transit
advertising display space, is sold nearly exclusively by means of 12-month
contracts. We believe this seasonality will increase as our transit advertising
operations continue to expand more rapidly than our outdoor advertising
operations. This seasonality, together with fluctuations in general and regional
economic conditions and the timing and expenses related to acquisitions, the
obtaining of new transit agreements and other actions we have taken to implement
our growth strategy, has contributed to fluctuations in our periodic operating
results. These fluctuations likely will continue. Accordingly, Obie Media's
results of operations in any period may not be indicative of the results to be
expected for any future period. Because a significant portion of our expenses
are fixed and are based in part on our estimate of future revenues, we may be
unable to adjust our expenditures in a timely manner to compensate for any
unanticipated reduction in revenues. This could result in period-to-period
declines in our operating results and net income.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY
The market price of our common stock may fluctuate significantly due to
variations in actual and anticipated operating results, changes in earnings
estimates by analysts, lack of liquidity, our failure to implement our growth
strategy and other events or factors. In addition, the stock markets have
recently experienced price and volume volatility that has affected the market
prices of companies in ways seemingly unrelated to their operating performance.
Stock market volatility may adversely affect the market price of our common
stock.
11
<PAGE>
OUR ANTITAKEOVER PROVISIONS AND AUTHORIZED STOCK MAY REDUCE THE MARKET PRICE OF
OUR COMMON STOCK
Obie Media's board of directors may issue up to 10 million shares of
preferred stock and fix the rights, preferences, privileges and restrictions of
those shares without any further vote or action by our shareholders. The board
of directors also may issue up to 20 million shares of common stock. The
potential issuance of additional shares of preferred stock and common stock
could delay or prevent a change in control of Obie Media. It could also
discourage offers to purchase common stock at a premium over its market price
and may decrease the market price of, and the voting and other rights of the
holders of, our common stock. Provisions of our articles of incorporation and
bylaws could also delay or prevent a change of control. In addition, we are
subject to Oregon statutory provisions governing business combinations and
potentially restricting the voting rights of persons acquiring more than a
specified percentage of our common stock. These provisions could make it more
difficult to complete a merger or tender offer involving Obie Media, even if it
would be beneficial to our shareholders. See "Description of Capital
Stock--Antitakeover Measures."
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking" statements within the meaning of
Section 27A of the Securities Act of 1933. In particular, this prospectus
contains statements regarding the recent commencement of transit advertising
operations in various markets, our growth strategy, the effect of our growth and
expansion on our revenues, anticipated capital expenditures for fiscal 1999,
anticipated general and administrative expenses and anticipated Year 2000
expenditures. Discussions containing forward-looking statements appear under
"Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and in other sections of this prospectus. When used in
this prospectus, the words "believes," "intends," "anticipates," "expects," and
similar expressions identify forward-looking statements. A number of risks and
uncertainties, including, without limitation, those specifically described in
this section of the prospectus, may affect the events described in these
statements, and actual results could differ materially from those described in
the forward-looking statements. We do not intend to update any forward-looking
statements.
USE OF PROCEEDS
We expect to receive net proceeds of approximately $9.5 million from this
offering ($11.1 million if the overallotment option is exercised in full),
assuming a price of $10.75 per share and after deducting the underwriting
discounts and commissions and our estimated offering expenses. We will use
approximately $7.0 million of the net proceeds we receive to repay borrowings
outstanding under the bridge loan we incurred to finance the acquisition of P &
C. The bridge loan is due on demand and bears interest either at a variable rate
equal to the lender's prime rate plus 0.5% (which totaled 8.25% at May 28, 1999)
or, at our election and subject to certain terms and conditions, at the London
Interbank Offered Rate ("LIBOR") as quoted by the lender plus 2% (which, based
on the three-month lender LIBOR, totaled 7.07% at May 28, 1999). We will use the
balance of the net proceeds we receive from this offering to reduce certain
other bank indebtedness which (1) is due on demand and bears interest at a
variable rate equal to the lender's prime rate (which was 7.75% at May 28,
1999), or (2) is due on December 15, 2003 and bears interest at a variable rate
equal to the lender's prime rate plus 0.5% (which totaled 8.25% at May 28, 1999)
or, at our election and subject to certain terms and conditions, at LIBOR as
quoted by the lender plus 2% (which, based on the three-month lender LIBOR,
totaled 7.07% at May 28, 1999). Pending such uses, we will invest the net
proceeds of this offering in short-term, investment-grade, interest-bearing
securities. We will not receive any of the proceeds from the sale of common
stock offered by the selling shareholders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
12
<PAGE>
PRICE RANGE OF COMMON STOCK
Since November 21, 1996, our common stock has been traded on the Nasdaq
SmallCap Market under the symbol "OBIE." We have applied to list our common
stock on the Nasdaq National Market under the same symbol and anticipate that
our common stock will begin trading on the Nasdaq National Market following this
offering. The following table presents the high and low bid prices of our common
stock as reported by The Nasdaq Stock Market:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1997
First Quarter.............................................................. $ 6.41 $ 5.47
Second Quarter............................................................. 6.20 5.16
Third Quarter.............................................................. 5.58 5.16
Fourth Quarter............................................................. 8.24 5.16
FISCAL 1998
First Quarter.............................................................. $ 9.66 $ 8.18
Second Quarter............................................................. 10.91 9.32
Third Quarter.............................................................. 15.00 9.32
Fourth Quarter............................................................. 15.00 9.09
FISCAL 1999
First Quarter.............................................................. $ 19.50 $ 13.00
Second Quarter............................................................. 16.13 10.13
Third Quarter (through July 9, 1999)....................................... 13.38 10.00
</TABLE>
The last reported sales price for our common stock on the Nasdaq SmallCap
Market on July 9, 1999 was $10.75 per share. At May 31, 1999, there were
4,322,949 shares of common stock outstanding held by 61 holders of record.
DIVIDEND POLICY
We have not paid cash dividends on our common stock since our initial public
offering in November 1996. We do not anticipate paying cash dividends in the
foreseeable future. We intend to retain any future earnings for reinvestment in
Obie Media. In addition, our credit agreements may limit our ability to pay
dividends or make other distributions on our common stock. Any future
determination as to the payment of dividends will be subject to applicable
limitations, will be at the discretion of our board of directors and will depend
on our results of operations, financial condition, capital requirements and
other factors deemed relevant by the board of directors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth Obie Media's capitalization at May 31, 1999:
(1) on an actual historical basis and (2) as adjusted to reflect the sale of
1,000,000 shares of common stock by Obie Media pursuant to this offering at an
assumed price of $10.75 per share and the use of all of our estimated net
proceeds of this offering to reduce our indebtedness. See "Use of Proceeds." You
should read this table in conjunction with the consolidated financial statements
and related notes and unaudited pro forma consolidated financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MAY 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and lines of credit................. $ 5,292 $ 2,044
Long-term debt, less current portion.................................. 11,720 5,470
Shareholders' equity:
Preferred stock, without par value: 10,000,000 shares authorized, no
shares issued and outstanding..................................... -- --
Common stock, without par value: 20,000,000 shares authorized;
4,322,949 shares issued and outstanding, actual; 5,322,949 shares
issued and outstanding, as adjusted(1)............................ 6,953 16,451
Options issued for common stock(2).................................. 212 212
Foreign Currency Translation.......................................... (2) (2)
Accumulated deficit................................................... (645) (645)
--------- -----------
Total shareholders' equity.......................................... 6,518 16,016
--------- -----------
Total capitalization.............................................. $ 23,530 $ 23,530
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes: (a) 348,909 shares of common stock reserved for future issuances
under Obie Media's Restated 1996 Stock Incentive Plan (options to purchase
an aggregate of 240,322 of such shares were outstanding under the plan at
May 31, 1999, with a weighted average exercise price of $9.62 per share);
(b) 148,500 shares of common stock issuable upon the exercise of additional
options that were granted on September 1, 1998 in connection with the P & C
acquisition, with a weighted average exercise price of $8.13 per share; and
(c) up to 82,500 shares of common stock which may be issued to Wayne Schur
depending on P & C performance through November 30, 2001. See "Management--
Stock Option Information" and "--Schur Employment and Noncompetition
Agreement; Change-in-Control Arrangement."
(2) Represents the fair value of the vested portion of options to purchase
137,500 shares of our common stock which were granted to Wayne Schur on
September 1, 1998 in connection with the P & C acquisition. See
"Management--Schur Employment and Noncompetition Agreement;
Change-in-Control Arrangement."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
We derived the selected statement of income and balance sheet information
presented below from our consolidated financial statements, and you should read
this information in conjunction with the financial statements and the related
notes, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the other financial information included elsewhere in this
prospectus. We derived the selected financial and operating information for Obie
Media as of November 30, 1997 and 1998 and for the fiscal years ended November
30, 1997 and 1998 from our consolidated financial statements, which have been
audited by Arthur Andersen LLP, independent accountants. We derived the selected
financial and operating information for Obie Media as of November 30, 1995 and
1996 and for the fiscal years ended November 30, 1995 and 1996, and the selected
statement of operations information for Obie Media for the fiscal year ended
November 30, 1994, from our consolidated financial statements, which have been
audited by PricewaterhouseCoopers LLP, independent accountants. We derived the
selected financial and operating information as of November 30, 1994 and May 31,
1999 and for the six months ended May 31, 1998 and 1999 from unaudited financial
statements that, in our opinion, include all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the information set forth
therein. Operating results for the six months ended May 31, 1999 are not
necessarily indicative of the results that may be expected for any future
period. We provide pro forma information for the six months ended May 31, 1998
and for the fiscal year ended November 30, 1998 to show the effect of the
acquisition of P & C on our statement of operations. The pro forma financial
information is based upon available information and certain assumptions that we
believe are reasonable. The pro forma financial information is provided for
informational purposes only and should not be construed to be indicative of our
results of operations had the acquisition of P & C occurred at January 1, 1998,
nor is it necessarily indicative of future combined operating results or
financial position.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, SIX MONTHS ENDED MAY 31,
------------------------------------------------------------------ -------------------------
PRO PRO
FORMA(1) FORMA(1)
1994 1995 1996 1997 1998 1998 1998 1998
--------- --------- --------- --------- --------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE AND VEHICLE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenues(2)............... $ 6,026 $ 8,259 $ 10,070 $ 13,303 $ 22,718 $ 28,197 $ 8,358 $ 12,402
Operating expenses:
Direct advertising.......... 3,551 4,801 5,907 8,005 14,793 18,854 5,263 8,240
General and
administrative............ 858 1,301 1,685 2,242 3,628 5,000 1,454 2,440
Contract settlement(3)...... -- -- -- -- -- -- -- --
Start-up costs.............. -- -- -- 237 106 106 43 43
Depreciation and
amortization.............. 533 529 514 664 936 1,390 354 670
--------- --------- --------- --------- --------- ----------- ----------- -----------
Total operating
expenses................ $ 4,942 $ 6,631 $ 8,106 $ 11,148 $ 19,463 $ 25,350 $ 7,114 $ 11,393
--------- --------- --------- --------- --------- ----------- ----------- -----------
Operating income.............. 1,084 1,628 1,964 2,155 3,255 2,847 1,244 1,009
Interest expense.............. 1,371 1,432 1,480 584 776 1,174 331 594
Minority interest in
subsidiary.................. 1 12 2 8 -- -- 32 32
Other income, net............. (5) (11) (188) (51) -- (86) -- (30)
Provision for (benefit from)
income taxes................ -- (778) 31 614 978 704 335 157
Extraordinary item(4)......... -- -- 543 -- -- -- -- --
--------- --------- --------- --------- --------- ----------- ----------- -----------
Net income (loss)............. $ (283) $ 973 $ 96 $ 1,000 $ 1,501 $ 1,055 $ 546 $ 256
Net income (loss) per share(5)
Basic....................... (.09) .32 .03 .24 .35 .24 .13 .06
Diluted..................... (.09) .32 .03 .23 .35 .24 .13 .06
Weighted average shares
outstanding
Basic....................... 3,025 3,025 3,055 4,237 4,263 4,305 4,241 4,296
Diluted..................... 3,025 3,025 3,057 4,290 4,323 4,383 4,311 4,337
OTHER DATA:
EBITDA(6)..................... $ 1,617 $ 2,157 $ 2,478 $ 2,819 $ 4,191 $ 4,237 $ 1,598 $ 1,679
EBITDA margin(7).............. 26.8% 26.1% 24.6% 21.2% 18.4% 15.0% 19.1% 13.5%
After-tax cash flow(8)........ $ 250 $ 724 $ 1,184 $ 2,278 $ 2,936 $ 2,944 $ 900 $ 926
Number of transit
vehicles(9)................. 969 1,029 1,135 2,374 7,352 7,352 2,658 5,452
<CAPTION>
1999
-----------
(UNAUDITED)
<S> <C>
STATEMENT OF INCOME DATA:
Net revenues(2)............... $ 15,730
Operating expenses:
Direct advertising.......... 11,296
General and
administrative............ 2,312
Contract settlement(3)...... (886)
Start-up costs.............. 296
Depreciation and
amortization.............. 723
-----------
Total operating
expenses................ $ 13,741
-----------
Operating income.............. 1,989
Interest expense.............. 562
Minority interest in
subsidiary.................. --
Other income, net............. --
Provision for (benefit from)
income taxes................ 556
Extraordinary item(4)......... --
-----------
Net income (loss)............. $ 871
Net income (loss) per share(5)
Basic....................... .20
Diluted..................... .20
Weighted average shares
outstanding
Basic....................... 4,322
Diluted..................... 4,412
OTHER DATA:
EBITDA(6)..................... $ 2,712
EBITDA margin(7).............. 17.5%
After-tax cash flow(8)........ $ 1,594
Number of transit
vehicles(9)................. 7,978
</TABLE>
15
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31, 1999
------------------------------------------------ -----------------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED(10)
----------- ------- ------- ------- ------- ----------- ---------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash.......................... $ 81 $ 55 $ 475 $ -- $ 326 $ 78 $ 78
Working capital............... 45 273 380 647 1,033 261 3,509
Total assets.................. 9,491 10,535 12,533 14,284 27,647 28,142 28,142
Long-term debt, less current
portion..................... 11,310 11,001 6,555 5,695 13,354 11,720 5,470
Shareholders' equity
(deficit)................... (3,466) (2,652) 2,784 3,796 5,547 6,518 16,016
</TABLE>
- ------------------------------
(1) Represents actual amounts as adjusted to give effect to the acquisition of
P & C as if it had occurred on January 1, 1998. See unaudited pro forma
consolidated financial statements. The primary adjustments were to record
the amortization of goodwill, the interest expense related to acquisition
debt and the income tax effects of the transaction.
(2) Net revenues are gross revenues less advertising agency commissions.
(3) At the request of the Federal Transit Administration, Tri-Met and we agreed
that our transit district agreement with Tri-Met would terminate on June
30, 1999, rather than in June 2001 as originally scheduled. However,
Tri-Met has informed us that our agreement with it will now terminate on
July 30, 1999 or 10 days after notification by Tri-Met of its award of a
new agreement, whichever is later. In December 1998, Tri-Met entered into a
settlement agreement to compensate us for early termination of our existing
contract. Under the terms of the settlement agreement, we received a
one-time cash payment and other financial benefits which resulted in a
pre-tax gain of $886,000 during the first quarter of fiscal 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments."
(4) The extraordinary item in fiscal 1996 resulted from debt prepayment
penalties and the write-off of previously capitalized loan costs, net of
income tax benefit.
(5) In fiscal 1996, net income per share (basic and diluted) before the
extraordinary item was $.21 per share. Weighted average shares outstanding
are used in the per-share calculations.
(6) "EBITDA" (earnings before interest, taxes, depreciation and amortization)
is defined as operating income before depreciation and amortization
expense. While EBITDA should not be considered in isolation or as a
substitute for net income, cash provided by operating activities or other
income or cash flow statement data prepared in accordance with generally
accepted accounting principles, or as a measure of profitability or
liquidity, we believe that it is widely used by certain investors as one
measure to evaluate the financial performance of companies in the
out-of-home advertising industry. It assists in comparing out-of-home
advertising company performance on a consistent basis without regard to
depreciation and amortization, which can vary significantly depending upon
accounting methods used (particularly when acquisitions are involved) or
non-operating factors (such as historical cost basis). Accordingly, this
information has been disclosed in this prospectus to facilitate the
comparative analysis of our operating performance relative to other
companies in the out-of-home advertising industry.
(7) "EBITDA margin" is EBITDA stated as a percentage of net revenues.
(8) "After-tax cash flow" is defined as net income before extraordinary loss
plus depreciation and amortization expense and deferred tax expense.
After-tax cash flow is not presented here as a measure of operating results
and does not purport to represent cash provided by operating activities.
After-tax cash flow should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles such as net income and cash
provided by operating activities.
(9) At the end of the period.
(10) As adjusted to reflect the sale of 1,000,000 shares of common stock
offered by Obie Media in this offering at an assumed price of $10.75 per
share and the use of the net proceeds we receive from this offering (after
deducting the underwriting discounts and commissions and our estimated
offering expenses) to reduce our indebtedness. See "Use of Proceeds."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING IS A DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF OBIE MEDIA FOR THE SIX MONTHS ENDED MAY 31, 1998 AND 1999 AND THE
FISCAL YEARS ENDED NOVEMBER 30, 1996, 1997 AND 1998, AND OF OBIE MEDIA'S
LIQUIDITY AND CAPITAL RESOURCES. THIS DISCUSSION SHOULD BE READ IN CONJUNCTION
WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES AND OTHER
FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Obie Media is an out-of-home advertising company that markets advertising
space primarily on transit vehicles and outdoor advertising displays (billboards
and wallscapes). As of May 31, 1999, we had 39 exclusive agreements with transit
districts in the United States and Canada to operate transit advertising
displays on approximately 8,000 transit vehicles. Since our initial public
offering in November 1996, the number of vehicles on which we have the right to
operate transit advertising displays has increased from approximately 1,100 to
approximately 8,700. We also operate and generally own approximately 720
advertising displays on billboards and walls in Washington, Oregon, California
and Idaho.
Our gross revenues increased from $10.9 million in fiscal 1996 to $25.2
million in fiscal 1998, representing a compound annual growth rate of 52.1%.
EBITDA increased from $2.5 million to $4.2 million in the same period,
representing a compound annual growth rate of 30.0%. Giving effect to the
acquisition of P & C as if it had occurred on January 1, 1998, we achieved pro
forma net revenues of $28.2 million and EBITDA of $4.2 million for the fiscal
year ended November 30, 1998.
Our significant growth since fiscal 1996 is primarily the result of: (1)
growth in our existing transit advertising business, primarily resulting from
agreements with additional transit districts; (2) the acquisition of P & C on
September 1, 1998; and (3) the development of new outdoor advertising displays.
As a result of these factors, our operating performance is not necessarily
comparable on a period-to-period basis. We plan to continue a strategy of
expanding through both internal growth and acquisitions.
When we obtain new display space, either through acquisition or by being
selected by a transit authority, our revenues increase as a result of
advertising contracts already in place. We expect further increased revenues and
profitability for additional transit districts to occur over time as we
implement our direct sales and product strategies. The amount of time required
to achieve such increases depends on the amount of space that is occupied at the
date of acquisition, the types of products being displayed and the time
necessary to hire and train our sales force.
Our operating results are affected by general economic conditions, as well
as trends in the advertising industry. Based on industry sources, in recent
years outdoor advertising expenditures in the United States have increased more
rapidly than total U.S. advertising expenditures. However, this trend may not
continue and future outdoor advertising expenditures may grow more slowly than
expenditures for the advertising industry as a whole.
Our gross revenues are derived from the sale of advertising on out-of-home
advertising displays, primarily on transit vehicles under our transit district
agreements and on outdoor advertising displays we own or operate. Gross revenues
are a function of both the occupancy of these display spaces and the rates we
charge. We focus our sales effort on maximizing occupancy levels while
maintaining rate integrity in our markets. Over the past several years, our
transit advertising operations have expanded more rapidly than our outdoor
advertising operations. Revenues from transit advertising sales, as a percentage
of gross revenues, increased from 56.4% in fiscal 1996 to 77.0% in fiscal 1998.
Increases in our gross revenues over the last three fiscal years are primarily
the result of the increased number of transit vehicles and outdoor displays on
which we market advertising space and, to a lesser extent, rate increases.
17
<PAGE>
Net revenues represent gross revenues less agency commissions. Consistent
with standard industry practice, advertising agencies working with Obie Media
typically retain 15% of the gross advertising revenues from their accounts.
While advertising agencies purchase the majority of the out-of-home advertising
that we sell, we believe our focus on direct sales to accounts not served by
advertising agencies has resulted in Obie Media recognizing agency commissions
that, as a percentage of our aggregate gross revenues, are lower than the
industry average. Customers represented by advertising agencies currently
account for approximately 66% of our gross revenues. Agency commissions, as a
percentage of our gross revenues, have risen recently, in large part because we
have obtained new transit agreements in a number of districts where the previous
providers made substantially all sales through advertising agencies.
Direct advertising expenses consist primarily of occupancy, production and
installation, and sales costs. Occupancy expense primarily consists of two
elements: (1) payments to transit districts for the right to sell advertising
displayed on their vehicles; and (2) lease payments to owners of property on
which our outdoor advertising structures are located. Under our transit
agreements, we typically agree to pay the transit district the greater of a
minimum guaranteed amount or a percentage (usually over 50%) of the advertising
revenues generated by our use of the district's vehicles. Occupancy expense also
includes the cost of illuminating outdoor displays and property taxes on the
outdoor advertising structures. Production and installation expenses consist
primarily of the costs of producing, shipping and installing the advertising
displays. Sales expenses consist primarily of the cost of staffing our sales
force.
General and administrative expenses include costs related to individual
markets, as well as corporate expenses. Expenses related to individual markets
include expenses for the personnel and facilities required to administer that
and neighboring markets. Corporate general and administrative expenses represent
personnel and facilities costs for our executive offices and centralized staff
functions. We believe that, although general and administrative expenses will
increase on an absolute dollar basis as our revenues increase, such expenses
will decline as a percentage of revenues.
Start-up costs are the costs we incur in pursuing new transit district
agreements and the costs of establishing a sales force and office in a new
market prior to beginning to operate under a new agreement. These costs consist
primarily of travel expenses, various personnel costs, legal fees, the costs of
preparing our proposals in response to transit district requests for bids and
any additional costs related to challenges to the award of new bids. The amount
of start-up costs we will incur in the future will vary, both in total amount
and as a percentage of revenues, depending on the number and complexity of
proposals for new districts and our success in obtaining new contracts.
In the fiscal years ended November 30, 1995 and 1996, we recognized an
income tax benefit from a net operating loss carryforward. The benefit of our
net operating loss carryforward was fully recognized as of November 30, 1996.
In October 1996, we incurred an extraordinary expense in connection with
refinancing our term debt to lower the interest rate. The total of the
prepayment penalties and write-off of previously capitalized loan costs was
$885,000. The tax benefit of these items was $342,000, resulting in an
extraordinary expense of $543,000 in fiscal 1996.
In November 1996, we completed our initial public offering. We used the net
proceeds of that offering of approximately $5.9 million, after deducting
expenses and underwriting discounts, to repay existing indebtedness.
18
<PAGE>
RECENT DEVELOPMENTS
ADDITIONAL TRANSIT ADVERTISING AGREEMENTS. To date in 1999, we have begun
operating transit advertising displays on approximately 1,370 additional
vehicles. The following table sets forth certain information about these new
operations:
<TABLE>
<CAPTION>
DATE OPERATIONS BEGAN APPROXIMATE NO.
(1999) LOCATION OF VEHICLES
<S> <C> <C>
July St. Louis, Missouri 670(1)
June Cambridge, Ontario 25
May Niagara Falls, Ontario 25
April Gray Line of Victoria, B.C. 80
St. Catharines, Ontario 50
February Yakima, Washington 20
January Madison, Wisconsin 200
Spokane, Washington 130
London, Ontario 170
-----
Total.................... 1,370
-----
-----
</TABLE>
- ------------------------
(1) The former operator of transit advertising displays for the St. Louis
transit district is contesting the district's award of the St. Louis transit
district agreement to us both judicially and administratively. See
"Business--Litigation."
EARLY TERMINATION OF TRANSIT ADVERTISING AGREEMENT FOR PORTLAND, OREGON. We
have a contract to provide advertising sales services to the Tri-County
Metropolitan Transit District ("Tri-Met") in Portland, Oregon, which, by its
terms, was scheduled to expire in June 2001. We originally began serving Tri-Met
in January 1994, pursuant to a five-year agreement, which was later extended for
an additional two years. The Federal Transit Administration ("FTA"), which
provides substantial monies to transit districts, has taken the position that
transit advertising contracts may not exceed five years in length. At the
request of the FTA, Tri-Met and we agreed that our agreement with Tri-Met would
terminate on June 30, 1999. However, Tri-Met has informed us that our agreement
with it will now terminate on July 30, 1999 or 10 days after notification by
Tri-Met of its award of a new agreement, whichever is later. In December 1998,
Tri-Met agreed pursuant to a settlement agreement to compensate us for early
termination of the existing contract. Under the terms of the settlement
agreement, we received a one-time cash payment and related financial benefits
which resulted in a pre-tax gain of $886,000 during the first quarter of fiscal
1999. The agreement further provides that we will sell to Tri-Met for $80,000
the transit benches on which we sell advertising. If we are not successful in
obtaining the new Portland contract, we will receive additional lesser cash
payments and other financial benefits, and will receive for a period of up to
one year 20% of the net billings received from unexpired advertising contracts
which extend beyond June 30, 1999.
In anticipation of the termination of our transit district agreement,
Tri-Met solicited proposals for the operation of the Portland transit district
by means of a competitive bidding process. We were not awarded the right to
continue to operate in Portland in that bidding process. The results of that
initial process were contested and Tri-Met requested submission of new
proposals. We submitted a revised bid to Tri-Met in response. Tri-Met is in the
process of selecting the new operator under the contract to be awarded. We may
not be successful in our bid to continue to operate in Portland. The Portland
agreement covered approximately 726 vehicles as of May 31, 1999, and, giving
effect to the P & C acquisition as if it had occurred on January 1, 1998,
accounted for approximately 15.5% of our pro forma gross revenues for fiscal
1998.
ACQUISITION OF P & C. In September 1998, we acquired P & C, which has
operated in the out-of-home advertising industry for over 50 years. P & C has 19
agreements with transit districts, including districts located in Hartford,
Stamford and New Haven, Connecticut; Fort Lauderdale and West Palm Beach,
Florida; Cincinnati and Cleveland, Ohio; Richmond, Virginia; and Milwaukee,
Wisconsin. As of May 31, 1999, P & C's transit agreements covered approximately
3,200 vehicles.
19
<PAGE>
Obie Media acquired P & C for an aggregate purchase price of $7.6 million in
cash, up to 137,500 shares of our common stock and options to purchase up to
148,500 additional shares of our common stock, of which $6.1 million and 55,000
shares were paid at closing, and options to purchase 27,500 shares were
exercisable on the closing date. The remaining $1.5 million of the cash purchase
price will be paid as follows: $500,000 on or before each of January 1, 2000 and
2001, and $250,000 on or before each of January 1, 2002 and 2003. The remaining
82,500 shares will be issued depending on P & C's performance through November
30, 2001, and the unvested options will become exercisable over four years,
depending on Wayne Schur's continued employment by us. Obie Media financed the
acquisition of P & C from borrowings. See "--Liquidity and Capital Resources."
The acquisition of P & C has been accounted for under the purchase method of
accounting, with Obie Media recording most of the purchase price as goodwill.
The amount of goodwill may increase in the future as additional stock options
vest and if additional shares are issued as a result of P & C's future
performance. Future periods will reflect the amortization of goodwill over 15
years and additional interest expense in connection with the acquisition. The
acquisition occurred on September 1, 1998 and our financial statements do not
include P & C operations prior to that date. For information on the pro forma
combined results of operations of Obie Media and P & C, see the selected
consolidated financial data, the historical Obie Media and P & C financial
statements and the unaudited pro forma financial statements and related notes
included elsewhere in this prospectus.
EXPANSION INTO CANADA. In August 1998, our wholly owned Canadian
subsidiary, Obie Media Limited, began operating transit advertising displays for
BC Transit on approximately 1,500 transit vehicles in British Columbia. BC
Transit is the transit authority for substantially all of the transit districts
in British Columbia, including Vancouver (Canada's third largest market) and
Victoria.
OPERATING RESULTS
The following table presents certain items from our consolidated statements
of income (and EBITDA) as a percentage of gross revenues.
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Transit advertising revenue.......................................................... 56.4% 63.3% 77.0%
Outdoor advertising revenue.......................................................... 43.6 36.7 23.0
--------- --------- ---------
Gross revenue........................................................................ 100.0 100.0 100.0
Less agency commissions.............................................................. 7.6 9.0 9.9
--------- --------- ---------
Net revenues......................................................................... 92.4 91.0 90.1
Operating expenses:
Direct advertising expense......................................................... 54.2 54.7 58.7
General and administrative......................................................... 15.5 15.4 14.4
Start-up costs..................................................................... -- 1.6 0.4
--------- --------- ---------
EBITDA............................................................................... 22.7 19.3 16.6
Depreciation and amortization........................................................ 4.7 4.6 3.7
--------- --------- ---------
Operating income..................................................................... 18.0 14.7 12.9
Interest expense..................................................................... 13.5 4.0 3.1
Minority interest.................................................................... -- 0.1 --
Other income......................................................................... 1.7 0.4 --
--------- --------- ---------
Income before income taxes and extraordinary item.................................... 6.2 11.0 9.8
Provision for income taxes........................................................... 0.3 4.2 3.8
Extraordinary item(1)................................................................ 5.0 -- --
--------- --------- ---------
Net income........................................................................... 0.9% 6.8% 6.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) The extraordinary item in fiscal 1996 resulted from debt prepayment
penalties and the write-off of previously capitalized loan fees, net of
income tax benefit.
20
<PAGE>
COMPARISON OF THE SIX MONTHS ENDED MAY 31, 1998 AND 1999
REVENUES. Gross revenues increased $8.2 million, or 89.9%, from $9.2
million for the six months ended May 31, 1998 to $17.4 million for the same
period in fiscal 1999. This increase was principally due to transit advertising
revenues associated with the operations of P & C (which we acquired in September
1998), as well as the addition of new districts, including British Columbia
(which we began operating in August 1998) and Austin, Texas (which we began
operating in June 1998). Transit revenues increased $8.2 million, or 127.8%,
from $6.4 million for the six months ended May 31, 1998 to $14.6 million for the
same period in fiscal 1999. Outdoor advertising revenues were $2.8 million in
each of the six months ended May 31, 1998 and 1999. Agency commissions increased
$859,000, or 107.5%, from $799,000 for the six months ended May 31, 1998 to $1.7
million for the same period in fiscal 1999. As a percentage of gross revenues,
agency commissions increased from 8.7% for the six months ended May 31, 1998 to
9.5% for the same period in fiscal 1999. The increase in agency commissions, in
both dollar amounts and as a percentage of gross revenues, is primarily due to
the large proportion of agency business in our new markets. As a result of the
foregoing reasons, net revenues increased $7.4 million, or 88.2%, from $8.4
million for the six months ended May 31, 1998 to $15.7 million for the same
period in fiscal 1999.
DIRECT ADVERTISING EXPENSES. Direct advertising expenses increased $6.0
million, or 114.6%, from $5.3 million for the six months ended May 31, 1998 to
$11.3 million for the same period in fiscal 1999. This increase was primarily
the result of activities required to support an increased level of business.
