<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1997
REGISTRATION STATEMENT NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
OCI HOLDINGS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7312 38-3286430
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
---------------
512 TAYLOR STREET
CORINTH, MS 38834
(601) 286-3334
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
<TABLE>
<CAPTION>
STATE OF
INCORPORATION I.R.S. EMPLOYER
NAME OF ADDITIONAL REGISTRANTS OR ORGANIZATION IDENTIFICATION NO.
------------------------------ --------------- ------------------
<S> <C> <C>
Mass Communications Corp. Delaware 64-0704573
OCI (N) Corp. Delaware 38-2885263
Outdoor Communications, Inc. Mississippi 64-0520092
</TABLE>
---------------
COPIES TO:
DAVID F. DIETZ, P.C. JONATHAN A. SCHAFFZIN, ESQ.
GOODWIN, PROCTER & HOAR LLP CAHILL GORDON & REINDEL
EXCHANGE PLACE 80 PINE STREET
BOSTON, MA 02109 NEW YORK, NY 10005
(617) 570-1000 (212) 701-3000
---------------
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 of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES TO BE OFFERING AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PRICE PER NOTE OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Subordinated
Notes due 2007 $125,000,000 100.00% $125,000,000 $37,879
Guarantees of % Senior
Subordinated Notes due
2007
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE REGISTRANT AND THE ADDITIONAL REGISTRANTS (COLLECTIVELY, THE
"REGISTRANTS") HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS 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, AS AMENDED (THE "SECURITIES ACT") OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
$125,000,000
OCI HOLDINGS CORP. [LOGO]
% SENIOR SUBORDINATED NOTES DUE 2007
The % Senior Subordinated Notes due 2007 (the "Notes") are being offered (the
"Offering") by OCI Holdings Corp., a Delaware corporation (the "Company" or
"OCI"). Interest on the Notes will be payable semi-annually on and of
each year, commencing on , 1998. The Notes will mature on , 2007.
Except as described below, the Company may not redeem the Notes prior to ,
2002. On or after such date, the Company may redeem the Notes, in whole or in
part, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time
and from time to time on or prior to , 2000, the Company may redeem up to
33 1/3% of the original aggregate principal amount of the Notes with the Net
Proceeds (as defined) of one or more Public Equity Offerings (as defined)
(other than proceeds from the Common Stock Offering (as defined)), at a
redemption price equal to % of the aggregate principal amount plus accrued and
unpaid interest, if any, to the redemption date; provided that at least 66 2/3%
of the original aggregate principal amount of the Notes remains outstanding
immediately after each such redemption. Upon the occurrence of a Change of
Control (as defined), the Company will be required to make an offer to purchase
the Notes at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of purchase. See
"Description of Notes."
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of the Company and will rank pari passu in right of payment with
all other senior subordinated indebtedness of the Company. The Notes will be
unconditionally guaranteed (the "Guarantees"), on a senior subordinated basis,
as to payment of principal, premium, if any, and interest, jointly and
severally, by the Guarantors (as defined). The Indenture (as defined) permits
the Company to incur additional indebtedness, including Senior Indebtedness,
subject to certain limitations. As of March 31, 1997, on a pro forma basis
after giving effect to the Offering and the Common Stock Offering and the
application of the proceeds therefrom, the Company would have had outstanding
$5.9 million in aggregate amount of indebtedness ranking senior in right of
payment to the Notes and the Guarantees. See "Description of Notes."
The Company has also filed a registration statement with respect to the
offering of shares of common stock, par value $.01 per share (the "Common
Stock"), of the Company (the "Common Stock Offering"). The Offering is
conditioned upon the consummation of the Common Stock Offering.
The Company does not intend to apply for listing of the Notes on any securities
exchange or inclusion of the Notes in any automated quotation system.
----------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
----------------------------------------
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
----------------------------------------
<TABLE>
<CAPTION>
==========================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(/1/) DISCOUNTS(/2/) COMPANY(/1/)(/3/)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER NOTE % % %
TOTAL $ $ $
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued and unpaid interest, if any, from the date of issuance.
(2) The Company and the Guarantors have agreed, jointly and severally, to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(3)Before deducting expenses payable by the Company estimated at $ .
----------------------------------------
The Notes are being offered by Chase Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Salomon Brothers Inc (together, the
"Underwriters"), subject to prior sale, when, as and if issued by the Company
and delivered to and accepted by the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York in book-entry form
through the facilities of the Depository Trust Company on or about , 1997.
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
, 1997
<PAGE>
[ARTWORK WILL CONSIST OF A MAP SETTING FORTH THE COMPANY'S LOCATIONS.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING TRANSACTIONS AND SYNDICATE SHORT COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. As used in this Prospectus, unless the
context otherwise requires, references to "OCI" or the "Company" mean OCI
Holdings Corp. together with all of its direct and indirect subsidiaries and
businesses; "OCI North" refers to the Company's subsidiary, OCI (N) Corp; "OCI
South" refers to the Company's subsidiary, Mass Communications Corp. ("MCC"),
together with MCC's subsidiary, Outdoor Communications, Inc.; and
"Predecessors" refers to each of OCI North and OCI South. Unless otherwise
indicated, references to financial or operating results of the Company
occurring in any fiscal year are to the twelve months ended on June 30 of such
indicated fiscal year. The information in this Prospectus assumes (i) the
completion of the Common Stock Offering, (ii) no exercise of the over-allotment
option granted to the Underwriters in the Common Stock Offering, (iii) the
reclassification of all outstanding shares of the Company's Class A Common
Stock, par value $.01 per share, and Class B Common Stock, par value $.01 per
share, prior to the date of the Offering into shares of Common Stock, and (iv)
the effectiveness of an for 1 stock split effected on , 1997. The pro
forma financial information in this Prospectus reflects only the acquisitions
of Georgia Outdoor, Alabama Outdoor, Skoglund, Outdoor West and the Ragan
Companies (each, as defined below, and collectively, the "Significant
Acquisitions") and excludes other individually insignificant operations
acquired by the Company since its formation.
THE COMPANY
OCI is a leading provider of outdoor advertising services, operating
approximately 15,000 advertising displays in 13 midwestern and southeastern
states. The Company focuses on small- to medium-sized markets with populations
ranging from 15,000 to 150,000, and is the largest outdoor advertising company
in most of the markets in which it operates. Management believes that operating
in small- to medium-sized markets provides certain advantages over operating in
large markets, including lower and more stable lease costs, greater new build
opportunities and more attractive acquisition opportunities. For the twelve
months ended March 31, 1997, on a pro forma basis, the Company had net revenues
and EBITDA of $56.1 million and $22.5 million, respectively, excluding the
results of certain individually insignificant operations prior to their
acquisition by the Company. See "Summary Pro Forma Financial Information."
Outdoor advertising offers repetitive impact and relatively low cost-per-
thousand impressions compared to alternative media, including television,
radio, newspapers, magazines and direct mail marketing. The outdoor advertising
industry in the United States has experienced increased advertiser interest and
revenue growth during the 1990s. According to recent estimates by the Outdoor
Advertising Association of America (the "OAAA"), the trade association for the
outdoor advertising industry, outdoor advertising generated total revenues of
approximately $2.0 billion in 1996, or approximately 1.1% of total advertising
expenditures in the United States. While the industry has experienced some
consolidation within the past few years, the OAAA estimates that there are
still approximately 600 companies in the outdoor advertising industry operating
approximately 396,000 billboard displays. The Company expects the trend of
consolidation in the outdoor advertising industry to continue.
The Company's objective is to be a leading provider of outdoor advertising
services in small- to medium-sized markets across the United States. To achieve
this objective, the Company plans both to increase its penetration in its
existing markets and expand into attractive new markets. The Company has
historically implemented, and intends to continue to pursue, the following
operating strategy:
Pursue Strategic Acquisitions. The Company seeks to continue its growth
by pursuing an aggressive acquisition strategy emphasizing both in-
market and new market acquisitions. The Company believes it has
attractive in-market acquisition opportunities which will serve to
increase market penetration and
3
<PAGE>
enhance local market operating efficiencies. In most instances, in-
market acquisitions involve the purchase of display faces only and
require no incremental personnel. The Company also intends to pursue new
market acquisitions that are either within its existing regions or in
new regions where attractive growth and consolidation opportunities
exist.
Leverage Operational Structure. The Company's operational structure
provides significant operating leverage to support increased penetration
of existing markets and new market expansion. The Company's operations
are comprised of 11 divisions, each with its own headquarters to service
its display structures and customers. OCI has centralized management
operations in Traverse City, Michigan and Corinth, Mississippi to
provide administrative oversight of the divisions through centralized
purchasing, a detailed budgeting process, management information systems
and strict cost controls. With this infrastructure in place, the Company
can generate revenues from newly acquired or constructed display faces
at a very attractive incremental margin.
Focus on Local Advertisers. The Company seeks to continue its local
advertiser focus, which management believes provides the Company with a
diverse and stable advertiser base, fewer sales subject to agency
commissions and greater rate integrity. Local advertising constituted
over 84% of the Company's gross revenues for the nine months ended March
31, 1997, which is higher than the industry average of 70% as estimated
by the OAAA. The Company believes that the diversity of its local
customer base insulates it from dependence on any one customer or
industry. During the nine months ended March 31, 1997, no single
customer represented more than 2.5% of the Company's gross revenues.
Emphasize Twelve-Month Advertising Contracts. The Company seeks to
maximize occupancy levels and sales force and production efficiency by
focusing on twelve-month advertising contracts. The Company believes
that these long-term contracts enhance occupancy levels at stable
advertising rates, generate higher renewal rates, increase the
predictability of revenues and allow its sales personnel time to devote
greater attention to servicing their accounts.
Capitalize on Experienced Management Team. The Company believes that one
of the keys to continuing its growth is its experienced management team.
The Company's three-person senior management team has over 70 years of
combined experience in the outdoor advertising industry which provides
the Company with the market knowledge and local relationships necessary
to identify and evaluate acquisition candidates. Management's local
relationships also provide OCI with the ability to identify and obtain
municipal approval for new build opportunities.
RECENT ACQUISITIONS
The Company was created in April 1996 to complete the acquisition and
consolidation of two well-established outdoor advertising companies: OCI North
and OCI South. Since its formation the Company has pursued an aggressive
acquisition strategy, completing 16 acquisitions of outdoor advertising
companies (collectively, the "Acquired Companies") over a 15-month period. The
Company's acquisition integration approach is different for new market and in-
market acquisitions. In new market acquisitions, the Company generally
eliminates administrative and accounting positions, maintains a sales and
production capability and institutes the Company's operating philosophy,
systems and controls. In-market acquisitions typically involve the purchase of
display faces only, resulting in the elimination of all personnel and related
costs.
4
<PAGE>
The following summarizes the Significant Acquisitions, which are included in
the summary pro forma financial information included herein:
The Ragan Acquisition. In May 1997, the Company entered into agreements to
acquire substantially all of the assets of The Ragan Outdoor Advertising
Company of Rockford, L.L.C., The Ragan Outdoor Advertising Company and The
Ragan Outdoor Advertising Company of Cedar Rapids (collectively, the "Ragan
Companies") for an aggregate cash purchase price of $27.0 million. The
properties represent approximately 1,470 display faces in Rockford,
Illinois, Cedar Rapids, Iowa and the Quad Cities of Moline, Illinois, Rock
Island, Illinois, Davenport, Iowa and Bettendorf, Iowa. The acquisition of
the Ragan Companies is scheduled to close in June 1997.
The Outdoor West Acquisition. On March 31, 1997, OCI acquired substantially
all of the assets of Outdoor West, Inc. of Tennessee ("Outdoor West") for a
cash purchase price of $11.8 million. As a result of this acquisition, the
Company acquired approximately 960 display faces in Tennessee and a right
of first refusal to purchase Outdoor West, Inc. of Georgia, an affiliate of
Outdoor West.
The Skoglund Acquisition. On October 31, 1996, OCI completed the
acquisition of substantially all of the assets of Skoglund Communications,
Inc. and Skoglund Communications of St. Cloud, Inc. (together, "Skoglund")
for a cash purchase price of $21.0 million. As a result of the acquisition
of Skoglund, the Company acquired approximately 1,500 display faces in
Minnesota and Wisconsin.
The Alabama Outdoor Acquisition. On April 30, 1996, OCI acquired
approximately 2,900 display faces across North and Central Alabama through
its purchase of substantially all of the assets of AOA Acquisition, L.L.C.
("Alabama Outdoor") for a cash purchase price of $34.2 million.
The Georgia Outdoor Acquisition. On April 3, 1996, OCI completed the
acquisition of substantially all of the assets of Georgia Outdoor
Advertising Company ("Georgia Outdoor") for a cash purchase price of $11.6
million. As a result of this transaction, the Company acquired
approximately 800 display faces in Georgia and South Carolina in the
vicinity of Athens, Georgia.
In addition to the Significant Acquisitions, since September 1996 the Company
has completed 11 individually insignificant in-market acquisitions for an
aggregate purchase price of approximately $17.5 million. The pro forma
financial information in this Prospectus does not fully reflect the effect of
these acquisitions, as the results of these operations are only included from
the date of acquisition. If all such acquisitions were included in the pro
forma financial information for a full twelve months, management estimates the
Company's net revenues and EBITDA for the twelve months ended March 31, 1997
would have been approximately $60.2 million and $24.6 million, respectively, as
compared to $56.1 million and $22.5 million as presented in the pro forma
financial information included herein. See "Unaudited Pro Forma Consolidated
Financial Statements."
FINANCING PLAN
The Company is entering into a financing plan to provide greater flexibility
in pursuing its growth strategy. This financing plan will consist of (i) the
Offering, (ii) the Common Stock Offering and (iii) the New Credit Facility (as
defined below) (collectively, the "Financing Plan"). Simultaneously with the
Offering, the Company intends to offer shares of its Common Stock by a
separate prospectus in the Common Stock Offering which is expected to generate
net cash proceeds to the Company of approximately $46.5 million. The Offering
is conditioned upon consummation of the Common Stock Offering. The Company also
intends to enter into an amendment to and restatement of its senior credit
facility which will increase its loan commitment to $ million (the "New
Credit Facility"). The Company intends to use the net proceeds of the Offering
and the Common Stock Offering (together, the "Offerings") to repay
substantially all of its existing indebtedness. See "Use of Proceeds."
5
<PAGE>
THE OFFERING
Issuer ..................... OCI Holdings Corp.
Securities Offered ......... $125,000,000 aggregate principal amount of %
Senior Subordinated Notes due 2007.
Maturity ................... , 2007.
Interest Payment Dates ..... and of each year, commencing on ,
1998.
Mandatory Redemption ....... None.
Optional Redemption ........ Except as described below, the Company may not
redeem the Notes prior to , 2002. On or after
such date, the Company may redeem the Notes, in
whole or in part from time to time, at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption. In addition, at any time and from
time to time on or prior to , 2000, the
Company, at its option, may redeem up to 33 1/3%
of the original aggregate principal amount of the
Notes with the Net Proceeds of one or more Public
Equity Offerings (other than the Common Stock
Offering) by the Company, at a redemption price
equal to % of the principal amount of the Notes
to be redeemed, plus accrued and unpaid interest,
if any, to the date of redemption, provided that
at least 66 2/3% of the original aggregate
principal amount of the Notes remains outstanding
immediately after each such redemption. See
"Description of Notes--Optional Redemption."
Change of Control .......... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
purchase all of the Notes at 101% of principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase. See "Description
of Notes--Repurchase at the Option of Holders--
Change of Control."
Guarantees ................. The Company's obligations under the Notes will be
unconditionally guaranteed, jointly and
severally, on a senior subordinated basis by all
of the Company's subsidiaries (collectively, the
"Guarantors"). The Guarantees will be
subordinated to all Guarantor Senior Indebtedness
(as defined) to the same extent and in the same
manner as the Notes are subordinated to all
Senior Indebtedness of the Company. See
"Description of Notes--Guarantees."
Ranking .................... The Notes will be general unsecured obligations
of the Company and will be subordinated in right
of payment to all existing and future Senior
Indebtedness of the Company and will rank pari
passu in right of payment with all other senior
subordinated indebtedness of the Company. The
Guarantees will be general, unsecured obligations
of the Guarantors, subordinated in right of
payment to all existing and future Guarantor
Senior Indebtedness. As of March 31, 1997, on a
pro forma basis after giving effect to the
Offerings
6
<PAGE>
and the application of the proceeds therefrom,
the Company would have had outstanding $5.9
million in aggregate amount of indebtedness
ranking senior in right of payment to the Notes
and the Guarantees. See "Description of Notes--
Ranking."
Certain Covenants .......... The indenture governing the Notes (the
"Indenture") will contain covenants relating to,
among other things, the following matters: (i)
incurrence of additional Indebtedness (as
defined) by the Company and its subsidiaries;
(ii) the payment of dividends on, and redemption
of, capital stock of the Company and its
subsidiaries and the redemption of certain
subordinated obligations of the Company and its
subsidiaries; (iii) certain sales of assets; (iv)
mergers, consolidations and transfer of assets;
and (v) transactions with affiliates. See
"Description of Notes--Certain Covenants."