Direct advertising expenses increased, as a percentage of gross revenues, from
57.5% for the first six months of fiscal 1998 to 65.0% for the same period in
fiscal 1999, primarily due to the faster growth of the transit advertising
business, where costs, especially occupancy costs, are higher than in the
outdoor advertising business.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $858,000, or 59.0%, from $1.5 million for the six months ended May 31,
1998 to $2.3 million for the same period in fiscal 1999. The increase resulted
primarily from the increased costs of administering new transit districts,
including districts under contract with P & C. General and administrative
expenses, as a percentage of gross revenues, decreased from 15.9% for the six
months ended May 31, 1998 to 13.3% for the same period in fiscal 1999.
CONTRACT SETTLEMENT. During the six months ended May 31, 1999, we
recognized a one-time pre-tax gain of $886,000 associated with our contract
settlement with Tri-Met (see Note 10 to our consolidated financial statements).
See "--Recent Developments."
START-UP COSTS. Start-up costs increased $252,000, or 579.1%, from $44,000
for the six months ended May 31, 1998 to $296,000 for the same period in fiscal
1999, primarily due to our increased response to requests for proposals for
transit district contracts. Start-up costs include expenses incurred in new
markets prior to the time we begin our sales operations, as well as costs
incurred in obtaining new transit district contracts. These costs vary depending
on the number and size of transit districts that become available for proposal
during the period and our success in obtaining new contracts.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased $369,000, or 104.4%, from $354,000 for the six months ended
May 31, 1998 to $723,000 for the same period in fiscal 1999, primarily due to
the amortization of goodwill associated with the P & C acquisition as well as
our investment in equipment in new markets and our upgrading of computer
capabilities in our existing markets. We are amortizing goodwill of $7.8 million
from the P & C acquisition over 15 years using the straight-line method of
amortization.
OPERATING INCOME. Due to the above factors, operating income increased
$745,000, or 59.9%, from $1.2 million for the six months ended May 31, 1998 to
$2.0 million for the same period in fiscal 1999.
21
<PAGE>
INTEREST EXPENSE. Interest expense increased $231,000, or 69.6%, from
$331,000 for the six months ended May 31, 1998 to $562,000 for the same period
in fiscal 1999, primarily due to the indebtedness incurred in connection with
the acquisition of P & C.
PROVISION FOR INCOME TAXES. Provision for income taxes increased $222,000,
or 66.4%, from $335,000 for the six months ended May 31, 1998 to $557,000 for
the same period in fiscal 1999. The increase in the provision for income taxes
is greater, in percentage terms, than the increase in income before income taxes
due to increased operations in higher tax rate jurisdictions, including Canada.
NET INCOME. As a result of the foregoing factors, net income increased
$325,000, or 59.5%, from $546,000 for the six months ended May 31, 1998 to
$871,000 for the same period in fiscal 1999.
COMPARISON OF YEARS ENDED NOVEMBER 30, 1997 AND 1998
REVENUES. Gross revenues increased $10.6 million, or 72.4%, from $14.6
million in fiscal 1997 to $25.2 million in fiscal 1998. This increase was
principally due to transit advertising revenues associated with the operations
of P & C (which we acquired September 1, 1998), as well as the addition of new
districts, such as British Columbia (which we began operating in August 1998),
and transit districts operating less than a full year in 1997, primarily Dallas
(which we began operating in July 1997). Transit revenues increased $10.2
million, or 109.9%, from $9.3 million in fiscal 1997 to $19.4 million in fiscal
1998, primarily due to the above factors. Outdoor advertising revenues increased
$423,000, or 7.9%, from $5.4 million in fiscal 1997 to $5.8 million in fiscal
1998, primarily due to higher rates and increased occupancy. Agency commissions
increased $1.2 million, or 89.1%, from $1.3 million in fiscal 1997 to $2.5
million in fiscal 1998, primarily due to the large proportion of existing agency
business in our new markets. As a result of the foregoing reasons, net revenues
increased $9.4 million, or 70.8%, from $13.3 million in fiscal 1997 to $22.7
million in fiscal 1998.
DIRECT ADVERTISING EXPENSES. Direct advertising expenses increased $6.8
million, or 84.8%, from $8.0 million in fiscal 1997 to $14.8 million in fiscal
1998. This increase was primarily the result of increased revenues. Direct
advertising expenses increased, as a percentage of gross revenues, from 54.7% in
fiscal 1997 to 58.6% in fiscal 1998, primarily due to the faster growth of the
transit advertising business, where costs, especially occupancy costs, are
higher than in the outdoor advertising business.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $1.4 million, or 61.8%, from $2.2 million in fiscal 1997 to $3.6
million in fiscal 1998. The increase resulted primarily from increased costs of
administering new transit districts and districts which operated for less than
all of fiscal 1997. General and administrative expenses, as a percentage of
gross revenues, decreased from 15.3% in fiscal 1997 to 14.4% in fiscal 1998.
START-UP COSTS. Start-up costs decreased $130,000, or 55.1%, from $237,000
in fiscal 1997 to $106,000 in fiscal 1998, primarily because of the costs we
incurred in fiscal 1997 when the then incumbent transit advertising operator in
Dallas, Texas unsuccessfully challenged the award of the Dallas contract to us.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased $271,000, or 40.9%, from $664,000 in fiscal 1997 to $936,000
in fiscal 1998, primarily due to our investment in equipment in new markets, our
upgrading of computer capabilities in our existing operations and the
amortization of goodwill associated with the P & C acquisition. Depreciation and
amortization expenses are expected to increase in fiscal 1999 when goodwill from
the P & C acquisition will be amortized for a full year as compared to three
months in fiscal 1998.
OPERATING INCOME. Due to the above factors, operating income increased $1.1
million, or 51.0%,
from $2.2 million in fiscal 1997 to $3.3 million in fiscal 1998.
22
<PAGE>
INTEREST EXPENSE. Interest expense increased $192,000, or 32.8%, from
$584,000 in fiscal 1997 to $776,000 in fiscal 1998, primarily due to the
indebtedness incurred in connection with the acquisition of P & C. Before giving
effect to the use of our net proceeds of this offering to reduce our
indebtedness, we expect interest expense to increase in fiscal 1999 due to the
indebtedness related to the P & C acquisition.
PROVISION FOR INCOME TAXES. Provision for income taxes increased $363,000,
or 59.1%, from $614,000 for fiscal 1997 to $978,000 in fiscal 1998, primarily
due to the increase in income before income taxes. The increase in the provision
for income taxes is greater, in percentage terms, than the increase in income
before income taxes due to increased operations in higher tax rate
jurisdictions, including Canada.
NET INCOME. As a result of the foregoing factors, net income increased
$501,000, or 50.1%, from $1.0 million for fiscal 1997 to $1.5 million for 1998.
COMPARISON OF YEARS ENDED NOVEMBER 30, 1996 AND 1997
REVENUES. Gross revenues increased $3.7 million, or 34.2%, from $10.9
million in fiscal 1996 to $14.6 million in fiscal 1997, primarily as a result of
increased transit advertising revenues. Transit advertising revenues increased
$3.1 million, or 50.4%, from $6.2 million in fiscal 1996 to $9.3 million in
fiscal 1997, primarily because of the addition of the Dallas transit district in
July 1997 and the Sacramento transit district in April 1997. Outdoor advertising
revenues increased $626,000, or 13.2%, from $4.7 million in fiscal 1996 to $5.4
million in fiscal 1997, primarily due to higher rates and increased occupancy.
Agency commissions increased $494,000, or 59.7%, from $828,000 in fiscal 1996 to
$1.3 million in fiscal 1997, primarily due to the addition of transit districts
in which the previous provider made substantially all sales through advertising
agencies. For the forgoing reasons, net revenues increased $3.2 million, or
32.1%, from $10.1 million in fiscal 1996 to $13.3 million in fiscal 1997.
DIRECT ADVERTISING EXPENSES. Direct advertising expenses increased $2.1
million, or 35.5%, from $5.9 million in fiscal 1996 to $8.0 million in fiscal
1997, primarily due to increased revenues. Direct advertising expenses, as a
percentage of gross revenues, increased from 54.2% in fiscal 1996 to 54.7% in
fiscal 1997, primarily due to the faster growth of transit advertising, where
costs, especially occupancy costs, are higher than in the outdoor advertising
business.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative costs
increased $557,000, or 33.0%, from $1.7 million in fiscal 1996 to $2.2 million
in fiscal 1997. This increase was primarily attributable to the additional
expense of being a public company following our initial public offering in
November 1996 and expenses incurred in fiscal 1997 in consolidating our three
Eugene locations into a single headquarters building. General and administrative
expenses, as a percentage of gross revenues, decreased from 15.5% in fiscal 1996
to 15.3% in fiscal 1997.
START-UP COSTS. Start-up costs were $237,000 in fiscal 1997, primarily
because of the costs incurred by us in connection with our award of the transit
contract in Dallas, Texas, as stated above. We incurred minimal start-up costs
in fiscal 1996.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased $150,000, or 29.3%, from $514,000 in fiscal 1996 to $664,000
in fiscal 1997. The increase was primarily due to increased capital spending on
outdoor advertising structures and capital spending for office furniture,
fixtures and computer equipment associated with new offices in Dallas and
Sacramento and the consolidation of our three Eugene locations into a single
headquarters building.
OPERATING INCOME. Operating income increased $191,000, or 9.7%, from $2.0
million in fiscal 1996 to $2.2 million in fiscal 1997, primarily for the reasons
outlined above.
INTEREST EXPENSE. Interest expense decreased $896,000, or 60.5%, from $1.5
million for fiscal 1996 to $584,000 for fiscal 1997. The decrease resulted
primarily from the refinancing of our term debt in
23
<PAGE>
October 1996, which reduced our interest rate, and the subsequent repayment of
$5.9 million of outstanding indebtedness from the proceeds of our initial public
offering in November 1996.
OTHER INCOME. Other income of $188,000 in fiscal 1996 resulted primarily
from the disposition of an outdoor advertising structure in the state of
Washington pursuant to a condemnation proceeding. Other income of $51,000 in
fiscal 1997 resulted primarily from a payment we received in connection with our
relocation of an outdoor advertising structure under threat of condemnation of
the structure.
PROVISION FOR INCOME TAXES. Provision for income taxes increased $583,000,
from $31,000 for fiscal 1996 to $614,000 in fiscal 1997. The provision for
fiscal 1996 was reduced by $221,000 due to the income tax benefit of net
operating loss carryforwards from prior years.
EXTRAORDINARY EXPENSE. During fiscal 1996, we incurred an extraordinary
expense as a result of prepayment penalties related to the early payment of debt
and the write-off of previously capitalized loan costs. The extraordinary
expense totaled $543,000, net of the related income tax benefit of $342,000.
NET INCOME. For the foregoing reasons, net income increased $904,000, or
942.3%, from $96,000 in fiscal 1996 to $1.0 million in fiscal 1997.
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table sets forth certain quarterly financial information of
Obie Media for each quarter of fiscal 1997 and 1998 and the first two quarters
of fiscal 1999. We have derived the information from our quarterly financial
statements, which are unaudited but which we believe have been prepared on the
same basis as the audited financial statements included in this prospectus. We
believe the quarterly financial statements include all adjustments (consisting
only of normal recurring items) necessary for a fair presentation of the
financial results for such periods. You should read this information in
conjunction with the consolidated financial statements and the related notes and
the other financial information appearing elsewhere in this prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
-------------------------------------------------- --------------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Transit advertising
revenues................ $ 1,473 $ 1,759 $ 2,664 $ 3,355 $ 2,825 $ 3,574 $ 4,221 $ 8,803
Outdoor advertising
revenues................ 1,264 1,285 1,378 1,445 1,345 1,413 1,494 1,544
Gross revenues............ 2,737 3,044 4,042 4,800 4,170 4,987 5,715 10,347
Agency commissions........ (212) (262) (366) (481) (351) (449) (610) (1,092)
Net revenues.............. 2,525 2,782 3,676 4,319 3,819 4,538 5,105 9,255
Operating income.......... 333 486 611 725 437 806 758 1,252
Net income................ 106 234 301 359 166 380 372 583
PERCENT OF NET REVENUES:
Operating income.......... 13.2% 17.5% 16.6% 16.8% 11.4% 17.8% 14.9% 13.5%
Net income................ 4.2% 8.4% 8.2% 8.3% 4.3% 8.4% 7.3% 6.3%
OTHER DATA:
EBITDA.................... $ 492 $ 646 $ 771 $ 911 $ 615 $ 983 $ 987 $ 1,606
EBITDA margin............. 19.5% 23.2% 21.0% 21.1% 16.1% 21.7% 19.3% 17.4%
<CAPTION>
FISCAL 1999
------------------------
FIRST SECOND
QUARTER QUARTER
----------- -----------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Transit advertising
revenues................ $ 6,025 $ 8,549
Outdoor advertising
revenues................ 1,362 1,452
Gross revenues............ 7,387 10,001
Agency commissions........ (627) (1,031)
Net revenues.............. 6,760 8,970
Operating income.......... 1,004 985
Net income................ 436 435
PERCENT OF NET REVENUES:
Operating income.......... 14.9% 11.0%
Net income................ 6.4% 4.8%
OTHER DATA:
EBITDA.................... $ 1,360 $ 1,353
EBITDA margin............. 20.1% 15.1%
</TABLE>
Obie Media's revenues and operating results historically have fluctuated by
season. Typically, our results of operations are strongest in the fourth quarter
and weakest in the first quarter of our fiscal year ending November 30. Our
transit advertising operations are more seasonal than our outdoor advertising
operations because our outdoor advertising display space, unlike our transit
advertising display space, is
24
<PAGE>
sold nearly exclusively by means of 12-month contracts. We believe that the
seasonality of our revenues and operating results will increase as our transit
advertising operations continue to expand more rapidly than our outdoor
advertising operations. This seasonality, together with fluctuations in general
and regional economic conditions and the timing and expenses related to
acquisitions, the obtaining of new transit agreements and other actions we have
taken to implement our growth strategy, has contributed to fluctuations in our
periodic operating results. These fluctuations likely will continue.
Accordingly, our results of operations in any period may not be indicative of
the results to be expected for any future period. See "Risk Factors--Our
Revenues and Profits May Fluctuate and Become More Seasonal as Our Transit
Advertising Business Increases."
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied our working capital requirements with cash
from operations and revolving credit borrowings. Our working capital at May 31,
1998 and 1999 was $104,000 and $261,000, respectively. Acquisitions and capital
expenditures, primarily for the construction of new outdoor advertising
displays, have been financed primarily with borrowed funds.
At May 31, 1999, Obie Media had outstanding borrowings of $17.0 million, of
which $12.7 million was pursuant to long-term credit agreements, $1.5 million
was pursuant to the agreement to acquire P & C and $2.8 million was pursuant to
our operating line of credit. Our indebtedness is collateralized by
substantially all of our assets. See Note 5 to our consolidated financial
statements. At May 31, 1999, available borrowing capacity under the line of
credit, based on collateralized accounts, was $1.2 million. Upon completion of
this offering and our use of the net proceeds we receive to reduce our
indebtedness, approximately $7.5 million of long-term debt will remain
outstanding, and approximately $3.7 million is expected to be available for
borrowing under our operating line of credit. See "Use of Proceeds." In
addition, a portion of the amount repaid on our long-term debt outstanding
before the acquisition of P & C may be reborrowed. Under our agreement with our
lender, prepayments of such debt may be reborrowed so long as the loan balance
outstanding after the reborrowing does not exceed the loan balance that would
have been outstanding if no prepayment had been made. At May 31, 1999, the
balance outstanding on this debt was $5.7 million, of which $92,000 is scheduled
to be repaid each month.
Obie Media's net cash provided by operations was $1.3 million, $817,000 and
$1.8 million in fiscal 1996, 1997 and 1998, respectively. The decrease from
fiscal 1996 to fiscal 1997 was primarily due to increased accounts receivable
resulting from our expansion, net of increased net income. The increase from
fiscal 1997 to fiscal 1998 was primarily due to increases in net income, accrued
expenses, accounts payable and income taxes payable, offset in part by an
increase in accounts receivable.
Net cash used in investing activities was $1.1 million, $1.4 million and
$8.0 million in fiscal 1996, 1997 and 1998, respectively. The increase from
fiscal 1996 to fiscal 1997 was primarily the result of expenditures for our
headquarters building and, in contrast to fiscal 1996, the lack of any
offsetting payment received by Obie Media from the disposition of a billboard
pursuant to a condemnation proceeding. The increase from fiscal 1997 to fiscal
1998 was primarily due to the $6.3 million used in the acquisition of P & C.
Net cash provided by financing activities was $252,000, $148,000 and $6.6
million in fiscal 1996, 1997 and 1998, respectively. The cash provided in fiscal
1996 resulted primarily from our initial public offering. We used the net
proceeds of that offering of approximately $5.9 million to repay existing
indebtedness. The cash provided in fiscal 1997 resulted primarily from increased
float on Obie Media's payments. The increase from fiscal 1997 to fiscal 1998 was
primarily due to borrowings used to finance the acquisition of P & C.
Capital expenditures totaled $1.4 million, $1.4 million and $1.7 million in
fiscal 1996, 1997 and 1998, respectively. Capital expenditures consist primarily
of the cost of building outdoor advertising displays and the cost of opening new
offices. We have no material future commitments for capital expenditures but
25
<PAGE>
anticipate that our capital expenditures, exclusive of those related to any
future acquisition, will approximate $1.4 million in fiscal 1999.
We expect to pursue a policy of continued growth through obtaining new
transit district agreements, acquiring out-of-home advertising companies or
assets and constructing new outdoor advertising displays. We intend to finance
our future expansion activities using a combination of internal and external
sources, including the proceeds of this offering.
We believe that internally generated funds and funds available for borrowing
under our bank credit facilities will be sufficient to satisfy all debt service
obligations and finance our operations, including anticipated capital
expenditures, but excluding possible acquisitions, for the next 12 months.
Future acquisitions by Obie Media, if any, may require additional debt or equity
financing.
YEAR 2000 COMPLIANCE
The Year 2000 problem is the result of the inability of some computers and
computer software programs to accurately recognize, for dates after 1999, dates
which are often expressed as a two-digit number. The inability to accurately
recognize date information could adversely affect computer operations and
calculations or cause computer systems and computer-dependent mechanical systems
not to operate at all.
We are in various stages of assessing our internal technical and
non-technical systems to ascertain whether they are Year 2000 compliant. After
conducting certain tests, we have identified one information processing system
that is not Year 2000 compliant and have determined that the cost of replacing
or updating the system should not exceed $25,000. We believe that our
information processing systems used in financial reporting and record-keeping,
and the majority of our incidental software systems, are Year 2000 compliant or
can be made compliant on a timely basis without material cost. We are in the
process of phasing out all of our personal computer workstations that are not
Year 2000 compliant. We do not believe that a material number of our
workstations will need to be replaced. We have only generally assessed our other
non-technical systems, including copiers and facsimile machines, in order to
identify systems that are not Year 2000 compliant.
We have engaged the services of a full-time information processing manager
to, among other duties, assist in identifying any Year 2000 issues that may
arise in our technical and non-technical systems and implement any necessary
modifications. We have completed our Year 2000 assessment of our key internal
technical and non-technical systems and do not believe that such systems require
material modification. We expect to be Year 2000 compliant by November 30, 1999.
We have only generally assessed our relationships with third parties whose
inability to achieve timely Year 2000 compliance could have a material adverse
effect on our financial condition or results of operations. These third parties
are primarily transit districts, advertising agencies, vendors, banks, utilities
and freight companies whose failure to achieve timely Year 2000 compliance could
delay customer orders for our services, delay receipt of payments by customers
for services rendered and disrupt other aspects of our operations. We expect to
continue to evaluate Year 2000 issues with regard to our material relationships
with third parties through 1999. Certain of such third parties are subject to
stringent regulations which mandate that they achieve timely Year 2000
compliance. We do not believe that the commodities and services upon which we
rely are of a kind or nature which is particularly sensitive to Year 2000
issues. In addition, we believe that our diversified customer and supplier base
should prevent one or a few of our vendors' or customers' failure to be Year
2000 compliant from having a material adverse effect on our financial condition
or results of operations.
We have yet to determine the total estimated cost of our Year 2000
compliance program. Expenditures through May 31, 1999 were immaterial. We do not
expect that Year 2000 compliance will have a material adverse effect on us. We
believe that a reasonably likely worst case scenario as to the effect on us
26
<PAGE>
of the Year 2000 compliance issue is that several of our large customers fail to
become Year 2000 compliant, thus delaying their advertising orders and reducing
our revenues.
We have not developed a contingency plan in the event we or any of the third
parties with which we have a material relationship fail to achieve timely Year
2000 compliance. We may develop a Year 2000 contingency plan depending on the
results of our internal and external assessment of Year 2000 issues. We will
continue to update our assessment of our Year 2000 readiness as we receive
updated information from our Year 2000 compliance program.
MARKET RISK
We have not entered into derivative financial instruments. We may be exposed
to future interest rate changes on our debt. We do not believe that a
hypothetical 10% change in interest rates would have a material effect on our
cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). This statement establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. The objective of SFAS 130 is to report a
measure of all changes in equity of an enterprise that result from transactions
and other economic events of the period other than transactions with owners. We
adopted SFAS 130 during the first quarter of fiscal 1999. Comprehensive income
did not differ from currently reported net income in the periods presented.
Effective in our fiscal year ending November 30, 1999, we will be required
to adopt SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 changes current practice under SFAS No. 14 by
establishing a new framework on which to base segment reporting (referred to as
the "management" approach) and also requires interim reporting of segment
information. We do not expect that the impact of adoption of this pronouncement
will be material to our financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for all derivative instruments. SFAS No. 133 was to be effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
137 as an amendment to SFAS 133 and deferred the effective date of SFAS 133 to
fiscal years beginning after June 15, 2000. We currently have no derivative
instruments and, therefore, the adoption of SFAS 133 is not expected to have an
impact on our financial position or results of operations.
27
<PAGE>
BUSINESS
OVERVIEW
Obie Media Corporation is an out-of-home advertising company that markets
advertising space primarily on transit vehicles and outdoor advertising displays
(billboards and wallscapes). As of May 31, 1999, we had 39 exclusive agreements
with transit districts in the United States and Canada to operate transit
advertising displays on approximately 8,000 transit vehicles. The markets in
which these transit districts are located include seven of the 30 largest U.S.
markets--Dallas; Portland, Oregon; Cleveland; Sacramento; Hartford; Ft.
Lauderdale; and Cincinnati--and the third largest Canadian market, Vancouver,
British Columbia. Since our initial public offering in November 1996, the number
of vehicles on which we have the right to operate transit advertising displays
has increased from approximately 1,100 to approximately 8,700. We also operate
and generally own approximately 720 advertising displays on billboards and walls
in Washington, Oregon, California and Idaho. Giving effect to our acquisition of
P & C as if it had occurred on January 1, 1998, we achieved pro forma net
revenues of $28.2 million and EBITDA of $4.2 million for our 1998 fiscal year.
INDUSTRY OVERVIEW
The out-of-home advertising industry includes displays on buses, trains,
taxis, subways, transit benches and shelters, billboards, wallscapes on urban
buildings, and displays in shopping centers, malls, airports, stadiums, movie
theaters and supermarkets. The industry has grown significantly in recent years.
According to estimates of Outdoor Services, Inc. and the Outdoor Advertising
Association of America, Inc. (the "OAAA"), between 1993 and 1998, annual
revenues generated by the out-of-home advertising industry increased 49.2% to
$4.4 billion from $2.95 billion, representing a compound annual growth rate of
8.4%.
The out-of-home medium offers several advantages to advertisers. As compared
with television, newspapers, magazines and direct mail marketing, out-of-home
advertising offers repetitive consumer impacts at a relatively low
cost-per-thousand-impressions, a commonly used advertising measurement. Because
of its cost-effective nature, out-of-home advertising is a good vehicle to build
mass market support. Out-of-home advertising can also be used to target a
defined audience in a specific location. This allows local businesses to
concentrate on a particular geographic area or demographic group. Additionally,
increases in automobile travel times due to highway congestion and continued
migration of businesses and residences from cities to outlying suburbs has
increased consumer exposure to out-of-home advertising.
Transit advertising represents a significant portion of the out-of-home
advertising industry. Outdoor Services, Inc. and OAAA estimate that transit
advertising represented $300.0 million, or approximately 6.8%, of the gross
revenues generated by out-of-home advertising, in 1998. According to estimates
of the Federal Transit Administration, in 1997, there were approximately 331
transit districts in the United States operating over 40,000 transit buses.
Transport Canada estimated that approximately 77 transit districts operated
approximately 13,000 urban transit vehicles in Canada in 1996. Transit districts
range in size from very large districts with thousands of vehicles to small
districts with 10 or fewer vehicles. Advertising displays represent a
significant source of revenue to transit districts, and districts generally are
permitting more extensive use of available surfaces on their transit vehicles.
Agreements with transit districts are awarded through a competitive proposal
process. Each transit district evaluates proposals based on a number of
criteria, but primarily on the basis of the minimum amount which the bidder
guarantees to pay to the district. A transit agreement typically requires the
transit advertising operator to agree to pay the transit district the greater of
a minimum guaranteed amount or a percentage (usually over 50%) of the
advertising revenues generated by the operator's use of the district's vehicles.
As of 1997, the OAAA estimated that there were approximately 396,000 outdoor
advertising displays in the United States, operated by more than 500 companies.
28
<PAGE>
The out-of-home advertising industry includes several large advertising and
media companies with operations in multiple markets. It also includes many small
and local companies operating a limited number of displays in a single or a few
local markets. There has been, and we expect there will continue to be,
consolidation in the out-of-home advertising industry.
OBIE MEDIA STRATEGY
Obie Media's overall business strategy is to expand upon our national
presence to become a leader in the out-of-home advertising industry.
OPERATING STRATEGY. Obie Media's operating strategy is to increase our
revenues and improve our profitability by delivering to local, regional and
national advertisers efficient access to one or multiple markets. The following
are components of our operating strategy:
- DEVELOP REGIONAL OPERATING CENTERS ("HUBS"). We seek to increase our
revenues, profitability and operating efficiencies through our development
and use of regional operating centers, or hubs. In developing hubs, we
seek to establish an initial base of operations in a geographic region by
obtaining exclusive agreements with one or more significant transit
districts. We then seek to expand our market presence by submitting
proposals for contracts with other transit districts in the region and by
expanding the range of non-transit products and services we offer there.
We believe our hub strategy results in revenue growth and cost savings by
enabling us to efficiently provide sales and administrative services to
several intra-regional markets from one strategically located operating
base.
- MAINTAIN A LARGE, PROACTIVE SALES FORCE. We believe that our large,
proactive sales force which sells directly to local advertisers and, more
traditionally, to advertising agencies, enables us to increase display
occupancy levels and maximize our advertising rates. We believe our ratio
of sales personnel to display inventory is higher than the industry
average. We devote significant resources to recruit and train individuals
who will excel in our culture. The sales force is motivated by an
incentive-based compensation program and supported by a network of
experienced local managers who operate under a centrally coordinated
marketing plan. We believe the size, quality and motivation of our sales
force provide us a competitive advantage.
- INCREASE REVENUES FROM EXISTING DISPLAY SPACE. We seek to increase the
revenue potential of our available transit and outdoor advertising display
inventory by offering innovative transit products and increasing the
percentage of time our display space is occupied. Innovative transit
products we offer include vinyl displays which are physically larger than
traditional transit advertisements. These vinyl displays offer customers
greater impact while providing us more revenue from a given transit
display space. We seek to sell advertising on our transit and outdoor
displays by means of extended contracts, which enable us to fill display
space which would normally be vacant between traditional advertising
campaigns.
- ATTRACT NEW ADVERTISERS THROUGH DIRECT LOCAL SALES. By selling directly to
local businesses not represented by advertising agencies, we seek to
obtain a larger share of the overall advertising expenditures in our
markets and broaden our customer base for out-of-home advertising. We
dedicate substantial resources to directly target local businesses whose
advertising expenditures may not typically include out-of-home advertising
and introduce them to the benefits of the medium. We offer comprehensive
sales, marketing and creative services which make it easier for these
potential customers to purchase out-of-home advertising.
GROWTH STRATEGY. Obie Media's growth strategy is to increase our
penetration and revenue within our existing markets, as well as to enter new
markets. We expect to enter new markets primarily by obtaining agreements with
additional transit districts throughout the United States and Canada. Once we
enter a market, we seek to gain a greater share of the overall advertising
expenditures in the market by providing a
29
<PAGE>
wide variety of products and services, including innovative transit advertising
products, to a broad range of local, regional and national advertisers. The
following elements summarize our growth strategy:
- OBTAIN ADDITIONAL TRANSIT ADVERTISING AGREEMENTS. We believe that, by
obtaining additional transit advertising agreements, we will increase our
operating efficiencies and geographic diversity and create additional
bases from which to achieve further market penetration. We expect
increased revenue and profitability for additional transit districts to
occur over time as we implement our direct sales and product strategies.
Since our initial public offering in November 1996, we have obtained
through a competitive proposal process 17 exclusive agreements with
transit districts in British Columbia and Ontario, Canada, Missouri,
Texas, California, Washington and Wisconsin to operate transit advertising
displays on approximately 4,400 transit vehicles. In the same period, P &
C has obtained through a competitive proposal process five exclusive
agreements with transit districts in Ohio, Wisconsin, Florida and Virginia
to operate transit advertising displays on approximately 1,200 transit
vehicles, representing a net gain of approximately 800 transit vehicles
under contract with P & C between the beginning and the end of the period.
See "Business--Products and Markets--Transit Advertising."
- SELECTIVELY PURSUE ACQUISITION OPPORTUNITIES. We continuously evaluate
opportunities to enter new markets and increase our presence in existing
markets through the selective acquisition of out-of-home advertising
companies or assets. We intend to continue to focus our acquisition
efforts on expanding around our existing hubs and developing new hubs in
regions where attractive growth and consolidation opportunities exist. We
believe that the implementation of our operating and sales strategies in
these target areas will lead to significantly improved performance by the
acquired operations.
- INCREASE INVENTORY OF OUTDOOR DISPLAYS. We expect to increase our market
penetration by acquiring or building additional outdoor displays in new
and existing markets. We emphasize acquiring or constructing displays in
regions where we already have outdoor displays or agreements with transit
districts. We believe that the resulting increase in inventory will
provide advertisers a greater variety of display alternatives and leverage
our existing sales, design and production capabilities.
- EXPAND OBIE MEDIA'S NATIONAL SALES EFFORT. To more effectively coordinate
and expand our sales efforts to national advertisers and national
advertising agencies, Obie Media has established national sales offices in
Los Angeles, Chicago and New York City. We believe that our further growth
and expansion into new markets will continue to increase our national
sales.
PRODUCTS AND MARKETS
Obie Media offers advertisers a wide range of out-of-home advertising
products, including transit advertising and outdoor advertising displays. Our
product mix provides advertisers with significant flexibility in their
advertising programs and allows us to cross-sell multiple products and leverage
our design and production capabilities. We have also benefited from improvements
in production technology, including the use of computerized design, vinyl
advertising copy and improved lighting techniques. These improvements have
facilitated a more dynamic, colorful and creative use of the out-of-home medium.
TRANSIT ADVERTISING. As of May 31, 1999, we had 39 exclusive agreements
with transit districts in the United States and Canada to operate transit
advertising displays on approximately 8,000 transit vehicles. The markets in
which these transit districts are located include seven of the 30 largest U.S.
markets-- Dallas; Portland, Oregon; Cleveland; Sacramento; Hartford; Ft.
Lauderdale; and Cincinnati--and the third-largest Canadian market, Vancouver,
British Columbia.
Pursuant to our transit advertising agreements, Obie Media is the exclusive
seller of exterior advertising on the transit vehicles operated by the
contracting transit districts. Typically, these agreements also provide us the
right to sell advertising on the interior of the vehicles.