Use of Proceeds ............ The net proceeds of the Offering and the Common
Stock Offering (after deduction of underwriting
discounts and estimated offering expenses) are
expected to be approximately $121.3 million and
$46.5 million, respectively. The net proceeds
from the Offerings will be used to (i) repay all
amounts outstanding under the existing senior
credit facility (approximately $142.5 million);
and (ii) redeem outstanding principal and accrued
interest on the Series A Notes and Series B Notes
(each, as defined) held by certain executive
officers, directors and stockholders
(approximately $24.3 million). The balance of the
net proceeds will be used for working capital and
general corporate purposes. See "Use of
Proceeds."
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" for risks involved with an investment in the
Notes.
7
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following sets forth summary pro forma financial information derived from
the information contained under the caption "Unaudited Pro Forma Consolidated
Financial Statements" elsewhere in this Prospectus. Because of the extent to
which the Company has grown through acquisitions since April 1996, management
believes that this summary pro forma financial information, which gives effect
to the Significant Acquisitions for the periods presented, is the most
meaningful information for use in evaluating an investment in the Company.
The summary pro forma statement of operations data for the fiscal year ended
June 30, 1996 and for the twelve months ended March 31, 1997 give effect to (i)
the Formation Transactions (as defined); (ii) the Offerings and the application
of the estimated net proceeds therefrom; (iii) the Significant Acquisitions as
if each had occured at the beginning of the respective periods; and (iv) the
elimination of duplicative administrative and other costs as if each
acquisition had occurred at the beginning of the respective periods. The
summary pro forma balance sheet data as of March 31, 1997 has been prepared as
if the acquisition of the Ragan Companies (the only significant acquisition
consummated subsequent to that date) and the Offerings had occurred on March
31, 1997. All pro forma financial information included herein excludes the pre-
acquisition results of operations of 11 individually insignificant in-market
acquisitions completed by the Company since September 1996. Consequently, the
two pro forma periods are not comparable because the pro forma financial
information for the twelve months ended March 31, 1997 includes partial period
results of acquisitions completed after June 30, 1996.
The summary pro forma financial information does not purport to present the
actual financial position or results of operations of the Company had the
transactions and events assumed therein in fact occurred on the dates
specified, nor are they necessarily indicative of the results of operations
that may be achieved in the future. The summary pro forma financial information
is based on certain assumptions and adjustments described in the notes
contained in "Unaudited Pro Forma Consolidated Financial Statements" and should
be read in conjunction therewith. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the notes thereto included elsewhere in this Prospectus.
8
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
FISCAL YEAR ENDED TWELVE MONTHS ENDED
JUNE 30, 1996(1) MARCH 31, 1997(1)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues (2)........................ $51,308 $56,124
Direct operating expenses .............. 12,124 13,070
Selling, general and administrative
expenses............................... 20,536 20,559
Depreciation and amortization........... 9,838 10,961
------- -------
Operating income...................... 8,810 11,534
Interest expense........................ 13,000 13,000
Other expenses (income), net............ 338 119
Income tax expense (benefit)............ (1,537) 95
------- -------
Net loss.............................. $(2,991) $(1,680)
======= =======
OTHER DATA:
EBITDA (3).............................. $18,648 $22,495
EBITDA margin (4)....................... 36.3% 40.1%
Ratio of EBITDA to interest expense..... -- 1.7x(5)
Ratio of total debt to EBITDA........... -- 5.8x(5)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------
ACTUAL PRO FORMA
<S> <C> <C>
BALANCE SHEET DATA:
Working capital(6).................................... $12,071 $ 21,520
Total assets.......................................... 140,175 178,608
Long-term debt, including current installments........ 136,002 130,877(5)
Stockholders' equity (deficit)........................ (5,314) 39,562
</TABLE>
- --------------------
(1) Excludes the pre-acquisition results of operations for 11 individually
insignificant acquisitions completed since September 1996. Consequently,
the two pro forma periods are not comparable because the pro forma
financial information for the twelve months ended March 31, 1997 includes
partial period results of acquisitions completed after June 30, 1996. If
all Acquired Companies were included in the pro forma operating results for
the full twelve months ended March 31, 1997, management estimates the
Company's net revenues and EBITDA during such period would have been
approximately $60.2 million and $24.6 million, respectively.
(2) Net revenues are gross revenues less agency commissions.
(3) "EBITDA" is operating income before depreciation and amortization. EBITDA
is not intended to represent net cash provided by operating activities as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income (loss) as an indicator of the
Company's operating performance or to net cash provided by operating
activities as a measure of liquidity. The Company believes EBITDA is a
measure commonly reported and widely used by analysts, investors and other
interested parties in the outdoor advertising industry. Accordingly, this
information has been disclosed herein to permit a more complete comparative
analysis of the Company's operating performance relative to other companies
in the outdoor advertising industry.
(4) EBITDA margin is EBITDA stated as a percentage of net revenues.
(5) Pro forma long-term debt and interest expense include all borrowings in
conjunction with the Company's acquisitions, including those consummated
subsequent to the periods shown. The 11 individually insignificant in-
market acquisitions are not reflected in the pro forma statement of
operations data for the full twelve months ended March 31, 1997. Had these
acquisitions been fully reflected for such period, management estimates pro
forma EBITDA to interest expense and total debt to EBITDA would have been
1.9x and 5.3x, respectively.
(6) Working capital is defined as current assets less current liabilities
excluding current installments of long-term debt and obligations under non-
compete agreement.
9
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Notes offered by this Prospectus.
Substantial Leverage; Ability to Service Indebtedness. The Company has
substantial indebtedness. As of March 31, 1997, on a pro forma basis, after
giving effect to the Financing Plan, the Company's total long-term debt was
approximately $130.9 million. Also, for the twelve months ended March 31, 1997
the Company's pro forma operating income was insufficient by $1.5 million to
cover interest expense. The Company's level of indebtedness could have
important consequences to holders of the Notes, including the following: (i) a
substantial portion of the Company's cash flow from operations must be
dedicated to the payment of the principal of and interest on its indebtedness
and will not be available for other purposes; (ii) the ability of the Company
to obtain financing in the future for working capital needs, capital
expenditures, acquisitions, investments, general corporate purposes or other
purposes may be materially limited or impaired; and (iii) the Company's level
of indebtedness may reduce the Company's flexibility to respond to changing
business and economic conditions. The Company believes that cash provided by
operating activities will be sufficient to meet payment requirements under the
New Credit Facility and the Notes; however, there can be no assurance that the
Company's cash flow from operations will exceed its fixed charges. A decline
in cash flow from operations could impair the Company's ability to meet its
obligations, including for debt service, and to make scheduled principal
repayments. See "Selected Historical Consolidated Financial and Other
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of New Credit Facility."
Subordination of the Notes and the Guarantees. The Notes and the Guarantees
will be unsecured and subordinated to the prior payment of all existing and
future Senior Indebtedness and Guarantor Senior Indebtedness, as the case may
be, including obligations under the New Credit Facility. Subject to certain
limitations, the Indenture will permit the Company and the Guarantors to incur
additional indebtedness, including Senior Indebtedness and Guarantor Senior
Indebtedness. See "Description of Notes--Covenants--Limitations on Additional
Indebtedness." In addition, the indebtedness under the New Credit Facility
will become due prior to the maturity of the Notes. As a result of the
subordination provisions contained in the Indenture, in the event of a
liquidation or insolvency, the assets of the Company and the Guarantors will
be available to pay obligations on the Notes and the Guarantees only after all
senior debt has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes then outstanding. The
Company may not pay principal or premium, if any, or interest on the Notes if
any Senior Indebtedness is accelerated in accordance with its terms, unless in
either case, such amount has been paid in full or the default has been cured
or waived and such acceleration has been rescinded. In addition, if any non-
payment default occurs with respect to certain Senior Indebtedness and certain
other conditions are satisfied, the Company may not make any payments on the
Notes for a designated period of time. See "Description of New Credit
Facility" and "Description of Notes."
Fraudulent Conveyance Concerns. While the Notes will be guaranteed on a
senior subordinated basis by the Guarantors, the Guarantees may be subject to
limitation under federal and state fraudulent conveyance law. To the extent
that a court were to find that (i) a guarantee was incurred by a Guarantor
with intent to hinder, delay, or defraud any present or future creditor, or
the Guarantor contemplated insolvency with a design to prefer one or more
creditors to the exclusion in whole or in part of others; or (ii) such
Guarantor did not receive fair consideration or reasonable equivalent value
for issuing its guarantee and such Guarantor (w) was insolvent; (x) was
rendered insolvent by reason of the issuance of such guarantee; (y) was
engaged or about to engage in a business or transaction for which the
remaining assets of such Guarantor constituted unreasonably small capital to
carry on its business; or (z) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, a court
could avoid or subordinate such guarantee in favor of the Guarantor's other
creditors. Among other things, a legal challenge of a Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by each
Guarantor as a result of the issuance by the Company of the Notes. To the
extent any Guarantee is avoided or subordinated as a fraudulent conveyance,
limited as described above, or held unenforceable for any other reason,
holders of the Notes would to such extent, cease to have a claim in respect
10
<PAGE>
of such Guarantee and, to such extent, would be creditors solely of the
Company and any Guarantor whose Guarantee was not avoided, subordinated,
limited, or held unenforceable. Because the Company is a holding Company, if
the Guarantees are deemed not to be enforceable, the Company's ability to
repay the Notes would be dependent on cash flows from its subsidiaries. In
such event, the claims of the holders of the Notes against the issuer of an
avoided, subordinated, limited or unenforceable Guarantee would be subject to
the prior payment of all liabilities of such Guarantor. There can be no
assurance that, after providing for all prior claims, there would be
sufficient assets to satisfy the claims of the holders of the Notes. Based
upon the financial and other information currently available to it, management
believes that the Notes and the Guarantees are being incurred for proper
purposes and in good faith and that the Company and each of the Guarantors is
solvent and will, after issuing the Notes or its Guarantee, as the case may
be, have sufficient capital for carrying on its business and be able to pay
its debts as they mature.
Restrictions Imposed by the Company's Indebtedness; Asset Encumbrances. The
obligations under the New Credit Facility will be secured by a lien on
substantially all of the assets of the Company, including the capital stock of
its subsidiaries. The Company's debt instruments contain restrictions on the
Company's ability to incur additional indebtedness, create liens, pay
dividends, sell assets and make acquisitions. Furthermore, the New Credit
Facility contains certain maintenance tests. There can be no assurance that
the Company and its subsidiaries will be able to comply with the provisions of
their respective debt instruments, including compliance by the Company with
the financial ratios and tests contained in the New Credit Facility. Breach of
any of these covenants or the failure to fulfill the obligations thereunder
and the lapse of any applicable grace periods would result in an event of
default under the applicable debt instruments, and the holders of such
indebtedness could declare all amounts outstanding under the applicable
instruments to be due and payable immediately. There can be no assurance that
the assets or cash flow of the Company or the Company's subsidiaries, as the
case may be, would be sufficient to repay in full borrowings under their
outstanding debt instruments whether upon maturity or earlier or if such
indebtedness were to be accelerated upon an event of default or certain
repurchase events or that the Company would be able to refinance or
restructure its payments on such indebtedness, or repurchase the Notes. If
such indebtedness were not so repaid, refinanced or restructured, the lenders
could proceed to realize on their collateral, following which there may not be
sufficient proceeds for the Company and the Guarantors to meet their
obligations under the Indenture. In addition, any event of default or
declaration of acceleration under one debt instrument could also result in an
event of default under one or more of the Company's other debt instruments.
See "--Substantial Leverage; Ability to Service Indebtedness" and "Description
of New Credit Facility." Other indebtedness of the Company that may be
incurred in the future may contain financial or other covenants more
restrictive than those applicable to the Notes or the New Credit Facility. See
"Description of New Credit Facility" and "Description of Notes."
Acquisition Strategy; Challenges of Integration. The Company's growth has
been facilitated by strategic acquisitions that have substantially increased
the Company's inventory of advertising display faces. One facet of the
Company's operating strategy is to make acquisitions in new and existing
markets. While the Company believes that the outdoor advertising industry is
highly fragmented and that significant acquisition opportunities are available
there can be no assurance that suitable acquisition candidates can be found.
The Company is likely to face competition from other outdoor advertising and
media companies for acquisition opportunities. In addition, the prices sought
by sellers of outdoor advertising display faces and companies have been rising
and if they continue to rise, the Company may find fewer acceptable
acquisition opportunities or be unsuccessful in its acquisitions. As part of
its on-going evaluation of strategic acquisition opportunities, the Company
may from time to time engage in discussions concerning possible acquisitions
for which the Company may require additional debt or equity financing. There
can be no assurance that the Company will have sufficient capital resources to
complete acquisitions or that acquisitions can be completed on terms
acceptable to the Company. While management has gained considerable experience
in assimilating such acquisitions into the structure of the Company, future
acquisitions may require substantial attention from the Company's management
to integrate acquired company operations. There can be no assurance the
Company will be able to integrate such operations successfully. Furthermore,
diversion of management attention from the Company's existing business could
have an adverse impact on the revenues and operating results of the Company.
11
<PAGE>
Tobacco Industry Regulation. Approximately 9.1% of the Company's gross
revenues for the nine months ended March 31, 1997 were derived from tobacco
advertising. In August 1996, the U.S. Food and Drug Administration issued
final regulations governing certain marketing practices in the tobacco
industry. Among other things, the regulations prohibit tobacco product
billboard advertisements within 1,000 feet of schools and playgrounds and
require that tobacco product advertisements on billboards be in black and
white and contain only text. Enforcement of such regulations has been stayed
indefinitely by a federal court in North Carolina. There can be no assurance
as to the effect of these regulations on the Company's business and on its net
revenues, EBITDA and financial position. A reduction in billboard advertising
by the tobacco industry could cause an immediate reduction in the Company's
direct revenue from such advertisers and would simultaneously increase the
available space on the existing inventory of billboards in the outdoor
advertising industry. This could in turn result in a lowering of rates
throughout the industry or limit the ability of industry participants to
increase rates for some period of time. Any such consequence could have the
effect of reducing the Company's EBITDA, which could in turn reduce the
Company's ability to meet its financial obligations under the New Credit
Facility and the Notes. In early 1997, a majority of the major tobacco
companies in the United States and certain state attorneys general entered
into litigation settlement discussions. Terms of any such settlement could
involve acceptance by the tobacco companies of limits on outdoor advertising
of cigarettes. At this time, however, it is unclear whether any such
settlement will be reached and what effect, if any, such a settlement would
have on OCI's operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Customers" and
"Business--Government Regulation."
Regulation of Outdoor Advertising. Outdoor advertising displays are subject
to governmental regulation at the federal, state and local levels. These
regulations, in some cases, limit the height, size, location and operation of
billboards and, in limited circumstances, regulate the content of the
advertising copy displayed on the billboards. Some governmental regulations
prohibit the construction of new billboards or the replacement, relocation,
enlargement or upgrading of existing structures. Some cities have adopted
amortization ordinances under which, after the expiration of a specified
period of time, billboards must be removed at the owner's expense and without
the payment of compensation. Ordinances requiring the removal of a billboard
without compensation, whether through amortization or otherwise, are being
challenged in various state and federal courts with conflicting results.
Amortization ordinances have not materially affected operations in the
Company's markets. There can be no assurance that these limitations on new
construction will not adversely affect the Company's results of operations. In
addition, no assurance can be given as to the effect on the Company of
existing laws and regulations or of new laws and regulations that may be
adopted in the future. See "--Tobacco Industry Regulation," "Business--
Customers" and "Business--Government Regulation."
Potential Losses from Natural Disasters. A significant portion of the
Company's structures are located in the southeast and midwest regions of the
United States. These areas are susceptible to flooding, tornadoes and
hurricanes during certain periods of the year. The Company has determined that
it is not economically feasible at this time to obtain insurance against
losses from hurricanes or other weather-related casualties. OCI has not
incurred material losses in the past due to weather-related incidents;
however, there can be no assurance that the Company will not suffer such
losses in the future or that, in pursuing its acquisition strategy, the
Company will not acquire companies or properties that are particularly
susceptible to weather-related incidents.
Economic Conditions; Advertising Trends. The Company relies on sales of
advertising space for its revenues, and its operating results therefore are
affected by general economic conditions as well as trends in the advertising
industry. A reduction in advertising expenditures available for the Company's
displays could result from a general decline in economic conditions, a decline
in economic conditions in particular markets where the Company conducts
business or a reallocation of advertising expenditures to other available
media by significant users of the Company's displays.
Competition. The Company faces competition for advertising revenues from
other outdoor advertising companies, as well as from other media such as
radio, television, print and direct mail marketing. The Company also competes
with a wide variety of other out-of-home advertising media, the range and
diversity of which have
12
<PAGE>
increased substantially over the past several years, including highway logo
signs, advertising displays in shopping centers and malls, airports, stadiums,
movie theaters and supermarkets, and on taxis, trains, buses and subways. Some
of the Company's competitors are substantially larger, better capitalized and
have access to greater resources than the Company. There can be no assurance
that outdoor advertising media will be able to compete with other types of
media, or that the Company will be able to compete either within the outdoor
advertising industry or with other media. See "Business--Competition."
History of Operating Losses. The Company has historically had net losses
which have resulted in significant part from substantial depreciation and
amortization expenses relating to assets purchased in the Company's
acquisitions, interest expense associated with related indebtedness and
deferred financing costs charged to extraordinary losses. Moreover, additional
acquisitions will result in increased depreciation, amortization and interest
expenses. There can be no assurance that the Company will generate net income
in the future. See "Selected Historical Consolidated Financial and Other
Information."
Reliance on Key Executives. The Company's success depends to a significant
extent upon the continued services of its executive officers and other key
management and sales personnel, in particular its Chairman and Chief Executive
Officer, John C Stanley IV, and its President and Chief Operating Officer,
A.B. Isbell. Although the Company believes it has incentive and compensation
programs designed to retain key employees, the Company has no employment
contracts with its employees, and very few of its employees are bound by non-
competition agreements. The unavailability of the continuing services of its
executive officers and other key management and sales personnel could have a
material adverse effect on the Company's business. The Company maintains key
man insurance on Messrs. Stanley and Isbell. See "Management."
Environmental Matters. As the owner, lessee or operator of various real
properties and facilities, the Company is subject to various federal, state
and local environmental laws and regulations. To date, compliance with such
laws and regulations has not had a material adverse effect on the historical
business of the Company. See "Business--Environmental."
Absence of Public Market. There is currently no established trading market
for the Notes and the Company does not intend to list the Notes on any
securities exchange or to arrange for their inclusion in any automated
quotation system. The Company has been advised by the Underwriters that the
Underwriters presently intend to make a market in the Notes, although the
Underwriters are under no obligation to make such market and any such market
making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the prices or the
liquidity of the trading market for the Notes or that an active public market
for the Notes will develop. If an active public market does not develop, the
market prices and liquidity of the Notes may be adversely affected.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $121.3 million, and the net proceeds to the Company from the
Common Stock Offering are estimated to be approximately $46.5 million ($53.5
million if the underwriters' over-allotment option is exercised in full).
The Company intends to use the net proceeds of the Offerings, together with
borrowings under the New Credit Facility, to refinance indebtedness
outstanding under the Company's amended and restated $140.0 million credit
facility dated October 30, 1996 (the "Existing Credit Facility") and to redeem
the Company's Series A 10% subordinated notes (the "Series A Notes") and
Series B 10% subordinated notes (the "Series B Notes") at 100% of their
principal amount, plus accrued and unpaid interest.
The estimated sources and uses of funds in connection with the Financing
Plan are set forth below as of an assumed closing date of June 30, 1997:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Sources of Funds:
% Senior Subordinated Notes due 2007............... $125,000
Common Stock Offering............................... 50,000
New Credit Facility ................................ 170
--------
Total Sources..................................... $175,170
========
Uses of Funds:
Repay Existing Credit Facility (1).................. $142,500(2)
Redeem Series A Notes and Series B Notes (3)........ 24,320
Fees and expenses of the Offerings.................. 8,350
--------
Total Uses........................................ $175,170
========
</TABLE>
- ---------------------
(1) The Existing Credit Facility was used by the Company to (a) acquire OCI
North and OCI South; (b) purchase the Acquired Companies; and (c) fund
working capital and transaction costs. The Existing Credit Facility
consists of (a) a $40.0 million A tranche term loan and a $40.0 million B
tranche term loan (collectively, the "Term Loans"); and (b) a $60.0
million revolving credit facility (the "Revolving Credit Facility").
(2) This amount includes approximately $33.7 million in borrowings to fund
acquisitions consummated after March 31, 1997 and $1.1 million in
borrowings incurred after March 31, 1997 for working capital purposes. The
Company expects to amend its Existing Credit Facility to permit borrowings
in conjunction with such acquisitions prior to entering into the New
Credit Facility.
(3) The proceeds of the Series A Notes and Series B Notes were used by the
Company to finance, in part, the acquisitions of OCI North and OCI South.
The Series A Notes and the Series B Notes mature on December 31, 2003 and
were issued in April 1996, September 1996 and January 1997 in an aggregate
principal amount of $22.4 million. The Series A Notes and the Series B
Notes accrue interest at a rate of 10% per annum. The Series A Notes and
Series B Notes are held by the principal stockholders and executive
officers of the Company. See "Certain Relationships and Related
Transactions."
14
<PAGE>
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company as of March 31, 1997; (ii) as adjusted to give effect to those
acquisitions of the Acquired Companies completed after March 31, 1997; and
(iii) further adjusted to give effect to the Offerings and the application of
the net proceeds therefrom. See "Use of Proceeds." This table should be read
in conjunction with the "Unaudited Pro Forma Consolidated Financial
Statements," "Selected Historical Consolidated Financial and Other
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and the financial
statements of the Company, including notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
----------------------------------------
AS ADJUSTED AS ADJUSTED
ACTUAL FOR ACQUISITIONS FOR OFFERINGS
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current installments:
Existing Credit Facility.......................................... $107,700 $141,350(1) $ --
New Credit Facility(2)............................................ -- -- --
% Senior Subordinated Notes...................................... -- -- 125,000
Series A Notes and Series B Notes, including accrued interest(3).. 23,743 23,743 --
Notes payable--stockholders(4).................................... 5,877 5,877 5,877
-------- -------- --------
Total long-term debt, including current installments............ 137,320 170,970 130,877
Stockholders' equity (deficit):
Preferred stock shares authorized;
none issued and outstanding...................................... -- -- --
Common Stock, $0.01 par value. shares authorized;
shares issued and outstanding(5) ............................ -- --
Additional paid-in capital ....................................... 3,812 3,812
Retained deficit ................................................. (9,126) (9,126)
-------- -------- --------
Total stockholders' equity (deficit)............................ (5,314) (5,314) 39,562
-------- -------- --------
Total capitalization................................................ $132,006 $165,656 $170,439
======== ======== ========
</TABLE>
- ---------------------
(1) Reflects borrowing of $33.7 million incurred after March 31, 1997 to
reflect acquisitions consummated by the Company after such date.
(2) The Company will enter into the New Credit Facility, which will become
effective upon consummation of the Offering and will provide for
borrowings of up to $ million. See "Description of New Credit
Facility."
(3) Includes long-term accrued interest of $1.3 million. The Series A Notes
and Series B Notes are held by the principal stockholders and executive
officers of the Company. See "Certain Relationships and Related
Transactions."
(4) The notes payable--stockholders are held by John C Stanley IV, the
Company's Chairman and Chief Executive Officer, a Director and one of its
principal stockholders, and A.B. Isbell, the Company's President, a
Director, and one of its principal stockholders. These notes are due in
April 1998 and are secured by a letter of credit under the Existing Credit
Facility which reduces the amount available to the Company under such
facility.
(5) Adjusted to reflect (a) the recapitalization of the Company to change all
outstanding shares of Class A Common Stock and Class B Common Stock into
shares of Common Stock, and (b) the for 1 stock split effected
immediately prior to the Common Stock Offering.
15
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the unaudited pro forma consolidated financial
statements of the Company. The unaudited pro forma consolidated statements of
operations for the twelve months ended March 31, 1997, the nine months ended
March 31, 1997, and the fiscal year ended June 30, 1996 give effect to the
following transactions, as if such transactions had occurred on July 1, 1995:
(i) the Formation Transactions (as defined); (ii) the Significant
Acquisitions; (iii) the elimination of duplicative administrative and other
costs; and (iv) the Offerings and the application of the net proceeds
therefrom. The unaudited pro forma consolidated balance sheet as of March 31,
1997 has been prepared as if the acquisition of the Ragan Companies (the only
significant acquisition consummated subsequent to that date) and the Offerings
had occurred on March 31, 1997.
The unaudited pro forma consolidated statement of operations data for OCI
for the twelve months ended March 31, 1997, the nine months ended March 31,
1997, and the fiscal year ended June 30, 1996 set forth in the unaudited pro
forma consolidated statement of operations data under the column "Historical
OCI" reflect the historical results of operations of OCI and its consolidated
subsidiaries, including the Acquired Companies since the dates of such
acquisitions. The unaudited pro forma consolidated statement of operations
data under the column "Significant Acquisitions" reflect the historical
statements of operations data of the Significant Acquisitions as if such
acquisitions had occurred on July 1, 1995 and present their respective results
from the beginning of the respective periods presented through the respective
dates of their acquisition by the Company.
The unaudited pro forma consolidated financial statements are based, in
part, on the historical financial statements of OCI, its Predecessors and
certain Acquired Companies, and should be read in conjunction with their
respective financial statements and notes thereto appearing elsewhere in this
Prospectus. The pro forma data are not necessarily indicative of the results
of operations or financial condition of OCI had these acquisitions occurred on
July 1, 1995, nor are they indicative of the results of future operations.
The unaudited pro forma consolidated financial statements reflect purchase
price allocations for the acquisitions of Georgia Outdoor, Alabama Outdoor and
Skoglund using fair market values of the assets and liabilities of such
companies, based on completed appraisals as of the dates of each of the
acquisitions. The unaudited pro forma consolidated financial statements also
reflect purchase price allocations for the acquisitions of Outdoor West and
the Ragan Companies, using estimated fair market values of the assets and
liabilities of such companies as of the assumed merger dates based on
appraisals and other studies, which are not yet complete. Accordingly, the
final allocations will likely be different than the amounts included in the
accompanying pro forma consolidated financial statements. Although the final
allocations may differ, the pro forma consolidated financial statements
reflect management's best estimate based on currently available information as
if the aforementioned transactions had occurred on the assumed merger dates.
Management does not believe that any differences between estimated and final
allocations will be material.
16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL SIGNIFICANT ACQUISITION SUBTOTAL FOR THE PRO FORMA
OCI ACQUISITIONS ADJUSTMENTS OCI OFFERINGS OCI
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $40,490 $15,609 $ 25 (1) $56,124 $ -- $56,124
Direct operating
expenses............... 8,562 4,596 (88)(2) 13,070 -- 13,070
Selling, general and
administrative
expenses............... 16,072 6,049 (1,562)(3) 20,559 -- 20,559
Depreciation and
amortization........... 7,767 1,179 1,863 (4) 10,809 152 (5) 10,961
------- ------- ------- ------- ------- -------
Operating income
(loss)................. 8,089 3,785 (188) 11,686 (152) 11,534
Other (income) expense:
Interest expense...... 9,445 1,288 -- 10,733 2,267 (6) 13,000
Loss (gain) on
disposal of assets,
net.................. -- (7,995) 8,072 (7) 77 -- 77
Other non-operating
expenses............. (309) 351 -- 42 -- 42
------- ------- ------- ------- ------- -------
Total other (income)
expense, net....... 9,136 (6,356) 8,072 10,852 2,267 13,119
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (1,047) 10,141 (8,260) 834 (2,419) (1,585)
Income tax expense
(benefit).............. 223 4,143 (3,304)(8) 1,062 (967)(9) 95
------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,270) $ 5,998 $(4,956) $ (228) $(1,452)(10) $(1,680)
======= ======= ======= ======= ======= =======
Net income (loss) per
common share...........
Weighted average common
shares outstanding.....
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL SIGNIFICANT ACQUISITION SUBTOTAL FOR THE PRO FORMA
OCI ACQUISITIONS ADJUSTMENTS OCI OFFERINGS OCI
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $31,741 $10,059 $ -- (1) $41,800 $ -- $41,800
Direct operating
expenses............... 6,715 3,137 (64)(2) 9,788 -- 9,788
Selling, general and
administrative
expenses............... 12,119 3,891 (912)(3) 15,098 -- 15,098
Depreciation and
amortization........... 6,103 771 1,263 (4) 8,137 153 (5) 8,290
------- ------- ------- ------- ------- -------
Operating income
(loss)................. 6,804 2,260 (287) 8,777 (153) 8,624
Other (income) expense:
Interest expense...... 7,597 861 -- 8,458 1,292 (6) 9,750
Loss (gain) on
disposal of assets,
net.................. -- (8,003) 8,072 (7) 69 -- 69
Other non-operating
expenses............. (53) 464 -- 411 -- 411
------- ------- ------- ------- ------- -------
Total other (income)
expense, net....... 7,544 (6,678) 8,072 8,938 1,292 10,230
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (740) 8,938 (8,359) (161) (1,445) (1,606)
Income tax expense
(benefit).............. 22 3,211 (3,344)(8) (111) (578)(9) (689)
------- ------- ------- ------- ------- -------
Net income (loss)....... $ (762) $ 5,727 $(5,015) $ (50) $ (867)(10) $ (917)
======= ======= ======= ======= ======= =======
Net income (loss) per
common share...........
Weighted average common
shares outstanding.....
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL SIGNIFICANT ACQUISITION SUBTOTAL FOR THE PRO FORMA
OCI ACQUISITIONS ADJUSTMENTS OCI OFFERINGS OCI
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $22,617 $28,602 $ 89 (1) $51,308 $ -- $51,308
Direct operating
expenses............... 5,043 7,091 (10)(2) 12,124 -- 12,124
Selling, general and
administrative
expenses............... 9,378 12,049 (891)(3) 20,536 -- 20,536
Depreciation and
amortization........... 3,969 2,985 2,692 (4) 9,646 192 (5) 9,838
------- ------- ------- ------- ------- -------
Operating income
(loss)................. 4,227 6,477 (1,702) 9,002 (192) 8,810
Other (income) expense:
Interest expense...... 4,308 2,637 -- 6,945 6,055 (6) 13,000
Loss (gain) on
disposal of assets,
net.................. (1) (23) -- (7) (24) -- (24)
Other non-operating
expenses............. (173) 535 -- 362 -- 362
------- ------- ------- ------- ------- -------
Total other (income)
expense, net....... 4,134 3,149 -- 7,283 6,055 13,338
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... 93 3,328 (1,702) 1,719 (6,247) (4,528)
Income tax expense
(benefit).............. 700 942 (681)(8) 961 (2,498)(9) (1,537)
------- ------- ------- ------- ------- -------
Net income (loss)....... $ (607) $ 2,386 $(1,021) $ 758 $(3,749)(10) $(2,991)
======= ======= ======= ======= ======= =======
Net income (loss) per
common share...........
Weighted average common
shares outstanding.....
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The following notes describe the adjustments to present the pro forma
statements of operations of OCI for the twelve months ended March 31, 1997, for
the nine months ended March 31, 1997 and for the fiscal year ended June 30,
1996, as if the Significant Acquisitions and the Offerings had occurred on July
1, 1995.
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS FISCAL YEAR
ENDED ENDED ENDED
MARCH 31, 1997 MARCH 31, 1997 JUNE 30, 1996
<C> <S> <C> <C> <C>
(1) Entry records pro forma
changes in revenues for
company acquired by
Skoglund prior to OCI's
acquisition of Skoglund.... $ 25 $ -- $ 89
======= ====== ======
(2) Entry records a net
decrease in operating
expenses due to elimination
of employee costs upon
completion of acquisitions,
capitalization of certain
costs expensed by certain
acquired companies and
recognition of costs
incurred by a company
acquired by Skoglund prior
to OCI's acquisition of
Skoglund:
Payroll and payroll related
costs...................... $ (56) $ (42) $ --
Other operating costs...... (32) (22) (10)
------- ------ ------
Total operating costs...... $ (88) $ (64) $ (10)
======= ====== ======
(3) Entry records a net
decrease in general and
administrative expenses due
to elimination of employee
costs upon completion of
acquisitions, addition of
employees to operate
acquired divisions,
elimination of legal costs
related to the acquisition
transactions incurred by
certain acquired companies,
and elimination of
duplicative administrative
and other costs:
Payroll and payroll related
costs...................... $ (899) $ (514) $ (392)
Legal costs................ (326) (198) (184)
Other general and
administrative costs....... (337) (200) (315)
------- ------ ------
Total general and
administrative costs....... $(1,562) $ (912) $ (891)
======= ====== ======
(4) Entry records the increase
in depreciation and
amortization expense
arising from purchase
accounting adjustments
relating to the Significant
Acquisitions to advertising
structures, customer lists
and goodwill over periods
of 15, 22 and 25 years,
respectively............... $ 1,863 $1,263 $2,692
======= ====== ======
(5) Entry records the net
effect on amortization of
deferred financing costs
related to extinguishment
of existing debt and
issuance of the Notes...... $ 152 $ 153 $ 192
======= ====== ======
(6) Entry eliminates historical
interest expense on the
existing debt and records
interest expense on the
Notes at a rate of 10.00%
(a difference of 0.125% in
the rate of interest would
have changed net income
(loss) by $94 for the
twelve months ended March
31, 1997 and the fiscal
year ended June 30, 1996
and $70 for the nine months
ended March 31, 1997)...... $ 2,267 $1,292 $6,055
======= ====== ======
</TABLE>
(Continued)
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS FISCAL YEAR
ENDED ENDED ENDED
MARCH 31, 1997 MARCH 31, 1997 JUNE 30, 1996
<C> <S> <C> <C> <C>
(7) Entry eliminates the gain
on sale of assets to
OCI...................... $ 8,072 $ 8,072 $ --
======= ======= =======
(8) Entry records the income
tax effect of pro forma
adjustments using a
blended rate of 40%...... $(3,304) $(3,344) $ (681)
======= ======= =======
(9) Entry records the income
tax effect of pro forma
adjustments using a
blended rate of 40%...... $ (967) $ (578) $(2,498)
======= ======= =======
(10) The accompanying pro
forma results of
operations do not give
effect to the
extraordinary loss on the
extinguishment of debt of
$469, $524 and $524 for
the twelve months ended
March 31, 1997, nine
months ended March 31,
1997 and fiscal year
ended June 30, 1996,
respectively; however,
such amounts have been
reflected as adjustments
to pro forma retained
earnings (deficit).