30
<PAGE>
Agreements with transit districts are awarded through a competitive proposal
process. Each transit district evaluates proposals based on a number of
criteria, but primarily on the basis of the minimum amount which the bidder
guarantees to pay to the district. A transit agreement typically requires the
transit advertising operator to agree to pay the transit district the greater of
a minimum guaranteed amount or a percentage (usually over 50%) of the
advertising revenues generated by the operator's use of the district's vehicles.
Transit advertising operators often must post performance bonds or letters of
credit to secure their guarantees under their transit agreements. Obie Media's
transit agreements typically have terms of three to five years, with renewals or
extensions either unilaterally at the discretion of the transit district or upon
the mutual agreement of the district and Obie Media.
We also own and sell advertising on approximately 100 transit shelters in
Cincinnati and on approximately 40 walkway dioramas (a display similar to a
"cut-out" billboard) in Cleveland. We believe these products complement our
other product offerings and intend to secure additional shelters, dioramas and
transit benches in our markets.
Transit districts range in size from very large districts with thousands of
vehicles to small districts with 10 or fewer vehicles. Through our hub strategy
and proactive marketing to local advertisers, we are able to profitably offer
our services to both large and small transit districts. The following table sets
forth certain information about Obie Media's transit district agreements as of
May 31, 1999:
<TABLE>
<CAPTION>
NO. OF SERVED
TRANSIT DISTRICT AGREEMENTS VEHICLES SINCE
- ---------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
BRITISH COLUMBIA
Vancouver................................................................. 1156 1998(1)
Victoria and 27 smaller districts......................................... 380 1998(1)
Gray Line of Victoria..................................................... 80 1999
OHIO
Cleveland................................................................. 833 1997(2)
Cincinnati................................................................ 385 1981(2)
TEXAS
Dallas.................................................................... 770 1997
Austin.................................................................... 268 1998
OREGON
Portland.................................................................. 726 1994(3)
Eugene and Springfield.................................................... 102 1980(4)
Salem..................................................................... 54 1994
WISCONSIN
Milwaukee................................................................. 500 1992(2)
Madison................................................................... 197 1999
Kenosha................................................................... 42 1996(2)
Racine.................................................................... 23 1997(2)
CONNECTICUT
Hartford, Stamford and New Haven.......................................... 374 1996(2)
Bridgeport................................................................ 52 1981(2)
Waterbury................................................................. 41 1981(2)
New Britain............................................................... 20 1981(2)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NO. OF SERVED
TRANSIT DISTRICT AGREEMENTS VEHICLES SINCE
- ---------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
CALIFORNIA
Sacramento................................................................ 246 1994
Stockton.................................................................. 110 1989
Santa Cruz................................................................ 93 1997
Paratransit, Inc. (Sacramento)............................................ 86 1997
Monterey.................................................................. 65 1995(5)
Yolo County............................................................... 32 1997
FLORIDA
Ft. Lauderdale............................................................ 202 1998(2)
West Palm Beach........................................................... 156 1998(2)
Gainesville............................................................... 63 1981(2)
Daytona Beach............................................................. 56 1981(2)
VIRGINIA
Richmond.................................................................. 170 1984(2)
Norfolk................................................................... 160 1984(2)
Roanoke................................................................... 38 1984(2)
Lynchburg................................................................. 25 1984(2)
Petersburg................................................................ 12 1988(2)
Danville.................................................................. 6 1998(2)
ONTARIO, CANADA
London.................................................................... 170 1999
Niagara Falls............................................................. 26 1999
WASHINGTON
Spokane................................................................... 133 1999
Bremerton................................................................. 106 1996
Yakima.................................................................... 20 1999
-----
Total................................................................... 7,978
-----
-----
</TABLE>
- ------------------------
(1) Operations under these agreements began in August 1998; the Vancouver
agreement was signed in January 1999, and the Victoria agreement was signed
in April 1999.
(2) These dates reflect periods of service under agreements with P & C, which
Obie Media acquired in September 1998.
(3) This agreement, by its terms, was scheduled to expire in 2001. At the
request of the Federal Transit Administration, we agreed with the transit
district that the agreement would terminate on June 30, 1999. However, the
transit district has informed us that our agreement with it will now
terminate on July 30, 1999 or 10 days after notification by the district of
its award of a new agreement, whichever is later. The transit district
agreed to compensate us for the early termination of the agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments."
(4) This agreement was serviced by a division of Obie Industries (Obie Media's
parent corporation until 1996) prior to 1987, when Obie Media was formed.
(5) This agreement, by its terms, was scheduled to expire in 2001. However, the
transit district has notified us that it plans to limit the advertising
permitted on its vehicles and that it, therefore, intends to terminate our
contract in February 2000. We are discussing with the district its stated
intention to terminate the contract.
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<PAGE>
The above transit district agreements are scheduled to expire as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
VEHICLES
NUMBER OF COVERED UNDER
AGREEMENTS AGREEMENTS
SCHEDULED TO SCHEDULED TO
CALENDAR YEAR EXPIRE(1) EXPIRE(1)(2)
- ------------------------------------------------------------ ----------------- ---------------
<S> <C> <C>
1999........................................................ 5 1,025
2000........................................................ 10 2,650
2001........................................................ 3 1,000
2002........................................................ 6(3) 1,800(3)
2003........................................................ 8 1,000
2004........................................................ 2 50
2005........................................................ 1(4) 375(4)
</TABLE>
- ------------------------
(1) In addition, four agreements covering a total of approximately 100 vehicles
are awarded on a year-to-year basis. We have served each of these four
transit districts since the 1980s.
(2) Certain of our transit district agreements provide that they may be renewed
for additional one-year to five-year periods beyond the specified expiration
date, either unilaterally by the transit district or by mutual agreement of
Obie Media and the transit district. Some of our transit district agreements
provide that the transit district may terminate the agreement before the end
of the specified term at the convenience of the transit district, or if the
transit district determines that such termination is in the public interest.
(3) Includes three transit district agreements covering a total of approximately
550 buses, whose initial terms expire in 2000 but provide for two-year
extensions at the option of the respective transit district.
(4) This transit district agreement has an initial term that expires in 2003 but
provides for one two-year extension at the option of the transit district.
TRANSIT DISPLAY PRODUCTS. We offer traditional and innovative,
non-traditional transit advertising products. Traditionally, transit
advertisements have been inserted into metal frames mounted on the exterior or
interior of a bus. Industry standard sizes include "Kings," "Queens," "Tails"
and "Heads." While still offering traditional advertising products, we also
offer vinyl displays that cover almost the entire side and/or rear of a bus.
These vinyl displays are mounted on the bus using an adhesive that generally
allows the vinyl to be removed without harming the paint on the bus, yet which
withstands the rigors of cleaning and all types of weather. These larger vinyl
products create significant additional revenue potential per bus when compared
to traditional products. We believe this additional revenue potential gives us a
competitive advantage in bidding for transit advertising agreements in districts
which use or are willing to use them.
The principal transit display products we sell are illustrated on the
following page:
33
<PAGE>
[FULL PAGE DISPLAY OF OBIE MEDIA TRANSIT DISPLAY PRODUCTS.]
[LOGO]
34
<PAGE>
OUTDOOR ADVERTISING DISPLAYS. Obie Media owns and operates approximately
700 billboards in Washington, Oregon, California and Idaho. Substantially all of
our billboards are bulletins. We have no 30-sheet or 8-sheet poster units. Our
bulletins are generally located on major thoroughfares and provide greater
impact and higher value than traditional posters.
We lease the property underlying our billboards, generally under 10-year
leases that give us renewal rights for two additional five-year periods. The
lessor typically reserves the right to cancel the lease if construction of
permanent improvements on the subject property conflicts with the billboard.
Most of our billboards were designed and installed within the last ten
years, and almost all are built of steel and engineered to withstand high winds.
More than two-thirds of our billboards are illuminated. The displays are insured
against damage caused to them by storms, vandalism and other causes.
Obie Media also leases, from others, building walls in urban areas for
wallscape displays. Wallscapes are painted on vinyl surfaces or directly on the
sides of buildings. We currently lease 7 building walls for wallscape displays
in Seattle and own a 50% interest in a corporation which leases, from others, 18
building walls for wallscape displays in Portland.
The following table gives the number of our outdoor displays at May 31,
1999:
<TABLE>
<CAPTION>
OUTDOOR
MARKET DISPLAYS
- -------------------------------------------------------------------------------- -----------
<S> <C>
WASHINGTON
Seattle....................................................................... 7
Spokane....................................................................... 133
Other......................................................................... 288
---
Total....................................................................... 428
OREGON
Portland...................................................................... 35
Salem......................................................................... 74
Eugene........................................................................ 26
Other......................................................................... 30
---
Total....................................................................... 165
CALIFORNIA...................................................................... 83
IDAHO........................................................................... 45
---
Total....................................................................... 721
---
---
</TABLE>
SALES AND SERVICE
In each of our principal markets, Obie Media maintains a large, high
quality, proactive sales force. We believe our ratio of sales personnel to
display inventory is higher than the industry average. At May 31, 1999, we had
93 sales and marketing employees. Our superior sales and service efforts are a
key element in maximizing our inventory occupancy levels.
We view our proactive sales efforts as an important part of our culture. In
hiring our sales force, we carefully screen applicants. We typically hire
college graduates who have demonstrated their suitability and aptitude to excel
in our unique sales environment. New sales employees undergo extensive training
and are supervised by regional sales managers with substantial advertising sales
experience. Obie Media and each of our sales representatives jointly establish
individual sales targets. We have monthly sales meetings with
35
<PAGE>
our salespeople to acknowledge and reward individuals who are meeting or
exceeding their targets. A sales representative's compensation depends
significantly on meeting or exceeding individual targets. Sales representatives
also participate in our broad-based stock option plan.
We are significantly expanding our national presence by growing in diverse
geographic areas. To complement our growth, we have added to our national sales
team working out of certain of our local offices by establishing national sales
offices in Los Angeles, Chicago and New York City. Our national sales team
services national advertising accounts, calls on customers in major cities where
we do not have sales offices and supports our sales force in local markets.
We work directly with companies and advertising agencies in coordinating the
marketing, production and installation of advertising displays. Our sales
personnel also serve as customer service representatives, maintaining frequent
and regular contact with our advertising customers to resolve customer concerns
in the field. We believe that our high quality customer service contributes to
customer loyalty and improves renewal rates.
Out-of-home advertisements are traditionally sold for a few months at a
time. To increase occupancy, Obie Media employs several techniques to encourage
customers to commit to longer contracts, including offering incentives through
our rate structure and pricing policies. We sell certain innovative transit
products primarily by means of year-long contracts. We also sell space on almost
all of our outdoor advertising displays by means of extended contracts.
DESIGN AND PRODUCTION
We maintain our own design and production facilities. We offer advertisers
customized design and production services as well as display space. Charges for
design and production are typically added to the cost of the space and billed to
customers over the life of the advertising contract. We believe that our design
and production capabilities give us a significant competitive advantage in
direct sales to advertisers and assist in bringing new customers to the outdoor
advertising medium.
Obie Media's design and production services are used primarily by direct
sales customers that are not represented by advertising agencies. The design
department works with these advertisers and our sales representatives to create
advertising copy, design and layout. The design department staff uses
technologically advanced computer hardware and software to create original
design copy and, increasingly, to electronically exchange work product with
customers or their advertising agencies.
We view transit advertising design and production as a distinct activity. We
attempt to achieve independent profitability in this operation. Customers who
are represented by advertising agencies generally arrange for the production of
their ads, with Obie Media providing installation services. We increasingly act
as a broker with respect to this production.
CUSTOMERS
Obie Media maintains a broad base of local, regional and national
advertising customers. Most of our regional and national customers are
represented by advertising agencies. Customers represented by advertising
agencies accounted for approximately 66% of our pro forma gross revenues for
fiscal 1998, giving effect to the acquisition of P & C as if it had occurred on
January 1, 1998. Consistent with standard industry practice, advertising
agencies working with Obie Media typically retain 15% of the gross advertising
revenues from their accounts. Advertising agencies generally create the artistic
design and written content of their customers' advertising. They plan and
implement their customers' overall advertising campaign, including the selection
of advertising media. Obie Media's sales personnel, including our national sales
team, are trained to work closely with advertising agencies to service the needs
of these customers.
36
<PAGE>
A key component of our sales and marketing strategy is the proactive
marketing of our services to local advertisers. Local advertisers tend to have
smaller advertising budgets and to require greater assistance from our
production and creative personnel to design and produce advertising copy. With
respect to local sales, we often expend significant sales efforts on educating
potential out-of-home advertising customers about the benefits of the medium and
on developing advertising strategies. While price and availability of display
space are important factors in local sales, service and customer relationships
are also critical. We believe that our strength in sales, design and service
gives us an advantage in local sales, and that our direct sales focus on local
companies significantly contributes to increased occupancy and renewal rates.
Further, we believe this focus is an important competitive advantage which
enables us to profitably serve smaller transit districts.
COMPETITION
Obie Media's markets are highly competitive, particularly in large
advertising markets. In the transit advertising market, we compete with other
out-of-home advertising companies that submit proposals for exclusive agreements
with transit districts by means of a formal proposal process. In the outdoor
advertising display market, we compete with other out-of-home advertising
companies for customers. We also compete for customers with other advertising
media, including broadcast and cable television, radio, print media, direct mail
marketing and displays in shopping centers and malls, airports, stadiums, movie
theaters and supermarkets and on taxis, trains and subways.
In recent years, there has been consolidation among our competitors,
including consolidation between out-of-home advertising companies and broadcast
or other media. For example, in May 1999, Infinity Broadcasting Corporation
("Infinity"), a subsidiary of CBS Corporation and the sole shareholder of TDI
Worldwide, Inc. ("TDI"), agreed to acquire Outdoor Systems, Inc., a leading
company in the outdoor advertising display market. Several of our competitors,
including diversified media companies such as Infinity, are substantially
larger, better capitalized, more widely known and have access to substantially
greater resources than we do. These traits may provide competitive advantages,
particularly in large advertising markets.
TRANSIT. The transit advertising market has historically been fragmented,
consisting of a few national transit advertising companies with operations in
multiple markets and numerous small companies operating under one or a few
agreements. In large advertising markets, Obie Media encounters direct
competition for transit agreements from major transit advertising companies such
as TDI, one of the largest transit advertising companies in the United States
and a dominant competitor in such markets. Competition among transit advertising
companies is primarily based on obtaining and retaining agreements with transit
districts. Agreements with transit districts are awarded primarily on the basis
of the minimum amount the bidder guarantees to the district. Other factors which
transit districts may consider in awarding agreements are the financial
resources of the bidder available to support its minimum revenue guarantee, the
bidder's business reputation and the soundness of the bidder's marketing plan.
The agreements generally give the operator the exclusive right to provide
transit advertising services within the transit district. The number and nature
of competitors for each agreement depend upon the desirability of the market,
including the number of vehicles operated by the transit district, and the size
and rank of the market.
OUTDOOR ADVERTISING DISPLAYS. The outdoor advertising display market is
also fragmented. Several large outdoor advertising companies have operations in
multiple markets. Many more small companies operate a limited number of displays
in a single or a few local markets. Although some consolidation has occurred in
this segment of the out-of-home industry over the past few years, the OAAA
estimated that, as of 1997, there were approximately 396,000 outdoor displays in
the United States operated by more than 500 companies. The primary competitive
factors in the outdoor advertising display market are the location of a
company's displays and the price charged for their use.
37
<PAGE>
GOVERNMENT REGULATION
Government extensively regulates the outdoor advertising industry at the
federal, state and local levels. Regulations limit the growth of outdoor
advertising companies and operate as a substantial barrier to entry in the
industry and, in limited circumstances, may restrict advertising content.
Construction of new outdoor structures has been generally restricted to
commercial and industrial areas. Many jurisdictions also have restricted the
location, relocation, height and size of outdoor advertising structures. In
addition, some jurisdictions restrict the ability to enlarge or upgrade existing
structures, such as converting from wood to steel or from non-illuminated to
illuminated displays, and restrict the reconstruction of structures that are
substantially destroyed as a result of storms or other causes. Some
jurisdictions have enacted local laws and ordinances which prohibit wallscapes
and other outdoor advertising on urban buildings.
We believe our displays conform to current laws and regulations. When
leasing property for the installation of new outdoor advertising displays, we
carefully review applicable laws, including building, sign and zoning
ordinances.
Because billboards are typically located adjacent to roads and highways,
they are also subject to removal through condemnation or other actions by
governmental entities in the event of road or highway improvement or expansion.
While compensation for such actions is generally available, under existing state
and local regulations, we may not be permitted to relocate any condemned
displays.
In limited circumstances, governmental laws and regulations may also
restrict the content of outdoor advertising. For example, some states have
banned all outdoor advertising of tobacco products. In November 1998, 46 states
signed a settlement agreement with the four largest American tobacco companies.
Among other things, the agreement bans transit and outdoor advertising of the
companies' tobacco products in the 46 states. Congress has also considered
legislation that would severely restrict or ban such advertising.
The outdoor advertising industry is heavily regulated and existing or future
laws or regulations could adversely affect us. To date, our operations have not
been materially adversely affected by such laws and regulations. See "Risk
Factors--Government Regulations May Limit Our Ability to Expand Our Outdoor
Advertising Business."
FACILITIES
Our headquarters are located in a 20,000 square foot facility in Eugene,
Oregon. The headquarters includes space for our centralized design and
production departments, as well as our accounting, credit, marketing and
management personnel. The headquarters is leased at market rates from Obie
Industries, an affiliate of Obie Media, pursuant to a lease under which Obie
Media moved into the facility and began paying rent in May 1997. Lease payments
were $123,000 and $171,000 during fiscal 1997 and 1998, respectively. Brian
Obie, our Chairman of the Board, President and Chief Executive Officer, is the
President, a director and the controlling shareholder of Obie Industries.
Delores Mord, our Secretary and a director of Obie Media, is Vice President, a
director and a shareholder of Obie Industries. See "Certain Transactions--Office
and Production Space."
We lease local operating offices for sales, service and installation in
Spokane, Yakima, Bremerton and Silverdale, Washington; Portland and Salem,
Oregon; Ft. Lauderdale and Daytona Beach, Florida; Wallingford, Connecticut;
Cleveland and Cincinnati, Ohio; Langhorne, Pennsylvania; Dallas and Austin,
Texas; Sacramento, Monterey, Stockton and Santa Cruz, California; Richmond and
Virginia Beach, Virginia; Milwaukee and Madison, Wisconsin; Vancouver, Victoria
and Kamloops, British Columbia; and London, Ontario. We also lease national
sales offices in Los Angeles, Chicago and New York City.
38
<PAGE>
We also lease parcels of property beneath outdoor advertising structures.
Total lease expenses for these leases in fiscal 1997 and 1998 were $658,000 and
$714,000, respectively. Our site leases are generally for a term of 10 years,
with two five-year renewal options at our discretion.
EMPLOYEES
At May 31, 1999, we had 175 full-time and 13 part-time employees, of whom 93
were primarily engaged in sales and marketing, 23 were engaged in art design and
production, 39 were engaged in installation, construction or maintenance of
transit or outdoor advertising displays, and 33 were employed in financial,
administrative or similar capacities. None of our employees is covered by
collective bargaining agreements, except for 4 installers in Portland, Oregon
and 15 installers in British Columbia. We believe we maintain good employee
relations.
LITIGATION
The former operator of transit advertising displays for the Bi-State
Development Agency of the Missouri-Illinois Metropolitan District ("Bi-State")
in metropolitan St. Louis (including St. Clair County, Illinois), Heard
Communications, Inc., doing business as Gateway Outdoor Advertising ("Gateway"),
is contesting both judicially and administratively Bi-State's award of the
transit advertising agreement for St. Louis to us.
In the judicial proceeding before the United States District Court for the
Eastern District of Missouri commenced June 30, 1999, Gateway seeks a
declaratory judgment and an injunction prohibiting Bi-State from performing
under the contract. We have intervened in the proceeding as a defendant.
Gateway's challenge is primarily based on its claim that its final bid documents
relating to the contract were mishandled after being sent to Bi-State in late
April 1999. The court denied a motion by Gateway for a temporary restraining
order which would have delayed the award of the contract to us.
In the administrative proceeding before Bi-State commenced July 2, 1999,
Gateway alleges that its bid guaranteed greater minimum revenue to Bi-State over
the term of the St. Louis contract than did our bid and protests Bi-State's
award of the contract to us. In each of the above actions, among other remedies,
Gateway seeks to have our contract with Bi-State terminated and bidding for the
St. Louis contract reopened. These actions are in preliminary stages. We intend
to vigorously defend against termination of our St. Louis contract.
In addition to the foregoing, from time to time, Obie Media has been, and
expects to continue to be, subject to legal proceedings and claims in the
ordinary course of business. These claims, even if lacking merit, could result
in the expenditure of significant financial and managerial resources. We are not
aware of any such legal proceedings or claims that we believe will have a
material adverse effect on us.
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Brian B. Obie........................................ 57 Chairman of the Board, President and Chief Executive
Officer(1)
Wayne P. Schur....................................... 54 Executive Vice President and Director(2)
Stephen F. Grover.................................... 58 Vice President and General Manager
James W. Callahan.................................... 46 Chief Financial Officer and Treasurer
Delores M. Mord...................................... 65 Secretary and Director(2)
Randall C. Pape...................................... 49 Director(3)
Stephen A. Wendell................................... 58 Director(3)
Richard C. Williams.................................. 59 Director(1)
</TABLE>
- ------------------------
(1) Term on the board of directors expires in 2001.
(2) Term on the board of directors expires in 2002.
(3) Term on the board of directors expires in 2000.
BRIAN B. OBIE is the Chairman of the Board, President and Chief Executive
Officer of Obie Media. He is a co-founder of Obie Media and has served as our
President and as a director since our inception in 1987. Since January 1998, he
has served as the Treasurer of Obie Media Limited, a British Columbia
corporation and one of our wholly owned subsidiaries, and, since September 1998,
as a director of P & C, another wholly owned subsidiary. Mr. Obie is also
employed by and is a director of Obie Industries, where he has served as
President since 1968. Obie Industries, which now operates as a real estate
management company, was Obie Media's parent corporation until 1996. Mr. Obie has
38 years of experience in the out-of-home advertising industry. He has been
Chairman of the Board of Centennial Bancorp, a bank holding company, since 1981.
He is a former mayor of Eugene, Oregon.
WAYNE P. SCHUR was appointed Executive Vice President of Obie Media in
September 1998. He was appointed a director of Obie Media in October 1998 and is
also a director of P & C. He was the President and sole or principal shareholder
of P & C from 1981 to September 1998, when P & C was acquired by Obie Media. He
continues as President of P & C. Mr. Schur has 25 years of experience in the
out-of-home advertising industry.
STEPHEN F. GROVER was appointed Vice President of Obie Media in 1996 and has
served as Obie Media's General Manager since 1994. Since July 1998, he has also
served as President of Obie Media Limited. He was Obie Media's General Sales
Manager from 1993 to 1994 and a Regional Manager from 1991 to 1992. Mr. Grover
has 32 years of experience in the out-of-home advertising industry.
JAMES W. CALLAHAN was appointed Chief Financial Officer and Treasurer of
Obie Media in 1996. Since September 1998, he has served as a director and as
Secretary and Treasurer of P & C. From 1994 to 1996, he was a consultant filling
the role of chief financial officer of Obie Media. From 1994 to 1997, Mr.
Callahan also served in the capacity of chief financial officer of Obie
Industries and its subsidiaries. From 1990 to 1994, he served as Chief Financial
Officer of Springfield Forest Products, Inc. Mr. Callahan was employed by Arthur
Andersen LLP from 1975 to 1990, most recently as a tax partner.
DELORES M. MORD is a co-founder of Obie Media and has served as our
Secretary and as a director since our inception in 1987. She served as Vice
President of Obie Media until 1996. Ms. Mord has served as an officer (currently
as Vice President) and a director of Obie Industries since its formation in
1960. Ms. Mord has 38 years of experience in the out-of-home advertising
industry.
40
<PAGE>
RANDALL C. PAPE became a director of Obie Media in 1996. In 1981, he was
named President of Pape Bros., Inc., and since 1990 he has held the position of
President and Chief Executive Officer of The Pape Group, Inc., a supplier of
capital equipment and services, which operates as a holding company for Pape
Bros., Inc., Flightcraft, Inc., Hyster Sales Company, Pape Properties, Inc. and
Industrial Finance Company. Since 1973, he has been President and Chief
Executive Officer of Liberty Financial Group, which is a holding company for
Liberty Federal Bank, SB, EcoSort LLC, Sanipac, Inc. and Commercial Equipment
Lease Corporation. Mr. Pape has also served as a director of Northwest Natural
Gas Company, a distributor of natural gas in Oregon and Washington, since 1996.
STEPHEN A. WENDELL became a director of Obie Media in 1996. Since November
1998, Mr. Wendell has been a registered representative and investment advisory
agent with KMS Financial Services, Inc. ("KMS"), an independent privately owned
financial services firm based in Seattle, Washington. KMS is not participating
in this offering. From 1995 to February 1998, he was Chief Financial Officer and
a director of Umpqua Feather Merchants, Inc., a manufacturer and distributor of
fishing flies and related accessories. From 1992 to 1995, Mr. Wendell served as
a consultant to Umpqua Feather Merchants, Inc. and other companies, including
companies providing advertising and food services. Since 1993, Mr. Wendell has
been the principal shareholder and President of Continental Land and Cattle
Company, a residential real estate development company.
RICHARD C. WILLIAMS became a director of Obie Media in 1996. He has served
as President, Chief Executive Officer and a director of Centennial Bancorp since
1981. He has served as Vice Chairman of Centennial Bank, a wholly owned
subsidiary of Centennial Bancorp, since 1992, was its Chief Executive Officer
from 1992 until January 1998, and was its President from 1977 to 1992. He has
been a director of Centennial Bank since 1977. Mr. Williams also recently became
a director of Elmer's Restaurants, Inc., a franchisor and operator of
full-service, family-oriented restaurants.
Our articles of incorporation provide that when we have six or more
directors, our board of directors will be divided into three classes (Class 1,
Class 2 and Class 3), with the members of each class serving for staggered
three-year terms. We have six directors, and our Chief Executive Officer, as
authorized by our articles of incorporation, has made the initial designation of
directors to each of the three classes. Accordingly, at each annual meeting of
our shareholders, the number of directors equal to the number of the directors
in the class whose term expires at the time of the meeting will be elected to
hold office until the third succeeding annual meeting. Our articles of
incorporation limit the number of directors to nine.
Each officer serves at the discretion of our board of directors. No officer,
other than Mr. Schur, is subject to an agreement that requires the officer to
serve Obie Media for a specified number of years. Mr. Schur and Mr. Grover are
subject to noncompetition agreements. There are no family relationships among
any of our directors or executive officers, except that Mr. Obie and Ms. Mord
are cousins.
BOARD COMMITTEES; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Obie Media has two standing committees, an Audit Committee and a
Compensation Committee. It does not have a standing Nominating Committee.
Stephen Wendell, Randall Pape and Richard Williams serve on the Audit and
Compensation Committees of the board of directors. Mr. Wendell is Chair of the
Audit Committee. Mr. Williams is Chair of the Compensation Committee.
During our 1998 fiscal year, Brian Obie, our Chairman of the Board,
President and Chief Executive Officer, served on the Compensation Committee and
as the Chairman of the Board of Centennial Bancorp. During the same period, as
stated above, Richard Williams, President, Chief Executive Officer and a
director of Centennial Bancorp, served on the Compensation Committee and as a
director of Obie Media.
41
<PAGE>
COMPENSATION OF DIRECTORS
Executive officers receive no compensation for serving as directors of Obie
Media. All non-employee directors receive $5,000 for each year they serve as a
director.
Upon becoming a director, Obie Media grants to each nonemployee director a
nonqualified stock option to purchase 5,000 shares of common stock under our
Restated 1996 Stock Incentive Plan (the "Stock Plan"). On the date of each
annual shareholder meeting, each nonemployee director is granted an additional
option to purchase 1,000 shares. Options granted to nonemployee directors have a
term of 15 years and an exercise price equal to the fair market value of our
common stock on the grant date. The options become exercisable by the director
at the rate of 20% per year of service.
EXECUTIVE COMPENSATION
The following table summarizes the compensation we paid during each of the
last three fiscal years to our chief executive officer and our other executive
officers whose salary and bonus exceeded $100,000 during fiscal 1998, together
with Wayne Schur, who became our Executive Vice President on September 1, 1998
in connection with the P & C acquisition (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
--------------------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(1)
- ----------------------------------------------------------- ------------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Brian B. Obie.............................................. 1998 $ 166,632 $ 25,000 456 $ 3,749
Chairman of the 1997 157,200 25,000 -- 3,568
Board, President 1996 130,001 -- -- 5,270
and Chief Executive Officer
Stephen F. Grover.......................................... 1998 $ 109,360 $ 25,774 11,324 $ 3,558
Vice President 1997 96,000 18,000 -- 3,020
and General 1996 74,750 20,000 30,250 4,997
Manager
James W. Callahan.......................................... 1998 $ 84,270 $ 16,000 236 $ 2,326
Chief Financial 1997 79,500 15,000 -- --
Officer and 1996 75,000 30,000 18,150 --
Treasurer
Wayne P. Schur............................................. 1998 $ 37,500 -- 137,500 $ 250
Executive Vice 1997 -- -- -- --
President(2) 1996 -- -- -- --
</TABLE>
- ------------------------
(1) Represents contributions made by us under our profit sharing and 401(k) plan
on behalf of the applicable Named Executive Officer.
(2) Mr. Schur did not receive any compensation from us during fiscal 1996 or
1997 and only received salary from us for the last three months of fiscal
1998. P & C paid him an annual base salary of $200,000 in each of calendar
1996, 1997 and 1998 (paid through August 31, 1998), with bonuses of
$203,953, $110,000 and $30,000 in 1996, 1997 and 1998, respectively. In
addition, P & C contributed $3,750, $4,000 and $4,396 on his behalf under a
P & C profit sharing and 401(k) plan for 1996, 1997 and 1998, respectively.
Pursuant to Mr. Schur's employment agreement with us, his annual salary from
September 1998 to September 1999 is $150,000, with his salary increasing by
$25,000 each year through the five-year term of his employment agreement.
See "--Schur Employment and Noncompetition Agreement; Change-in-Control
Arrangement."
42
<PAGE>
STOCK OPTION INFORMATION
None of the Named Executive Officers exercised any options during fiscal
1998.
The following table sets forth certain information regarding options granted
to the Named Executive Officers during fiscal 1998:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN PER SHARE MARKET PRICE ON EXPIRATION ----------------------
NAME GRANTED 1998 EXERCISE PRICE GRANT DATE DATE 0% ($) 5% ($)
- ------------------------- --------- ------------- --------------- ----------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Brian B. Obie............ 456(1) .2% $ 9.55 $ 9.55 1/1/13 -- $ 4,699
Stephen F. Grover........ 11,000(2) 5.2 12.73 12.73 7/8/13 -- 151,082
324(1) .2 9.55 9.55 1/1/13 -- 3,338
James W. Callahan........ 236(1) .1 9.55 9.55 1/1/13 -- 2,432
Wayne P. Schur........... 126,500(3) 59.4 7.92 10.91 9/1/08 $ 378,235 1,246,182
11,000(3) 5.2 9.32 10.91 9/1/08 17,490 92,964
<CAPTION>
NAME 10% ($)
- ------------------------- -----------
<S> <C>
Brian B. Obie............ $ 13,836
Stephen F. Grover........ 444,910
9,831
James W. Callahan........ 7,161
Wayne P. Schur........... 2,577,783
208,755
</TABLE>
- ------------------------
(1) These options have a 15-year term and the shares subject to the options
become exercisable at a rate of 25%, 35% and 40%, respectively, on the
third, fourth and fifth anniversaries of the date of grant.