</TABLE>
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR
ACQUISITION ADJUSTMENTS PRO
HISTORICAL OF RAGAN SUBTOTAL FOR THE FORMA
OCI COMPANIES(1) OCI OFFERINGS(2) OCI
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents............ $ 4,566 $ -- $ 4,566 $ 8,317 $ 12,883
Accounts receivable,
net.................... 6,318 751 7,069 -- 7,069
Other current assets.... 3,978 381 4,359 -- 4,359
Property and equipment,
net.................... 63,185 9,830 73,015 -- 73,015
Intangible assets, net.. 57,309 16,238 73,547 2,916 76,463
Other assets............ 4,819 -- 4,819 -- 4,819
-------- ------- -------- -------- --------
Total assets.......... $140,175 $27,200 $167,375 $ 11,233 $178,608
======== ======= ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current liabilities,
excluding current
installments of long-
term debt.............. $ 2,791 $ -- $ 2,791 $ -- $ 2,791
Deferred federal income
tax.................... 5,331 -- 5,331 -- 5,331
Other long-term
liabilities............ 1,365 -- 1,365 (1,318) 47
Long-term debt,
including current
installments:
Existing Credit
Facility.............. 107,700 27,200 134,900 (134,900) --
% Senior Subordinated
Notes................. -- -- -- 125,000 125,000
Series A and Series B
Notes................. 22,425 -- 22,425 (22,425) --
Notes payable--
stockholders.......... 5,877 -- 5,877 -- 5,877
-------- ------- -------- -------- --------
Total long-term debt.. 136,002 27,200 163,202 (32,325) 130,877
-------- ------- -------- -------- --------
Total liabilities..... 145,489 27,200 172,689 (33,643) 139,046
Stockholders' equity
(deficit).............. (5,314) -- (5,314) 44,876 39,562
-------- ------- -------- -------- --------
Total liabilities and
stockholders' equity
(deficit)............ $140,175 $27,200 $167,375 $ 11,233 $178,608
======== ======= ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The following notes describe the adjustments to present the pro forma
balance sheet of OCI as of March 31, 1997, as if the acquisition of the Ragan
Companies (the only significant acquisition consummated subsequent to that
date) and the Financing Plan had occurred on March 31, 1997.
(1) Entries reflect the effects of purchase accounting for the acquisition of
the Ragan Companies, to show the step-up in basis of property and
equipment, establishment of goodwill, increased long-term debt and
elimination of assets, liabilities and stockholders' deficit not
acquired:
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR
HISTORICAL PURCHASE ACQUISITION
RAGAN ACCOUNTING OF RAGAN
COMPANIES ADJUSTMENTS COMPANIES
<S> <C> <C> <C>
Cash and cash equivalents............... $ 377 $ (377) $ --
Accounts receivable, net................ 751 -- 751
Other current assets.................... 381 -- 381
Property and equipment, net............. 4,903 4,927 9,830
Intangible assets, net.................. 385 15,853 16,238
Current liabilities..................... 247 (247) --
Long-term debt, including current
installments........................... 8,068 19,132 27,200
Stockholders' equity (deficit).......... (1,518) 1,518 --
</TABLE>
(2) Entry records the effects of the proceeds from the issuance of the Notes,
capitalized debt issuance costs, repayment of existing debt and related
long-term accrued interest, and loss on early extinguishment of debt:
<TABLE>
<S> <C>
Cash and cash equivalents......................................... $ 8,317
Intangible assets, net............................................ 2,916
Other long-term liabilities....................................... (1,318)
Existing Credit Facility.......................................... (134,900)
% Senior Subordinated Notes...................................... 125,000
Series A and Series B Notes....................................... (22,425)
Stockholders' equity (deficit).................................... 44,876
</TABLE>
23
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The selected data presented on the following page under the captions
"Statement of Operations Data," "Balance Sheet Data" and "Other Data,"
excluding "Number of display faces--period end" for, and as of the end of, the
period April 4, 1996 to June 30, 1996, are derived from the consolidated
financial statements of OCI, which financial statements have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The
consolidated financial statements as of June 30, 1996, and for the period
April 4, 1996 to June 30, 1996, and the report thereon, are included elsewhere
in this Prospectus.
On April 3, 1996, the Company's current structure emerged with its
acquisition and consolidation of OCI North and OCI South. See "Certain
Relationships and Related Transactions-The Formation Transactions."
The selected data presented on the following page under the captions
"Statement of Operations Data," "Balance Sheet Data" and "Other Data,"
excluding "Number of display faces--period end" for, and as of the end of, the
period August 1, 1995 to April 3, 1996 and each of the years in the four-year
period ended July 31, 1995, are derived from the consolidated financial
statements of OCI North, which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The consolidated
financial statements as of April 3, 1996 and July 31, 1995, and for the period
August 1, 1995 to April 3, 1996 and each of the years in the two-year period
ended July 31, 1995, and the report thereon, are included elsewhere in this
Prospectus.
The selected data presented on the following page under the captions
"Statement of Operations Data," "Balance Sheet Data" and "Other Data,"
excluding "Number of display faces--period end" for, and as of the end of, the
period September 1, 1995 to April 3, 1996, are derived from the consolidated
financial statements of OCI South, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants.
The selected data presented on the following page under the captions
"Statement of Operations Data" and "Balance Sheet Data," "Other Data,"
excluding "Number of display faces--period end" for, and as the end of, each
of the years in the four-year period ended August 31, 1995, are derived from
the consolidated financial statements of OCI South, which financial statements
have been audited by Moore & Gray, independent certified public accountants.
The consolidated financial statements as of April 3, 1996 and August 31, 1995,
and for the period September 1, 1995 to April 3, 1996 and each of the years in
the two-year period ended August 31, 1995, and the reports thereon, are
included elsewhere in this Prospectus.
The selected data presented on the following page as of and for the nine
months ended March 31, 1997 are derived from the consolidated financial
statements of OCI. The consolidated financial statements include all
adjustments, consisting of normal recurring adjustments, which management
considers necessary for a fair presentation of the financial position and the
results of operations for this period. The results of operations for any such
period are not necessarily indicative of the results of operations for a full
year.
The selected historical consolidated financial and other information set
forth on the following page should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the historical consolidated financial statements of the Company
and its Predecessors, including the notes thereto, and other financial
information included elsewhere in this Prospectus.
24
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSORS (1)
-----------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED
-------------------------------------------------------------------------------------------------
AUGUST 1,
1995 TO
JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31, APRIL 3,
1992 1992 1993 1993 1994 1994 1995 1995 1996
OCI NORTH OCI SOUTH OCI NORTH OCI SOUTH OCI NORTH OCI SOUTH OCI NORTH OCI SOUTH OCI NORTH
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net revenues
(4).............. $ 9,199 $6,891 $ 9,155 $7,105 $ 9,500 $7,127 $10,369 $8,153 $ 6,683
Operating
expenses:
Direct
operating....... 2,376 2,778 2,497 2,754 2,468 1,616 2,436 1,880 1,651
Selling, general
and
administrative.. 3,828 2,011 4,048 2,059 3,897 2,913 3,953 2,908 3,019
Depreciation and
amortization.... 2,154 1,252 2,540 1,200 2,276 930 2,111 1,064 1,430
------- ------ ------- ------ ------- ------ ------- ------ -------
Total operating
expenses........ 8,358 6,041 9,085 6,013 8,641 5,459 8,500 5,852 6,100
Operating
income........... 841 850 70 1,092 859 1,668 1,869 2,301 583
Interest
expense.......... 2,120 1,040 2,030 845 2,042 853 2,127 1,173 1,461
Other expense
(income), net.... 291 -- 327 -- 656 (65) (21) (180) 17
Income tax
expense
(benefit)........ -- 14 (723) 170 (473) 340 (133) 524 156
------- ------ ------- ------ ------- ------ ------- ------ -------
Net income
(loss).......... $(1,570) $ (204) $(1,564) $ 77 $(1,366) $ 540 $ (104) $ 784 $(1,051)
======= ====== ======= ====== ======= ====== ======= ====== =======
Net income (loss)
per share (5).... -- -- -- -- -- -- -- -- --
Weighted average
common and
equivalent shares
outstanding (5).. -- -- -- -- -- -- -- -- --
OTHER DATA:
EBITDA (6)....... $ 2,995 $2,102 $ 2,610 $2,292 $ 3,135 $2,598 $ 3,980 $3,365 $ 2,013
EBITDA margin
(7).............. 32.6% 30.5% 28.5% 32.3% 33.0% 36.5% 38.4% 41.3% 30.1%
Capital
expenditures..... $ 614 $ 426 $ 622 $ 546 $ 610 $ 642 $ 522 $1,313 $ 588
Ratio of earnings
to fixed
charges.......... 0.4x(8) 0.9x(8) 0.1x(8) 1.2x 0.2x(8) 1.8x 0.9x(8) 1.9x 0.5x(8)
Number of display
faces--
period end....... 3,469 2,660 3,350 2,598 2,851 2,542 2,859 2,609 2,858
</TABLE>
<TABLE>
<CAPTION>
AS OF
----------------------------------------------------------------------------------------------------------------
JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31,
1992 1992 1993 1993 1994 1994 1995 1995
OCI NORTH OCI SOUTH OCI NORTH OCI SOUTH OCI NORTH OCI SOUTH OCI NORTH OCI SOUTH
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Working capital
(9).............. $ 896 $ 590 $ 1,389 $ 889 $ 930 $1,494 $ 1,299 $1,092
Total assets..... 18,180 8,005 19,948 9,069 15,992 8,701 14,715 8,590
Long-term
obligations
(10)............. 19,148 11,148 18,948 10,290 15,200 11,750 12,900 10,750
Stockholders'
equity
(deficit)........ (4,023) (4,302) (4,758) (2,622) (6,112) (3,681) (6,217) (2,997)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSORS (1) OCI
--------------------------------------------------------------------
--------------------------------------------------------------------
UNADJUSTED
SEPTEMBER 1, UNADJUSTED COMBINED NINE
1995 TO APRIL 4, COMBINED PERIOD MONTHS
APRIL 3, 1996 TO PERIOD ENDED ENDED ENDED
1996 JUNE 30, JUNE 30, MARCH 31, MARCH 31,
OCI SOUTH 1996 1996 (2) 1996 (3) 1997
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net revenues
(4).............. $4,957 $8,549 $20,189 $11,640 $31,741
Operating
expenses:
Direct
operating....... 1,167 1,758 4,576 2,818 6,715
Selling, general
and
administrative.. 2,039 3,304 8,362 5,058 12,119
Depreciation and
amortization.... 647 1,639 3,716 2,077 6,103
------ ------ ------- ------- -------
Total operating
expenses........ 3,853 6,701 16,654 9,953 24,937
Operating
income........... 1,104 1,848 3,535 1,687 6,804
Interest
expense.......... 645 1,826 3,932 2,106 7,597
Other expense
(income), net.... (11) -- 6 6 (53)
Income tax
expense
(benefit)........ 201 106 463 357 22
------ ------ ------- ------- -------
Net income
(loss).......... $ 269 $ (84) $ (866) $ (782) $ (762)
====== ====== ======= ======= =======
Net income (loss)
per share (5).... -- -- --
Weighted average
common and
equivalent shares
outstanding (5).. -- -- --
OTHER DATA:
EBITDA (6)....... $1,751 $3,487 $ 7,251 $ 3,764 $12,907
EBITDA margin
(7).............. 35.3% 40.8% 35.9% 32.3% 40.7%
Capital
expenditures..... $ 746 $ 589 $ 1,923 $ 1,334 $ 1,612
Ratio of earnings
to fixed
charges.......... 1.6x 1.0x 0.9x(8) 1.2x 0.9x(8)
Number of display
faces--
period end....... 2,644 9,346 9,346 5,502 13,774
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
--------------------------------------------------------------------
APRIL 3,
-----------------------
1996 1996 JUNE 30, MARCH 31,
OCI NORTH OCI SOUTH 1996 1997
<S> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Working capital
(9).............. $ 1,326 $1,134 $5,001 $12,071
Total assets..... 14,496 8,854 95,120 140,175
Long-term
obligations
(10)............. 12,400 10,750 90,577 136,002
Stockholders'
equity
(deficit)........ (7,041) (2,728) (4,726) (5,314)
</TABLE>
See Notes to Selected Historical Consolidated Financial and Other Information.
25
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION
(1) The historical information set forth under the caption "Predecessors"
represents the separate financial information of OCI North and OCI South.
(2) The historical statement of operations data for OCI for the period April
4, 1996 through June 30, 1996 has been added to the historical statement
of operations data of OCI North and OCI South for the period August 1,
1995 through April 3, 1996 and September 1, 1995 through April 3, 1996,
respectively, to arrive at the unadjusted combined information for the
period ended June 30, 1996.
(3) The historical statement of operations data of OCI North and OCI South for
the period August 1, 1995 through April 3, 1996 and September 1, 1995
through April 3, 1996, respectively, have been combined to arrive at the
unadjusted combined information for the period ended March 31, 1996.
(4) Net revenues are gross revenues less agency commissions.
(5) Net income (loss) per share for OCI North and OCI South have not been
presented because the companies are closely held and owned by private
investor groups and accordingly, an earnings per share calculation is not
required or meaningful.
(6) EBITDA is operating income (loss) before depreciation and amortization.
EBITDA is not intended to represent net cash provided by operating
activities as defined by generally accepted accounting principles and
should not be considered as an alternative to net income (loss) as an
indicator of the Company's operating performance or to net cash provided
by operating activities as a measure of liquidity. The Company believes
EBITDA is a measure commonly reported and widely used by analysts,
investors and other interested parties in the outdoor advertising
industry. Accordingly, this information has been disclosed herein to
permit a more complete comparative analysis of the Company's operating
performance relative to other companies in the outdoor advertising
industry.
(7) EBITDA margin is EBITDA stated as a percentage of net revenues.
(8) Earnings were insufficient to cover fixed charges. See Exhibit 12.1
"Computation of Ratio of Earnings to Fixed Charges."
(9) Working capital is defined as current assets less current liabilities
excluding current installments of long-term debt and obligation under non-
compete agreement.
(10) Long-term obligations are long-term debt and obligation under non-compete
agreement.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Consolidated Financial and Other Information" and the financial
statements of OCI, its Predecessors and certain acquired companies, including
notes thereto, appearing elsewhere in this Prospectus. The following
discussion contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors," "Business"
and elsewhere in this Prospectus, including, without limitation, risks and
uncertainties relating to leverage, the need for additional funds,
consummation and integration of future acquisitions, the ability of the
Company to achieve certain cost savings, the management of growth and the
popularity of outdoor advertising as an advertising medium.
BACKGROUND
The Company was formed in April 1996 to acquire the Predecessors. OCI South
was formed in 1972 to acquire outdoor advertising assets in the region around
Memphis, Tennessee. OCI North was formed in 1989 for the purpose of acquiring
Dingeman Advertising, Inc., an outdoor advertising company based in Traverse
City, Michigan, whose operations had been in existence since 1922.
The historical information set forth in the table below is based upon the
separate financial performance of OCI North and OCI South prior to the
formation of OCI. The following table sets forth the unadjusted combined
statement of operations and other data for OCI North and OCI South for the
periods indicated, representing the sum of the corresponding amounts appearing
in their respective historical statements of operations appearing herein,
without pro forma and other adjustments, including adjustments to match the
fiscal year ends of the Predecessors. Because the Predecessors had different
accounting policies, cost bases, capital structures and fiscal year ends, the
unadjusted combined statements are not in all material respects comparable,
with respect to matters such as depreciation, amortization, interest expense
and other items, to the consolidated financial statements of the Company; nor
are the Predecessors' financial statements in all material respects comparable
to each other. Such unadjusted combined statements do not represent the
results which would have been achieved or reported had the Predecessors been
acquired by OCI or otherwise combined at the beginning of the periods
presented.
<TABLE>
<CAPTION>
PREDECESSORS
----------------------------------
UNADJUSTED COMBINED
FISCAL YEAR (1)
----------------------------------
1992 1993 1994 1995
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues (2)........................ $16,090 $16,260 $16,627 $18,522
Operating expenses:
Direct operating....................... 5,154 5,251 4,084 4,316
Selling, general and administrative.... 5,839 6,107 6,810 6,861
Depreciation and amortization.......... 3,406 3,740 3,206 3,175
------- ------- ------- -------
Total operating expenses.............. 14,399 15,098 14,100 14,352
Operating income........................ 1,691 1,162 2,527 4,170
Interest expense........................ 3,160 2,875 2,895 3,300
Other income (expense), net............. (291) (327) (591) 201
Income tax expense (benefit)............ 14 (553) (133) 391
------- ------- ------- -------
Net income (loss)..................... $(1,774) $(1,487) $ (826) $ 680
======= ======= ======= =======
OTHER DATA:
EBITDA (3).............................. $ 5,097 $ 4,902 $ 5,733 $ 7,345
EBITDA margin (4)....................... 31.7% 30.1% 34.5% 39.7%
Capital expenditures.................... $ 1,040 $ 1,168 $ 1,252 $ 1,835
Number of display faces................. 6,129 5,948 5,393 5,468
</TABLE>
- -------------------
(1) The historical statement of operations data for OCI North for fiscal years
ending July 31 and OCI South for fiscal years ending August 31 have been
added together to arrive at the unadjusted combined information for the
fiscal years indicated above.