(2) This option has a 15-year term and becomes exercisable at a rate of 20% of
the shares subject to the option each year beginning on the first
anniversary of the date of grant.
(3) Mr. Schur's options have a 10-year term and become exercisable at the
following rate: 20% of the shares subject to the option immediately upon
grant; 22% of the shares subject to the option on each of the first, second
and third anniversaries of the date of grant; and 14% of the shares subject
to the option on the fourth anniversary of the date of grant.
The following table sets forth certain information regarding options held by
the Named Executive Officers at November 30, 1998:
OPTION VALUES AT END OF FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING IN-THE- MONEY
UNEXERCISED OPTIONS AT OPTIONS AT NOVEMBER 30,
NOVEMBER 30, 1998 1998($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Brian B. Obie............................................. -- 456 -- $ 2,029
Stephen F. Grover......................................... 12,100 29,474 $ 102,850 169,687
James W. Callahan......................................... 7,260 11,126 61,710 93,615
Wayne P. Schur............................................ 27,500 110,000 167,200 653,400
</TABLE>
- ------------------------
(1) On November 30, 1998, the market price of our common stock was $14.00 per
share. For purposes of the foregoing table, stock options with an exercise
price less than that amount are considered to be "in-the-money" and are
considered to have a value equal to (a) the difference between that amount
and the exercise price of the option multiplied by (b) the number of shares
covered by the stock option.
43
<PAGE>
RESTATED 1996 STOCK INCENTIVE PLAN. Our Stock Plan provides for the
issuance of 363,000 shares of common stock to our employees, directors and
consultants. Shares may be issued pursuant to: (1) incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("ISOs"); (2) nonqualified stock options ("NSOs"); (3) stock bonuses;
and (4) direct sales of stock. ISOs may be issued only to our employees and will
have a maximum term of 10 years from the date of grant. The exercise price for
ISOs may not be less than 100% of the fair market value of our common stock at
the time of the grant, and the aggregate fair market value (as determined at the
time of the grant) of shares issuable upon the exercise of ISOs for the first
time in any one calendar year may not exceed $100,000. In the case of ISOs
granted to holders of more than 10% of our common stock, the exercise price may
not be less than 110% of the fair market value of our common stock at the time
of the grant, and the term of the option may not exceed five years. Under the
Stock Plan, NSOs have a maximum term of 15 years from the date of grant and must
be granted at an exercise price not less than 85% of the fair market value of
our common stock at the date of grant. Options become exercisable in whole or in
part from time to time as determined by the Board's Compensation Committee,
which administers the Stock Plan.
At May 31, 1999, options covering 240,322 shares were outstanding under the
Stock Plan, with a weighted average exercise price of $9.62 per share, and an
additional 108,587 shares remained available for future issuances under the
Stock Plan.
SCHUR EMPLOYMENT AND NONCOMPETITION AGREEMENT; CHANGE-IN-CONTROL ARRANGEMENT
SCHUR EMPLOYMENT AND NONCOMPETITION AGREEMENT. In connection with our
acquisition of P & C in September 1998, we entered into a five-year employment
and noncompetition agreement with Wayne Schur, the Executive Vice President and
a director of Obie Media and the former shareholder of P & C. The agreement
contains noncompetition and nondisclosure provisions. Under the agreement, Mr.
Schur's annual salary initially is $150,000 and will increase by $25,000 in each
of the second through fifth years of his employment. The agreement provides that
we may terminate Mr. Schur's contract at any time after September 1, 2001
without "cause," as defined in the agreement. In that case, we generally would
be liable to Mr. Schur for a severance benefit payment equal to his annual
salary for the then upcoming contract year. The agreement further provides that
we may terminate his contract at any time for cause. In such case, we would be
liable to him only for salary and benefits earned by him through the date of
such termination.
Pursuant to Mr. Schur's employment agreement, on September 1, 1998, we
granted him an NSO for 137,500 shares of our common stock (the "Option Shares"),
of which 27,500 Option Shares were exercisable upon grant. The remaining 110,000
Option Shares will be exercisable in equal increments on the first, second,
third and fourth anniversaries of September 1, 1998. If Mr. Schur terminates his
employment with Obie Media during the first three years of his employment
agreement, other than for breach of the agreement by us, he will forfeit any
Option Shares not exercisable as of the date of such termination. Termination of
Mr. Schur's employment for any other reason will not affect his right to acquire
the Option Shares.
CHANGE-IN-CONTROL ARRANGEMENT. Under the terms of the acquisition agreement
by which we acquired all of the outstanding stock of P & C from Mr. Schur, $1.5
million of the base purchase price and 82,500 shares of our common stock payable
to Mr. Schur were deferred. The acquisition agreement provides that a portion of
the deferred base purchase price is payable by us annually, with the final
payment to be made to Mr. Schur no later than January 1, 2003. However, the
agreement further provides that the entire unpaid purchase price (cash and
stock) is immediately payable to Mr. Schur upon a "Change of Management" of Obie
Media (other than a Change of Management which results from the death or
disability of Brian Obie). Under the agreement, the term "Change of Management"
means that Mr. Obie no longer serves as our Chief Executive Officer or that Mr.
Obie (directly or indirectly through immediate family members) fails to own at
least 25% of our outstanding common stock.
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LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE
As permitted by Oregon law, our articles of incorporation permit and our
bylaws require the indemnification against certain liabilities and expenses of a
director or officer made or threatened to be made a party to a proceeding (other
than a proceeding by or in the right of Obie Media to procure a judgment in our
favor) because such person is or was a director or officer of Obie Media or one
of our subsidiaries. Indemnification is provided if the director or officer
acted in good faith and in a manner he or she reasonably believed was in or not
opposed to our best interests, and, with respect to any criminal action or
proceeding, the director or officer, in addition, had no reasonable cause to
believe his or her conduct was unlawful. In the case of any proceeding by or in
the right of Obie Media, a director or officer is entitled to indemnification of
certain expenses if he or she acted in good faith and in a manner he or she
reasonably believed was in or not opposed to our best interests. However,
pursuant to Oregon law and indemnity agreements we have entered into with our
directors and officers, no indemnification would be made if the director's or
officer's errors or omissions (or alleged errors or omissions) were shown to
have involved: (1) any breach of the director's or officer's duty of loyalty to
us; (2) any act or omission not in good faith or which involved intentional
misconduct or a knowing violation of law; (3) any distribution that was unlawful
under Oregon law; (4) any transaction from which the director or officer
received an improper personal benefit; or (5) profits made from the purchase and
sale by the director or officer of our securities within the meaning of Section
16(b) of the Securities Exchange Act of 1934 or similar provision of any state
statutory law or common law. We may also indemnify persons other than directors
or officers under certain circumstances.
As permitted by Oregon law, our articles of incorporation also provide that
no director will be liable to Obie Media or our shareholders for monetary
damages for conduct as a director, except that a director may be personally
liable for any: (1) breach of the director's duty of loyalty to us or our
shareholders; (2) act or omission not in good faith or that involves intentional
misconduct or a knowing violation of the law; (3) unlawful distribution to
shareholders; (4) transaction from which the director derives an improper
personal benefit; or (5) profits made from the purchase and sale by the director
of our securities within the meaning of Section 16(b) of the Securities Exchange
Act of 1934 or similar provision of any state statutory law or common law.
We have entered into agreements to indemnify our directors and officers. The
agreements are intended to provide the maximum indemnification permitted by
Oregon law. The agreements indemnify each of our directors and officers in any
action or proceeding for certain expenses (including attorney fees) and, other
than in an action or proceeding by or in the right of Obie Media, for judgments,
fines and settlement amounts incurred on account of such person's services as a
director or officer of Obie Media or, at our request, as a director, officer,
employee or agent of another enterprise. The agreements also limit the liability
of our directors in respect of their conduct in serving us to the extent
permitted by Oregon law, as described above. See "Description of Capital
Stock--Limitation of Directors' Liability."
We have obtained insurance insuring our directors and officers against
certain liabilities, including liabilities under federal and state securities
laws.
We understand that the current position of the Securities and Exchange
Commission is that any indemnification of liabilities arising under the
Securities Act of 1933 is against public policy and is, therefore,
unenforceable.
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CERTAIN TRANSACTIONS
Our policy for transactions with affiliates, adopted following our initial
public offering in November 1996, provides that all proposed transactions by
Obie Media with directors, officers, 5% shareholders and their affiliates be
entered into only if such transactions are (1) on terms no less favorable to
Obie Media than could be obtained from unaffiliated parties, (2) reasonably
expected to benefit Obie Media and (3) approved by a majority of the
disinterested, independent members of our board of directors. Set forth below
are descriptions of certain transactions between Obie Media and our directors,
officers or 5% shareholders or their affiliates since December 1, 1995.
DIVIDEND; LOANS TO AFFILIATED COMPANIES
In November 1996, in connection with the separation of Obie Media from Obie
Industries, our parent until 1996, we distributed a non-recurring dividend of
$1.8 million to Obie Industries by means of the forgiveness of debt to eliminate
our net receivable from our affiliated companies. Brian Obie, our Chairman of
the Board, President and Chief Executive Officer, is the President, a director
and the controlling shareholder of Obie Industries. Delores Mord, our Secretary
and a director, is Vice President, a director and a shareholder of Obie
Industries. The net receivable, of which $573,000 arose in fiscal 1996, resulted
from non-interest-bearing advances to affiliates, which were due on demand. The
net advances during fiscal 1996 primarily related to funding unprofitable
operations of an affiliate that was discontinued prior to our initial public
offering. Future advances, if any, will be made in accordance with our policy
for transactions with affiliates. The dividend satisfied all obligations other
than continuing leases between Obie Media and our affiliated companies and our
guarantee of certain indebtedness of one affiliated company.
OUTDOOR ADVERTISING DISPLAYS
Until December 31, 1997, Obie Media leased outdoor advertising displays from
MO Partners, in which Brian Obie and Delores Mord hold partnership interests of
approximately 85% and 15%, respectively. The lease agreement required monthly
payments of a minimum base rent plus additional rent equal to 5% of the gross
revenues derived by Obie Media from advertising on the displays. The minimum
base rental payments were $8,500 per month in calendar 1996, and $9,000 per
month in 1997. The lease expired at the end of 1997. Total lease expenses were
$108,000 in each of fiscal 1996 and 1997, and $18,000 in fiscal 1998. On
December 31, 1997, we exercised our option, granted in 1996, to purchase the
outdoor advertising displays of MO Partners for $698,000. Prior to the purchase
of the outdoor displays from MO Partners, we had guaranteed certain indebtedness
of MO Partners, the outstanding balance of which was $415,000 at November 30,
1997. We paid for the displays with a promissory note. Upon the note's payment
in full in April 1998, our guaranty of the MO Partners debt was released. We
believe the option price was at least as favorable to us as would have been
available from an unrelated party through arms-length negotiations.
MO Partners also leases land to us for two outdoor advertising displays.
Lease payments for these properties equal 20% of the annual revenues we derive
from these displays. Lease payments were $12,000 in each of fiscal 1996, 1997
and 1998. We believe that the terms of these leases are at least as favorable to
us as would be available from an unrelated third party through arms-length
negotiations.
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OFFICE AND PRODUCTION SPACE
Prior to April 1997, Obie Media rented office and production space in three
locations in Eugene, Oregon from Obie Industries, our parent until 1996, and
from another affiliated company. In April 1997, we consolidated our operations
in Eugene in a headquarters building at one of these locations. The headquarters
building is leased from Obie Industries at market rates. Our rental and lease
payments on these properties were $79,000, $123,000 and $171,000 in fiscal 1996,
1997 and 1998, respectively.
LOAN AGREEMENTS
In December 1995 and January 1996, Brian Obie loaned us a total of $200,000.
In August 1996, we repaid the loan, including interest at an annual rate of
8.5%. We believe that this loan was on terms at least as favorable to us as
would have been available from an unrelated party through arms-length
negotiations.
Prior to October 31, 1996, we had certain borrowing arrangements with
Centennial Bank. These loans were repaid with the proceeds of loans from US
Bank. Brian Obie is the Chairman of the Board of Centennial Bancorp, Centennial
Bank's parent corporation. At the time the loans were repaid, Richard Williams
was the President and Chief Executive Officer of Centennial Bancorp.
RELEASE OF GUARANTEES OF AFFILIATES
Prior to December 1996, Obie Industries and/or Brian Obie, our Chairman of
the Board, President and Chief Executive Officer, guaranteed our indebtedness to
US Bank, Centennial Bank and Capital Consultant, Inc. Each guarantee was
released prior to or at the consummation of our initial public offering in
November 1996.
PERSONAL SERVICES
Brian Obie, our Chairman of the Board, President and Chief Executive
Officer, provides limited services to Obie Industries and its subsidiaries. Mr.
Obie is the President, a director and the controlling shareholder of Obie
Industries. It is estimated that Mr. Obie spends on average less than 5% of his
time working on Obie Industries matters.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Obie Media's common stock as of May 31, 1999 and as adjusted to
reflect the sale of the shares offered by this prospectus (assuming no exercise
of the underwriters' overallotment option or outstanding stock options) by: (1)
each person who is known by us to own beneficially more than 5% of our common
stock; (2) each director of Obie Media; (3) each of the Named Executive
Officers; and (4) all directors and executive officers of Obie Media as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED NUMBER OF SHARES SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) BEING OFFERED AFTER OFFERING(1)
------------------------------ ---------------- ------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(2) NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Brian B. Obie .......................... 2,098,244(3)(4) 48.5 300,000(5) 1,798,244(3)(4) 33.8
Eugene, Oregon
Delores M. Mord ........................ 429,745(3)(4) 9.9 200,000(6) 229,745(3)(4) 4.3
Eugene, Oregon
Douglas D. Obie ........................ 288,118(7) 6.7 100,000 188,118(7) 3.5
Seattle, Washington
Christine Obie-Barrett ................. 283,278(8) 6.6 100,000 183,278(8) 3.4
Eugene, Oregon
Wayne P. Schur ......................... 82,500(9) 1.9 50,000 32,500(9) *
Langhorne, Pennsylvania
Randall C. Pape ........................ 14,740(9) * -- 14,740(9) *
Coburg, Oregon
Stephen A. Wendell ..................... 10,890(3)(9) * -- 10,890(3)(9) *
Eugene, Oregon
Richard C. Williams .................... 33,596(3)(9) * -- 33,596(3)(9) *
Eugene, Oregon
Steven F. Grover ....................... 14,300(9) * -- 14,300(9) *
Eugene, Oregon
James W. Callahan ...................... 10,680(9) * -- 10,680(9) *
Eugene, Oregon
All executive officers and directors as 2,678,308(3)(4)(9) 61.1 550,000(5)(6) 2,128,308(3)(4)(9) 39.6
a group (8 persons)...................
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares.
(1) A person is considered to "beneficially own" any shares: (a) over which such
person exercises sole or shared voting or investment power; or (b) of which
such person has the right to acquire ownership at any time within 60 days
(e.g., through exercise of stock options). Voting and investment power
relating to the shares referenced in the table above is exercised solely by
the beneficial owner, except as indicated otherwise.
(2) Brian B. Obie is our Chairman of the Board, President and Chief Executive
Officer, President and a director of Obie Industries, Treasurer of Obie
Media Limited and a director of P & C. Delores M. Mord was a Vice President
of Obie Media until 1996 and is currently Secretary and a director of Obie
Media and Vice President and a director of Obie Industries. Wayne P. Schur
is Executive Vice President and a director of Obie Media and President and a
director of P & C. Obie Media Limited and P & C are wholly owned
subsidiaries of Obie Media. Obie Industries is the former parent company of
Obie Media.
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(3) Includes shares owned by the spouses of the named persons as follows: Brian
B. Obie, 20,250 shares; Delores M. Mord, 103,713 shares (53,713 shares after
this offering); Stephen A. Wendell, 3,520 shares; Richard C. Williams, 4,617
shares; and for all executive officers and directors as a group, 132,100
shares (82,100 shares after this offering). All named persons disclaim
beneficial ownership of shares owned by their spouses.
(4) Includes 16,387 shares owned by Obie Media's profit sharing and 401(k) plan.
Brian B. Obie and Delores M. Mord serve on the administrative committee with
responsibility for plan decisions.
(5) If the overallotment option is exercised in full, Brian B. Obie will sell an
additional 100,000 shares.
(6) Includes 50,000 shares owned by the spouse of Ms. Mord.
(7) Includes 48,176 shares held by Douglas D. Obie as trustee for the benefit of
Christine Obie-Barrett's minor children. Also includes 8,969 shares
beneficially owned by Douglas D. Obie's minor children, which are held by
Christine Obie-Barrett as trustee.
(8) Includes 8,969 shares held by Christine Obie-Barrett as trustee for the
benefit of Douglas D. Obie's minor children. Also includes 48,176 shares
beneficially owned by Christine Obie-Barrett's minor children, which are
held by Douglas D. Obie as trustee.
(9) Includes shares subject to options exercisable within 60 days after May 31,
1999, as follows: Wayne P. Schur, 27,500 shares; Randall C. Pape, 2,640
shares; Stephen A. Wendell, 2,640 shares; Richard C. Williams, 2,640 shares;
Stephen F. Grover, 14,300 shares; James W. Callahan 7,260 shares; and for
all executive officers and directors as a group, 56,980 shares.
DESCRIPTION OF CAPITAL STOCK
Obie Media's articles of incorporation authorize the issuance of up to 20
million shares of common stock and 10 million shares of preferred stock issuable
in series. At May 31, 1999, there were 4,322,949 shares of common stock
outstanding held by 61 holders of record. The following description of our
capital stock is qualified in all respects by reference to the articles of
incorporation, which are included as an exhibit to the Registration Statement of
which this prospectus forms a part.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters on which shareholders are entitled to vote. Holders of common stock are
entitled to receive dividends when and as declared by the board of directors out
of any funds lawfully available therefor and, in the event of liquidation or
distribution of assets, are entitled to participate ratably in the distribution
of such assets remaining after payment of liabilities, in each case subject to
any preferential rights granted to any series of preferred stock that may then
be outstanding. Our common stock does not have any preemptive rights or
redemption, conversion or sinking fund provisions. All the issued and
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, validly issued, fully paid
and nonassessable. Holders of common stock do not have cumulative voting rights
in the election of directors.
PREFERRED STOCK
The articles of incorporation authorize the board of directors, without
further shareholder authorization, to issue preferred stock in one or more
series and to fix the terms and provisions of each series, including dividend
rights and preferences, conversion rights, voting rights, redemption rights, and
rights on liquidation, including preferences over common stock, all of which
could adversely affect the rights of holders of common stock. The issuance of a
series of preferred stock under certain circumstances could have the effect of
delaying or preventing a change of control of Obie Media, could adversely affect
the
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<PAGE>
rights of the holders of common stock, may discourage offers for our common
stock at a premium over market price and may adversely affect the market price
of, and the voting and other rights of the holders of, our common stock. No
preferred stock is outstanding, and we have no present plans to issue any shares
of preferred stock.
ANTITAKEOVER MEASURES
CHARTER PROVISIONS. Obie Media's articles of incorporation and bylaws
contain certain provisions that may have the effect of delaying, deferring or
preventing a change in control of Obie Media. Such provisions include
requirements for: (1) a classified board of directors whenever there are six or
more directors, with each class containing as nearly as possible one-third of
the total number of directors and the members of each class serving for
staggered three-year terms; (2) changing the size of the board of directors only
with supermajority approval of the directors then in office; (3) approval of the
holders of at least two-thirds of our common stock to amend certain provisions
of the articles of incorporation; and (4) no less than 30 days' advance notice
with respect to nominations of directors or other matters to be voted on by
shareholders other than by or at the direction of the board of directors.
OREGON ANTITAKEOVER STATUTES. Obie Media is subject to certain provisions
of the Oregon Business Corporation Act that govern business combinations between
corporations and interested shareholders (the "Business Combination Act"). The
Business Combination Act generally provides that, if a person or entity acquires
15% or more of the voting stock of an Oregon corporation (an "Interested
Shareholder"), the corporation and the Interested Shareholder, or any affiliated
entity of the Interested Shareholder, may not engage in certain business
combination transactions for three years following the date the person became an
Interested Shareholder. Business combination transactions for this purpose
include: (1) a merger or plan of share exchange; (2) any sale, lease, mortgage
or other disposition of 10% or more of the assets of the corporation; and (3)
certain transactions that result in the issuance of capital stock to the
Interested Shareholder. These restrictions do not apply if: (a) the Interested
Shareholder, as a result of the transaction in which such person became an
Interested Shareholder, owns at least 85% of the outstanding voting stock of the
corporation (disregarding shares owned by directors who are also officers and
shares owned by certain employee benefit plans); (b) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquires 15% or more of the corporation's outstanding voting stock;
or (c) the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock.
OREGON CONTROL SHARE ACT. Obie Media is also subject to the Oregon Control
Share Act. The Control Share Act generally provides that a person (the
"Acquiror") who acquires voting stock of an Oregon corporation in a transaction
which results in the Acquiror holding more than 20%, 33 1/3% or 50% of the total
voting power of the corporation (a "Control Share Acquisition") cannot vote the
shares it acquires in the Control Share Acquisition ("Control Shares") unless
voting rights are accorded to the Control Shares by: (1) a majority of each
voting group entitled to vote; and (2) the holders of a majority of the
outstanding voting shares, excluding the Control Shares held by the Acquiror and
shares held by the corporation's officers and inside directors. The term
"Acquiror" is broadly defined to include persons acting as a group.
LIMITATION OF DIRECTORS' LIABILITY
We have: (1) included in our articles of incorporation and bylaws provisions
to eliminate, to the fullest extent permitted by Oregon law, the personal
liability of our directors to us and our shareholders for monetary damages
resulting from breaches of fiduciary duties; (2) included in our bylaws
provisions to indemnify our directors and officers to the fullest extent
permitted by Oregon law; and (3) entered into
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<PAGE>
agreements to indemnify our directors and officers which are intended to provide
the maximum indemnification permitted by Oregon law. See "Management--Limitation
of Liability; Indemnification of Directors and Officers; Insurance."
CHANGES IN THE NUMBER OF DIRECTORS
The articles of incorporation specify that the board of directors will
consist of no less than two nor more than nine members, with the exact number to
be set from time to time by the board of directors. The board of directors is
authorized to increase or decrease the size of the board of directors (within
the specified range) by the affirmative vote of two-thirds of the directors then
in office. Without the consent of all the directors then in office: (1) no more
than two additional directors may be added to the board of directors within any
12-month period; and (2) no person who is affiliated as an owner, director,
officer or employee of a company or business deemed by the board of directors to
be competitive with that of Obie Media is eligible to serve on our board of
directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is American Securities
Transfer & Trust, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that market sales of
shares of common stock or the availability of shares of common stock for sale
will have on the market price of our common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public market
could reduce the market price of our common stock and could limit our ability to
raise equity capital in the future.
Upon completion of this offering, we will have 5,322,949 shares of common
stock outstanding (assuming no exercise of the overallotment option and
excluding shares of common stock issuable upon the exercise of outstanding stock
options). See "Description of Capital Stock." Of these shares, approximately
2,960,000 shares, including the shares sold in this offering, are or, upon the
closing of this offering, will be freely tradable without restriction under the
Securities Act of 1933, except for any shares purchased in this offering by our
"affiliates," as that term is defined in the Securities Act of 1933. The
remaining shares are "restricted securities" within the meaning of Rule 144
adopted under the Securities Act of 1933. Restricted shares generally may not be
sold unless they are registered under the Securities Act or are sold pursuant to
an exemption from registration, such as the exemption provided by Rule 144. Upon
completion of this offering, our affiliates will beneficially own approximately
2,126,108 shares. All but 5,000 of these shares have satisfied the holding
period under Rule 144. In addition to restrictions imposed by applicable lock-up
agreements, shares held by our affiliates will not be eligible for sale in the
public market without registration unless such sales meet the conditions and
restrictions of Rule 144 as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least one year (as determined under Rule 144) is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of (1) 1% of the then outstanding shares of our common stock
(approximately 53,000 shares immediately after this offering) or (2) the average
weekly trading volume of our common stock during the four calendar weeks
preceding the date on which notice of such sale under Rule 144 is filed with the
SEC. Sales under Rule 144 are also subject to certain manner-of-sale provisions,
notice requirements and the availability of current public information about us.
In addition, any person (or persons whose shares are aggregated) who is not
deemed to have been an affiliate of ours at any time during the 90 days
preceding a sale, and who has beneficially owned the shares for at least two
years (as determined under Rule 144), is entitled to sell such shares under Rule
144 without regard to the volume limitations and other conditions described
above. The foregoing summary of Rule 144 is not intended to be a complete
description of it.
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<PAGE>
After this offering, approximately 2,440,359 shares of common stock will be
subject to lock-up agreements with the underwriters, which provide that the
shares may not be sold or otherwise disposed of for 90 days following the date
of this prospectus. Obie Media is also subject to a lock-up agreement and
generally may not sell or issue common stock (other than common stock included
in this offering or contributed by us to our 401(k) plan) or any securities
convertible into or exercisable for common stock (other than employee stock
options granted by us in the ordinary course of business) for 90 days after the
date of this prospectus without the prior written consent of the underwriters.
At May 31, 1999, options to purchase an aggregate of 240,322 shares of
common stock were outstanding under the Stock Plan, of which options to purchase
51,920 shares were exercisable, and options to purchase an aggregate of 148,500
shares of common stock were outstanding outside of the Stock Plan, of which
options to purchase 27,500 shares were exercisable. All of the shares of common
stock issuable upon the exercise of options outstanding under the Stock Plan
have been registered under the Securities Act of 1933 and, unless held by our
affiliates, will be free from the restrictions of Rule 144. An additional
108,587 shares are reserved for future issuance under the Stock Plan.
At May 31, 1999, subject to P & C's performance through November 30, 2001,
we were also required to issue up to 82,500 shares of our common stock in
connection with our acquisition of P & C. Any of these shares issued will be
restricted securities.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among Obie
Media, the selling shareholders and the underwriters named below, the
underwriters have severally agreed to purchase from Obie Media and the selling
shareholders the following respective number of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Wedbush Morgan Securities Inc....................................................
Pacific Crest Securities Inc.....................................................
----------
Total.................................................................... 1,750,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters will
purchase all shares of common stock offered hereby if any of such shares are
purchased.
Obie Media has been advised by the underwriters that the underwriters
propose to offer the shares of common stock to the public at the public offering
price set forth on the cover page of this prospectus, and to certain dealers at
such price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per share
to certain other dealers. After this offering, the offering price and other
selling terms may be changed by the underwriters.
Obie Media and Brian B. Obie, our Chairman of the Board, President and Chief
Executive Officer, have granted the underwriters an option, exercisable not
later than 30 days after the date of this prospectus, to purchase up to an
additional 262,500 shares of common stock. To the extent that the underwriters
exercise such option, each underwriter will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of common
stock to be purchased by it shown in the above table bears to 1,750,000, and
Obie Media and Mr. Obie will be obligated, pursuant to the option, to sell such
shares to each underwriter. If the option is exercised in full, Mr. Obie will
sell 100,000 shares, and we will issue and sell 162,500 shares. The underwriters
may exercise such option only to cover overallotments made in connection with
the sale of common stock offered hereby. If purchased, the underwriters will
offer such additional shares on the same terms as those on which the 1,750,000
shares are being offered.
The price of the shares of common stock purchased by the underwriters will
be the public offering price set forth on the cover page of this prospectus less
the following underwriting discounts and commissions to be provided by Obie
Media and the selling shareholders:
<TABLE>
<CAPTION>
TOTAL
--------------------------
WITHOUT OVER- WITH OVER-
PER SHARE ALLOTMENT ALLOTMENT
----------- ------------- -----------
<S> <C> <C> <C>
By Obie Media......................................... $ $ $
By the selling shareholders........................... $ $ $
</TABLE>
Obie Media will also pay certain offering expenses estimated to be $500,000.
The selling shareholders will pay their pro rata share of the SEC registration
fee and NASD filing fee incurred in connection with this offering.
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<PAGE>
The Underwriting Agreement contains covenants of indemnity and contribution
among Obie Media,
the selling shareholders and the underwriters with respect to certain
liabilities, including liabilities under the Securities Act of 1933.
To facilitate this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the market price of our common
stock. Specifically, the underwriters may overallot shares of our common stock
in connection with this offering, thereby creating a short position in the
underwriters' account. Additionally, to cover such overallotments or to
stabilize the market price of our common stock, the underwriters may bid for,
and purchase, shares of our common stock at a level above that which might
otherwise prevail in the open market. The underwriters are not required to
engage in these activities, and, if commenced, may discontinue such activities
at any time. The underwriters may also reclaim selling concessions allowed to an
underwriter or dealer, if the underwriters repurchase shares distributed by that
underwriter or dealer.
The underwriters have advised us that they may engage in passive
market-making transactions in our common stock in accordance with rules
promulgated by the SEC. In general, a passive market-maker may not bid for or
purchase shares of common stock at a price that exceeds the highest independent
bid. In addition, the net daily purchases made by any passive market-maker
generally may not exceed 30% of its average daily trading volume in our common
stock during a specified two-month prior period or 200 shares, whichever is
greater. A passive market-maker must identify passive market-making bids as
such. Passive market-making may have the effect of stabilizing or maintaining
the market price of our common stock at a level above that which might otherwise
prevail in the open market. The underwriters are not required to engage in
passive market-making and, if commenced, may discontinue such activities at any
time.
Obie Media, our directors, officers and certain of our shareholders have
agreed that we will not, directly or indirectly, offer, sell or otherwise
dispose of, any of our common stock (other than common stock included in this
offering or contributed by us to our 401(k) plan) or any securities convertible
into or exchangeable for, or any rights to purchase or acquire, common stock of
Obie Media (other than employee stock options granted by us in the ordinary
course of business) for 90 days after the date of this prospectus without the
prior written consent of the underwriters.
The underwriters and their respective affiliates may be customers of,
lenders to, engage in transactions with, and perform services for us and our
subsidiaries in the ordinary course of business.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for Obie
Media and for the selling shareholders by Tonkon Torp LLP, Portland, Oregon.
Certain legal matters in connection with the issuance of our common stock will
be passed upon for the underwriters by Perkins Coie LLP, Portland, Oregon.
EXPERTS
The consolidated financial statements of Obie Media for the year ended
November 30, 1996, included in this prospectus, have been included herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of such firm as experts in auditing and accounting.
The consolidated financial statements of Obie Media as of November 30, 1997
and 1998, and for the years ended November 30, 1997 and 1998, included in this
prospectus and elsewhere in the Registration Statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
54
<PAGE>
The financial statements of Philbin & Coine, Inc. as of December 31, 1996
and 1997 and August 31, 1998, and for the three years in the period ended
December 31, 1997 and the eight months ended August 31, 1998, included in this
prospectus and elsewhere in the Registration Statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
Obie Media is subject to the requirements of the Securities Exchange Act of
1934 and in accordance therewith files reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
may be inspected and copied (at prescribed rates) at the public reference
facilities of the SEC at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C.
20549, and at the SEC's regional offices located at 7 World Trade Center, Suite
1300, New York, New York 10048, and 1400 Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661. Those materials may also be obtained from The
Nasdaq Stock Market, 9801 Washingtonian Boulevard, Gaithersburg, Maryland,
20876, or may be obtained electronically on the SEC's home page on the Internet
at http://www.sec.gov.
This prospectus constitutes part of a Registration Statement on Form S-1 we
filed with the SEC under the Securities Act of 1933 with respect to the common
stock offered by this prospectus. As permitted by the rules and regulations of
the SEC, this prospectus does not contain all the information set forth in the
Registration Statement. For further information with respect to Obie Media and
our common stock offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules filed with the Registration
Statement. Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement. Each such statement is qualified in all respects
by reference to the filed exhibit.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
OBIE MEDIA CORPORATION HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................................................. F-2
Report of Independent Accountants........................................................................ F-3
Consolidated Balance Sheets as of November 30, 1997 and 1998 and May 31, 1999 (unaudited)................ F-4
Consolidated Statements of Income for the years ended November 30, 1996, 1997 and 1998 and six-month
periods ended May 31, 1998 (unaudited) and 1999 (unaudited)............................................ F-5
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the years ended November 30,
1996, 1997 and 1998 and six-month period ended May 31, 1999 (unaudited)................................ F-6
Consolidated Statements of Cash Flows for the years ended November 30, 1996, 1997 and 1998 and six-month
periods ended May 31, 1998 (unaudited) and 1999 (unaudited)............................................ F-7
Notes to Consolidated Financial Statements............................................................... F-9
PHILBIN & COINE, INC. HISTORICAL FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................................................. F-23
Balance Sheets as of December 31, 1996 and 1997 and August 31, 1998...................................... F-24
Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and for the eight months
ended August 31, 1997 (unaudited) and 1998............................................................. F-25
Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1995, 1996 and 1997 and for
the eight months ended August 31, 1998................................................................. F-26
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for the eight months
ended August 31, 1997 (unaudited) and 1998............................................................. F-27
Notes to Financial Statements............................................................................ F-28
OBIE MEDIA CORPORATION UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Pro Forma Consolidated Statements of Operations for the year ended November 30, 1998 and
six-month period ended May 31, 1998.................................................................... F-34
Notes to Unaudited Pro Forma Consolidated Financial Statements........................................... F-36
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Obie Media Corporation:
We have audited the accompanying consolidated balance sheets of Obie Media
Corporation (an Oregon corporation) and subsidiaries as of November 30, 1997 and
1998 and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the two years in the period ended November 30,
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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Obie Media Corporation and
subsidiaries as of November 30, 1997 and 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
November 30, 1998 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon,
January 15, 1999 (except with respect to
the matter discussed in Note 10 as to
which the date is February 12, 1999)
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Obie Media Corporation:
We have audited the accompanying consolidated statements of income, changes
in shareholders' equity (deficit) and cash flows of Obie Media Corporation for
the year ended November 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Obie Media Corporation for the year ended November 30, 1996 in
conformity with generally accepted accounting principals.
/s/ PricewaterhouseCoopers LLP
Eugene, Oregon
January 22, 1997, except for Note 5, as to
which the date is February 12, 1997
F-3
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 1997, NOVEMBER 30, 1998 AND MAY 31, 1999 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
MAY 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash........................................................ $ -- $ 326,140 $ 78,409
Accounts receivable, net of allowance for doubtful accounts
of $146,692, $291,938 and $403,091, respectively.......... 2,878,360 6,719,218 6,835,552
Prepaid expenses and other current assets................... 790,234 1,156,061 1,674,176
Deferred income taxes....................................... 1,105,240 758,832 758,832
----------- ----------- -----------
Total current assets...................................... 4,773,834 8,960,251 9,346,969
PROPERTY AND EQUIPMENT, net................................... 9,264,855 10,493,174 10,846,089
OTHER ASSETS:
Goodwill, net............................................... -- 7,696,394 7,425,899
Other assets, net........................................... 245,733 497,512 523,260
----------- ----------- -----------
$14,284,422 $27,647,331 $28,142,217
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks outstanding in excess of cash deposits............... $ 173,611 $ -- $ --
Current portion of long-term debt........................... 859,323 1,511,276 2,466,444
Line of credit.............................................. 742,864 1,414,877 2,825,092
Accounts payable............................................ 403,449 780,268 1,187,229
Accrued expenses............................................ 1,166,883 2,674,287 911,013
Income taxes payable........................................ -- 299,090 145,344
Deferred revenue............................................ 781,204 1,247,470 1,550,542
----------- ----------- -----------
Total current liabilities................................. 4,127,334 7,927,268 9,085,664
----------- ----------- -----------
DEFERRED INCOME TAXES......................................... 630,551 783,502 783,502
LONG-TERM DEBT, less current portion.......................... 5,695,219 13,354,395 11,720,144
----------- ----------- -----------
Total liabilities......................................... 10,453,104 22,065,165 21,589,310
MINORITY INTEREST IN SUBSIDIARY............................... 35,424 35,424 35,424
COMMITMENTS (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock, without par value, 10,000,000 shares
authorized, no shares issued and outstanding.............. -- -- --
Common stock, without par value; 20,000,000 shares
authorized, 4,241,034, 4,315,728 and 4,322,949 shares
issued and outstanding, respectively...................... 6,173,967 6,851,053 6,952,905
Options issued for common stock............................. -- 211,763 211,763
Foreign currency translation................................ -- -- (1,843)
Accumulated deficit......................................... (2,378,073) (1,516,074) (645,342)
----------- ----------- -----------
Total shareholders' equity................................ 3,795,894 5,546,742 6,517,483
----------- ----------- -----------
$14,284,422 $27,647,331 $28,142,217
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1997 AND 1998
AND THE SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
---------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Outdoor advertising.............. $4,747,634 $5,373,609 $5,796,230 $2,757,853 $2,813,393
Transit advertising.............. 6,150,256 9,251,346 19,421,970 6,398,688 14,574,216
Less--Agency commissions......... (827,632) (1,322,129) (2,500,455) (799,016) (1,657,735)
---------- ---------- ---------- --------- ----------
Net revenues................... 10,070,258 13,302,826 22,717,745 8,357,525 15,729,874
OPERATING EXPENSES:
Direct advertising expenses...... 5,907,038 8,004,869 14,792,952 5,262,902 11,296,100
General and administrative....... 1,685,135 2,241,849 3,628,028 1,453,568 2,311,728
Contract settlement.............. -- -- -- -- (885,941)
Start-up costs................... -- 236,743 106,375 43,553 295,782
Depreciation and amortization.... 513,775 664,207 935,545 353,680 722,896
---------- ---------- ---------- --------- ----------
Operating income............... 1,964,310 2,155,158 3,254,845 1,243,822 1,989,309
OTHER (INCOME) EXPENSE:
Interest expense................. 1,480,237 584,258 776,001 331,242 561,885
Minority interest in
subsidiary..................... 2,138 8,017 -- 32,201 --
Other income, net................ (188,365) (51,492) -- -- --
---------- ---------- ---------- --------- ----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM............... 670,300 1,614,375 2,478,844 880,379 1,427,424
PROVISION FOR INCOME TAXES......... 31,000 614,311 977,665 334,544 556,692
---------- ---------- ---------- --------- ----------
INCOME BEFORE EXTRAORDINARY ITEM... 639,300 1,000,064 1,501,179 545,835 870,732
EXTRAORDINARY ITEM, early debt
payoff penalty and write-off of
loan fees, net of income tax
benefit.......................... (543,355) -- -- -- --
---------- ---------- ---------- --------- ----------
NET INCOME......................... $ 95,945 $1,000,064 $1,501,179 $ 545,835 $ 870,732
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
NET INCOME PER SHARE BEFORE
EXTRAORDINARY ITEM............... $ .21 $ .24 $ .35 $ .13 $ .20
EXTRAORDINARY ITEM, net of tax..... (.18) -- --
---------- ---------- ---------- --------- ----------
BASIC NET INCOME PER SHARE......... $ .03 $ .24 $ .35 $ .13 $ .20
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
DILUTED NET INCOME PER SHARE....... $ .03 $ .23 $ .35 $ .13 $ .20
---------- ---------- ---------- --------- ----------
---------- ---------- ---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1997 AND 1998
AND THE SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
RECEIVABLE OPTIONS CUMULATIVE
FROM ISSUED FOR OTHER
AFFILIATES, COMMON COMPREHENSIVE ACCUMULATED
SHARES AMOUNT NET STOCK LOSS DEFICIT TOTAL
--------- --------- ---------- ----------- --------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, November 30, 1995........ 3,025,000 $ 250,000 $(1,179,922) $ -- $ -- $(1,721,602) $(2,651,524)
Issuance of common stock........ 1,210,000 5,911,992 -- -- -- -- 5,911,992
Net withdrawals................. -- -- (572,558) -- -- -- (572,558)
Distributions................... -- -- 1,752,480 -- -- (1,752,480) --
Net income...................... -- -- -- -- -- 95,945 95,945
--------- --------- ---------- ----------- ------- ------------ ----------
BALANCE, November 30, 1996........ 4,235,000 6,161,992 -- -- -- (3,378,137) 2,783,855
Additional initial public
offering expenses............. -- (24,788) -- -- -- -- (24,788)
Issuance of common stock........ 6,050 36,875 -- -- -- -- 36,875
Purchase of fractional shares of
common stock.................. (16) (112) -- -- -- -- (112)
Net income...................... -- -- -- -- -- 1,000,064 1,000,064
--------- --------- ---------- ----------- ------- ------------ ----------
BALANCE, November 30, 1997........ 4,241,034 6,173,967 -- -- -- (2,378,073) 3,795,894
Issuance of common stock for
benefit plan and stock option
exercises..................... 19,694 127,788 -- -- -- -- 127,788
Issuance of common stock for the
acquisition of business....... 55,000 512,500 -- -- -- -- 512,500
Purchase of property from
related party in excess of net
book value.................... -- -- -- -- -- (639,180) (639,180)
Options issued for common stock
for the acquisition of
business...................... -- -- -- 211,763 -- -- 211,763
Income tax benefit of
nonqualified stock option
exercises..................... -- 36,798 -- -- -- -- 36,798
Net income...................... -- -- -- -- -- 1,501,179 1,501,179
--------- --------- ---------- ----------- ------- ------------ ----------
BALANCE, November 30, 1998........ 4,315,728 6,851,053 -- 211,763 -- (1,516,074) 5,546,742
Issuance of common stock for
benefit plan and stock option
exercises..................... 7,241 102,149 -- -- -- -- 102,149
Foreign currency translation.... -- -- -- -- (1,843) -- (1,843)
Purchase of fractional shares of
common stock.................. (20) (297) -- -- -- -- (297)
Net income...................... -- -- -- -- -- 870,732 870,732
--------- --------- ---------- ----------- ------- ------------ ----------
BALANCE, May 31, 1999
(Unaudited)..................... 4,322,949 $6,952,905 $ -- $ 211,763 $ (1,843) $ (645,342) $6,517,483
--------- --------- ---------- ----------- ------- ------------ ----------
--------- --------- ---------- ----------- ------- ------------ ----------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1997 AND 1998
AND THE SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 95,945 $1,000,064 $1,501,179 $ 545,835 $ 870,732
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization............... 513,775 664,207 935,545 353,680 722,896
Contract settlement......................... -- -- -- -- (335,941)
Loss on early extinguishment of debt........ 885,355 -- -- -- --
Gain on disposition of property and
equipment................................. (183,175) -- -- -- --
Deferred income taxes....................... (311,000) 614,311 499,359 -- --
Minority interest in subsidiary............. 2,138 8,017 -- 32,201 --
Change in assets and liabilities net of
effect of acquisition:
(Increase) decrease in--
Accounts receivable..................... (208,940) (1,328,167) (2,759,773) 15,780 (107,958)
Prepaid expenses and other assets....... (321,451) (106,961) (231,977) (269,611) (523,655)
Increase (decrease) in--
Accounts payable........................ 262,529 (316,696) 337,735 (238,670) 406,961
Income taxes payable.................... -- -- 335,888 334,544 (153,746)
Accrued expenses........................ 524,416 96,443 927,378 (388,432) (1,341,405)
Deferred revenue........................ 36,304 185,902 230,859 (64,935) 303,072
----------- ---------- ---------- ----------- -----------
Net cash provided by (used in)
operating activities................ 1,295,896 817,120 1,776,193 320,392 (159,044)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (1,363,131) (1,439,617) (1,679,981) (603,253) (810,713)
Acquisition of business, net of cash
acquired.................................... -- -- (6,288,846) -- (2,979)
Proceeds from disposition of property and
equipment................................... 235,700 -- -- -- (18,129)
Other investing activities.................... -- -- (36,259) -- --
----------- ---------- ---------- ----------- -----------
Net cash used in investing
activities.......................... (1,127,431) (1,439,617) (8,005,086) (603,253) (831,821)
----------- ---------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Checks outstanding in excess of cash
deposits.................................... (378,043) 173,611 (173,611) 54,812 --
Proceeds from issuance of common stock........ 7,000,000 -- 55,885 -- 16,221
Costs to issue common stock................... (1,088,008) (24,788) -- -- --
Net borrowings (payments) on lines of
credit...................................... (88,429) 742,864 672,013 589,548 1,410,215
Proceeds from long-term debt.................. 12,000,000 -- 7,698,000 -- --
Net payments on long-term debt................ (15,917,001) (744,018) (1,584,871) (420,319) (679,083)
Net advances to affiliates.................... (572,558) -- -- -- --
Early debt payoff penalty..................... (704,054) -- -- -- --
Payments of debt issuance costs............... -- -- (69,371) -- (2,079)
Other financing activities.................... -- (112) (43,012) 58,820 (297)
----------- ---------- ---------- ----------- -----------
Net cash provided by financing
activities.......................... 251,907 147,557 6,555,033 282,861 744,977
EFFECT OF EXCHANGE RATE CHANGES ON CASH......... -- -- -- -- (1,843)
----------- ---------- ---------- ----------- -----------
NET INCREASE (DECREASE) IN CASH................. 420,372 (474,940) 326,140 -- (247,731)
CASH, beginning of period....................... 54,568 474,940 -- -- 326,140
----------- ---------- ---------- ----------- -----------
CASH, end of period............................. $ 474,940 $ -- $ 326,140 $ -- $ 78,409
----------- ---------- ---------- ----------- -----------
----------- ---------- ---------- ----------- -----------
(Continued)
</TABLE>
F-7
<PAGE>
OBIE MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1996, 1997 AND 1998
AND THE SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Acquisition of vehicle with capital lease
obligation.................................. $ 28,901 $ -- $ -- $ -- $ --
Distribution of receivable to affiliates...... 1,752,480 -- -- -- --
Issuance of stock to employee benefit plan.... -- 36,875 71,903 -- 85,928
Note payable issued to acquire outdoor
advertising structures...................... -- -- 698,000 698,000 --
Issuance of common stock and stock options for
the acquisition of business................. -- -- 724,263 -- --
Issuance of note payable for the acquisition
of business................................. -- -- 1,500,000 -- --
Costs associated with financing activities.... 90,938 -- 131,855 -- --
Income tax benefit of nonqualified stock
option exercises............................ -- -- 36,798 -- --
Interest capitalized.......................... 45,439 10,637 14,104 6,142 7,979
CASH PAID FOR INTEREST.......................... 1,470,967 571,445 850,626 326,650 575,778
CASH PAID FOR TAXES............................. 2,392 7,890 138,216 -- 892,909
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
COMPANY
Obie Media Corporation (the "Company") is a full service out-of-home
advertising company which markets advertising space primarily on transit
vehicles and outdoor advertising displays (billboards and wallscapes). At
November 30, 1998, the Company had 33 exclusive agreements with transit
districts in the United States and Canada to operate transit advertising
displays. These transit districts are located in, among other advertising
markets: Dallas; Portland, Oregon; Cleveland; Sacramento; Hartford; Ft.
Lauderdale; Cincinnati and Vancouver, British Columbia. The Company also
operates and generally owns advertising displays on billboards and walls in
Washington, Oregon, California and Idaho.
On November 21, 1996, the Company completed an initial public offering (the
"IPO") of 1,210,000 shares of its common stock, raising $5,887,204, net of
expenses of $1,112,796. The net proceeds were used to reduce previously
outstanding debt.
SPIN-OFF
Prior to November 20, 1996, the Company was a subsidiary of Obie Industries
Incorporated. To facilitate the IPO, the Company was spun-off as a separate
entity.
Prior to the spin-off, the Company engaged in various transactions with
affiliates under common control. These transactions included advances of working
capital to affiliates for a discontinued business and for capital expenditures.
Such transactions resulted in a net receivable consisting of amounts receivable
from and payable to affiliated companies. As part of the spin-off, the net
receivable from affiliates totaling $1,752,480 was distributed by the
declaration of a dividend and, accordingly, increased the Company's accumulated
deficit.
PHILBIN & COINE, INC. ACQUISITION
On September 1, 1998, the Company acquired all of the outstanding stock of
Philbin & Coine, Inc., a New York corporation doing business as P&C Media
("P&C") in exchange for 55,000 newly issued shares of the Company's common stock
valued at $512,500, stock options for 27,500 shares of the Company's common
stock valued at $211,763 (Note 7), cash of approximately $6,100,000, a note for
$1,500,000 due in future years (Note 5) and fees and expenses of $191,497.
Additionally, subject to certain performance contingencies in the purchase
agreement, the Company will be required to issue up to an additional 82,500
shares of the Company's common stock to the former P&C shareholder in future
years. The value of any subsequently issued shares will be allocated to
goodwill.
Included in accounts receivable in the accompanying balance sheets at
November 30, 1998 is a receivable from the former shareholder of P&C for
approximately $76,000, which relates to the acquisition of P&C.
The transaction has been accounted for as a purchase with the excess of the
purchase price over the fair value (which approximated historical carrying
value) of the net assets acquired allocated to goodwill. The operations of P&C
have been included in the accompanying financial statements since the date of
acquisition.
F-9
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
A summary of the net assets acquired follows:
<TABLE>
<S> <C>
Working capital................................................. $ 408,123
Property and equipment.......................................... 273,564
Other assets.................................................... 11,680
Intangibles..................................................... 7,822,393
---------
$8,515,760
---------
---------
</TABLE>
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of P&C had occurred as of the beginning of
fiscal year 1998:
<TABLE>
<S> <C>
Net revenue.................................................... $28,197,250
Operating income............................................... 2,847,366
Net income..................................................... 1,054,648
Net income per share--
Basic........................................................ $ .24
Diluted...................................................... $ .24
</TABLE>
These pro forma results are not necessarily indicative of what actually
would have occurred had the acquisition been completed as of the beginning of
the period presented, nor are they necessarily indicative of the results that
will be obtained in the future.
BASIS OF PRESENTATION
The consolidated financial statements include the Company, its wholly owned
subsidiary, Obie Media Limited, and its 50% owned subsidiary, OB Walls, Inc. All
significant intercompany accounts and transactions between the Company and its
subsidiaries have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiary, Obie Media
Limited, are translated into United States dollars using exchange rates at the
balance sheet date for assets and liabilities, and average exchange rates for
the period for revenues and expenses. The effect of the foreign currency
translation was insignificant for the year ended November 30, 1998.
USE OF ESTIMATES
The preparation of consolidated 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.
F-10
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
REVENUE RECOGNITION
The Company has contracts to provide future advertising to its customers.
Advertising revenue is recognized ratably over the period the advertising is
displayed. Payments received and amounts billed for advertising revenue in
advance of display are deferred. Costs incurred for the production and
installation of outdoor advertising displays, which are not specifically
recoverable in the event the related contract is canceled, are expensed as
incurred. Costs incurred for the production and installation of displays for
transit advertising, which are paid for by the customer ratably over the term of
the advertising contract and are specifically recoverable in the event the
related contract is canceled, are deferred and recognized as expense as the
related revenue is recognized over the life of respective contracts.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and accounts receivable. The Company
places its cash with high credit quality financial institutions. Concentrations
of credit risk with respect to accounts receivable are not significant due to
the large number of customers, and their dispersion across different industries
and geographic areas.
At November 30, 1998, the Company had agreements with 33 transit districts.
Customers advertising on transit vehicles owned by the six largest transit
districts of Portland, Oregon; Dallas; Cleveland; British Columbia; Milwaukee
and Cincinnati represented approximately 53% of the Company's total net revenues
for the year ended November 30, 1998. No single advertising customer represented
10% or more of the Company's revenues for any of the periods presented in the
accompanying financial statements.
Transit agreements range from one to five years and are subject to renewal
either at the discretion of the transit district or upon the mutual agreement of
the Company and the transit district. Generally, these agreements require the
Company to pay the transit district the greater of a percentage of the related
advertising revenues, net of the advertising production charges, or a guaranteed
minimum amount (Notes 8 and 10).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, accrued expenses and debt instruments. At November 30, 1997
and 1998, the fair value of the Company's financial instruments are estimated to
be equal to their reported carrying value. The carrying value of long-term debt
approximates fair value. The resulting estimates of fair value require
subjective judgments and are approximates. Changes in the methodologies and
assumptions could significantly affect the estimates.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives. Additions and
improvements, including interest incurred during construction, are capitalized.
Normal repairs and maintenance are expensed as incurred. The cost and
accumulated depreciation of assets sold or otherwise retired are removed from
the accounts and the resulting gain or loss is recognized. Interest expense
incurred is capitalized in connection with the construction of properties and
equipment.
F-11
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
GOODWILL AND OTHER LONG-LIVED ASSETS
Goodwill resulting from the P&C acquisition is being amortized over 15 years
using the straight-line method and is net of amortization of $126,000 at
November 30, 1998. Goodwill and other long-lived assets are periodically
evaluated when facts and circumstances indicate that the value of such assets
may be impaired. Evaluations are based on undiscounted projected earnings. If
the valuation indicates that undiscounted earnings are insufficient to recover
the recorded assets, then the projected earnings are discounted to determine the
revised carrying value and a write-down for the difference is recorded.
Other assets include loan costs, which are stated at cost and amortized over
the life of the loan.
INCOME TAXES
The Company uses the liability method to record deferred tax assets and
liabilities that are based on the difference between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes. These
temporary differences result from the use of different accounting methods for
financial statement and tax reporting purposes.
EARNINGS PER SHARE
Beginning in the Company's fiscal year ended November 30, 1998, basic
earnings per share ("EPS") and diluted EPS are required to be computed using the
methods prescribed by Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share." Basic EPS is calculated using the weighted average
number of common shares outstanding for the period and diluted EPS is calculated
using the weighted average number of common shares and dilutive common
equivalent shares outstanding. Such amounts have been retroactively adjusted to
reflect the 10-for-1 stock split which occurred in 1996, the 11-for-10 stock
split which occurred in November 1997 and the 11-for-10 stock split which
occurred in November 1998 (Note 7).
Following is a reconciliation of basic EPS and diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, 1996 YEAR ENDED NOVEMBER 30, 1997
----------------------------------- -------------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS--
Income available to common
shareholders....................... $ 95,945 3,054,835 $ 0.03 $ 1,000,064 4,237,387 $ 0.24
Effect of dilutive securities--
Stock options...................... -- 2,005 -- 52,965
---------- ---------- ------------ ----------
Diluted EPS--
Income available to common
shareholders....................... $ 95,945 3,056,840 $ 0.03 $ 1,000,064 4,290,352 $ 0.23
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
</TABLE>
F-12
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MAY 31, 1998 (UNAUDITED) YEAR ENDED NOVEMBER 30, 1998
----------------------------------- -------------------------------------
PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS--
Income available to common
shareholders....................... $ 545,835 4,241,032 $ 0.13 $ 1,501,179 4,263,327 $ 0.35
Effect of dilutive securities--
Stock options...................... -- 69,792 -- 59,242
---------- ---------- ------------ ----------
Diluted EPS--
Income available to common
shareholders....................... $ 545,835 4,310,824 $ 0.13 $ 1,501,179 4,322,569 $ 0.35
---------- ---------- ------------ ----------
---------- ---------- ------------ ----------
<CAPTION>
SIX MONTHS ENDED
MAY 31, 1999 (UNAUDITED)
-----------------------------------
PER SHARE
INCOME SHARES AMOUNT
---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS--
Income available to common
shareholders....................... $ 870,732 4,321,951 $ 0.20
Effect of dilutive securities--
Stock options...................... -- 94,313
---------- ----------
Diluted EPS--
Income available to common
shareholders....................... $ 870,732 4,416,264 $ 0.20
---------- ----------
---------- ----------
</TABLE>
INTERIM FINANCIAL STATEMENTS
The accompanying interim financial statements of the Company for the
six-month periods ended May 31, 1998 and 1999 have been prepared by the Company
without audit. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted for these periods. The Company
believes the disclosures made are adequate to make the information presented not
misleading. However, the interim financial statements should be read in
conjunction with the financial statements and notes thereto.
In the opinion of the Company, the accompanying unaudited financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of Obie Media
Corporation as of May 31, 1999 and the results of operations and cash flows for
the six months ended May 31, 1998 and 1999. Interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short-term variations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" (SFAS 130). This statement establishes
standards for reporting and displaying
F-13
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
comprehensive income and its components in a full set of general purpose
financial statements. The objective of SFAS 130 is to report a measure of all
changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners. The Company
adopted SFAS 130 during the first quarter of fiscal 1999. Comprehensive income
did not materially differ from currently reported net income in the periods
presented.
Effective in its fiscal year ending November 30, 1999, the Company will be
required to adopt SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 changes current practice under SFAS No. 14 by
establishing a new framework on which to base segment reporting (referred to as
the "management" approach) and also requires interim reporting of segment
information. Management does not expect that the impact of adoption of this
pronouncement will be material to the Company's financial position or results of
operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 was to be effective for fiscal years beginning after June 15, 1999.
In June 1999, the FASB issued SFAS 137 as an amendment to SFAS 133 and deferred
the effective date of SFAS 133 to fiscal years beginning after June 15, 2000.
The Company currently has no derivative instruments and, therefore, the adoption
of SFAS 133 is not expected to have an impact on the Company's financial
position or results of operations.
2. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1997 1998
---------- ------------
<S> <C> <C>
Prepaid leases...................................................... $ 322,811 $ 379,435
Transit advertising production costs................................ 294,991 500,297
Other............................................................... 172,432 276,329
---------- ------------
$ 790,234 $ 1,156,061
---------- ------------
---------- ------------
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------
1997 1998 ASSET LIVES
------------- ------------- -----------
<S> <C> <C> <C>
Outdoor advertising structures.................... $ 10,577,588 $ 11,281,887 20 years
Other equipment and leaseholds.................... 2,139,119 3,434,153 5-20 years
------------- -------------
12,716,707 14,716,040
Less--Accumulated depreciation.................... 3,451,852 4,222,866
------------- -------------
$ 9,264,855 $ 10,493,174
------------- -------------
------------- -------------
</TABLE>
F-14
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999
4. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------
1997 1998
------------ ------------
<S> <C> <C>
Transit district fees............................................. $ 753,571 $ 1,890,581
Payroll and related items......................................... 307,365 403,073
Other............................................................. 105,947 380,633
------------ ------------
$ 1,166,883 $ 2,674,287
------------ ------------
------------ ------------
</TABLE>
5. FINANCING ARRANGEMENTS:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------
1997 1998
------------ -------------
<S> <C> <C>
Term loan with U.S. Bank National Association ("U.S. Bank"), as
described below................................................ $ 6,340,000 $ 5,565,000
Note payable in annual payments of $12,000 plus interest at 10%,
with collateral of outdoor advertising structures, due October
1999........................................................... 24,000 12,000
Note payable in monthly payments of $5,900 including interest at
10%, guaranteed by Brian B. Obie (the Company's Chairman of the
Board, President and Chief Executive Officer), due April
2000........................................................... 149,786 96,025
Note payable to U.S. Bank, as described below.................... -- 664,762
Notes payable in monthly payments of $2,219 including interest
ranging from 9% to 9.98%, with collateral of several vehicles,
maturing through November 2002................................. 40,756 27,884
Bridge loan with U.S. Bank, as described below................... -- 7,000,000
Note payable to former shareholder of P&C in certain installment
payments plus interest at 6%, due January 1, 2003 (Note 1)..... -- 1,500,000
------------ -------------
6,554,542 14,865,671
Less--Current portion............................................ 859,323 1,511,276
------------ -------------
$ 5,695,219 $ 13,354,395
------------ -------------
------------ -------------
</TABLE>
F-15
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999
5. FINANCING ARRANGEMENTS: (CONTINUED)
The aggregate principal payments due on the above debt subsequent to
November 30, 1998 are:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
NOVEMBER 30,
--------------------
<S> <C>
1999................................................................. $ 1,511,276
2000................................................................. 2,736,136
2001................................................................. 2,705,178
2002................................................................. 2,455,524
2003................................................................. 2,449,718
Thereafter........................................................... 3,007,839
-------------
$ 14,865,671
-------------
-------------
</TABLE>
In October 1996, the Company received a $12,000,000 bridge loan from U.S.
Bank, which was used to refinance substantially all of the Company's then
existing debt. In connection with the refinancing of its long-term debt, the
Company incurred an extraordinary expense of $543,335, net of income tax benefit
of $342,000, for prepayment penalties related to the early extinguishment of
debt and for previously capitalized loan costs that were written off in the year
ended November 30, 1996.
Upon the completion of the IPO, the outstanding balance on this bridge loan
was reduced to $7,000,000. Effective February 12, 1997, the outstanding balance
was converted to a seven-year term loan, payable in monthly installments, due
April 30, 2004. On September 1, 1998, the term of the loan was amended to be due
on December 15, 2003, payable in monthly installments, with interest to be
based, at the Company's option, partially at the London Inter-Bank Offering rate
("LIBOR") plus 2% (7.25% at November 30, 1998) and the remainder at U.S. Bank's
prime rate plus .5% (8.25% at November 30, 1998). The loan is collateralized by
substantially all of the Company's assets.
On August 1, 1998, the Company received a $698,000 loan from U.S. Bank,
which was used to pay a note due to an affiliated partnership (Note 8). The loan
is payable in monthly installments of $8,310 through July 15, 2005, with
interest to be based, at the Company's option, partially at LIBOR plus 2%
(7.71875% at November 30, 1998) and the remainder at U.S. Bank's prime rate plus
.5% (8.25% at November 30, 1998). The loan is collateralized by substantially
all of the Company's assets.
On September 1, 1998, the Company received a $7,000,000 bridge loan from
U.S. Bank, which was used to finance the Company's acquisition of P&C (Note 1)
as well as pay down certain indebtedness of P&C in connection with the
acquisition. The principal balance is due on August 31, 1999, or upon closing of
a secondary offering, whichever is earlier. Interest is based on LIBOR plus 2%
(7.59375% at November 30, 1998). The loan is collateralized by substantially all
of the Company's assets.
In the event that a secondary offering does not occur by August 31, 1999, or
the secondary offering does not provide sufficient net proceeds for repayment of
the $7,000,000 bridge loan, the Company, at its option, can convert the bridge
loan into a seven-year term loan, with the principal amount limited to the
lesser of $7,000,000 or the unpaid balance of the bridge loan principal and
interest, immediately following application of all net proceeds of any secondary
offering. The first monthly installment would be due on the 15th day of the
first calendar month following the closing of the term loan, with interest to be
based, at the Company's option, on LIBOR plus 2% or at U.S. Bank's prime rate
plus 0.5%. Therefore, at
F-16
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999
5. FINANCING ARRANGEMENTS: (CONTINUED)
November 30, 1998, this loan is classified as long-term on the balance sheet.
The aggregate principal payments due on this debt subsequent to November 30,
1998 are included in the five-year debt payout schedule above.
The Company also has a $4,000,000 operating line of credit with U.S. Bank.
The interest rate is at U.S. Bank's prime rate (8.0% at November 30, 1998) and
the line is collateralized by receivables, equipment, inventory and contract
rights. The outstanding balance on this line of credit at November 30, 1997 and
1998, was $742,864 and $1,414,877, respectively.
The Company was in compliance with all loan covenants at November 30, 1998.
6. INCOME TAXES:
The provision for income taxes was a deferred provision of $31,000 and
$614,311 for the years ended November 30, 1996 and 1997, respectively. A
deferred income tax benefit of $342,000 was recorded related to the
extraordinary item for the year ended November 30, 1996. For the year ended
November 30, 1998, the provision for income taxes included a current provision
of $478,306 and a deferred provision of $499,359.