(2) Net revenues are gross revenues less agency commissions.
(3) "EBITDA" is operating income before depreciation and amortization. EBITDA
is not intended to represent net cash provided by operating activities as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income (loss) as an indicator of the
Company's operating performance or to net cash provided by operating
activities as a measure of liquidity. The Company believes EBITDA is a
measure commonly reported and widely used by analysts, investors and other
interested parties in the outdoor advertising industry. Accordingly, this
information has been disclosed herein to permit a more complete
comparative analysis of the Company's operating performance relative to
other companies in the outdoor advertising industry.
(4) "EBITDA margin" is EBITDA stated as a percentage of net revenues.
27
<PAGE>
Since its formation, the Company has completed 16 acquisitions of outdoor
advertising companies.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
DATE OF DISPLAYS ACQUISITION
NAME OF ACQUIRED COMPANY ACQUISITION DISPLAY LOCATIONS ACQUIRED TYPE
<S> <C> <C> <C> <C>
Summey Outdoor ......... June 1997 North Carolina/ South Carolina 900 In-market
Ragan Companies......... June 1997 Iowa/Illinois/Wisconsin 1,470 New market
Ellis Outdoor........... April 1997 Alabama 80 In-market
Quality Outdoor......... April 1997 Kentucky 180 In-market
Outdoor West............ March 1997 Tennessee 960 New market
Raven Outdoor........... February 1997 Michigan 12 In-market
Scout Outdoor........... February 1997 Tennessee 100 In-market
Amor Sign Studios....... February 1997 Michigan 120 In-market
Pabian Outdoor.......... December 1996 Georgia 40 In-market
D&S Outdoor............. December 1996 Georgia 16 In-market
Crowder Outdoor......... November 1996 Georgia 110 In-market
Skoglund................ October 1996 Minnesota/Wisconsin 1,500 New market
Hawthorne of
Birmingham............. October 1996 Alabama 23 In-market
Hawthorne of Georgia.... September 1996 Georgia 110 In-market
Alabama Outdoor......... April 1996 Alabama 2,900 New market
Georgia Outdoor......... April 1996 South Carolina/Georgia 800 New market
-----
Total.................. 9,321
=====
</TABLE>
The Company has completed 11 in-market acquisitions since September 1996.
The pro forma financial information contained herein does not include the
results of operations for these businesses prior to their respective dates of
acquisition as these acquisitions were individually insignificant. Although
these in-market acquisitions did not have audited financial statements,
management has estimated the pro forma impact of these acquisitions for the
most recent twelve-month period in order to provide a potential investor with
the most meaningful information possible. In order to estimate revenues and
EBITDA for these acquisitions, management reviewed the advertising contracts
and site leases of such acquired companies to determine revenues and rental
expense, respectively. Management then estimated, by expense category, the
amount of incremental costs which would have been incurred by the Company if
the acquired operations had been operated by the Company for the full period.
Because the majority of these acquisitions involved the purchase of display
faces only and the assumption of no incremental personnel, management believes
that its EBITDA margin estimate on the incremental revenues of approximately
50% is conservative.
OVERVIEW OF REVENUES AND EXPENSES
Revenues are a function of the number of display faces operated by the
Company, as well as the occupancy levels of the Company's display faces and
the rates that the Company charges for their use. The Company focuses its
sales efforts on twelve-month contracts to maximize both the occupancy of its
display inventory and its sales force efficiency. The Company believes that it
has opportunities to improve the occupancy levels and rate structure of its
display faces. The Company utilizes substantial creative resources and
aggressive sales and marketing techniques to generate demand for outdoor
advertising, including targeting customers currently using other forms of
media. The Company relies on sales of advertising space for its revenues, and
its operating results are therefore affected by general economic conditions,
as well as trends in the advertising industry.
Net revenues are gross revenues less commissions paid to advertising
agencies that contract for the use of advertising displays on behalf of
advertisers. Agency commissions on revenues that have been contracted through
advertising agencies are approximately 15% of gross revenues. Agency
commissions amounted to approximately 8.5% of gross revenues for the nine
months ended March 31, 1997. Because of the Company's reliance on local
advertisers, many of which do not employ agencies, the Company depends less on
placement of advertising
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through agencies than most other major outdoor advertising companies;
therefore, its aggregate agency commission payments are relatively lower. The
Company does not consider agency commissions as "operating expenses" and
measures its operating performance based upon percentages of net revenues
rather than gross revenues.
Direct operating expenses consist of the following categories: maintenance,
production and illumination. The maintenance category includes minor repairs
and miscellaneous maintenance of display structures as well as labor for
installation of display faces. The production category includes labor related
to paint and poster production and purchases of supplies. The illumination
category consists of electricity costs to light the display faces. The
majority of these direct expenses are variable costs that tend to fluctuate
with revenues. For the nine months ended March 31, 1997, these expenses
amounted to the following approximate percentages of net revenues: maintenance
7.5%, production 10.8% and illumination 2.9%.
Selling, general and administrative expenses occur at both the division and
corporate levels. At the division level, these costs include lease expense,
which consists mainly of rental payments to owners of the land underlying the
display structures, and related administrative overhead. At the corporate
level, these costs represent staff and facility expenses for the Company's
executive offices, insurance and the Company's accounting function. Selling
expenses consist mainly of salaries and commissions for the Company's sales
force, travel and entertainment relating to sales, sales administration and
other related costs. The Company's bonus expense is primarily accounted for at
the division level. For the nine months ended March 31, 1997, selling, general
and administrative expenses amounted to the following approximate percentages
of net revenues: selling 10.1%, division general and administrative 22.2% and
corporate general and administrative 5.9%.
THE COMPANY'S NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO PREDECESSORS'
UNADJUSTED COMBINED PERIOD ENDED MARCH 31, 1996
References to the unadjusted combined period ended March 31, 1996 reflect
the combined operations of OCI North for the period August 1, 1995 through
March 31, 1996 and OCI South for the period September 1, 1995 through March
31, 1996.
Net revenues increased $20.1 million to $31.7 million for the nine months
ended March 31, 1997 compared to $11.6 million for the unadjusted combined
period ended March 31, 1996. This increase was primarily due to the purchase
of certain of the Acquired Companies and the accompanying increase in the
number of displays generating revenues for the Company.
Operating expenses, exclusive of depreciation and amortization, increased
$11.0 million to $18.8 million for the nine months ended March 31, 1997
compared to $7.9 million for the unadjusted combined period ended March 31,
1996, while operating expenses, exclusive of depreciation and amortization, as
a percentage of net revenues decreased from 67.7% for the period ended March
31, 1996 to 59.3% for the nine months ended March 31, 1997. The decrease in
operating expenses as a percentage of net revenues reflected the increased
operating efficiencies resulting from the Company's revenue growth.
Depreciation and amortization expense increased $4.0 million to $6.1 million
for the nine months ended March 31, 1997 compared to $2.1 million for the
unadjusted combined period ended March 31, 1996. Such increase was primarily
related to the inclusion of depreciation and amortization generated by certain
of the Acquired Companies.
Due to the above factors, operating income increased $5.1 million to $6.8
million for the nine months ended March 31, 1997 compared to $1.7 million for
the unadjusted combined period ended March 31, 1996, while operating income as
a percentage of net revenues increased to 21.4% from 14.5% over such periods.
Interest expense increased $5.5 million to $7.6 million for the nine months
ended March 31, 1997 from $2.1 million for the unadjusted combined period
ended March 31, 1996. Such increase primarily reflects the higher level of
indebtedness resulting from the acquisition of certain of the Acquired
Companies.
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As a result of the foregoing factors, the net loss for the nine months ended
March 31, 1997 was $0.8 million, which was comparable to the Company's net
loss for the unadjusted combined period ended March 31, 1996.
THE COMPANY'S UNADJUSTED COMBINED PERIOD ENDED JUNE 30, 1996 COMPARED TO THE
PREDECESSORS' UNADJUSTED COMBINED FISCAL YEAR 1995
References to the Company's operations for the unadjusted combined period
ended June 30, 1996 refer to the combined operations of OCI North for the
period August 1, 1995 through April 3, 1996, OCI South for the period
September 1, 1995 through April 3, 1996 and the Company for the period April
4, 1996 through June 30, 1996. Accordingly, the period ended June 30, 1996
does not include a full fiscal year's results for the Company due to the
Predecessors' differing fiscal year ends. References to the Company's
operations for the unadjusted combined fiscal year 1995 refer to the combined
operations of OCI North for the fiscal year ended July 31, 1995 and OCI South
for the fiscal year ended August 31, 1995.
The Company's net revenues increased $1.7 million or 9.0% to $20.2 million
for the unadjusted combined period ended June 30, 1996 compared to $18.5
million for the unadjusted combined fiscal year 1995. This increase was
primarily due to increases in the number of display faces, through new
construction and the acquisitions of Georgia Outdoor and Alabama Outdoor, as
well as an increase in revenues received per display face, offset by the
inclusion of less than a full year's results in the 1996 period.
The Company's operating expenses, exclusive of depreciation and
amortization, increased $1.7 million or 15.8% to $12.9 million for the
unadjusted combined period ended June 30, 1996 compared to $11.2 million for
the same period in 1995, while operating expenses, exclusive of depreciation
and amortization, as a percentage of net revenues increased to 64.1% for the
unadjusted combined period ended June 30, 1996 from 60.3% for the unadjusted
combined fiscal year 1995. This increase was primarily the result of the
inclusion of expenses associated with operating Georgia Outdoor and Alabama
Outdoor and one-time costs associated with, and charges taken to reflect
redundancies created by, the Formation Transactions.
Depreciation and amortization expense of the Company increased $0.5 million
or 17% to $3.7 million for the unadjusted combined period ended June 30, 1996
from $3.2 million for the unadjusted combined fiscal year 1995. A significant
portion of this increase was due to a step-up in basis resulting from purchase
accounting adjustments in connection with the acquisitions of Georgia Outdoor
and Alabama Outdoor.
Due to the above factors, the Company's operating income decreased $0.6
million or 15.2% to $3.5 million for the unadjusted combined period ended June
30, 1996 compared to $4.2 million for the same period in 1995 and operating
income as a percentage of net revenues decreased from 22.5% to 17.5% over such
period.
The Company's interest expense increased $0.6 million or 19.2% to $3.9
million for the unadjusted combined period ended June 30, 1996 from $3.3
million for the unadjusted combined fiscal year 1995. Such increase primarily
reflects the higher level of indebtedness resulting from the acquisitions of
Georgia Outdoor and Alabama Outdoor.
As a result of the foregoing factors, the Company's net loss for the
unadjusted combined period ended June 30, 1996 was $0.9 million as compared to
net income of $0.7 million for the unadjusted fiscal year 1995.
PREDECESSORS' UNADJUSTED COMBINED FISCAL YEAR 1995 COMPARED TO PREDECESSORS'
UNADJUSTED COMBINED FISCAL YEAR 1994
References to the Predecessors' operations for the unadjusted combined
fiscal years 1995 and 1994 reflect the combined operations of OCI South for
the years ended August 31 and OCI North for the years ended July 31 and shall
hereinafter be referred to as the applicable "fiscal year."
The Predecessors' net revenues increased $1.9 million or 11.4% to $18.5
million for the fiscal year ended 1995 compared to $16.6 million for the same
period in 1994. This increase was primarily due to a combination
30
<PAGE>
of rate and occupancy increases at both OCI North and OCI South. OCI North's
net revenues increased $0.9 million or 9.1% to $10.4 million for the fiscal
year 1995 as compared to $9.5 million for the same period in 1994. OCI South's
net revenues increased $1.0 million or 14.4% to $8.2 million for the fiscal
year ended 1995 as compared to $7.1 million for the same period in 1994.
The Predecessors' operating expenses, exclusive of depreciation and
amortization, increased $0.3 million or 2.6% to $11.2 million for the fiscal
year 1995 compared to $10.9 million for the same period in 1994, while
operating expenses, exclusive of depreciation and amortization, as a
percentage of net revenues decreased as a percentage of net revenues to 60.3%
for the fiscal year 1995 from 65.5% for the fiscal year 1994. The decrease in
operating expenses as a percentage of revenues was primarily due to a large
revenue increase with limited associated incremental cost. OCI North's
operating expenses, exclusive of depreciation and amortization, did not
increase materially for the fiscal year 1995 as compared to the same period in
1994. OCI South's operating expenses increased $0.3 million or 5.7% to $4.8
million for the fiscal year 1995 as compared to $4.5 million for the same
period in 1994.
Depreciation and amortization expense of the Predecessors decreased 0.9% to
$3.2 million for the fiscal year 1995. OCI North's depreciation and
amortization expense decreased $0.2 million or 7.2% to $2.1 million for the
fiscal year 1995 as compared to $2.3 million for the same period in 1994. OCI
South's depreciation and amortization expense increased $0.1 million or 14.4%
to $1.1 million for the fiscal year 1995 as compared to $0.9 million for the
same period in 1994.
Due to the above factors, the Predecessors' operating income increased $1.6
million or 65.0% to $4.2 million for the fiscal year 1995 compared to $2.5
million for the same period in 1994. The Predecessors' operating income as a
percentage of net revenues increased to 22.5% from 15.2% between such periods.
OCI North's operating income increased $1.0 million or 118% to $1.9 million
for the fiscal year 1995 as compared to $0.9 million for the same period in
1994. OCI South's operating income increased $0.6 million or 37.9% to $2.3
million for the fiscal year 1995 as compared to $1.7 for the same period in
1994.
The Predecessors' interest expense increased $0.4 million or 14% to $3.3
million for the fiscal year 1995 from $2.9 million for the same period in
1994. OCI North's interest expense did not materially change in fiscal year
1995 as compared to the same period in 1994. OCI South's interest expense
increased $0.3 million or 37.5% to $1.2 million for the fiscal year 1995 as
compared to $0.9 million for the same period in 1994.
As a result of the foregoing factors, net income for the fiscal year 1995
was $0.7 million as compared to a net loss of $0.8 million for the same period
in 1994. OCI North's net loss for the fiscal year 1995 was $0.1 million as
compared to a loss of $1.4 million for the same period in 1994. OCI South's
net income increased $0.2 million or 45.2% to $0.8 million for the fiscal year
1995 as compared to net income of $0.5 million for the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed the consolidation of OCI North and OCI South and the
acquisitions of Georgia Outdoor and Alabama Outdoor through the combination of
a $90 million credit facility (the "Old Credit Facility") and an equity and
subordinated debt investment of approximately $34 million from certain
individual investors, funds managed by Media/Communications Partners and Chase
Venture Capital Associates, L.P. See "Certain Relationships and Related
Transactions." Since that time, the Company has satisfied its working capital
requirements with cash from operations and to a lesser extent borrowings under
its credit facilities. Its acquisitions have been financed primarily with
borrowings under its credit facilities.
In October 1996, the Old Credit Facility was amended and restated as the
Existing Credit Facility in order to increase the available credit to $140
million. The Company financed its acquisitions of Skoglund, Outdoor West and
several smaller outdoor advertising operations through borrowings under the
Existing Credit Facility. The Company intends to use the proceeds of the
Offerings to repay substantially all amounts owed under the Existing Credit
Facility and the Series A Notes and Series B Notes.
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<PAGE>
Upon consummation of the Offerings, the Company intends to enter into the
New Credit Facility. The New Credit Facility will provide for a total
commitment of approximately $ million. Approximately $ million of the
New Credit Facility will mature on , 1997, with the remaining amount
maturing on . The revolving credit loans and term loans under the New
Credit Facility will bear interest at various rates tied to base rates. The
Company is entering into the New Credit Facility for the purpose of financing
acquisitions and capital expenditures relating to the development and
improvement of advertising structures. The Company believes that its cash from
operations, together with available borrowings under the New Credit Facility,
will be sufficient to satisfy its cash requirements, including anticipated
capital expenditures, for the foreseeable future. However, in the event that
cash from operations, together with available funds under the New Credit
Facility are insufficient to satisfy cash requirements, the Company may
require additional indebtedness to finance its operations including, without
limitation, additional acquisitions. There can be no assurance that such
additional debt will be available or that the Company will be able to incur
such additional debt. See "Description of New Credit Facility" and
"Description of Notes--Certain Covenants--Limitation on Additional
Indebtedness."
The Company has low maintenance capital expenditure requirements. Such
capital expenditures are required to maintain and upgrade the Company's
existing display faces. Management estimates that maintenance capital
expenditures will total approximately $1.5 million in fiscal 1998. In addition
to maintenance capital expenditures, the Company incurs discretionary capital
expenditures for the construction of new display faces. Management estimates
that discretionary capital expenditures will total an additional $2.5 million
in fiscal 1998.