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------
1997 1998
------------ -----------
<S> <C> <C>
Current deferred tax assets:
Deferred revenue................................................. $ 457,595 $ 621,895
Prepaid commissions.............................................. 291,029 224,560
Allowance for doubtful accounts.................................. 56,652 112,746
Net operating loss carryforwards................................. 442,565 --
Accrued expenses and other....................................... 6,001 25,468
------------ -----------
Total current deferred tax assets.............................. 1,253,842 984,669
Current deferred tax liabilities:
Prepaid fees and other........................................... (148,602) (225,837)
------------ -----------
Net current deferred tax assets................................ $ 1,105,240 $ 758,832
------------ -----------
------------ -----------
Noncurrent deferred tax liabilities:
Property and equipment........................................... $ 630,551 $ 783,502
------------ -----------
------------ -----------
</TABLE>
Based on management's assessment, it is more likely than not that the net
deferred tax assets will be realized through future taxable income.
F-17
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999
6. INCOME TAXES: (CONTINUED)
Income tax expense (benefit) for the years ended November 30, 1996, 1997 and
1998 differs from the amounts computed by applying the U.S. federal income tax
rate of 34% to pretax income, considering the effect of the extraordinary item
in 1996, as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------
1996 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............... $ (73,119) $ 548,888 $ 842,807
Increase (reduction) in income taxes resulting from--
Increase in net operating losses available to the
Company............................................. (220,986) -- --
State and local taxes, net of federal income tax
benefit............................................. (13,638) 65,423 114,523
Other differences, net................................ (3,257) -- 20,335
----------- ---------- ----------
Actual income tax expense (benefit)................. $ (311,000) $ 614,311 $ 977,665
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
7. SHAREHOLDERS' EQUITY:
The Company's Restated Articles of Incorporation authorize the issuance of
up to 20,000,000 shares of common stock and 10,000,000 shares of preferred stock
issuable in series ("Preferred Stock").
In connection with the Company's IPO, the Company's Articles of
Incorporation were amended and restated on October 1, 1996 to authorize a
10-for-1 stock split. In October 1997, the Company declared an 11-for-10 stock
split for shareholders of record on November 21, 1997. In November 1998, the
Company declared an 11-for-10 stock split for shareholders of record on November
21, 1998.
PREFERRED STOCK
The Board of Directors is authorized, without further shareholder
authorization, to issue Preferred Stock in one or more series and to fix the
terms and provisions of each series, including dividend rights and preferences,
conversion rights, voting rights, redemption rights and rights on liquidation,
including preferences over common stock.
COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters
requiring shareholder vote. Holders of common stock are entitled to receive
dividends when and as declared by the Board of Directors out of any funds
lawfully available therefor, and, in the event of liquidation or distribution of
assets, are entitled to participate ratably in the distribution of such assets
remaining after payment of liabilities, in each case subject to any preferential
rights granted to any series of Preferred Stock that may then be outstanding.
F-18
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999
7. SHAREHOLDERS' EQUITY: (CONTINUED)
STOCK OPTIONS
On September 1, 1998, the Company granted nonstatutory stock options to the
former shareholder of P&C, as part of the acquisition of P&C (Note 1),
exercisable for 137,500 shares of the Company's common stock. Additionally, as
part of the acquisition, the Company granted nonstatutory stock options to the
legal counsel of the P&C shareholder exercisable for 11,000 shares of the
Company's common stock. Of the 148,500 stock options granted, 27,500 were
exercisable on the date of grant at an exercise price of $7.92 per share, and
included in the purchase price for the acquisition of P&C (Note 1). The
remaining 110,000 options granted to the former shareholder of P&C are
exercisable in 27,500 increments on the annual anniversary dates of the
Company's employment agreement signed with the former P&C shareholder, subject
to certain provisions regarding the former P&C shareholder's employment with the
Company. These options will be recorded as additional goodwill once the
contingent provisions are met.
In addition, on October 2, 1996, the Company's Board of Directors and
shareholders adopted the 1996 Stock Incentive Plan (the "Plan"), which provides
for the issuance of 363,000 shares of common stock pursuant to Incentive Stock
Options ("ISOs"), Nonqualified Stock Options ("NSOs"), stock bonuses and stock
sales to employees, directors and consultants of the Company. ISOs may be issued
only to employees of the Company and will have a maximum term of ten years from
the date of grant. The exercise price for ISOs may not be less than 100% of the
fair market value of the common stock at the time of the grant, and the
aggregate fair market value (as determined at the time of the grant) of shares
issuable upon the exercise of ISOs for the first time in any one calendar year
may not exceed $100,000. In the case of ISOs granted to holders of more than 10%
of the voting power of the Company, the exercise price may not be less than 110%
of the fair market value of the common stock at the time of the grant, and the
term of the option may not exceed five years. NSOs may be granted at not less
than 85% of the fair market value of the common stock at the date of grant.
Options become exercisable in whole or in part from time to time as determined
by the Board of Directors' Compensation Committee, which administers the Plan.
Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES SHARES AVERAGE
AVAILABLE SUBJECT TO EXERCISE
FOR GRANT OPTIONS PRICE
---------- ----------- -------------
<S> <C> <C> <C>
BALANCES, November 30, 1995............................ -- -- $ --
Shares reserved...................................... 363,000 -- --
Options granted...................................... (140,965) 140,965 5.50
---------- -----------
BALANCES, November 30, 1996............................ 222,035 140,965 5.50
Options granted...................................... (20,570) 20,570 6.22
Options canceled..................................... 2,420 (2,420) 5.50
---------- -----------
BALANCES, November 30, 1997............................ 203,885 159,115 5.59
Options granted...................................... (72,150) 72,150 11.24
Options canceled..................................... 27,825 (27,825) 7.51
Options exercised.................................... -- (11,979) 5.50
---------- -----------
BALANCES, November 30, 1998............................ 159,560 191,461 7.45
---------- -----------
---------- -----------
</TABLE>
F-19
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999
7. SHAREHOLDERS' EQUITY: (CONTINUED)
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
During 1995, the Financial Accounting Standards Board issued SFAS 123, which
defines a fair value based method of accounting for employee stock options and
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to continue to
use the accounting treatment in APB 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value based method
of accounting defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans
under APB 25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during the years ended November 30,
1996, 1997 and 1998, using the Black-Scholes option pricing model as prescribed
by SFAS 123 using the following weighted average assumptions for grants:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate....................................... 6.0% 6.25% 6.00%
Expected dividend yield....................................... 0% 0% 0%
Expected lives................................................ 8 years 8 years 6 years
Expected volatility........................................... 55.84% 55.84% 53.11%
</TABLE>
Using the Black-Scholes methodology, the total value of options granted
during the years ended November 30, 1996, 1997 and 1998, was $466,049, $78,160
and $482,453, respectively, which would be amortized on a pro forma basis over
the vesting period of the options (typically five years). The weighted average
per share fair value of options granted during the years ended November 30,
1996, 1997 and 1998, was $4.07, $4.60 and $7.36, respectively. If the Company
had accounted for its stock-based compensation plans in accordance with SFAS
123, the Company's net income and net income per share would approximate the pro
forma disclosures below:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------
1996 1997 1998
---------------------- ------------------------- --------------------------
AS AS AS
REPORTED PRO FORMA REPORTED PRO FORMA REPORTED PRO FORMA
--------- ----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income.......................... $ 95,945 $ 94,428 $ 1,000,064 $ 931,396 $ 1,501,179 $ 1,396,956
Diluted net income per share........ $ 0.03 $ 0.03 $ 0.23 $ 0.22 $ 0.35 $ 0.33
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to January
1, 1995, and additional awards are anticipated in future years.
F-20
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999
7. SHAREHOLDERS' EQUITY: (CONTINUED)
The following table summarizes information about stock options outstanding
at November 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------- --------------------------------
NUMBER WEIGHTED AVERAGE NUMBER
RANGE OF OUTSTANDING AT REMAINING EXERCISABLE
EXERCISE NOVEMBER 30, CONTRACTUAL WEIGHTED AVERAGE AT NOVEMBER WEIGHTED AVERAGE
PRICES 1998 LIFE--YEARS EXERCISE PRICE 30, 1998 EXERCISE PRICE
- -------------- -------------- ------------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 5.50 113,740 12.9 $ 5.50 45,496 $ 5.50
6.10-6.25 16,214 13.2 6.25 3,630 6.23
7.92 126,500 9.8 7.92 27,500 7.92
9.06-9.55 44,675 11.4 9.40 -- --
10.00-10.23 5,500 14.4 10.14 -- --
12.73-13.86 33,332 14.4 12.85 -- --
- -------------- ------- --- ------ ------ -----
$ 5.50-13.86 339,961 11.7 $ 7.74 76,626 $ 6.40
- -------------- ------- --- ------ ------ -----
- -------------- ------- --- ------ ------ -----
</TABLE>
At November 30, 1997, 24,079 options were exercisable at a weighted average
exercise price of $5.50 per share. No options were exercisable at November 30,
1996.
8. COMMITMENTS AND CERTAIN RELATED PARTY TRANSACTIONS:
TRANSIT AGREEMENTS
Certain transit agreements require the Company to remit to the transit
district the greater of a percentage of the related advertising revenues or a
guaranteed minimum amount. At November 30, 1998, future guaranteed minimum
payments under the transit agreements are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
NOVEMBER 30,
--------------------
<S> <C>
1999................................................................. $ 14,780,733
2000................................................................. 14,473,484
2001................................................................. 14,636,890
2002................................................................. 10,209,046
2003................................................................. 7,019,531
Thereafter........................................................... 8,630,785
</TABLE>
OPERATING LEASES
The Company leased outdoor advertising structures from an affiliated
partnership. The lease agreement required monthly payments of a minimum base
rent plus additional rent equal to 5% of the gross revenues derived from
advertising displayed on the structures. Minimum base rent payments were $8,500
per month through December 1996, and increased to $9,000 per month for the
following calendar year. The lease expired December 31, 1997. Total lease
expense pursuant to this lease was $107,945, $108,397 and $17,981 for the years
ended November 30, 1996, 1997 and 1998, respectively.
In December 1997, the Company exercised its option to purchase the property
discussed above at a purchase price of $698,000. In accordance with generally
accepted accounting principles, the Company recorded only the book value carried
on the books of the affiliated partnership at the date of purchase.
F-21
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1996, 1997 AND 1998 AND MAY 31, 1999
8. COMMITMENTS AND CERTAIN RELATED PARTY TRANSACTIONS: (CONTINUED)
The difference between the net book value of these assets and the purchase price
has been recorded as an addition to the Company's accumulated deficit.
The Company also rents office and production space from affiliates. Such
rents totaled $78,897, $123,180 and $171,096 for the years ended November 30,
1996, 1997 and 1998, respectively.
The Company leases parcels of property beneath outdoor advertising
structures. These leases are generally for a term of up to ten years, with two
five-year renewal options at the Company's discretion. The Company also leases
facilities for sales, service and installation for its operating offices. Total
rent expense pursuant to these leases was $607,566, $755,486 and $1,073,074 for
the years ended November 30, 1996, 1997 and 1998, respectively.
At November 30, 1998, future minimum lease payments for all operating leases
described above are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
NOVEMBER 30,
--------------------
<S> <C>
1999.................................................................. $ 1,391,974
2000.................................................................. 1,264,114
2001.................................................................. 1,140,144
2002.................................................................. 859,667
2003.................................................................. 659,753
Thereafter............................................................ 1,961,171
</TABLE>
9. EMPLOYEE BENEFIT PLAN:
Substantially all of the Company's employees who have met vesting
requirements participate in a defined contribution benefit plan that provides
for discretionary annual contributions by the Company. During the years ended
November 30, 1996 and 1997 and 1998, the Company accrued $51,020, $32,154 and
$86,304, respectively, as contributions to the plan. In 1997, the Company paid
the 1996 accrued contribution through a contribution of 6,050 shares of its
common stock to the Plan and the balance in cash. In 1998, the Company paid the
1997 accrued contribution through a contribution of 7,715 shares of its common
stock to the Plan and the balance in cash.
10. SUBSEQUENT EVENT:
The Company has a contract to provide advertising sales services to the
Tri-County Metropolitan Transit District (Tri-Met) in Portland, Oregon, which,
by its terms, was scheduled to expire in June 2001. The Company originally began
serving Tri-Met in January 1994, pursuant to a five-year agreement, which was
later extended for an additional two years. The Federal Transit Administration
(FTA), which provides substantial monies to transit districts, has taken the
position that transit advertising contracts may not exceed five years in length.
At the request of the FTA, Tri-Met and the Company agreed that the Company's
agreement with Tri-Met would terminate on June 30, 1999. However, Tri-Met has
informed the Company that its agreement with Tri-Met will now terminate on July
30, 1999 or 10 days after notification by Tri-Met of its award of a new
agreement, whichever is later. In December 1998 Tri-Met entered into a
settlement agreement to compensate the Company for early termination of the
existing contract. Under the terms of the settlement agreement, Obie Media
receives cash payments and other financial benefits, and transfers to Tri-Met
the transit benches on which the Company sells advertising. In addition, the
Company will retain a significant residual value of advertising contracts in
existence at June 30, 1999, for up to one year. The contract settlement resulted
in a pretax gain of $885,941 during the first quarter of fiscal 1999.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Philbin & Coine, Inc.:
We have audited the accompanying balance sheets of Philbin & Coine, Inc. as
of December 31, 1996 and 1997, and August 31, 1998, and the related statements
of operations, shareholders' equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1997, and for the eight months
ended August 31, 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.
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
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Philbin & Coine, Inc. as of
December 31, 1996 and 1997, and August 31, 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, and for the eight months ended August 31, 1998, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania,
September 18, 1998
F-23
<PAGE>
PHILBIN & COINE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- AUGUST 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 1,020 $ 205,123 $ 59,652
Marketable securities................................................. -- 222,261 --
Accounts receivable, net of allowance for doubtful accounts of
$21,974, $22,093 and $22,184, respectively.......................... 700,760 707,820 1,077,485
Prepaid expenses and other current assets............................. 239,800 102,528 42,832
------------ ------------ ------------
Total current assets................................................ 941,580 1,237,732 1,179,969
PROPERTY AND EQUIPMENT, net............................................. 352,799 247,342 273,564
OTHER ASSETS............................................................ 40,970 9,392 11,680
------------ ------------ ------------
$ 1,335,349 $ 1,494,466 $ 1,465,213
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Checks outstanding in excess of cash deposits......................... $ 118,475 $ -- $ --
Current portion of long-term debt..................................... 75,538 79,796 56,503
Line of credit........................................................ -- 150,000 300,000
Accounts payable...................................................... 80,613 76,113 39,084
Accrued expenses...................................................... 991,264 794,816 517,540
Deferred revenue...................................................... 32,103 82,491 235,407
------------ ------------ ------------
Total current liabilities........................................... 1,297,993 1,183,216 1,148,534
LONG-TERM DEBT, less current portion.................................... 189,576 110,073 71,976
OTHER LONG-TERM LIABILITIES............................................. 60,000 -- --
------------ ------------ ------------
Total liabilities................................................... 1,547,569 1,293,289 1,220,510
------------ ------------ ------------
COMMITMENTS (Note 10)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, without par value, 200 shares authorized, 200 shares
issued and 170 shares outstanding................................... 77,342 77,342 77,342
Treasury stock, at cost, 30 shares of Common stock.................... (196,312) (196,312) (196,312)
Retained earnings (Accumulated deficit)............................... (93,250) 320,147 363,673
------------ ------------ ------------
Total shareholders' equity (deficit)................................ (212,220) 201,177 244,703
------------ ------------ ------------
$ 1,335,349 $ 1,494,466 $ 1,465,213
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-24
<PAGE>
PHILBIN & COINE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED DECEMBER 31, AUGUST 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Transit advertising.............. $6,706,552 $5,926,277 $6,786,454 $3,941,756 $6,076,187
Less--Agency commissions......... (658,583) (581,960) (666,430) (387,080) (596,682)
--------- --------- --------- --------- ---------
Net revenues................... 6,047,969 5,344,317 6,120,024 3,554,676 5,479,505
--------- --------- --------- --------- ---------
OPERATING EXPENSES:
Direct advertising expenses...... 4,300,326 3,707,239 4,736,854 3,083,326 4,060,713
General and administrative....... 1,896,502 1,923,871 1,645,256 980,179 1,371,573
Depreciation and amortization.... 129,695 150,362 104,608 69,737 59,205
--------- --------- --------- --------- ---------
6,326,523 5,781,472 6,486,718 4,133,242 5,491,491
--------- --------- --------- --------- ---------
Operating loss................. (278,554) (437,155) (366,694) (578,566) (11,986)
--------- --------- --------- --------- ---------
OTHER (INCOME) EXPENSE:
Gain on Transit Agreement
sales.......................... -- (236,000) (695,704) (695,704) --
Service and other income (Note
8)............................. (220,509) (119,169) (75,479) (57,322) (61,207)
Interest expense................. 44,721 25,860 28,904 18,560 30,428
Interest and dividend income..... (21,256) (11,499) (37,812) (25,842) (24,733)
--------- --------- --------- --------- ---------
(197,044) (340,808) (780,091) (760,308) (55,512)
--------- --------- --------- --------- ---------
NET INCOME (LOSS).................. $ (81,510) $ (96,347) $ 413,397 $ 181,742 $ 43,526
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
PHILBIN & COINE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK TREASURY STOCK EARNINGS
---------------------- ------------------------ (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT) TOTAL
----------- --------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995.................... 200 $ 77,342 -- $ -- $ 84,607 $ 161,949
Net loss.................................. -- -- -- -- (81,510) (81,510)
--- --------- --- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1995.................. 200 77,342 -- -- 3,097 80,439
Purchase of common stock for treasury..... -- -- 30 (196,312) -- (196,312)
Net loss.................................. -- -- -- -- (96,347) (96,347)
--- --------- --- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1996.................. 200 77,342 30 (196,312) (93,250) (212,220)
Net income................................ -- -- -- -- 413,397 413,397
--- --------- --- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1997.................. 200 77,342 30 (196,312) 320,147 201,177
Net income................................ -- -- -- -- 43,526 43,526
--- --------- --- ----------- ------------ -----------
BALANCE, AUGUST 31, 1998.................... 200 $ 77,342 30 $ (196,312) $ 363,673 $ 244,703
--- --------- --- ----------- ------------ -----------
--- --------- --- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
PHILBIN & COINE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEAR ENDED DECEMBER 31, AUGUST 31,
------------------------------- ----------------------
1995 1996 1997 1997 1998
--------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (81,510) $ (96,347) $ 413,397 $ 181,742 $ 43,526
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Depreciation and amortization....................... 129,695 150,362 104,608 69,737 59,205
Gain on Transit Agreement sales..................... -- (236,000) (695,704) (695,704) --
Gain on disposition of property and equipment....... -- -- -- -- (17,603)
Changes in assets and liabilities:
(Increase) decrease in--
Accounts receivable............................. (129,105) 92,276 (7,060) (130,512) (369,665)
Prepaid expenses and other current assets....... 38,754 (186,128) 137,272 150,245 59,696
Other assets.................................... 10,531 (4,356) (1,757) (1,756) (2,288)
Increase (decrease) in--
Accounts payable................................ 26,845 41,937 (4,500) (28,529) (37,029)
Accrued expenses................................ 11,064 142,726 (196,448) (39,925) (277,276)
Deferred revenue................................ 2,600 (49,138) 50,388 47,642 152,916
Other long-term liabilities..................... -- 60,000 (60,000) (60,000) --
--------- --------- --------- ----------- ---------
Net cash provided by (used in) operating
activities.................................. 8,874 (84,668) (259,804) (507,060) (388,518)
--------- --------- --------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (170,369) (100,778) (100,112) (100,112) (88,903)
Proceeds from disposition of property and equipment... -- -- -- -- 8,050
Proceeds from Transit Agreement sales................. -- 236,000 830,000 830,000 --
Purchases of marketable securities.................... -- -- (473,258) (466,965) (1,731)
Proceeds from sales of marketable securities.......... -- -- 250,997 250,997 237,021
--------- --------- --------- ----------- ---------
Net cash provided by (used in) investing
activities.................................. (170,369) 135,222 507,627 513,920 154,437
--------- --------- --------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit........... 50,000 (50,000) 150,000 150,000 150,000
Checks outstanding in excess of cash deposits......... -- 118,475 (118,475) (99,362) --
Proceeds from long-term debt.......................... 149,000 220,000 -- -- --
Payments on long-term debt............................ (249,544) (361,895) (75,245) (58,518) (61,390)
Purchase of Common stock for Treasury................. -- (52,842) -- -- --
--------- --------- --------- ----------- ---------
Net cash provided by (used in) financing
activities.................................. (50,544) (126,262) (43,720) (7,880) 88,610
--------- --------- --------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (212,039) (75,708) 204,103 (1,020) (145,471)
CASH AND CASH EQUIVALENTS, beginning of period.......... 288,767 76,728 1,020 1,020 205,123
--------- --------- --------- ----------- ---------
CASH AND CASH EQUIVALENTS, end of period................ $ 76,728 $ 1,020 $ 205,123 $ -- $ 59,652
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................ $ 44,721 $ 25,860 $ 28,904 $ 18,560 $ 30,428
--------- --------- --------- ----------- ---------
--------- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
PHILBIN & COINE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND AUGUST 31, 1998
(INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
COMPANY
Philbin & Coine, Inc. (the "Company"), a New York corporation, provides
turnkey advertising services through exclusive contracts with municipal and
regional transit districts in the United States, principally in Ohio, Wisconsin,
Virginia, Florida and Connecticut.
INTERIM FINANCIAL STATEMENTS
The accompanying interim financial statements of the Company, as of and for
the eight months ended August 31, 1997, have been prepared by the Company
without audit. Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes the disclosures
made are adequate to make the information presented not misleading.
In the opinion of the Company's management, the accompanying unaudited
financial statements as of and for the eight months ended August 31, 1997,
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position of the Company as of August
31, 1997 and the results of operations and cash flows for the eight months ended
August 31, 1997. Interim results for the eight months ended August 31, 1997 and
1998 are not necessarily indicative of fiscal year performance because of the
impact of seasonal and short-term variations.
USE OF 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.
REVENUE RECOGNITION
The Company has contracts to provide future advertising to its customers.
Advertising revenue is recognized ratably over the period the advertising is
displayed. Payments received and amounts billed for advertising revenue in
advance of display are deferred.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and accounts receivable. The Company
places its cash with high credit quality financial institutions. Concentrations
of credit risk with respect to accounts receivable are not significant due to
the large number of customers, and their dispersion across different industries
and geographic areas.
At August 31, 1998, the Company had transit agreements with approximately 20
transit districts. Customers advertising on transit vehicles owned by five of
these districts represented 61%, 73% and 79% of the Company's total revenues for
the years ended December 31, 1995, 1996 and 1997, and 78% and 76% of the
Company's total revenues for the eight months ended August 31, 1997 and 1998,
respectively.
F-28
<PAGE>
PHILBIN & COINE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND AUGUST 31, 1998
(INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997 IS UNAUDITED)
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Transit agreements typically range from three to five years and are subject
to renewal either at the discretion of the transit district or upon mutual
agreement between the Company and the transit district. Generally, these
agreements require the Company to pay the transit district the greater of a
percentage of the related advertising revenues or a guaranteed minimum amount
(Note 9).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
marketable securities, accounts payable, accrued expenses and debt instruments.
At December 31, 1996 and 1997 and August 31, 1998, the fair value of the
Company's financial instruments are estimated to be equal to their reported
carrying value. The carrying value of long-term debt approximates fair value.
The resulting estimates of fair value require subjective judgments and are
approximates. Changes in the methodologies and assumptions could significantly
affect the estimates.
CASH AND CASH EQUIVALENTS
Cash consists of demand deposits with federally insured banks. At times,
balances may exceed amounts insured.
MARKETABLE SECURITIES
Marketable securities consist of amounts invested in a high-yield bond
mutual fund. The Company determines the appropriate classification of marketable
securities at the time of purchase and reevaluates such designation at each
balance sheet date. Marketable securities have been classified as
available-for-sale and are carried at fair value, which approximated cost at
December 31, 1997.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets primarily consist of payments for
items the Company anticipates will be utilized within one year and include
payments for insurance, rent and deposits. Included in the balance at December
31, 1996, is a proposal deposit of $71,000.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the estimated useful lives. Normal repairs and
maintenance are expensed as incurred. The cost and accumulated depreciation of
assets sold or otherwise retired are removed from the accounts and the resulting
gain or loss is recognized.
SEVERANCE AGREEMENT
In July 1996, the Company entered into a severance agreement with an
employee, requiring payments of $230,000 in 23 monthly installments. This cost
was recorded in 1996 and is included in general and administrative expenses in
the accompanying statements of operations.
F-29
<PAGE>
PHILBIN & COINE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND AUGUST 31, 1998
(INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997 IS UNAUDITED)
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
Prior to the sale of the Company (Note 11), the Company was an "S"
Corporation for federal and state income tax purposes and, accordingly, was not
taxed as a separate entity. The Company's taxable income or loss was allocated
to each shareholder and recognized on their individual income tax returns.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 applies to all public
companies and is effective for fiscal years beginning after December 15, 1997.
SFAS No. 131 requires that business segment financial information be reported in
the financial statements utilizing the management approach. The management
approach is defined as the manner in which management organizes the segments
within the enterprise for making operating decisions and assessing performance.
Management believes that the adoption of SFAS No. 131 will not have a material
impact on the financial statements.
2. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- AUGUST 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Furniture and fixtures.............................. $ 392,643 $ 442,153 $ 457,133
Vehicles............................................ 119,768 147,771 132,771
Bus shelters........................................ 566,266 463,864 535,789
------------ ------------ ------------
1,078,677 1,053,788 1,125,693
Less--Accumulated depreciation...................... (725,878) (806,446) (852,129)
------------ ------------ ------------
$ 352,799 $ 247,342 $ 273,564
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and 1997,
and the eight months ended August 31, 1997 and 1998, was $96,362, $117,029,
$104,608, $69,737 and $59,205, respectively.
3. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- AUGUST 31,
1996 1997 1998
---------- --------- -----------
<S> <C> <C> <C>
Acquired transit agreement.................................. $ 200,000 $ -- $ --
Deposits.................................................... 7,635 9,392 11,680
---------- --------- -----------
207,635 9,392 11,680
Less--Accumulated amortization.............................. (166,665) -- --
---------- --------- -----------
$ 40,970 $ 9,392 $ 11,680
---------- --------- -----------
---------- --------- -----------
</TABLE>
F-30
<PAGE>
PHILBIN & COINE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND AUGUST 31, 1998
(INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997 IS UNAUDITED)
(CONTINUED)
3. OTHER ASSETS: (CONTINUED)
The transit agreement was acquired in 1992 and sold in January 1997.
4. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- AUGUST 31,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Transit district fees.................................... $ 731,357 $ 639,850 $ 378,378
Payroll and related items................................ 128,070 65,583 63,836
Other.................................................... 131,837 89,383 75,326
---------- ---------- ----------
$ 991,264 $ 794,816 $ 517,540
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
5. LINE OF CREDIT AGREEMENT:
In January 1997, the Company entered into an $800,000 demand line of credit
agreement with a bank. In September 1998, the line of credit was repaid in
connection with the sale of the Company (Note 11). The interest rate on the line
was at the bank's prime rate (8.5% at August 31, 1998) plus 1%. The line of
credit was secured by all of the Company's assets and the personal guarantee of
the Company's sole shareholder.
At August 31, 1998, the amount available for borrowing under the line of
credit was $800,000. At December 31, 1997 and August 31, 1998, outstanding
borrowings under the line were $150,000 and $300,000, respectively.
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- AUGUST 31,
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Note payable to bank, payable in monthly installments of
$5,435 including interest at 8.5%, through October
2000................................................... $ 212,272 $ 163,448 $ 128,479
Note payable to former shareholder, interest at 8.25%.... 52,842 26,421 --
---------- ---------- ----------
265,114 189,869 128,479
Less--Current portion.................................... (75,538) (79,796) (56,503)
---------- ---------- ----------
$ 189,576 $ 110,073 $ 71,976
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The note payable to bank, which was cross-collateralized with the line of
credit (Note 5), was also secured by all of the Company's assets and the
personal guarantee of the Company's sole shareholder. In September 1998, the
note was repaid in connection with the sale of the Company (Note 11).
F-31
<PAGE>
PHILBIN & COINE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND AUGUST 31, 1998
(INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997 IS UNAUDITED)
(CONTINUED)
7. REPURCHASE OF SHAREHOLDER'S INTEREST:
Prior to July 1996, the common stock was owned by two individuals. In July
1996, the Company repurchased the 15% interest, or 30 shares of common stock,
held by one of the shareholders for aggregate consideration of $196,312,
consisting of $52,842 in cash, a note in the principal amount of $52,842 and
forgiveness of a $90,628 loan due to the Company (Note 6).
8. RELATED-PARTY TRANSACTIONS:
The Company had a financial and accounting services agreement with an entity
whose majority owner is the sole shareholder of the Company. This entity also
managed transit district advertising. The agreement was terminated on December
31, 1997. For the years ended December 31, 1995, 1996, and 1997, and the eight
months ended August 31, 1997, the Company received service revenues of $172,000,
$81,000, $44,000 and $29,333, respectively. Service revenues received under this
agreement have been classified as a component of other expense (income) in the
accompanying statements of operations.
9. COMMITMENTS:
The Company is required under certain transit agreements to remit to the
transit district the greater of a percentage of the related advertising revenues
or a guaranteed minimum amount. At August 31, 1998, future guaranteed minimum
payments under these transit agreements are as follows for the years ending
December 31:
<TABLE>
<S> <C>
Remainder of 1998 (4 months)............................ $1,461,289
1999.................................................... 4,753,929
2000.................................................... 5,247,983
2001.................................................... 4,266,841
Thereafter.............................................. 1,546,000
</TABLE>
The Company leases office space under noncancelable operating leases
expiring through February 2002. Rent expense under these leases for the years
ended December 31, 1995, 1996 and 1997, and for the eight months ended August
31, 1997 and 1998, was $91,292, $102,338, $102,526, $70,972 and $77,192,
respectively. The Company leases certain transportation equipment under
noncancelable operating leases expiring through March 2001. Rent expense under
these leases for the years ended December 31, 1995, 1996 and 1997, and for the
eight months ended August 31, 1997 and 1998, was $11,514, $9,101, $12,628,
$7,943 and $8,426, respectively. At August 31, 1998, future minimum lease
payments for all operating leases described above are as follows:
<TABLE>
<S> <C>
Remainder of 1998 (4 months)............................... $ 26,715
1999....................................................... 77,020
2000....................................................... 75,058
2001....................................................... 63,250
2002....................................................... 4,859
</TABLE>
At August 31, 1998, the Company had outstanding letters of credit of
$408,750 with several municipal transit districts, which expire through 1999.
F-32
<PAGE>
PHILBIN & COINE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997 AND AUGUST 31, 1998
(INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1997 IS UNAUDITED)
(CONTINUED)
10. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) defined contribution plan for eligible employees.
Employees are eligible to participate in the plan provided they are at least
20.5 years old and have completed six months of service with the Company.
Employer matching contributions are up to 50% of employee contributions up to a
maximum of 5% of the employee's salary in addition to a discretionary amount
which is determined on an annual basis. Employee contributions are fully vested,
while employer contributions vest ratably over six years. For the years ended
December 31, 1995, 1996 and 1997, and the eight months ended August 31, 1997 and
1998, employer contributions to the plan were $18,477, $17,423, $14,731, $9,906
and $9,294, respectively.
11. SALE OF BUSINESS:
In September 1998, all of the outstanding stock of the Company was sold to
Obie Media Corporation ("Obie"). Obie is a full-service, out-of-home advertising
company providing transit and outdoor advertising in various regions throughout
the United States and Canada.
F-33
<PAGE>
OBIE MEDIA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1998
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
OBIE MEDIA PHILBIN & PRO FORMA CONSOLIDATED
CORPORATION COINE, INC. ADJUSTMENTS AS ADJUSTED
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Outdoor advertising.................................. $ 2,757,853 $ -- $ -- $2,757,853
Transit advertising.................................. 6,398,688 4,484,750 -- 10,883,438
Less--Agency commissions............................. (799,016) (440,403) -- (1,239,419)
------------ ------------ ------------- ------------
Net revenues....................................... 8,357,525 4,044,347 -- 12,401,872
OPERATING EXPENSES:
Direct advertising expenses.......................... 5,262,902 2,976,658 -- 8,239,560
General and administrative........................... 1,453,568 986,294 -- 2,439,862
Start-up costs....................................... 43,553 -- -- 43,553
Depreciation and amortization........................ 353,680 51,250 265,098 670,028
------------ ------------ ------------- ------------
Operating income (loss)............................ 1,243,822 30,145 (265,098) 1,008,869
OTHER (INCOME) EXPENSE:
Interest expense..................................... 331,242 23,574 239,363 594,179
Minority interest in subsidiary...................... 32,201 -- -- 32,201
Other income, net.................................... -- (30,560) -- (30,560)
------------ ------------ ------------- ------------
INCOME BEFORE INCOME TAXES............................. 880,379 37,131 (504,461) 413,049
PROVISION FOR (BENEFIT FROM) INCOME TAXES.............. 334,544 -- (177,585) 156,959
------------ ------------ ------------- ------------
NET INCOME (LOSS)...................................... $ 545,835 $ 37,131 $ (326,876) $ 256,090
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
NET INCOME (LOSS) PER SHARE:
Basic................................................ $ 0.13 $ 0.06
Diluted.............................................. $ 0.13 $ 0.06
SHARES USED IN PER SHARE CALCULATIONS:
Basic................................................ 4,241,032 4,296,032
Diluted.............................................. 4,310,824 4,337,331
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated statement.
F-34
<PAGE>
OBIE MEDIA CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA
OBIE MEDIA PHILBIN & PRO FORMA CONSOLIDATED
CORPORATION COINE, INC. ADJUSTMENTS AS ADJUSTED
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Outdoor advertising................................. $ 5,796,230 $ -- $ -- $ 5,796,230
Transit advertising................................. 19,421,970 6,076,187 -- 25,498,157
Less--Agency commissions............................ (2,500,455) (596,682) -- (3,097,137)
------------- ------------ ----------- -------------
Net revenues...................................... 22,717,745 5,479,505 -- 28,197,250
OPERATING EXPENSES:
Direct advertising expenses......................... 14,792,952 4,060,713 -- 18,853,665
General and administrative.......................... 3,628,028 1,371,573 -- 4,999,601
Start-up costs...................................... 106,375 -- -- 106,375
Depreciation and amortization....................... 935,545 59,205 395,493(a) 1,390,243
------------- ------------ ----------- -------------
Operating income (loss)........................... 3,254,845 (11,986) (395,493) 2,847,366
OTHER (INCOME) EXPENSE:
Interest expense.................................... 776,001 30,428 368,244(b) 1,174,673
Minority interest in subsidiary..................... -- -- -- --
Other income, net................................... -- (85,940) -- (85,940)
------------- ------------ ----------- -------------
INCOME BEFORE INCOME TAXES............................ 2,478,844 43,526 (763,737) 1,758,633
PROVISION FOR (BENEFIT FROM) INCOME TAXES............. 977,665 -- (273,680)(c) 703,985
------------- ------------ ----------- -------------
NET INCOME............................................ $ 1,501,179 $ 43,526 $(490,057) $ 1,054,648
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
NET INCOME PER SHARE:
Basic............................................... $ 0.35 $ 0.24
Diluted............................................. $ 0.35 $ 0.24
SHARES USED IN PER SHARE CALCULATIONS
Basic............................................... 4,263,327 4,304,728
Fully diluted....................................... 4,322,569 4,383,128
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated statement.
F-35
<PAGE>
OBIE MEDIA CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MAY 31 AND NOVEMBER 30, 1998
1. BASIS OF PRESENTATION:
The accompanying unaudited pro forma consolidated statements of operations
have been prepared to present the effect of the acquisition (the "Acquisition")
of Philbin & Coine, Inc. ("P&C") by Obie Media Corporation (the "Company") on
September 1, 1998. P&C, a New York corporation, provides turnkey advertising
services through exclusive contracts with municipal and regional transit
districts in the United States, principally in Ohio, Wisconsin, Virginia,
Florida and Connecticut. The unaudited pro forma statements of operations for
the six months ended May 31, 1998 and the year ended November 30, 1998 have been
prepared based upon the historical statements of operations of P&C and the
Company as if the Acquisition had occurred on the first date of each such
period.
For purposes of the unaudited pro forma consolidated statements of
operations (i) the statement of operations of the Company for the six months
ended May 31, 1998 has been combined with the statement of operations of P&C for
the six months ended June 30, 1998, and (ii) the statement of operations of the
Company for the year ended November 30, 1998 has been combined with the
statement of operations of P&C for the eight months ended August 31, 1998.
The unaudited pro forma consolidated statements of operations give effect to
the Acquisition under the purchase method of accounting.
A pro forma balance sheet is not included since the most recent balance
sheet included in the Company's financial statements includes the effects of the
Acquisition.
The unaudited pro forma consolidated statements of operations may not be
indicative of the results of operations that would have occurred if the
Acquisition had been in effect as of the beginning of the respective periods,
nor do they purport to indicate the results of future operations of the Company
for any future period or as of any future date. The unaudited pro forma
consolidated statements of operations should be read in conjunction with the
Company's audited financial statements and notes thereto included elsewhere in
this Prospectus. Management believes that all adjustments necessary to present
fairly such unaudited pro forma consolidated statements of operations have been
made based on the terms and structure of the Acquisition.
2. PRO FORMA ADJUSTMENTS:
The pro forma entries consist of the following:
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE SIX ENDED
MONTHS ENDED NOVEMBER 30,
MAY 31, 1998 1998
------------- ------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
(a) To record the amortization of goodwill, based on a 15-year life................. $ 265,098 $ 395,493
(b) To record interest expense related to P&C acquisition debt...................... 239,363 368,244
(c) To record income taxes (benefit) for P&C at an effective rate of 38%............ 14,110 16,540
To record the tax benefit on the amortization of goodwill....................... (100,737) (150,287)
To record the tax benefit on the additional interest expense.................... (90,958) (139,933)
</TABLE>
F-36
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. OBIE
MEDIA HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. OBIE MEDIA IS OFFERING TO SELL, AND
SOLICITING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE
OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS.
------------------------
1,750,000 SHARES
OF
COMMON STOCK
[LOGO]
OBIE MEDIA CORPORATION
WEDBUSH MORGAN SECURITIES PACIFIC CREST SECURITIES INC.
JOINT LEAD MANAGERS
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee................................................................ $ 7,151
NASD filing fee..................................................................... 3,072
Nasdaq National Market listing fee.................................................. 63,725
Printing and engraving expenses..................................................... 100,000
Legal fees and expenses............................................................. 175,000
Accounting fees and expenses........................................................ 100,000
Transfer agent and registrar fees................................................... 3,500
Miscellaneous expenses.............................................................. 47,552
----------
Total........................................................................... $ 500,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Oregon law, the Registrant's Restated Articles of
Incorporation (the "Articles") permit and its Restated Bylaws (the "Bylaws")
require the indemnification against certain liabilities and expenses of a
director or officer made or threatened to be made a party to a proceeding (other
than a proceeding by or in the right of the Corporation to procure a judgment in
its favor) because such person is or was a director or officer of the Registrant
or one of its subsidiaries. Indemnification is provided if the director or
officer acted in good faith and in a manner he or she reasonably believed was in
or not opposed to the best interests of the Registrant, and, with respect to any
criminal action or proceeding, the director or officer, in addition, had no
reasonable cause to believe his or her conduct was unlawful. In the case of any
proceeding by or in the right of the Registrant, a director or officer is
entitled to indemnification of certain expenses if he or she acted in good faith
and in a manner he or she reasonably believed was in or not opposed to the best
interests of the Registrant. However, pursuant to Oregon law and indemnity
agreements the Registrant has entered into with its directors and officers, no
indemnification would be made if the director's or officer's errors or omissions
(or alleged errors or omissions) were shown to have involved: (1) any breach of
the director's or officer's duty of loyalty to the Registrant; (2) any act or
omission not in good faith or which involved intentional misconduct or a knowing
violation of law; (3) any distribution that was unlawful under Oregon law; (4)
any transaction from which the director or officer received an improper personal
benefit; or (5) profits made from the purchase and sale by the director or
officer of securities of the Registrant within the meaning of Section 16(b) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or similar
provision of any state statutory law or common law. Indemnification may also be
provided to persons other than directors or officers under certain
circumstances.
As permitted by Oregon law, the Articles also provide that no director will
be liable to the Registrant or its shareholders for monetary damages for conduct
as a director, except that a director may be personally liable for any: (1)
breach of the director's duty of loyalty to the Registrant or its shareholders;
(2) act or omission not in good faith or that involves intentional misconduct or
a knowing violation of the law; (3) unlawful distribution to shareholders; (4)
transaction from which the director derives an improper personal benefit; or (5)
profits made from the purchase and sale by the director of securities of the
II-1
<PAGE>
Registrant within the meaning of Section 16(b) of the Exchange Act or similar
provision of any state statutory law or common law.
As mentioned above, the Registrant has entered into agreements to indemnify
its directors and officers. The agreements are intended to provide the maximum
indemnification permitted by Oregon law. The agreements indemnify each of the
Registrant's directors and officers in any action or proceeding for certain
expenses (including attorney fees) and, other than in an action or proceeding by
or in the right of the Registrant, for judgments, fines and settlement amounts
incurred on account of such person's services as a director or officer of the
Registrant or, at the Registrant's request, as a director, officer, employee or
agent of another enterprise. The agreements also limit the liability of the
Registrant's directors in respect of their conduct in serving the Registrant to
the extent permitted by Oregon law, as described above.
The Registrant has obtained insurance insuring its directors and officers
against certain liabilities, including liabilities under federal and state
securities laws. See "Description of Capital Stock--Limitation of Directors'
Liability."
The Registrant understands that the current position of the Securities and
Exchange Commission is that any indemnification of liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), is against public
policy and is, therefore, unenforceable.
Reference is also made to Section 8 of the Underwriting Agreement filed as
Exhibit 1.1 hereto, indemnifying directors and officers of the Registrant
against certain liabilities, including certain liabilities arising under the
Securities Act, in certain circumstances by the underwriters.
The effect of these provisions is to indemnify the directors and officers of
the Registrant, to the fullest extent permitted by law, against all costs and
expenses incurred by them in connection with any action, suit or proceeding in
which they are involved by reason of their affiliation with the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On September 1, 1998, as partial consideration for the acquisition by the
Registrant of all of the outstanding capital stock of Philbin & Coine, Inc. ("P
& C"): (1) the Registrant issued 55,000 shares of its common stock, without par
value, to Wayne Schur; and (2) the Registrant granted options to purchase a
total of 137,500 shares of its common stock to Mr. Schur; and (3) the Registrant
granted an option to purchase 11,000 shares of common stock to Mr. Schur's
attorney. With respect to Mr. Schur's options, the exercise price for 126,500
shares is $7.92 per share and for 11,000 shares is $9.32 per share. The exercise
price for the attorney's option is $9.32 per share. Options to purchase 27,500
shares of the Registrant's common stock were exercisable on the date of grant,
and the remaining 121,000 shares are exercisable in equal increments on the
first four anniversaries of September 1, 1998, subject to certain provisions
regarding Mr. Schur's continued employment with the Registrant. The Registrant
also has agreed to issue up to 82,500 additional shares of common stock to Mr.
Schur depending on P & C performance through November 30, 2001.
Issuance of the common stock and the options was not registered under the
Securities Act, in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act. Mr. Schur was the President and sole
shareholder of P & C and is a person sophisticated in the business of P & C and
of the Registrant. He has been named Executive Vice President and a director of
Obie Media and will continue as President of P & C, a wholly owned subsidiary of
the Registrant. Transfer of the shares issued to Mr. Schur is restricted and
subject to stop transfer instructions. The options are not transferable.
II-2
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Registrant's Restated Articles of Incorporation, as amended(1)
3.2 Registrant's Restated Bylaws, as amended(1)
4.1 See Articles 3, 4 and 8 of Exhibit 3.1 and Articles 1, 2, 5, 6 and 7 of Exhibit 3.2
4.2 Form of Common Stock Certificate(1)
5.1 Opinion of Tonkon Torp LLP as to legality of the securities being registered, including consent
10.1 Registrant's Restated 1996 Stock Incentive Plan(4)
10.2 Form of Indemnification Agreement between Registrant and its directors(4)
10.3 Form of Indemnification Agreement between Registrant and its officers(4)
10.4 Lease between Obie Industries Incorporated and the Registrant, dated November 12, 1996(1)
10.5 Amendment, dated July 15, 1997, to lease agreement between Obie Industries Incorporated and the
Registrant(2)
10.6 Restated and Amended Loan Agreement, dated as of September 1, 1998, among the Registrant, Obie Media
Limited, Philbin & Coine, Inc., and U.S. Bank National Association, and related documents(4)
10.7 Stock Purchase Agreement among Registrant and Philbin & Coine, Inc. and Wayne P. Schur dated August
25, 1998(3)
10.8 Employment Agreement, dated September 1, 1998, between the Registrant and Wayne P. Schur(4)
10.9 Non-Qualified Stock Option Agreement, dated September 1, 1998, between the Registrant and Wayne P.
Schur(4)
10.10* Settlement Offer Letter dated September 25, 1998 from Tri-County Metropolitan Transportation District
of Oregon to Registrant, signed by the Registrant indicating acceptance(5)
21.1 List of Subsidiaries(4)
23.1 Consent of Tonkon Torp LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants
24.1* Power of Attorney (see page II-6 of Registration Statement filed May 26, 1999)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
SB-2 (Registration No. 333-5728-LA) declared effective on November 21, 1996.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended November 30, 1997 filed February 27, 1998.
(3) Incorporated by reference to the Registrant's Form 8-K filed September 14,
1998.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended November 30, 1998 filed March 1, 1999.
(5) Confidential treatment has been requested with respect to this exhibit.
Confidential portions of the exhibit have been omitted and filed separately
with the SEC.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange 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 by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant 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.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A under the Securities Act
and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Eugene, State of Oregon, on July 13, 1999.
<TABLE>
<S> <C> <C>
OBIE MEDIA CORPORATION
By: /s/ BRIAN B. OBIE
-----------------------------------------
Brian B. Obie, Chairman of the Board,
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITIES DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ BRIAN B. OBIE Chairman of the Board, July 13, 1999
- ------------------------------ President, Chief Executive
Brian B. Obie Officer and Director
/s/ JAMES W. CALLAHAN July 13, 1999
- ------------------------------ Chief Financial Officer
James W. Callahan and Treasurer
WAYNE P. SCHUR* July 13, 1999
- ------------------------------ Executive Vice President
Wayne P. Schur and Director
MICHAEL E. HUBBARD* July 13, 1999
- ------------------------------ Corporate Controller
Michael E. Hubbard
DELORES M. MORD* July 13, 1999
- ------------------------------ Director
Delores M. Mord
RANDALL C. PAPE* July 13, 1999
- ------------------------------ Director
Randall C. Pape
STEPHEN A. WENDELL* July 13, 1999
- ------------------------------ Director
Stephen A. Wendell
RICHARD C. WILLIAMS* July 13, 1999
- ------------------------------ Director
Richard C. Williams
</TABLE>
<TABLE>
<S><C> <C> <C>
*By: /s/ JAMES W. CALLAHAN Attorney-in-fact July 13, 1999
-------------------------
James W. Callahan
</TABLE>
II-5
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Registrant's Restated Articles of Incorporation, as amended(1)
3.2 Registrant's Restated Bylaws, as amended(1)
4.1 See Articles 3, 4 and 8 of Exhibit 3.1 and Articles 1, 2, 5, 6 and 7 of Exhibit 3.2
4.2 Form of Common Stock Certificate(1)
5.1 Opinion of Tonkon Torp LLP as to legality of the securities being registered, including consent
10.1 Registrant's Restated 1996 Stock Incentive Plan(4)
10.2 Form of Indemnification Agreement between Registrant and its directors(4)
10.3 Form of Indemnification Agreement between Registrant and its officers(4)
10.4 Lease between Obie Industries Incorporated and the Registrant, dated November 12, 1996(1)
10.5 Amendment, dated July 15, 1997, to lease agreement between Obie Industries Incorporated and the
Registrant(2)
10.6 Restated and Amended Loan Agreement, dated as of September 1, 1998, among the Registrant, Obie Media
Limited, Philbin & Coine, Inc., and U.S. Bank National Association, and related documents(4)
10.7 Stock Purchase Agreement among Registrant and Philbin & Coine, Inc. and Wayne P. Schur dated August
25, 1998(3)
10.8 Employment Agreement, dated September 1, 1998, between the Registrant and Wayne P. Schur(4)
10.9 Non-Qualified Stock Option Agreement, dated September 1, 1998, between the Registrant and Wayne P.
Schur(4)
10.10* Settlement Offer Letter dated September 25, 1998 from Tri-County Metropolitan Transportation District
of Oregon to Registrant, signed by the Registrant indicating acceptance(5)
21.1 List of Subsidiaries(4)
23.1 Consent of Tonkon Torp LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
23.3 Consent of PricewaterhouseCoopers LLP, Independent Accountants
24.1* Power of Attorney (see page II-6 of the Registration Statement filed May 26, 1999)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
SB-2 (Registration No. 333-5728-LA) declared effective on November 21, 1996.
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended November 30, 1997 filed February 27, 1998.
(3) Incorporated by reference to the Registrant's Form 8-K filed September 14,
1998.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the year ended November 30, 1998 filed March 1, 1999.
(5) Confidential treatment has been requested with respect to this exhibit.
Confidential portions of the exhibit have been omitted and filed separately
with the SEC.
<PAGE>
Exhibit 1.1
1,750,000 SHARES
OBIE MEDIA CORPORATION
COMMON STOCK
(NO PAR VALUE)
EQUITY UNDERWRITING AGREEMENT
__________, 1999
Wedbush Morgan Securities Inc.
Pacific Crest Securities Inc.
As Representatives of the
Several Underwriters
c/o Wedbush Morgan Securities Inc.
1000 Wilshire Blvd.
Los Angeles, CA 90030-0014
Ladies and Gentlemen:
Obie Media Corporation, an Oregon corporation (the "Company"), and
certain shareholders of the Company (the "Selling Shareholders") propose to
sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as representatives (the "Representatives") an
aggregate of 1,750,000 shares of the Company's Common Stock, no par value
(the "Firm Shares"), of which 1,000,000 shares will be sold by the Company
and 750,000 shares will be sold by the Selling Shareholders. The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto, and the respective
amounts to be sold by the Selling Shareholders are set forth opposite their
names in Schedule II hereto. The Company and the Selling Shareholders are
sometimes referred to herein collectively as the "Sellers." The Company and
certain Selling Shareholders also propose to sell at the Underwriters' option
an aggregate of up to 262,500 additional shares of the Company's Common Stock
(the "Option Shares") as set forth below.
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<PAGE>
As the Representatives, you have advised the Company and the Selling
Shareholders (a) that you are authorized to enter into this Agreement on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their
pro rata portion of the Option Shares if you elect to exercise the
over-allotment option in whole or in part for the accounts of the several
Underwriters. The Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the
"Shares."
In consideration of the mutual agreements contained herein and of
the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDERS.
(A) The Company represents and warrants to each of the
Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-79367)
with respect to the Shares has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"),
and the Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder and has been filed with
the Commission. The Company has complied with the conditions for the use of
Form S-1. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules
and Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by
the Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462(b) of the
Act, herein referred to as the "Registration Statement," which shall be
deemed to include all information omitted therefrom in reliance upon Rule
430A and contained in the Prospectus referred to below, has become effective
under the Act and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. "Prospectus" means the form
of prospectus first filed with the Commission pursuant to Rule 424(b). Each
preliminary prospectus included in the Registration Statement prior to the
time it becomes effective is herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing
as a corporation under the laws of the State of Oregon, with corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration
2
<PAGE>
Statement. Each of the subsidiaries of the Company as listed in Exhibit 21.1
to Item 16(a) of the Registration Statement (collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. The Subsidiaries are the only subsidiaries, direct or indirect, of
the Company. The Company and each of the Subsidiaries are duly qualified to
transact business in all jurisdictions in which the conduct of their business
requires such qualification. The outstanding shares of capital stock of each
of the Subsidiaries have been duly authorized and validly issued, are fully
paid and non-assessable and to the extent shown in Exhibit A hereto are owned
by the Company or another Subsidiary free and clear of all liens,
encumbrances, equities and claims, except that all of such shares secure the
Company's obligations to its primary lender; and no options, warrants or
other rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into shares of capital stock or ownership
interests in the Subsidiaries are outstanding.
(iii) The outstanding shares of Common Stock of the Company,
including all shares to be sold by the Selling Shareholders, have been duly
authorized and validly issued and are fully paid and non-assessable; the
portion of the Shares to be issued and sold by the Company have been duly
authorized and when issued and paid for as contemplated herein will be
validly issued, fully paid and non-assessable; and no preemptive rights of
shareholders exist with respect to any of the Shares or the issue and sale
thereof. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating
to the registration of any shares of Common Stock.
(iv) The information set forth under the caption "Capitalization"
in the Prospectus, with respect to the capital stock of the Company, is true
and correct, and, with respect to all other information set forth therein, is
true and correct in all material respects. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction
of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor, to the Company's best knowledge, instituted proceedings for that
purpose. The Registration Statement contains, and the Prospectus and any
amendments or supplements thereto will contain, all statements which are
required to be stated therein by, and will conform to, the requirements of
the Act and the Rules and Regulations. The
3
<PAGE>
Registration Statement and any amendments thereto do not contain, and will
not contain, any untrue statement of a material fact and do not omit, and
will not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus and
any amendments and supplements thereto do not contain, and will not contain,
any untrue statement of material fact, and do not omit, and will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results
of operations and cash flows of the Company and the consolidated
Subsidiaries, at the indicated dates and for the indicated periods. Such
financial statements and related schedules have been prepared in accordance
with generally accepted principles of accounting, consistently applied
throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such periods
have been made. The summary financial and statistical data included in the
Registration Statement presents fairly the information shown therein and such
data has been compiled on a basis consistent with the financial statements
presented therein and the books and records of the Company. The pro forma
financial statements and other pro forma financial information included in
the Registration Statement and the Prospectus present fairly the information
shown therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements, have been
properly compiled on the pro forma bases described therein, and, in the
opinion of the Company, the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(vii) PricewaterhouseCoopers LLP and Arthur Andersen LLP, who
have certified certain of the financial statements filed with the Commission
as part of the Registration Statement, are independent public accountants as
required by the Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company, threatened against the Company or any of
the
4
<PAGE>
Subsidiaries before any court or administrative agency or otherwise which if
determined adversely to the Company or any of its Subsidiaries might result
in any material adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and of the Subsidiaries, taken as a whole, or to
prevent the consummation of the transactions contemplated hereby, except as
set forth in the Registration Statement.
(ix) The Company and the Subsidiaries have good and marketable
title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except those reflected in such financial statements (or as described in
the Registration Statement) or which are not material in amount. The Company
and the Subsidiaries occupy their leased properties under valid and binding
leases conforming in all material respects to the descriptions thereof set
forth in the Registration Statement.
(x) The Company and the Subsidiaries have filed all Federal,
State, local and foreign tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
them or any of them to the extent that such taxes have become due. All tax
liabilities have been adequately provided for in the financial statements of
the Company, and the Company does not know of any actual or proposed
additional material tax assessments.
(xi) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented,
there has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company and its Subsidiaries, taken as a
whole, whether or not occurring in the ordinary course of business, and there
has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company or the
Subsidiaries, other than transactions in the ordinary course of business and
changes and transactions described in the Registration Statement, as it may
be amended or supplemented. The Company and the Subsidiaries have no material
contingent obligations which are not disclosed in the Company's financial
statements which are included in the Registration Statement.
(xii) Neither the Company nor any of the Subsidiaries is, or
with the giving of notice or lapse of time or both, will be, in violation of
or in default under its Articles of Incorporation or Bylaws, in each case as
amended, or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a
5
<PAGE>
party or by which it, or any of its properties, is bound and which default is
of material significance in respect of the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Subsidiaries, taken as a whole. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company or any Subsidiary is a
party (other than under change of control provisions of office and storage
leases and agreements with advertisers that are not material, individually or
in the aggregate, to the Company), or of the Articles of Incorporation or
Bylaws of the Company or any order, rule or regulation applicable to the
Company or any Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative
or other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated (except such additional steps as may be
required by the Commission, the National Association of Securities Dealers,
Inc. (the "NASD") or such additional steps as may be necessary to qualify the
Shares for public offering by the Underwriters under state securities or Blue
Sky laws) has been obtained or made and is in full force and effect.
(xiv) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental authorities
which are necessary to the conduct of their businesses; and, to the Company's
best knowledge, neither the Company nor any of the Subsidiaries has infringed
any patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company and the Subsidiaries,
taken as a whole. The Company knows of no material infringement by others of
patents, patent rights, trade names, trademarks or copyrights owned by or
licensed to the Company.
(xv) Neither the Company nor, to the Company's knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of
the Shares. The Company acknowledges that the Underwriters may engage in
passive market-making transactions in the Shares on The Nasdaq Stock Market
in accordance with Regulation M under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
6
<PAGE>
(xvi) Neither the Company nor any Subsidiary is an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations of the
Commission thereunder.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xviii) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
reasonably adequate for the conduct of their respective businesses and the
value of their respective properties and as is customary for companies
engaged in similar industries.
(xix) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability; the Company has not incurred
and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company would have any
liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(xx) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's
officers, directors or 5% or greater securityholders, except as set forth in
the Registration Statement.
(b) Each of the Selling Shareholders severally represents
and warrants as follows:
7
<PAGE>
(i) Such Selling Shareholder now has and at the Closing Date
and the Option Closing Date, as the case may be (as such dates are
hereinafter defined) will have (i) good and marketable title to the Firm
Shares and the Option Shares to be sold by such Selling Shareholder, free and
clear of any liens, encumbrances, equities and claims, and (ii) full right,
power and authority to effect the sale and delivery of such Firm Shares and
Option Shares; and upon the delivery of, against payment for, such Firm
Shares and Option Shares pursuant to this Agreement, the Underwriters will
acquire good and marketable title thereto, free and clear of any liens,
encumbrances, equities and claims.
(ii) Such Selling Shareholder has full right, power and
authority to execute and deliver this Agreement, the Power of Attorney and
the Custody Agreement referred to below and to perform its obligations under
such Agreements. The execution and delivery of this Agreement and the
consummation by such Selling Shareholder of the transactions herein
contemplated and the fulfillment by such Selling Shareholder of the terms
hereof will not require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental
body (except as may be required under the Act or state securities or Blue Sky
laws) and will not result in a breach of any of the terms and provisions of,
or constitute a default under, organizational documents of such Selling
Shareholder, if not an individual, or any indenture, mortgage, deed of trust
or other agreement or instrument to which such Selling Shareholder is a
party, or of any order, rule or regulation applicable to such Selling
Shareholder of any court or of any regulatory body or administrative agency
or other governmental body having jurisdiction.
(iii) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock of the Company
and, other than as permitted by the Act, the Selling Shareholder will not
distribute any prospectus or other offering material in connection with the
offering of the Shares.
(iv) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties of the
Company contained herein or the information contained in the Registration
Statement, such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in this Section 1 are
not true and correct and is familiar with the Registration Statement and has
no knowledge of any material fact, condition or information not disclosed in
the Registration Statement which has adversely affected or may adversely
affect the business of the Company or any of the Subsidiaries; and the sale
of the Firm Shares and the Option Shares by such Selling Shareholder
8
<PAGE>
pursuant hereto is not prompted by any adverse information concerning the
Company or any of the Subsidiaries which is not set forth in the Registration
Statement. The information pertaining to such Selling Shareholder under the
caption "Principal and Selling Shareholders" in the Prospectus is complete
and accurate in all material respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES AND THE OPTION
SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth,
the Sellers agree to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $_____ per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9
hereof. The number of Firm Shares to be purchased by each Underwriter from
each Seller shall be as nearly as practicable in the same proportion to the
total number of Firm Shares being sold by each Seller as the number of Firm
Shares being purchased by each Underwriter bears to the total number of Firm
Shares to be sold hereunder. The obligations of the Company and of each of
the Selling Shareholders shall be several and not joint.
(b) Certificates in negotiable form for the total number of
the Shares to be sold hereunder by the Selling Shareholders have been placed
in custody with American Securities Transfer & Trust, Inc. as custodian (the
"Custodian") pursuant to the Custody Agreement executed by each Selling
Shareholder for delivery of all Firm Shares and any Option Shares to be sold
hereunder by the Selling Shareholders. Each of the Selling Shareholders
specifically agrees that the Firm Shares and any Option Shares represented by
the certificates held in custody for the Selling Shareholders under the
Custody Agreement are subject to the interests of the Underwriters hereunder,
that the arrangements made by the Selling Shareholders for such custody are
to that extent irrevocable, and that the obligations of the Selling
Shareholders hereunder shall not be terminable by any act or deed of the
Selling Shareholders (or by any other person, firm or corporation, including
the Company, the Custodian or the Underwriters) or by operation of law
(including the death of an individual Selling Shareholder or the dissolution
of a corporate Selling Shareholder) or by the occurrence of any other event
or events, except as set forth in the Custody Agreement. If any such event
should occur prior to the delivery to the Underwriters of the Firm Shares or
the Option Shares hereunder, certificates for the Firm Shares or the Option
Shares, as the case may be, shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such event has not
occurred. The
9
<PAGE>
Custodian is authorized to receive and acknowledge receipt of the proceeds of
sale of the Shares held by it against delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to be
made in New York Clearing House (next-day) funds to an account designated by
the Company for the shares to be sold by it and to an account designated by
the Custodian for the shares to be sold by the Selling Shareholders, in each
case against delivery of certificates therefor to the Representatives for the
several accounts of the Underwriters. Such payment and delivery shall be made
at the offices, Wedbush Morgan Securities Inc., 1000 Wilshire Blvd., Los
Angeles, California at 7:00 a.m., Los Angeles time, on the third business day
after the date of this Agreement or at such other time and date not later
than five business days thereafter as you and the Company shall agree upon,
such time and date being herein referred to as the "Closing Date." (As used
herein, "business day" means a day on which the New York Stock Exchange is
open for trading and on which banks in New York are open for business and not
permitted by law or executive order to be closed.)
(d) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein
set forth, the Company and the Selling Shareholders listed on Schedule III
hereto hereby grant an option to the several Underwriters to purchase the
Option Shares at the price per share as set forth in the first paragraph of
this Section 2. The maximum number of Option Shares to be sold by the Company
and such Selling Shareholders is set forth opposite their respective names on
Schedule III hereto. The option granted hereby may be exercised in whole or
in part by giving written notice (i) at any time before the Closing Date and
(ii) only once thereafter within 30 days after the date of this Agreement, by
you, as Representatives of the several Underwriters, to the Company, the
Attorney (as defined in the Custody Agreement), and the Custodian, setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option, the names and denominations in which the Option Shares
are to be registered and the time and date at which such certificates are to
be delivered. If the option granted hereby is exercised in part, the
respective number of Option Shares to be sold by the Company and each of the
Selling Shareholders listed in Schedule III hereto shall be determined on a
pro rata basis in accordance with the percentages set forth opposite their
names on Schedule III hereto, adjusted by you in such manner as to avoid
fractional shares. The time and date at which certificates for Option Shares
are to be delivered shall be determined by the Representatives but shall not
be earlier than three nor later than 10 full business days after the exercise
of such option, nor in any event prior to the Closing Date (such time and
date being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the
notice of exercise shall set the Closing Date as the Option Closing Date.