Net cash provided by operating activities was $2.3 million for the nine
months ended March 31, 1997. Net cash used in investing activities was $42.9
million for the nine months ended March 31, 1997, resulting primarily from
acquisitions and capital expenditures. Net cash provided by financing
activities was $43.9 million for the nine months ended March 31, 1997,
resulting primarily from net borrowings under the Existing Credit Facility.
INFLATION
In the last three years, inflation has not had a significant impact on the
Company or its Predecessors.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on April 4, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events of changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. Adoption of this statement did not have a material
impact on the Company's financial position, results of operations or
liquidity.
In October, 1995, SFAS No. 123 Accounting for Stock-Based Compensation was
issued by the Financial Accounting Standards Board. This statement encourages,
but does not require, companies to measure stock-based compensation cost using
a fair value method, rather than the intrinsic value method prescribed by the
Accounting Principles Board (APB) Opinion No. 25. Companies choosing to
continue to measure stock-based compensation using the intrinsic value method
must disclose on a pro forma basis net income (loss) and net income (loss) per
share as if the fair value method were used. Management has determined that
upon formation of the 1997 Stock Option Plan, they will adopt the disclosure-
only provisions of SFAS No. 123. As such, the adoption of this Statement is
not expected to have an impact on the Company's results of operations.
In February, 1997, SFAS No. 128 Earnings per Share was issued by the
Financial Accounting Standards Board. This statement is effective for both
interim and annual periods ending after December 15, 1997, earlier adoption is
not permitted. This standard replaces the presentation of primary earnings per
share with a
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presentation of basic earnings per share and also requires dual presentation
of basic and diluted earnings per share for all entities with complex capital
structures. Because early adoption of SFAS No. 128 is not permitted, there is
no impact on the Company's earnings per share amounts for the interim periods
presented herein. However, upon adoption in the third quarter of 1998, all
prior interim and annual period earnings per share data presented will be
restated to conform with the provisions of SFAS No. 128. The Company does not
expect the impact of the adoption of SFAS No. 128 to be material to previously
reported earnings per share amounts.
TAXES
As of June 30, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $943,000. As a result of the
Formation Transactions in April 1996, future utilization of such net operating
loss carryforwards is limited to approximately $580,000 annually. The Company
expects that the net operating loss carryforwards will be exhausted during
fiscal 1998 and the Company's effective tax rate will rise in fiscal 1999 and
thereafter.
33
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BUSINESS
THE COMPANY
OCI is a leading provider of outdoor advertising services, operating
approximately 15,000 advertising displays in 13 midwestern and southeastern
states. The Midwest and Southeast are attractive markets for outdoor
advertising with stable, growing economies and a significant number of
advertisers in diverse industries such as retail sales, health care,
agriculture and manufacturing. The Company focuses on small- to medium-sized
markets with populations ranging from 15,000 to 150,000 and is the largest
outdoor advertising company in most of the markets in which it operates.
Management believes that operating in small- to medium-sized markets provides
certain advantages over operating in large markets, including lower and more
stable lease costs, greater new build opportunities and more attractive
acquisition opportunities. For the twelve months ended March 31, 1997, on a
pro forma basis, the Company had net revenues and EBITDA of $56.1 million and
$22.5 million, respectively, excluding the results of certain individually
insignificant operations prior to their acquisition by the Company. See
"Summary Pro Forma Financial Information."
On April 3, 1996, the Company's current structure emerged with its
acquisition and consolidation of OCI North and OCI South. See "Certain
Relationships and Related Transactions--The Formation Transactions." OCI South
was founded in 1972 by John C Stanley IV and A.B. Isbell upon their
acquisition of certain outdoor advertising assets in the region around
Memphis, Tennessee. Over the next 25 years, Messrs. Stanley and Isbell and the
other employees steadily increased the sales and geographic reach of OCI
South. Through dedication to customer service and product quality and the
consummation of numerous acquisitions, OCI South grew its operations to more
than 2,600 display faces in six states by April 1996. In 1989, OCI North was
formed by Messrs. Stanley and Isbell to complete the acquisition of Dingeman
Advertising, Inc., an outdoor advertising company based in Traverse City,
Michigan whose operations had been in existence since 1922. Through additional
acquisitions and new construction, OCI North grew substantially after 1989 so
that by April 1996, OCI North had more than 2,800 display faces in three
states. The Company believes that the success of its management team in
developing and expanding its operations has made OCI a significant competitor
in the outdoor advertising industry.
INDUSTRY OVERVIEW
Outdoor advertising offers repetitive impact and relatively low cost-per-
thousand impressions compared to alternative media, including television,
radio, newspapers, magazines and direct mail marketing. The outdoor
advertising industry in the United States has experienced increased advertiser
interest and revenue growth during the 1990's. According to recent estimates
by the Outdoor Advertising Association of America (the "OAAA"), the trade
association for the outdoor advertising industry, outdoor advertising
generated total revenues of approximately $2.0 billion in 1996, or
approximately 1.1% of the total advertising expenditures in the United States.
Although the outdoor advertising industry has gained increased prominence in
recent years, the industry itself dates back to the late nineteenth century
when companies began renting spaces on wooden boards or fences for advertising
"bills" which were pasted or posted to the rented spaces. The industry grew
dramatically from the 1920s to the 1960s, with the significant increase in
automobile travel and highway and freeway construction and improvement. As
roadside advertising became more popular with advertisers, the displays used
by the industry evolved from posters to more permanent billboards in standard
sizes located in highly visible, high-traffic locations.
In more recent times, the outdoor advertising industry has experienced
significant changes due to a number of factors. First, the outdoor advertising
industry has increased its visibility with and attractiveness to a diversified
set of local advertisers as well as national retail and consumer product-
oriented companies to offset the decline in the use of tobacco advertising in
recent years. Second, the industry has benefitted significantly
34
<PAGE>
from improvements in production technology, including the use of computer
printing, vinyl advertising copy and improved lighting techniques, which have
facilitated a more dynamic, colorful and creative use of the medium. These
technological advances have permitted the outdoor advertising industry to
respond more promptly and cost effectively to the changing needs of its
advertising customers and make greater use of advertising copy used in other
media. Third, the outdoor advertising industry has benefitted from the growth
in automobile travel time for business and leisure due to increased highway
congestion and continued demographic shifts of residences and businesses from
the cities to outlying suburbs. The study most recently published by the
Office of Highway Information Management of the Federal Highway Administration
indicated that, during the period from 1983 to 1990, licensed drivers in the
United States increased by 11%, vehicles owned increased by 15%, the number of
vehicle trips increased by 25% and vehicle miles increased by 40%. The Company
believes that these trends demonstrate that consumer exposure to existing
billboard structures also increased during this period.
Advertisers purchase outdoor advertising for a number of reasons. Outdoor
advertising offers repetitive impact and a relatively low cost per-thousand
impressions, a commonly used media measurement, as compared to television,
radio, newspapers, magazines and direct mail marketing. This cost-
effectiveness makes outdoor advertising a good vehicle to build mass market
support. In addition, outdoor advertising can be used to target a defined
audience in a specific location and, therefore, can be relied upon by local
businesses concentrating on a particular geographic area where customers have
specific demographic characteristics. For instance, restaurants, motels,
service stations and similar roadside businesses use outdoor advertising to
reach potential customers close to the point of sale and provide directional
information. Other local businesses such as television and radio stations and
consumer products companies may wish to appeal more broadly to customers and
consumers in the local market. National brand name advertisers may use the
medium to attract customers generally and build brand awareness. In all cases,
outdoor advertising can be combined with other media such as radio and
television to reinforce messages being provided to consumers.
The outdoor advertising industry is comprised of several large outdoor
advertising and media companies with operations in multiple markets, as well
as many smaller and local companies operating a limited number of structures
in a single or few local markets. While the industry has experienced some
consolidation within the past few years, the OAAA estimates that there are
still approximately 600 companies in the outdoor advertising industry
operating approximately 396,000 billboard displays. The Company expects the
trend of consolidation in the outdoor advertising industry to continue.
OPERATING STRATEGY
The Company's objective is to be a leading provider of outdoor advertising
services in small- to medium-sized markets across the United States. To
achieve this objective, the Company plans to both increase its penetration in
its existing markets and expand into attractive new markets. The Company has
historically implemented, and intends to continue to pursue, the following
operating strategy:
Pursue Strategic Acquisitions. The Company seeks to continue its growth by
pursuing an aggressive acquisition strategy emphasizing both in-market and
new market acquisitions. The Company believes it has attractive in-market
acquisition opportunities which will serve to increase market penetration
and enhance local market operating efficiencies. In most instances, in-
market acquisitions involved the purchase of display faces only and require
no incremental personnel. The Company also intends to pursue new market
acquisitions that are either within its existing regions or in new regions
where attractive growth and consolidation opportunities exist.
Leverage Operational Structure. The Company's operational structure
provides significant operating leverage to support increased penetration of
existing markets and new market expansion. The Company's operations are
comprised of 11 divisions, each with its own division headquarters to
service its display structures and customers. OCI has centralized
management operations in Traverse City, Michigan and Corinth, Mississippi
to provide administrative oversight of the divisions through centralized
purchasing, a detailed budgeting process, management information systems
and strict cost controls. With this infrastructure in place, the Company
can generate revenues from newly acquired or constructed display faces at a
very attractive incremental margin.
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Focus on Local Advertisers. The Company seeks to continue its local
advertiser focus, which management believes provides the Company with a
diverse and stable advertiser base, fewer sales subject to agency
commissions and greater rate integrity. Local advertising constituted over
84% of the Company's gross revenues for the nine months ended March 31,
1997, which is higher than the industry average of 70% as estimated by the
OAAA. The Company believes that the diversity of its local customer base
insulates it from dependence on any one customer or industry. During the
nine months ended March 31, 1997, no single customer represented more than
2.5% of the Company's gross revenues.
Emphasize Twelve-Month Advertising Contracts. The Company seeks to maximize
occupancy levels and sales force and production efficiency by focusing on
twelve-month advertising contracts. The Company believes that these long-
term contracts enhance occupancy levels at stable advertising rates,
generate higher renewal rates, increase the predictability of revenues and
allow its sales personnel time to provide greater attention to servicing
their accounts.
Capitalize on Experienced Management Team. The Company believes that one of
the keys to continuing its growth is its experienced management team. The
Company's three-person senior management team has over 70 years of combined
experience in the outdoor advertising industry which provides the Company
with the market knowledge and relationships necessary to identify and
evaluate acquisition candidates. Management's local relationships also
provide OCI with the ability to identify and obtain municipal approval for
new build opportunities.
RECENT ACQUISITIONS
The Company has historically relied on an acquisition-based growth strategy
that has provided its management with considerable experience in analyzing and
negotiating potential acquisitions. In addition, the Company's management has
consistently demonstrated its ability to assimilate its acquisitions into the
existing structure of the Company. The Company has acquired the assets of 16
outdoor advertising companies over a 15-month period, totaling in excess of
9,000 display faces. The Company believes that these completed acquisitions
have significantly strengthened its market presence in the Midwest and
Southeast and have allowed the Company to capitalize on the operating
efficiencies and cross-market sales opportunities associated with operating in
contiguous markets. The following summarizes the Significant Acquisitions,
which are included in the pro forma financial information in this Prospectus:
The Ragan Acquisition. In May 1997, OCI entered into agreements to acquire
substantially all of the assets of the Ragan Companies for an aggregate cash
purchase price of $27.0 million. Upon consummation of this acquisition, the
Company will acquire approximately 1,470 display faces in Rockford, Illinois;
Cedar Rapids, Iowa and the Quad Cities of Moline, Illinois, Rock Island,
Illinois, Davenport, Iowa and Bettendorf, Iowa. The Ragan Companies are
attractive to OCI for several reasons, including the price, locations and size
of the companies' markets. The acquisition of the Ragan Companies is scheduled
to close in June 1997.
The Outdoor West Acquisition. On March 31, 1997, OCI acquired substantially
all of the assets of Outdoor West for a cash purchase price of $11.8 million.
As a result of this acquisition, the Company acquired approximately 960
display faces in Tennessee and a right of first refusal to purchase Outdoor
West, Inc. of Georgia, an affiliate of Outdoor West. The acquisition of
Outdoor West has strengthened the Company's presence in eastern and central
Tennessee.
The Skoglund Acquisition. On October 31, 1996, OCI completed the acquisition
of substantially all of the assets of Skoglund for a cash purchase price of
$21.0 million. As a result of the acquisition of Skoglund, the Company
acquired approximately 1,500 display faces in Minnesota and Wisconsin. These
new market areas strengthen OCI's presence in the Midwest.
The Alabama Outdoor Acquisition. On April 30, 1996, OCI acquired
approximately 2,900 display faces across North and Central Alabama through its
purchase of substantially all of the assets of Alabama Outdoor for a cash
purchase price of $34.2 million. By purchasing display faces in the regions
around and between Birmingham and Gadsden, Alabama, the Company has been able
to strengthen its presence in a growing market.
36
<PAGE>
The Georgia Outdoor Acquisition. On April 3, 1996, OCI completed the
acquisition of substantially all of the assets of Georgia Outdoor for a cash
purchase price of $11.6 million. As a result of this transaction, the Company
acquired approximately 800 display faces in Georgia and South Carolina in the
vicinity of Athens, Georgia. This complemented the Company's existing
operations in the region around Rome, Georgia.
In addition to the Significant Acquisitions, since September 1996 the
Company has consummated 11 in-market acquisitions, acquiring 1,691 display
faces in Alabama, Georgia, Kentucky, North Carolina, South Carolina, Michigan
and Tennessee for aggregate cash payments totaling approximately $17.5
million.
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
DATE OF DISPLAYS ACQUISITION
NAME OF ACQUIRED COMPANY ACQUISITION DISPLAY LOCATIONS ACQUIRED TYPE
<S> <C> <C> <C> <C>
Summey Outdoor.......... June 1997 North Carolina/South Carolina 900 In-market
Ragan Companies......... June 1997 Illinois/Iowa/Wisconsin 1,470 New market
Ellis Outdoor........... April 1997 Alabama 80 In-market
Quality Outdoor......... April 1997 Kentucky 180 In-market
Outdoor West............ March 1997 Tennessee 960 New market
Raven Outdoor........... February 1997 Michigan 12 In-market
Scout Outdoor........... February 1997 Tennessee 100 In-market
Amor Sign Studios....... February 1997 Michigan 120 In-market
Pabian Outdoor.......... December 1996 Georgia 40 In-market
D&S Outdoor............. December 1996 Georgia 16 In-market
Crowder Outdoor......... November 1996 Georgia 110 In-market
Skoglund................ October 1996 Minnesota/Wisconsin 1,500 New market
Hawthorne of
Birmingham............. October 1996 Alabama 23 In-market
Hawthorne of Georgia.... September 1996 Georgia 110 In-market
Alabama Outdoor......... April 1996 Alabama 2,900 New market
Georgia Outdoor......... April 1996 South Carolina/Georgia 800 New market
------
Total.................. 9,321
======
</TABLE>
The Company's acquisition integration approach is different for in-market
and new market acquisitions. In-market acquisitions typically involve the
purchase of display faces only, resulting in the elimination of all personnel
and related costs. The functions relating to sales, production, leasing and
administration are assumed by existing operations. In new markets, the Company
generally eliminates administrative and accounting positions, maintains a
sales and production capability, and institutes the Company's operating
philosophy, systems and controls. In addition, the Company immediately
implements its sales strategy which involves converting the compensation
program of the sales force from salary plus incentive to straight commission
and redirects the sales effort toward twelve-month advertising contracts.
37
<PAGE>
MARKETS
The Company operates primarily in small- to medium-sized markets in the
midwest and southeast regions of the country. Each market has local
industries, businesses and special events that are frequent users of outdoor
advertising. The Company has 11 administrative and sales divisions
headquartered in the locations listed in the table below.
The following sets forth certain information (on a pro forma basis as set
forth in the Unaudited Pro Forma Consolidated Financial Statements of OCI) for
each of the Company's markets as of and for the twelve months ended March 31,
1997, excluding the pre-acquisition operating results from the 11 individually
insignificant acquisitions by the Company since September 1996.
<TABLE>
<CAPTION>
NUMBER OF DISPLAYS
-----------------------------------------------
PRO FORMA NET REVENUES
12 MONTHS ENDED
MARCH 31, 1997 PERCENTAGE OF JUNIOR 30-SHEET 8-SHEET
MARKET (IN THOUSANDS) NET REVENUES BULLETINS BULLETINS POSTERS POSTERS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Birmingham, AL.......... $10,533 18.8% 420 101 1,120 308 1,949
Quad Cities, IA/IL...... 6,717 12.0 940 --(1) 192 359 1,491
Duluth, MN.............. 6,150 11.0 318 390 864 12 1,584
Athens, GA.............. 6,037 10.8 301 415 822 98 1,636
Traverse City, MI....... 4,830 8.6 161 520 746 -- 1,427
Saginaw, MI............. 4,466 8.0 155 217 630 8 1,010
Corinth, MS............. 3,946 7.0 191 111 719 1 1,022
Johnson City, TN........ 3,878 6.9 160 136 651 -- 947
Paducah, KY............. 3,305 5.9 70 281 617 2 970
Huntsville, AL.......... 3,241 5.8 223 126 591 -- 940
Tuscaloosa, AL.......... 3,022 5.4 276 138 384 -- 798
------- ----- ----- ----- ----- --- ------
Total................. $56,125 100.0% 3,215 2,435 7,336 788 13,774(2)
======= ===== ===== ===== ===== === ======
</TABLE>
- ---------------------
(1) Separate information on the number of junior bulletins included among
bulletins is unavailable.