10
<PAGE>
The number of Option Shares to be purchased by each Underwriter shall be in
the same proportion to the total number of Option Shares being purchased as
the number of Firm Shares being purchased by such Underwriter bears to the
total number of Firm Shares, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the
Firm Shares by the Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Company and the Attorney.
To the extent, if any, that the option is exercised, payment for the Option
Shares shall be made on the Option Closing Date in New York Clearing House
(next-day) funds drawn to the order of the Company for the Option Shares to
be sold by it and to the order of "American Securities Transfer & Trust,
Inc., as Custodian" for the Option Shares to be sold by the Selling
Shareholders against delivery of certificates therefor through the facilities
of the Depository Trust Company, New York, New York.
(e) If any Selling Shareholder shall fail at the Closing Date
or Option Closing Date to sell and deliver the number of Firm Shares or
Option Shares that such Selling Shareholder is obligated to sell, the Company
and the non-defaulting Selling Shareholders shall have the right (but not the
obligation), within 24 hours thereafter, to make arrangements for one or more
of the Company and the non-defaulting Selling Shareholders to sell upon the
terms set forth in this Agreement all, but not less than all, of such
defaulted Firm Shares or Option Shares in such amounts as may be agreed upon
and to which the Underwriters do not reasonably object; if, however, such
arrangements have not been completed within such 24-hour period, then the
Underwriters may, at their option, by notice from the Representatives to the
Company, either (a) terminate this Agreement without any liability on the
part of any non-defaulting party except to the extent provided in Section 5
and Section 8 or (b) elect to purchase the Firm Shares or Option Shares that
the Company and the remaining Selling Shareholders have agreed to sell
pursuant to this Agreement. In the event of a default under this Section 2(e)
that does not result in the termination of this Agreement, either the
Underwriters or the Company shall have the right to postpone the Closing Date
or Option Closing Date for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
If the Company shall fail at the Closing Date or Option Closing
Date to sell and deliver the number of Firm Shares or Option Shares that it
is obligated to sell, then this Agreement shall terminate without any
liability on the part of any non-defaulting party except to the extent
provided in Section 5 and except that the provisions of Section 8 shall
remain in effect.
11
<PAGE>
No action taken pursuant to this Section 2(e) shall relieve
the Company or any Selling Shareholder so defaulting from liability, if any, in
respect of such default.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the public
offering price set forth in the Prospectus. The Representatives may from time to
time thereafter change the public offering price and other selling terms. To the
extent, if at all, that any Option Shares are purchased pursuant to Section 2
hereof, the Underwriters will offer them to the public on the foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDERS.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission, (C)
of any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, and (D) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the institution of
any proceedings for that
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purpose. The Company will use its best efforts to prevent the issuance of any
such stop order preventing or suspending the use of the Prospectus and to
obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process or subject itself to taxation in any jurisdiction
where it is not now so qualified or required to file such a consent or subject
to taxation. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to continue
such qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, one signed copy of the Registration Statement and two signed
copies of all amendments thereto including all exhibits filed therewith, and
will deliver to the Representatives such number of copies of the Registration
Statement (including such number of copies of the exhibits filed therewith that
may reasonably be requested), and of all amendments thereto, as the
Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act, and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or if it is necessary at
any time to amend or supplement the Prospectus to comply with any law, the
Company promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the
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Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the Registration Statement, an earnings
statement (which need not be audited) in reasonable detail, covering a period of
at least 12 consecutive months beginning after the effective date of the
Registration Statement, which earnings statement shall satisfy the requirements
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations.
(vii) Prior to the Closing Date, the Company will furnish to
the Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company for
any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(viii) Except as otherwise provided in a prior written consent
of Wedbush Morgan Securities Inc. after the date hereof, no offering, sale,
short sale or other disposition of any shares of Common Stock of the Company or
other securities convertible into or exchangeable or exercisable for shares of
Common Stock or derivative of Common Stock (or agreement for such) will be made
for a period of 90 days after the date of this Agreement, directly or
indirectly, by the Company, other than: (a) pursuant to this Agreement; (b)
Common Stock contributed by the Company to its 401(k) plan; and (c) pursuant to
stock options granted by the Company to employees and directors in the ordinary
course of business.
(ix) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on The Nasdaq National Market.
(x) The Company has caused each officer, director and
shareholder of the Company set forth on Schedule IV hereto to furnish to you, on
or prior to the date of this Agreement, a letter or letters, in form and
substance satisfactory to the Underwriters, pursuant to which each such person
shall agree not to offer, sell, sell short or otherwise dispose of any shares of
Common Stock of the Company or other capital stock of the Company, or any other
securities convertible, exchangeable or exercisable for shares of Common Stock
or derivative of Common Stock owned by such person or request the registration
for the offer or sale of any of the foregoing (or as to which such person has
the right to direct the disposition of) for a period of 90 days after the date
of this Agreement, directly or indirectly, except with the prior written consent
of Wedbush Morgan Securities Inc. ("Lockup Agreements").
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(xi) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus.
(xii) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner as
would require the Company or any of the Subsidiaries to register as an
investment company under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.
(xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any securities of the Company.
(b) Each of the Selling Shareholders covenants and agrees with
the several Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the Company or
other securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Shareholder or request for the
registration for the offer or sale of any of the foregoing (or as to which the
Selling Shareholder has the right to direct the disposition of) will be made for
a period of 90 days after the date of this Agreement, directly or indirectly, by
such Selling Shareholder otherwise than hereunder or with the prior written
consent of Wedbush Morgan Securities Inc.
(ii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of
1983 with respect to the transactions herein contemplated, each of the Selling
Shareholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
(iii) Such Selling Shareholder will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
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5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters copies of
the Registration Statement, Preliminary Prospectuses, the Prospectus, this
Agreement, the Underwriters' Selling Memorandum, the Underwriters' Invitation
Letter, the Listing Application, the Blue Sky Survey and any supplements or
amendments thereto; the filing fees of the Commission; the filing fees and
expenses (including legal fees and disbursements) incident to securing any
required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of The Nasdaq
Stock Market; and the expenses, including the fees and disbursements of counsel
for the Underwriters, incurred in connection with the qualification of the
Shares under state securities or Blue Sky laws. The Selling Shareholders have
agreed with the Company to reimburse the Company for a portion of such expenses.
To the extent, if at all, that any of the Selling Shareholders engage special
legal counsel to represent them in connection with this offering, the fees and
expenses of such counsel shall be borne by such Selling Shareholder. Any
transfer taxes imposed on the sale of the Shares to the several Underwriters
will be paid by the Sellers pro rata. The Sellers shall not, however, be
required to pay for any of the Underwriters expenses (other than those related
to qualification under NASD regulation and state securities or Blue Sky laws) if
this Agreement shall not be consummated except that, if this Agreement shall not
be consummated because the conditions in Section 6 (other than Section 6(c))
hereof are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 2(e) or Section 11(a)(i) hereof, or by
reason of any failure, refusal or inability on the part of the Company or the
Selling Shareholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company and the
Selling Shareholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
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6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing Date
are subject to the accuracy, as of the Closing Date or the Option Closing Date,
as the case may be, of the representations and warranties of the Company and the
Selling Shareholders contained herein, and to the performance by the Company and
the Selling Shareholders of their covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company or the Selling
Shareholders, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date or the
Option Closing Date, as the case may be, which would prevent the issuance of the
Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinions of Tonkon Torp
LLP, counsel for the Company, dated the Closing Date or the Option Closing Date,
as the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation under the laws of the State of Oregon, with corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement; each of the Subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement; the Company and each of the Subsidiaries are duly
qualified to transact business in the jurisdictions specified in an exhibit
attached to the opinion; to the knowledge of such counsel after due inquiry of
the Company, the Company neither owns nor leases property nor conducts any
material business operations outside of such jurisdictions which would require
qualification in any jurisdiction not specified in such exhibit; and the
outstanding
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shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued and are fully paid and non assessable and are owned by the
Company or a Subsidiary or, with respect to O.B. Walls, Inc. owned 50 percent
by the Company; and, to such counsel's knowledge, the outstanding shares of
capital stock of each of the Subsidiaries is owned free and clear of all
liens, encumbrances and claims, except for liens securing the Company's
obligations to its primary lender, and no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to
convert any obligations into any shares of capital stock or of ownership
interests in the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital stock
as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's Common Stock have been duly authorized by all
necessary corporate action; the outstanding shares of the Company's Common
Stock, including the Shares to be sold by the Selling Shareholders, have been
duly authorized and validly issued and are fully paid and nonassessable; all of
the Shares conform to the description thereof contained in the Prospectus; the
certificates for the Shares, assuming they are in the form filed with the
Commission, comply as to form with Oregon law; the shares of Common Stock,
including the Option Shares, if any, to be sold by the Company pursuant to this
Agreement have been duly authorized and will be validly issued, fully paid and
nonassessable when issued and paid for as contemplated by this Agreement; and
none of them will have been issued in violation of any preemptive or other
similar right granted under the law of Oregon or the Articles of Incorporation
or Bylaws of the Company, or, to the knowledge of such counsel, other rights to
subscribe for or purchase any securities.
(iii) Except as described in or contemplated by the Prospectus
and for stock options granted by the Company to employees and directors in the
ordinary course of business after the date of the Prospectus, to the knowledge
of such counsel, there are no outstanding securities of the Company convertible
or exchangeable into or evidencing the right to purchase or subscribe for any
shares of capital stock of the Company and there are no outstanding or
authorized options, warrants or rights of any character obligating the Company
to issue any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for any
shares of such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the Company or any
other person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any of the Shares or the
right to have any shares of Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require
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registration under the Act of any shares of Common Stock or other securities
of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects with
the requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein). The conditions for the use of Form S-1, set
forth in the General Instructions thereto, have been satisfied.
(vi) The statements under the captions "Risk
Factors-Government Regulations May Limit Our Ability to Expand Our Outdoor
Advertising Business," "Risk Factors-Our Credit Agreements Limit Our Financial
and Operational Flexibility," "Risk Factors-Our Antitakeover Provisions and
Authorized Stock May Reduce the Market Price of Our Common Stock"
"Business-Government Regulation," "Management-Limitation of Liability;
Indemnification of Directors and Officers; Insurance," "Description of Capital
Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of documents referred to therein or matters of
law, are fair summaries in all material respects and accurately present in all
material respects the information called for with respect to such documents and
matters.
(vii) Such counsel has no knowledge of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not so filed
or described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(viii) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any of the
Subsidiaries which are reasonably likely to have a material and adverse effect
upon the assets or properties, business, results of operations or condition
(financial or otherwise) or prospects of the Company and the Subsidiaries, taken
as whole, except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default
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under, the Articles of Incorporation or Bylaws of the Company, or any
material agreement or instrument as to which such counsel has knowledge to
which the Company or any of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries may be bound.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated
(other than as may be required by the NASD or as required by state securities
and Blue Sky laws, as to which such counsel need express no opinion) except such
as have been obtained or made.
(xii) The Company is not, and will not become, as a result of
the consummation of the transactions contemplated by this Agreement and
application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly executed and delivered on
behalf of the Selling Shareholders.
(xiv) Each Selling Shareholder has full legal right and any
approval required by law (other than as required by state securities and Blue
Sky laws, as to which such counsel need express no opinion), to sell, assign,
transfer and deliver the portion of the Shares to be sold by such Selling
Shareholder.
(xv) Each of the Custody Agreement and the Power of Attorney
executed and delivered by each Selling Shareholder is valid and binding and
enforceable against such Selling Shareholder in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting enforcement of creditors' rights
generally and except as enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a proceeding in
equity or at law). In addition, no opinion need be expressed with respect to the
enforceability of the provisions in the Custody Agreement and the Power of
Attorney which provide that the authority of the Attorneys (as defined in the
Custody Agreement) and the Custodian appointed pursuant to the Custody Agreement
shall continue notwithstanding the death of an individual Selling Shareholder,
to the extent that the Attorney or Custodian acquires actual knowledge of the
death of such Selling Shareholder.
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(xvi) Upon payment for and delivery of certificates
representing the Shares being sold pursuant to the Underwriting Agreement by
each Selling Shareholder, duly endorsed by the respective Selling Shareholder,
and assuming the Underwriters are acquiring such Shares in good faith and
without notice of any adverse claim and are otherwise bona fide purchasers
within the meaning of the Uniform Commercial Code, the Underwriters will have
acquired good and marketable title to the Shares being sold by each Selling
Shareholder on the CLOSING Date and the Option Closing Date, as the case may be,
free and clear of all liens, encumbrances and claims.
In rendering such opinions, Tonkon Torp LLP may rely as to
matters governed by the laws of states other than Oregon or Federal laws on
local counsel in such jurisdictions and as to the matters set forth in
subparagraphs (xiii), (xiv), (xv) and (xvi) on opinions of other counsel
representing the Selling Shareholders, if any, provided that in each case Tonkon
Torp LLP shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set forth
above, Tonkon Torp LLP shall provide a statement to the Underwriters to the
effect that nothing has come to the attention of such counsel which leads them
to believe that (i) the Registration Statement, at the time it became effective
under the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Tonkon Torp
LLP may state that their belief is based upon the procedures set forth therein,
but is without independent check and verification.
(c) The Representatives shall have received from Perkins Coie
LLP, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, with respect to the incorporation of
the Company, the validity of the Shares being delivered on such date, the
Registration Statement, the Prospectus and other related matters as you may
reasonably request. In addition to the matters set forth above, Perkins Coie LLP
shall provide a statement to the Underwriters to the effect that nothing has
come to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment
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thereto, as of the time it became effective under the Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A under
the Act) as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and
as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact, necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Perkins
Coie LLP may state that their belief is based upon the procedures set forth
therein, but is without independent check and verification.
(d) If on the Closing Date the Shares do not qualify as
"covered securities" for purposes of Section 18 under the Act, the
Representatives shall have received at or prior to the Closing Date from Perkins
Coie LLP a memorandum or summary, in form and substance satisfactory to the
Representatives, with respect to the qualification for offering and sale by the
Underwriters of the Shares under the state securities or Blue Sky laws of such
jurisdictions as the Representatives may reasonably have designated to the
Company.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, letters dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of each of Arthur Andersen LLP and
PricewaterhouseCoopers LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published Rules and
Regulations thereunder and stating that in their respective opinions the
financial statements and schedules examined by Arthur Andersen LLP or
PricewaterhouseCoopers LLP, as the case may be, and included in the Registration
Statement comply in form in all material respects with the applicable accounting
requirements of the Act and the related published Rules and Regulations; and
containing such other statements and information as is ordinarily included in
accountants' "comfort letters" to Underwriters with respect to the financial
statements and certain financial and statistical information contained in the
Registration Statement and Prospectus and examined by Arthur Andersen LLP or
PricewaterhouseCoopers LLP, as the case may be.
(f) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as
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of the Closing Date or the Option Closing Date, as the case may be, each of
them severally represents as follows:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registrations
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or the
Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and
the Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct in all material respects, and such Registration Statement and Prospectus
did not omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which should have been
set forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries, taken as a whole, whether or not arising in
the ordinary course of business.
(g) The Company and the Selling Shareholders shall have
furnished to the Representatives such further certificates and documents
confirming the representations and warranties, covenants and conditions
contained herein and related matters as the Representatives may reasonably have
requested.
(h) The Firm Shares and Option Shares, if any, have been
approved for listing upon notice of issuance on The Nasdaq National Market.
(i) The Lockup Agreements described in Section 4(a)(x) are in
full force and effect.
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The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Perkins Coie LLP,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
(other than Section 6(c)) shall not have been fulfilled when and as required by
this Agreement to be fulfilled, the obligations of the Underwriters hereunder
may be terminated by the Representatives by notifying the Company and the
Selling Shareholders of such termination in writing or by telegram at or prior
to the Closing Date or the Option Closing Date, as the case may be.
In such event, the Selling Shareholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees:
(i) to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any and all losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (A) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (B) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
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supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for use
in the preparation thereof; and, provided further, that the foregoing indemnity
agreement with respect to any untrue statement contained in or any omission from
a Preliminary Prospectus shall not inure to the benefit of any Underwriter (or
any person who controls such Underwriter within the meaning of the Act) from
whom the person asserting any such loss, claim, damage or liability purchased
any of the Firm Shares or Option Shares that are the subject thereof if the
Company shall sustain the burden of proving that the Company made available to
such Underwriter copies of the Prospectus (or the Prospectus as amended or
supplemented) within a reasonable time prior to the written confirmation of the
sale of such shares to such person and that such person was not sent or given a
copy of the Prospectus (or the Prospectus as amended or supplemented) at or
prior to such confirmation of the sale of Firm Shares or Option Shares to the
extent required by the Act and the Rules and Regulations thereunder and the
untrue statement contained in or the omission from such Preliminary Prospectus
was corrected in the Prospectus (or the Prospectus as amended or supplemented).
(ii) to reimburse each Underwriter and each such controlling
person upon demand for any legal or other out-of-pocket expenses reasonably
incurred by such Underwriter or such controlling person in connection with
investigating or defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or controlling person is
a party to any action or proceeding. In the event that it is finally judicially
determined that the Underwriters were not entitled to receive payments for legal
and other expenses pursuant to this subparagraph, the Underwriters will promptly
return all sums that had been advanced pursuant hereto.
(iii) This indemnity obligation will be in addition to any
liability which the Company may otherwise have.
(b) The Selling Shareholders, jointly and severally, agree to
indemnify the Underwriters and each person, if any, who controls any Underwriter
within the meaning of the Act, against any and all losses, claims, damages or
liabilities to which such Underwriter or controlling person may become subject
under the Act or otherwise to the same extent as indemnity is provided by the
Company pursuant to Section 8(a) above. In no event, however, shall the
liability of any Selling Shareholder for indemnification under this Section 8(b)
exceed the proceeds received by such Selling Shareholder from the Underwriters
in the offering. This indemnity obligation will be in addition to any liability
which the Selling Shareholders may otherwise have.
25
<PAGE>
(c) Each Underwriter severally and not jointly will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement, the Selling Shareholders, and each
person, if any, who controls the Company or the Selling Shareholders within the
meaning of the Act, against any and all losses, claims, damages or liabilities
to which the Company or any such director, officer, Selling Shareholder or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, Selling Shareholder or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a), (b) or (c) shall be available to
any party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a), (b) or (c). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and
26
<PAGE>
shall pay as incurred the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, (ii) the
named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate due
to actual or potential differing interests between them, or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
reasonably acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties.
Such firm shall be designated in writing by you in the case of parties
indemnified pursuant to Section 8(a) or (b) and by the Company and the
Selling Shareholders in the case of parties indemnified pursuant to Section
8(c). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent (which consent shall not be
unreasonably withheld) but if settled with such consent or if there be a
final judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason of
such settlement or judgment. In addition, the indemnifying party will not,
without the prior written consent of the indemnified party, which consent
shall not be unreasonably withheld, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or
proceeding of which indemnification may be sought hereunder (whether or not
any indemnified party is an actual or potential party to such claim, action
or proceeding) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action or proceeding.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
27
<PAGE>
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company and the
Selling Shareholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Shareholders on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Shareholders bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Shareholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
8(e) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 8(e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation, and (iii) no Selling Shareholder
shall be required to contribute any amount in excess of the proceeds received by
such Selling Shareholder from the Underwriters in the offering. The
Underwriters' obligations in this Section 8(e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each
28
<PAGE>
party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it
as an additional defendant in any such proceeding in which such other
contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any Selling
Shareholder or any person controlling the Company or any Underwriter, shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a
Selling Shareholder), you, as Representatives of the Underwriters, shall use
your reasonable efforts to procure within 36 hours thereafter one or more of
the other Underwriters, or any others, to purchase from the Company and the
Selling Shareholders such amounts as may be agreed upon and upon the terms
set forth herein, the Firm Shares or Option Shares, as the case may be, which
the defaulting Underwriter or Underwriters failed to purchase. If the
aggregate number of Shares that the defaulting Underwriter or Underwriters
agreed to purchase shall not be purchased in accordance with the preceding
sentence, the Company shall have the right, within 36 hours next succeeding
the 36-hour period referred to above, to make arrangements with other
underwriters or purchasers reasonably satisfactory to you for purchase of
such remaining Shares on the terms herein set forth. If during such two
36-hour periods you, as such Representatives, and the Company shall not have
procured such other Underwriters, or any others, to purchase the Firm Shares
or Option Shares, as the case may be, agreed to be
29
<PAGE>
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of Shares with respect to which such default shall occur
does not exceed 10% of the Firm Shares or Option Shares, as the case may be,
covered hereby, the other Underwriters shall be obligated, severally, in
proportion to the respective numbers of Firm Shares or Option Shares, as the
case may be, which they are obligated to purchase hereunder, to purchase the
Firm Shares or Option Shares, as the case may be, which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate
number of shares of Firm Shares or Option Shares, as the case may be, with
respect to which such default shall occur exceeds 10% of the Firm Shares or
Option Shares, as the case may be, covered hereby, the Company and the
Selling Shareholders or you as the Representatives of the Underwriters will
have the right, by written notice given within the next 36-hour period to the
parties to this Agreement, to terminate this Agreement without liability on
the part of the non-defaulting Underwriters or of the Company or of the
Selling Shareholders, except to the extent provided in Section 8 hereof. In
the event of a default by any Underwriter or Underwriters, as set forth in
this Section 9, the Closing Date or Option Closing Date, as the case may be,
may be postponed for such period, not exceeding seven days, as you, as
Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section
9 shall not relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Wedbush
Morgan Securities Inc., 1000 Wilshire Blvd., PO Box 30014, Los Angeles, CA
90030-0014, Attention: Michael G. Gardner; with a copy to Perkins Coie LLP,
1211 SW Fifth Avenue, Suite 1500, Portland, Oregon 97204, Attention: Roy W.
Tucker, Esq.; and if to the Company or the Selling Shareholders, to Obie
Media Corporation, 4211 West Avenue, Eugene, Oregon 97402, Attention: Brian
B. Obie; with copies to Tonkon Torp LLP, 888 SW Fifth Avenue, Portland,
Oregon 97204, Attention: Kenneth D. Stephens, Esq. and to counsel to the
Selling Shareholders; if any.
11. TERMINATION.
This Agreement may be terminated:
30
<PAGE>
(a) by you by notice to the Sellers at any time prior to
the Closing Date if any of the following has occurred: (i) since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, any material adverse change or any development
involving a prospective material adverse change in or affecting the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and its Subsidiaries,
taken as a whole, whether or not arising in the ordinary course of business,
(ii) any outbreak or escalation of hostilities or declaration of war or
national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your reasonable judgment,
make it impracticable or inadvisable to market the Shares or to enforce
contracts for the sale of the Shares, (iii) suspension of trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers
of days of trading) for securities on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority which
in your reasonable opinion materially and adversely affects or is likely to
materially and adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) the suspension of trading of the Company's common stock by
The Nasdaq Stock Market, the Commission, or any other governmental authority,
or (vii) the taking of any action, after the date of this Agreement, by any
governmental body or agency in respect of its monetary or fiscal affairs
which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(b) as provided in Sections 2(e), 6 and 9 of this
Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person
will have any right or obligation hereunder. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign merely
because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Shareholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the
31
<PAGE>
Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last sentence of the last
paragraph on the front cover page (insofar as such information relates to the
Underwriters), legends required by Item 502(d) of Regulation S-K under the
Act and the information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants
in this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the
Company or its directors or officers, and (c) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
32
<PAGE>
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholders,
the Company and the several Underwriters in accordance with its terms.
Any person executing and delivering this Agreement as Attorney for a
Selling Shareholder represents by so doing that he or she has been duly
appointed as Attorney by such Selling Shareholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney to take such
action.
Very truly yours,
OBIE MEDIA CORPORATION
By
----------------------------------
Title:
Selling Shareholders listed on Schedule II
By
-----------------------------------
Attorney
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
WEDBUSH MORGAN SECURITIES INC.
PACIFIC CREST SECURITIES INC.
As Representatives of the several
Underwriters listed on Schedule I
By: WEDBUSH MORGAN SECURITIES INC.
By:
------------------------------
Authorized Officer
33
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
----------- ----------------------
<S> <C>
Wedbush Morgan Securities Inc.
Pacific Crest Securities Inc.
Total 1,750,000
</TABLE>
1
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
SELLING SHAREHOLDER TO BE SOLD
------------------- ----------------------
<S> <C>
Brian B. Obie 300,000
Dolores M. Mord 150,000
Roland Mord 50,000
Douglas D. Obie 100,000
Christine Obie-Barrett 100,000
-------
Wayne P. Schur 50,000
-------
Total 750,000
-------
-------
</TABLE>
1
<PAGE>
SCHEDULE III
SCHEDULE OF OPTION SHARES
<TABLE>
<CAPTION>
MAXIMUM NUMBER PERCENTAGE OF
OF OPTION SHARES TOTAL NUMBER OF
NAME OF SELLER TO BE SOLD OPTION SHARES
- -------------- ---------------- ---------------
<S> <C> <C>
Obie Media Corporation 162,500 61.9%
Brian B. Obie 100,000 38.1%
------- -----
Total 262,500 100%
------- ----
</TABLE>
1
<PAGE>
SCHEDULE IV
PARTIES TO LOCK-UP AGREEMENTS
Christine Obie Barrett
Dolores M. Mord
Roland B. Mord
Brian B. Obie
Douglas D. Obie
Karen Obie
Wayne P. Schur
Richard C. Williams
Douglas D. Obie, Trustee FBO Bailey M. Barrett Trust Agreement Dated 12/20/96
Douglas D. Obie, Trustee FBO Brayden P. Barrett Trust Agreement Dated 12/20/96
Douglas D. Obie, Trustee FBO Jason G. Barrett Trust Agreement Dated 12/20/96
Douglas D. Obie, Trustee FBO Karson D. Barrett Trust Agreement Dated 12/20/96
Douglas D. Obie, Trustee FBO Maleah L. Barrett Trust Agreement Dated 12/20/96
Douglas D. Obie, Trustee FBO Mason B. Barrett Trust Agreement Dated 12/20/96
Douglas D. Obie, Trustee FBO Molly C. Barrett Trust Agreement Dated 12/20/96
Douglas D. Obie, Trustee FBO William Casey Barrett Trust Agreement Dated
12/20/96
Douglas D. Obie, Trustee FBO Bailey M. Barrett UA Dated December 20, 1996
Douglas D. Obie, Trustee FBO Brayden P. Barrett UA Dated December 20, 1996
Douglas D. Obie, Trustee FBO Cooper Mathew Obie Barrett
Douglas D. Obie, Trustee FBO Jason G. Barrett UA Dated December 20, 1996
Douglas D. Obie, Trustee FBO Karson D. Barrett UA Dated December 20, 1996
Douglas D. Obie, Trustee FBO Maleah L. Barrett UA Dated December 20, 1996
Douglas D. Obie, Trustee FBO Mason B. Barrett UA Dated December 20, 1996
Douglas D. Obie, Trustee FBO Molly C. Barrett UA Dated December 20, 1996
Douglas D. Obie, Trustee FBO William Casey Barrett UA Dated December 20, 1996
Stephen A. Wendell
1
<PAGE>
Randall C. Pape
James W. Callahan
Stephen F. Grover
Christine Obie Barrett, Trustee FBO Eli Eugene Obie Trust Agreement Dated
12/20/96
Christine Obie Barrett, Trustee FBO Eli Eugene Obie UA Dated December 20, 1996
Christine Obie Barrett, Trustee FBO Isabel Irene Obie
2
<PAGE>
EXHIBIT A
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE OF
OF OWNERSHIP BY
NAME INCORPORATION OBIE MEDIA CORPORATION
- ---- ------------- ----------------------
<S> <C> <C>
O. B. Walls, Inc. Oregon 50%
Philbin & Coine, Inc. New York 100%
Obie Media Limited British Columbia, Canada 100%
</TABLE>
1
<PAGE>
Exhibit 5.1
July 13, 1999
To the Board of Directors
of Obie Media Corporation
4211 West 11th Avenue
Eugene, Oregon 97402
Re: Registration Statement on Form S-1
We have acted as counsel to Obie Media Corporation, an Oregon corporation
("Obie Media"), in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission"), under the Securities Act
of 1933, as amended (the "Securities Act"), of Obie Media's Registration
Statement on Form S-1 (Registration No. 333-79367), as amended by pre-effective
Amendment No. 1 thereto (the "Registration Statement"). The Registration
Statement relates to the sale of up to 2,012,500 shares of the Company's common
stock, without par value (the "Common Stock"), to be sold pursuant to the terms
of an underwriting agreement by and among Obie Media and Wedbush Morgan
Securities, Inc. and Pacific Crest Securities Inc., as representatives of the
several underwriters named therein (the "Underwriting Agreement"). The shares of
Common Stock to be sold by the Company are hereinafter referred to as the
"Company Shares," and the shares of Common Stock to be sold by the Selling
Shareholders (as defined in the Underwriting Agreement) are hereinafter referred
to as the "Shareholder Shares."
In our capacity as such counsel, we have examined and relied upon the
originals, or copies certified or otherwise identified to our satisfaction, of
the Registration Statement and such corporate records, documents, certificates
and other agreements and instruments as we have deemed necessary or appropriate
to enable us to render the opinions hereinafter expressed.
Based on the foregoing, and having regard for such legal considerations as
we deem relevant, we are of the following opinions:
1. The Common Stock has been duly authorized by all necessary corporate
action of Obie Media.
2. When issued and sold by Obie Media against payment therefor pursuant to
the terms of the Underwriting Agreement, the Company Shares will be validly
issued, fully paid and nonassessable, and the Shareholder Shares are validly
issued, fully paid and non-assessable.
We are members of the bar of the State of Oregon and are expressing our
opinion only as to matters of Oregon law.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the related prospectus.
Very truly yours,
/s/ TONKON TORP LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
July 12, 1999
Portland, Oregon
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated January 22, 1997, except for Note 5, as to which the date is
February 12, 1997, relating to the consolidated financial statements of Obie
Media Corporation, which appears in such Registration Statement. We also consent
to the references to us under the headings "Experts" and "Selected Financial
Data" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
Eugene, Oregon
July 13, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OBIE MEDIA CORPORATION WHICH ARE INCLUDED IN ITS
AMENDMENT NO.1 TO REGISTRATION STATEMENT ON FORM S-1, FOR THE SIX MONTHS ENDED
MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-END> MAY-31-1999
<CASH> 78,409
<SECURITIES> 0
<RECEIVABLES> 7,238,643
<ALLOWANCES> 403,091
<INVENTORY> 0
<CURRENT-ASSETS> 9,346,969
<PP&E> 15,524,905
<DEPRECIATION> 4,678,817
<TOTAL-ASSETS> 28,142,217
<CURRENT-LIABILITIES> 9,085,664
<BONDS> 14,186,588
0
0
<COMMON> 6,952,905
<OTHER-SE> (435,422)
<TOTAL-LIABILITY-AND-EQUITY> 28,142,217
<SALES> 0
<TOTAL-REVENUES> 15,729,874
<CGS> 0
<TOTAL-COSTS> 11,296,100
<OTHER-EXPENSES> 722,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 561,885
<INCOME-PRETAX> 1,427,424
<INCOME-TAX> 556,692
<INCOME-CONTINUING> 870,732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 870,732
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>