(2) Excludes approximately 1,180 displays acquired after March 31, 1997.
The following is an overview of the economies and significant features of
the Company's 11 markets:
Birmingham, Alabama. The Company's Birmingham market includes the region in
and around Birmingham, Alabama, the largest city and the leading trade center
in the State of Alabama. This market area is one of the Southeast's major
centers of finance, health care, manufacturing, research and engineering,
transportation and education. Unlike the other markets in which OCI operates,
Birmingham is one of the sixty largest metropolitan areas in the country.
Quad Cities, Iowa/Illinois. The Company's Quad Cities market consists of
Rockford, Illinois; Cedar Rapids, Iowa; and the Quad Cities of Moline,
Illinois, Rock Island, Illinois, Davenport, Iowa and Bettendorf, Iowa. The
Quad Cities region features several major construction and farming machinery
manufacturers as well as the University of Iowa. The Rockford, Illinois
region, which is located approximately 90 miles from Chicago, is an important
center for tool and die manufacturing for the automobile industry. Cedar
Rapids, Iowa has over 278 manufacturing plants and approximately 20 Fortune
500 companies.
Duluth, Minnesota. The Company's Duluth market includes the areas in and
around Duluth, Minnesota; St. Cloud, Minnesota; and Eau Claire, Wisconsin.
Important components of the Duluth area's economy include tourism, shipping,
medical services, manufacturing, mining and education. St. Cloud is located
approximately 65 miles from Minneapolis/St. Paul and is one of the state's
leading agricultural areas. It is also the home of a variety of medical and
light manufacturing companies. Eau Claire is located between Chicago and
Milwaukee and is one of Wisconsin's most rapidly growing cities. Its
industrial base includes computer manufacturing, insurance, environmental
cleaning products and meat and dairy products.
38
<PAGE>
Athens, Georgia. The Company's Athens market encompasses 31 counties
throughout northwest Georgia, a region with a healthy economy well positioned
for growth. Much of this growth will emanate from the expansion of nearby
Atlanta. In addition to the large number of commuters to greater Atlanta who
live in this market area, there are a significant number of tourists who
frequent the region including visitors to the University of Georgia.
Traverse City, Michigan. The Company's Traverse City market includes the
areas of Traverse City, Muskegon and Michigan's Upper Peninsula, some of that
state's most popular tourist destinations. The greater Traverse City area
attracts more than 2 million visitors annually to its numerous recreational
offerings and events. The area's 20 championship golf courses as well as
plentiful fishing and camping opportunities draw thousands of tourists during
the summer, while premier ski resorts and hundreds of groomed snowmobile
trails are popular in the winter. The tourism and retail sectors of the
Traverse City Division's economy are balanced by stable manufacturing and
natural resource-related sectors.
Saginaw, Michigan. The Company's Saginaw market encompasses the "Tri-Cities"
of Saginaw, Midland and Bay City, Michigan as well as the region in and around
Port Huron, Michigan. The region's solid retail sectors are complemented by a
robust tourism industry. For example, in Mount Pleasant, Michigan, the Soaring
Eagle Casino attracts many people from across the state and nearby Canada.
Other significant industry sectors in this region include automotive
manufacturing, chemical production, agriculture processing and electric power
and gas production.
Corinth, Mississippi. The Company's Corinth market covers north and central
Mississippi, northwest Alabama and west Tennessee. While this region's economy
has traditionally been rooted in the timber, pulp and paper and railroad
industries, other industries such as furniture and electronics manufacturing
have emerged in recent years. In addition, the growing presence of casino
gambling is boosting the region's economy dramatically. This market's Alabama
region features a strong mix of industries, including apparel mills, metal
casting houses and food processing plants. In addition, the lakes in this
region have made tourism an increasingly important attraction for potential
consumers in the region.
Johnson City, Tennessee. The Company's Johnson City market is centered on
the "Tri-Cities" area of Tennessee: Johnson City, Kingsport and Bristol. Local
industries include electronics, pharmaceuticals, mining, machinery, apparel,
textiles and aluminum products. The region also features many recreational
areas with boating, skiing, white water rafting and fishing which make it a
tourist destination.
Paducah, Kentucky. The Company's Paducah market encompasses parts of
Kentucky, Missouri and Illinois. The local economies within this division are
driven by a diverse collection of industries including retail, health care and
transportation. This market also includes the area in and around Decatur,
Illinois, which is centrally located among Chicago, St. Louis and
Indianapolis.
Huntsville, Alabama. The Company's Huntsville market is centered in a region
where defense and aerospace technology, research and manufacturing play an
important role in the local economy. In addition, the area's economic base
includes numerous electronics and other industrial firms. The Company's
Huntsville market also includes the Murfreesboro, Tennessee region.
Murfreesboro's proximity to Nashville generates substantial commuter and
tourist traffic in this market. This region is also the location of companies
involved in heavy manufacturing, health care and education.
Tuscaloosa, Alabama. The Company's Tuscaloosa market covers the region in
and around Tuscaloosa, Alabama, home of the main campus of the University of
Alabama which serves as the focal point for much of the activity in and around
this market area. Tuscaloosa is located fifty miles southwest of Birmingham,
and large cities such as Atlanta, Memphis and Nashville are within a two-
hundred mile radius of the city.
39
<PAGE>
LOCAL MARKET OPERATIONS
In addition to the sales operations in each of its divisions, the Company
maintains a complete outdoor advertising operation including a general
manager, a production, construction and maintenance facility, a creative
department equipped with advanced technology, a real estate unit and support
staff. The Company conducts its outdoor advertising operations through these
local offices, consistent with senior management's belief that an organization
with decentralized sales and operations is more responsive to local market
demand and provides greater incentives to employees. The decentralized sales
operations are balanced by administrative oversight through OCI's centralized
accounting and financial controls based in the Company's primary
administrative offices in Corinth, Mississippi and Traverse City, Michigan.
These controls allow OCI to closely monitor the operating and financial
performance of its operations in each market. Mr. Isbell is the President of
the Company and its Chief Operating Officer, and four regional Vice Presidents
report directly to him. The 11 division general managers in turn report
directly to one of the four regional Vice Presidents. Such division general
managers are responsible for the day-to-day operations of their respective
markets and are compensated according to the financial performance of such
markets. In general, these local managers oversee market development,
production and local sales.
Although site leases (for land underlying an advertising structure) are
administered from the Company's primary administrative offices in Mississippi
and Michigan, each local division office is solely responsible for locating
and ultimately procuring leases for appropriate sites in its market. Site
lease contracts vary in term but typically run from five to twenty years with
various termination and renewal provisions. Each division office maintains a
leasing department, which maintains records containing information on local
property ownership, lease contract terms, zoning ordinances and permit
requirements. The Company believes that by relying on personnel in its local
offices to study market conditions and procure new site leases it is better
able to respond to increases in customer demand.
The Company has also established fully staffed and equipped creative
departments in each of its divisions. Using technologically advanced computer
hardware and software, the creative departments are able to develop original
design copy for local advertisers and exchange work and concepts with each
other or directly with clients or their agencies. This capability has
encouraged some advertising agencies to rely on the Company for the creation
of their clients' outdoor campaigns. The Company believes that its creative
departments' implementation of continuing technological advances provides a
significant competitive advantage in its sales and service area.
SALES AND SERVICE
The Company has long focused on providing a low cost, high-quality
advertising vehicle to local businesses. During the nine months ended March
31, 1997, local advertising revenues accounted for 84% of gross revenues. The
Company believes that outdoor advertising will typically be the most efficient
means for local advertisers to reach consumers. Management believes that its
local advertiser focus provides the Company with a diverse and stable
advertiser base, fewer agency commission sales and greater rate integrity. The
Company also believes that the diversity of its customer base insulates the
Company from dependence on any one customer or industry. For the nine months
ended March 31, 1997, no single customer represented more than 2.5% of the
Company's gross revenues.
The Company believes that the development of partner-like relationships with
local business owners is a key component to successful operation in smaller
markets. Management therefore encourages its sales personnel to become
acquainted with these local business persons to learn about the needs of its
small business customers and spend time discussing the benefits of outdoor
advertising with them. Few of the local advertisers in small markets have
relationships with advertising agencies; therefore, the Company obtains many
of its contracts with such advertisers through direct sales. As a result, a
lower percentage of the Company's revenues are subject to advertising agency
commissions than those of major market outdoor advertising companies.
Elimination of the payment of agency commissions on some local sales,
typically 15% of gross revenues, increases the profitability of contracts with
local businesses or, under some circumstances, enhances the Company's ability
to offer incentive programs to its customers.
40
<PAGE>
The Company emphasizes the use of advertising contracts with a term of
twelve months. The Company believes that such contracts provide the Company
with considerable stability with respect to both occupancy and advertising
rates. Long-term contracts also increase the predictability of revenues and
allow sales personnel time to devote greater attention to servicing their
accounts. The Company believes that once its customers enter into twelve-month
contracts they tend to view their outdoor advertising expenses as a routine
cost of doing business. As a result, such customers are more likely to renew
their contracts. The Company has experienced renewal rates of approximately
75% of advertising contracts, with average annual rate increases at or above
the annual rate of inflation.
To encourage customers to sign twelve-month poster contracts, the Company
has consistently used two promotions: an incentive program and a rotation
program. Under the incentive program, customers who enter into a twelve-month
poster contract are eligible for certain incentives which may be applied to a
twelve-month renewal of such contract. Under the rotation program, customers
of the Company who have entered into twelve-month contracts can change the
location of their poster advertising display from one of the Company's
structures to another Company-owned structure every 30 to 60 days. This
affords such customers with more varied exposure and access to some of the
Company's most attractive locations which might otherwise be unavailable.
In each of its 11 divisions, the Company maintains teams of sales
representatives with defined territories who report to a general manager in
each of its markets. The Company's sales teams are experienced, with
individual sales persons averaging six years of service with the Company or
operations acquired by the Company. Each sales representative is compensated
exclusively on a commission basis, and the local general manager's
compensation is tied to the performance of his or her sales team. The Company
believes that this incentive structure, together with the experience of its
personnel, is a significant factor in its ability to maintain a solid base of
local advertisers in the communities where it operates. In addition, the
Company's national sales manager works with advertising agencies across the
country to solicit national advertising with the Company.
CUSTOMERS
Approximately 84% of the Company's gross revenues in the first nine months
of fiscal 1997 were generated from local advertisers. The Company believes
that focusing on local advertising offers several advantages over national
advertising. In local sales, the Company often deals directly with the
customer without an agency acting as an intermediary. The Company expends
considerable sales efforts on educating local customers regarding the benefits
of outdoor media and helping potential customers develop an outdoor
advertising strategy. Hence, the Company has an opportunity to develop a long-
term working relationship with local advertisers and influence their
purchasing decisions. The direct relationship also gives the Company an
advantage in obtaining renewals, as is evidenced by its advertising contract
renewal rate of 75%. In addition, the Company's experience has been that local
advertisers are more likely to enter into twelve-month contracts. See "--Sales
and Service". Local advertisers tend to have smaller advertising budgets and
are more dependent on the Company's production and creative personnel to
design and produce advertising copy. While price and availability are
important competitive factors, service and customer relationships are also
critical components of local sales. The Company's reliance on local
advertisers is particularly beneficial from a diversification standpoint. No
one customer accounted for more than 2.5% of the Company's gross revenues
during the nine months ended March 31, 1997.
The close proximity of the Company's displays to several large metropolitan
areas allows it to attract national advertisers. One strategy employed by the
Company to attract national advertisers has been the establishment of "rings"
around several major metropolitan areas including Atlanta, Detroit, Memphis,
Minneapolis and Nashville. Rather than locate signs within such metropolitan
areas, the Company operates display faces in smaller communities surrounding
these markets. National advertisers who want access to commuters who work in
metropolitan areas but live outside them are therefore attracted to OCI. The
Company competes for national advertisers primarily as compared to the outdoor
advertising industry as a whole on the basis of price, location of displays,
availability and service.
41
<PAGE>
Tobacco revenues have historically accounted for a significantly lower
portion of the Company's outdoor advertising revenues than the outdoor
advertising industry as a whole. For the nine months ended March 31, 1997,
tobacco advertisers accounted for less than 10% of the Company's gross
revenues, well below the estimated 13.6% for the outdoor advertising industry
as a whole in 1996, as reported by Competitive Media Reporting and Publishers
Information Bureau Inc. Thus, the reduction by the leading tobacco companies
in their expenditures for outdoor advertising due to a declining population of
smokers, societal pressures, consolidation in the tobacco industry and price
competition from generic brands has had a less dramatic effect on the
Company's inventories than on the outdoor advertising industry as a whole. See
"--Government Regulation."
The following table illustrates the diversity of the Company's advertising
base for the nine months ended March 31, 1997:
GROSS REVENUES BY ADVERTISER CATEGORY
<TABLE>
<CAPTION>
PERCENTAGE OF
GROSS REVENUES
<S> <C>
Retail/Consumer Products...................................... 12.8%
Hospitality................................................... 12.4
Automotive and Related........................................ 11.8
Tobacco....................................................... 9.1
Media/Communications.......................................... 7.8
Restaurants................................................... 7.4
Gaming and other Recreation................................... 5.9
Financial Services/Insurance.................................. 5.5
Health Care................................................... 4.8
Beverages (alcoholic and non-alcoholic)....................... 4.3
Real Estate................................................... 2.3
Other......................................................... 15.9
-----
Total....................................................... 100.0%
=====
</TABLE>
INVENTORY
The Company operates four standard types of outdoor advertising display
faces:
Bulletins generally are 36 feet long by 10 1/2 feet high or 48 feet long by
14 feet high and consist of panels on which advertising copy is displayed.
The advertising copy is either hand painted onto the panels at the
facilities of the Company in accordance with design specifications supplied
by the advertiser and attached to the outdoor advertising structure, or is
hand-painted or printed with the computer-generated graphics on a single
sheet of vinyl that is wrapped around the structure. On occasion, to
attract more attention, some of the panels may extend beyond the linear
edges of the display face and may include three-dimensional embellishments.
Because of their greater impact and higher cost, bulletins are usually
located on major highways.
Junior Bulletins are smaller bulletins, measuring 25 feet long by 12 feet
high or smaller, with panels on which advertising copy is displayed. As
with standard bulletins, the advertising copy is either hand painted onto
the panels at the facilities of the Company in accordance with design
specifications supplied by the advertiser and attached to the outdoor
advertising structure, or is hand-painted or printed with the computer-
generated graphics on a single sheet of vinyl that is wrapped around the
structure. Junior bulletins may also feature panels extending beyond the
linear edges of the display face or other three-dimensional embellishments.
Junior bulletins are generally located on secondary roads and highways.
30-Sheet Posters generally are 25 feet long by 12 feet high and are the
most common type of billboard. Advertising copy for 30-sheet posters
consists of lithographed or silk-screened paper sheets supplied by the
42
<PAGE>
advertiser that are pasted and applied like wallpaper to the face of the
display. Thirty-sheet posters are primarily located on major traffic
arteries.
Junior (8-Sheet) Posters usually are 12 feet long by 6 feet high. Displays
are prepared and mounted in the same manner as 30-sheet posters. Most
junior posters, because of their smaller size, are primarily located on
city streets.
Billboards generally are mounted on structures owned by the Company and
located on sites that are either owned or leased by it or on which it has
acquired a permanent easement. Billboard structures are durable, have long
useful lives and do not require substantial maintenance. When disassembled,
they typically can be moved and relocated at new sites. The Company's outdoor
advertising structures are made of steel and other durable materials built to
withstand variable climates, including the rigors of the midwestern climate.
The Company expects its structures to last 15 years or more without
significant refurbishment.
PRODUCTION
The Company has internal production facilities and staff in each of its 11
divisions to perform the full range of activities required to develop, create
and install outdoor advertising in all of its markets. Production work
includes creating the advertising copy design and layout, painting the design
or coordinating its printing and installing the designs on its displays. The
Company usually provides its full range of production services to local
advertisers and to advertisers that are not represented by advertising
agencies, since national advertisers and advertisers represented by
advertising agencies often use preprinted designs that require only
installation. However, the Company's creative and production personnel
frequently are involved in production activities even when advertisers are
represented by agencies due to the development of new designs or adaptation of
copy from other media for use on billboards. The Company's artists also assist
in the development of marketing presentations, demonstrations and strategies
to attract new advertisers.
With the increased use of vinyl and pre-printed advertising copy furnished
to the outdoor advertising company by the advertiser or its agency, outdoor
advertising companies are becoming less responsible for labor-intensive
production work since vinyl and pre-printed copy can be installed quickly. The
vinyl sheets are reusable, thereby reducing the Company's production costs,
and are easily transportable. Due to the geographic proximity of the Company's
principal markets and the transportability of vinyl sheets, the Company can
shift materials among markets to promote efficiency. The Company believes that
this trend over time will reduce operating expenses associated with production
activities.
COMPETITION
The Company is the leading outdoor advertising provider in most of its
markets. In each of its markets, the Company faces competition from other
media, including broadcast and cable television, radio, print media and direct
mail marketers. In addition, the Company also competes with a wide variety of
"out-of-home" media, including highway logo signs, advertising in shopping
centers and malls, airports, stadiums, movie theaters and supermarkets, as
well as on taxis, trains, buses and subways. Advertisers compare relative
costs of available media and cost-per-thousand impressions, particularly when
delivering a message to customers with distinct demographic characteristics.
In competing with other media, outdoor advertising relies on its low cost-per-
thousand-impressions and its ability to reach repetitively a broad segment of
the population in a specific market or to target a particular geographic area
or population with a particular set of demographic characteristics within that
market.
The outdoor advertising industry is highly fragmented, consisting of several
large outdoor advertising and media companies with operations in multiple
markets as well as smaller and local companies operating a limited number of
structures in single or a few local markets. Although some consolidation has
occurred over the past few years, according to the OAAA there are
approximately 600 companies in the outdoor advertising industry operating
approximately 396,000 billboard displays. In several of its markets, the
Company encounters direct competition from other major outdoor media
companies, including 3M Media, which has agreed to be acquired by Outdoor
Systems, Inc., Whiteco, Inc., and Lamar Advertising Company, each of which has
a larger
43
<PAGE>
national network and greater total resources than the Company. The Company
believes that its emphasis on local advertisers and its position as a major
provider of advertising services in each of its markets enable it to compete
effectively with the other outdoor media operators, as well as other media,
both within those markets and in the midwest region. The Company also competes
with other outdoor advertising companies for sites on which to build new
structures. See "Risk Factors--Competition."
GOVERNMENT REGULATION
The outdoor advertising industry is subject to governmental regulation at
the federal, state and local levels. Federal law, principally the Highway
Beautification Act, encouraged states, by the threat of withholding federal
appropriations for the construction and improvement of highways within such
states, to implement legislation to restrict billboards located within 660
feet of, or visible from, interstate and primary highways except in commercial
or industrial areas. All of the states have implemented regulations at least
as restrictive as the Highway Beautification Act, including prohibitions on
the construction of new billboards adjacent to federally-aided highways and
the removal at the owner's expense and without any compensation of any illegal
signs on such highways. The Highway Beautification Act, and the various state
statutes implementing it, require the payment of just compensation whenever
government authorities require legally erected and maintained billboards to be
removed from federally-aided highways.
The states and local jurisdictions have, in some cases, passed additional
and more restrictive regulations on the construction, repair, upgrading,
height, size and location of, and, in some instances, content of advertising
copy being displayed on outdoor advertising structures adjacent to federally-
aided highways and other thoroughfares. Such regulations, often in the form of
municipal building, sign or zoning ordinances, specify minimum standards for
the height, size and location of billboards. In some cases, the construction
of new billboards or relocation of existing billboards is prohibited. Some
jurisdictions also have restricted the ability to enlarge or upgrade existing
billboards, such as converting from wood to steel or from non-illuminated to
illuminated structures. From time to time governmental authorities order the
removal of billboards by the exercise of eminent domain. Thus far, the Company
has been able to obtain satisfactory compensation for any of its structures
removed at the direction of governmental authorities, although there is no
assurance that it will be able to continue to do so in the future.
In recent years, there have been movements to restrict billboard advertising
of certain products, including tobacco and alcohol. It is uncertain whether
additional legislation of this type will be enacted on the national level or
in any of the Company's markets. The Company derives significant revenues from
advertisers in the gaming industry. The Company is not aware of any concerted
efforts to enact legislation limiting the advertisement of casino gaming, but
there can be no assurance that there will not be such efforts in the future.
In August 1996, the U.S. Food and Drug Administration issued final
regulations governing certain marketing practices in the tobacco industry.
Among other things, the regulations prohibit tobacco product billboard
advertisements within 1,000 feet of schools and playgrounds and require that
tobacco product advertisements on billboards be in black and white and contain
only text. Enforcement of such regulations has been stayed indefinitely by a
federal court in North Carolina. A reduction in billboard advertising by the
tobacco industry could cause an immediate reduction in the Company's direct
revenue from such advertisers and would simultaneously increase the available
space on the existing inventory of billboards in the outdoor advertising
industry. In early 1997, the major tobacco manufacturers in the United States
and certain state attorneys general entered into litigation settlement
discussions. At this time, it is unclear whether any such settlement will be
reached and what effect, if any, such a settlement would have on OCI's
operations. See "--Customers" and "Risk Factors--Tobacco Industry
Regulations."
Amortization of billboards has also been adopted in varying forms in certain
jurisdictions. Amortization permits the billboard owner to operate its
billboard as a non-conforming use for a specified period of time until it has
recouped its investment, after which it must remove or otherwise conform its
billboard to the applicable regulations at its own cost without any
compensation. Amortization and other regulations requiring the removal
44
<PAGE>
of billboards without compensation have been subject to vigorous litigation in
state and federal courts and cases have reached differing conclusions as to
the constitutionality of these regulations. To date, regulations in the
Company's markets have not materially adversely affected its operations.
The outdoor advertising industry is heavily regulated and, at various times
and in various markets, the Company can expect to be subject to varying
degrees of regulatory pressure affecting the operation of advertising
displays. Accordingly, although the Company's experience to date is that the
regulatory environment has not adversely impacted the Company's business, no
assurance can be given that existing or future laws or regulations will not
materially adversely affect the Company at some time in the future.
OUTDOOR ADVERTISING PROPERTIES
Outdoor Advertising Sites. The Company owns or has permanent easements on
approximately 158 parcels of real property that serve as the sites for its
outdoor displays. The Company's remaining approximately 5,273 advertising
display sites are leased or licensed. The Company's site leases are for
varying terms ranging from month-to-month or year-to-year to terms of 10 years
or longer, and many provide for renewal options. With the exception of
approximately 150 leases between the Company and John H. Dingeman in Michigan,
there is no significant concentration of displays under any one lease or
subject to negotiation with any one landlord. The Company believes that an
important part of its management activity is to manage its lease portfolio and
negotiate suitable lease renewals and extensions. Through the use of double-
side structures and the erection of multiple structures on individual sites,
the Company averages approximately three display faces for every occupied site
it owns or leases.
Office and Production Facilities. The Company's principal executive and
administrative offices are located in Corinth, Mississippi and Traverse City,
Michigan. In Corinth, Mississippi, OCI leases approximately 5,000 square feet
of office space to house its administrative operations. In its Traverse City,
Michigan office, the Company leases approximately 4,500 square feet of office
space. The Company owns office and production facilities in Rome, Georgia,
Duluth, Minnesota and Corinth, Mississippi. The Company is exploring the
benefits of selling such real estate. In addition to these properties, the
Company owns or leases other office space and production and maintenance
facilities in each of its 11 divisions. The Company considers its facilities
to be well maintained and adequate for its current and reasonably anticipated
future needs.
EMPLOYEES
At March 31, 1997, the Company employed approximately 316 people, of whom
approximately 67 were primarily engaged in sales and marketing, 162 were
engaged in painting, bill posting and construction and maintenance of displays
and the balance were employed in financial, administrative and similar
capacities. The Duluth Division has 13 employees who belong to a union. The
Company considers its relations with the union and with its employees to be
good.
LEGAL PROCEEDINGS
From time to time, the Company may be involved in various legal proceedings
that are incidental to the conduct of its business. The Company is not
involved in any pending or, to its knowledge, threatened legal proceedings
which the Company believes could reasonably be expected to have a material
adverse effect on the Company's financial condition or results of operations.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John C Stanley IV.......... 49 Chairman of the Board of Directors,
Chief Executive Officer and Director
A.B. Isbell................ 61 President, Chief Operating Officer and Director
Richard W. Ebersole........ 44 Treasurer and Chief Financial Officer
Steven B. Dodge............ 51 Director
Douglas W. Ferris, Jr.*.... 53 Director
Stephen F. Gormley*+....... 47 Director
John G. Hayes*+............ 34 Director
Brian J. Richmand+......... 43 Director
John G. Andrews............ 43 Regional Vice President
G. Robert Joiner........... 52 Regional Vice President
Gerald P. Scott............ 46 Regional Vice President
Mark K. Sherwood........... 36 Regional Vice President
David F. Dietz............. 47 Secretary
</TABLE>
- ---------------------
* Member of Audit Committee
+ Member of Compensation Committee
John C Stanley IV has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company and its direct and indirect subsidiaries
since April 1996. From 1972 through 1994, Mr. Stanley was Vice President and
Secretary of OCI South. Since 1994, Mr. Stanley has served as Chairman of OCI
South.
A.B. Isbell has served as a Director and President and Chief Operating
Officer of the Company and its direct and indirect subsidiaries since April
1996. Mr. Isbell has also served as President of OCI South since 1972.
Richard W. Ebersole has served as a Director and Treasurer and Chief
Financial Officer of the Company and its direct and indirect subsidiaries
since April 1996. Mr. Ebersole was President of OCI North from 1991 until the
consummation of the Formation Transactions in April 1996.
Steven B. Dodge has served as a Director of the Company since May 1997. Mr.
Dodge has been the Chairman of the Board, President and Chief Executive
Officer of American Radio Systems Corporation, a national radio broadcasting
company, since November 1993. Mr. Dodge also serves as a Director of American
Radio Systems Corporation and American Media, Inc.
Douglas W. Ferris, Jr. has been a Director of the Company since May 1997.
Mr. Ferris has been Chairman of the Board of National Commerce Bank Services,
Inc., a financial institution based in Memphis, Tennessee, since 1987.
National Commerce Bank Services, Inc. is an affiliate of National Commerce
Bank Corporation.
Stephen F. Gormley has served as a Director of the Company and its direct
and indirect subsidiaries since April 1996. Mr. Gormley has been a partner of
Media/Communications Partners, a venture capital firm, since 1985.
John G. Hayes has served as a Director of the Company and its direct and
indirect subsidiaries since April 1996. Mr. Hayes has been associated with
Media/Communications Partners since 1989 and has served as a partner since
1993.
Brian J. Richmand has served as a Director of the Company and its direct and
indirect subsidiaries since April 1996. Mr. Richmand has been a general
partner of Chase Capital Partners, the general partner of Chase Venture
Capital Associates, L.P., a venture capital firm, since August 1993. From
January 1986 to August 1993, Mr. Richmand was a partner at the law firm of
Kirkland & Ellis. Mr. Richmand is also a director of Riverwood Holding, Inc.
46
<PAGE>
John G. Andrews has been a Regional Vice President of the Company since
April 1996. Mr. Andrews was President of Alabama Outdoor from March 1994 until
Alabama Outdoor was acquired by OCI in April 1996. From March 1993 through
November 1993, Mr. Andrews served as a Vice President and Regional Manager of
Gateway Outdoor Advertising's Carolina Division, an outdoor advertising
company.
G. Robert Joiner has been a Regional Vice President of the Company since
April 1996, having previously served as a division General Manager since March
1996. Prior to joining OCI, Mr. Joiner was employed by Waste Management, Inc.,
a waste disposal company, serving as such company's State President of its
Mississippi operations from February 1993 to March 1996 and as general manager
of its Winston-Salem, North Carolina division from January 1991 to February
1993.
Gerald P. Scott has been a Regional Vice President of the Company since
March 1996, having previously served as a division General Manager since 1992.
Mark Sherwood has been a Regional Vice President of the Company since
September 1996, having previously served as a division manager of the Company
since September 1992. Prior to joining OCI, Mr. Sherwood was employed as a
sales manager at Coca Cola Bottling Co. of Michigan, a soft drink bottler.
David F. Dietz has served as the Secretary of the Company since April 1996.
Mr. Dietz has been a partner in the law firm of Goodwin, Procter & Hoar LLP
since 1984.
The number of directors of the Company is currently fixed at seven.
Following the Offering, the Company's Board of Directors will consist of three
Class I Directors (Messrs. Dodge, Ferris and Richmand), two Class II Directors
(Messrs. Hayes and Isbell) and two Class III Directors (Messrs. Gormley and
Stanley) whose initial terms will expire upon the election and qualification
of directors at the annual meetings of stockholders to be held in 1998, 1999
and 2000, respectively. Messrs. Stanley, Isbell, Gormley, Hayes and Richmand
were initially elected to serve as Directors of the Company pursuant to a
voting agreement among all shareholders of the Company at the time of the
Formation Transactions. Such voting agreement will terminate upon the closing
of this Offering. See "Certain Relationships and Related Transactions--
Formation Transactions".
The Board of Directors has established an audit committee (the "Audit
Committee") and a Compensation Committee (the "Compensation Committee"). The
Audit Committee recommends the firm to be appointed as independent auditors of
the Company's financial statements and to perform services related to the
audit, reviews the scope and results of the audit with the independent
auditors, reviews with management and the independent auditors the Company's
annual operating results, considers the adequacy of the internal accounting
procedures, considers the effect of such procedures on the auditors'
independence and establishes policies for business values, ethics and employee
relations. Messrs. Ferris, Gormley and Hayes constitute the members of the
Audit Committee. The Compensation Committee, which consists of Messrs.
Gormley, Hayes and Richmand, reviews and recommends the compensation
arrangements for all directors and officers and approves such arrangements for
other senior level employees. The Compensation Committee also administers and
takes such other action as may be required in connection with the incentive
plans of the Company, including the 1997 Stock Option Plan (as defined below).
DIRECTOR COMPENSATION
Directors who are employees of the Company serve without compensation (other
than reimbursement of expenses) in connection with rendering services as a
Director. Non-employee directors receive $2,500 per board or committee
meeting, plus reimbursement of expenses.
EXECUTIVE COMPENSATION
Prior to the establishment of the Compensation Committee, the compensation
of executive officers of the Company was determined by the Board of Directors
of the Company. The Compensation Committee is currently responsible for
reviewing and recommending the compensation of senior executives of the
Company. The
47
<PAGE>
following table sets forth certain information concerning compensation
received by the Chief Executive Officer and the other four most highly-
compensated executive officers of the Company for services rendered to the
Company in all capacities (including service as an officer or director) in
fiscal 1996. No stock options or similar awards had been granted as of the end
of fiscal 1996.
Summary Compensation. The following table shows compensation paid to the
executive officers of the Company listed below for services rendered to the
Company and its predecessors in all capacities during the fiscal year ended
June 30, 1996 (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION
<S> <C> <C> <C>
John C Stanley IV $ 137,500 $ -- $75,386(2)
Chairman and Chief
Executive Officer
A.B. Isbell 116,666 -- 75,386(2)
President and Chief
Operating Officer
Richard W. Ebersole 108,425 108,742(3) 79,106(2)(4)
Treasurer and Chief
Financial Officer
</TABLE>
- ---------------------
(1) The current annual salaries of Messrs. Stanley, Isbell and Ebersole are
$225,000, $175,000 and $125,000, respectively.
(2) Pursuant to an agreement dated August 9, 1994 among OCI North and Messrs.
Stanley, Isbell and Ebersole in connection with the acquisition of OCI
North by the Company on April 3, 1996 OCI North issued one share of its
common stock to each of Messrs. Stanley, Isbell and Ebersole as
compensation. The market value of such share of common stock was
calculated to be $75,386.
(3) Consists of a cash bonus paid to Mr. Ebersole by OCI North upon the
acquisition of OCI North by the Company.
(4) Includes $3,720 contributed by OCI North to Mr. Ebersole's account under a
401(k) plan maintained by OCI North.
No other executive officers of the Company earned in excess of $100,000
during the fiscal year ended June 30, 1996.
STOCK OPTION PLAN
On , 1997, the Board of Directors adopted, and the stockholders of the
Company approved, the Company's 1997 Stock Option and Incentive Plan (the
"1997 Stock Option Plan"), which authorizes the issuance of up to shares
of Common Stock. The 1997 Stock Option Plan permits the grant of (i) options
to purchase shares of Common Stock intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended,
(the "Code"), (ii) options that do not so qualify, (iii) stock appreciation
rights and (iv) restricted and unrestricted stock awards.
The 1997 Stock Option Plan is designed and intended as a performance
incentive for officers, directors, employees, consultants and other key
persons performing services for the Company to encourage such persons to
acquire or increase a proprietary interest in the success of the Company. The
1997 Stock Option Plan provides that it shall be administered by the
Compensation Committee, which shall be comprised of non-employee directors who
are to be appointed by the Board of Directors from time to time. The
Compensation Committee
48
<PAGE>
determines the terms of each individual stock option and stock award, subject
to the terms of the 1997 Stock Option Plan, including the exercise price or
purchase price of such awards. The exercise price for incentive stock options
must be equal to the fair market value of the Common Stock on the date of
grant. The exercise price for non-qualified stock options and the purchase
price for Common Stock awards is determined at the discretion of the
Compensation Committee. On , 1997, there were options to purchase an
aggregate of shares of Common Stock outstanding, of which shares had been
granted to executive officers of the Company. The exercise price of such
options is .
EMPLOYEE STOCK PURCHASE PLAN
On , 1997, the Board of Directors adopted and the stockholders of the
Company approved, the Company's Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan"). The Company has reserved a total of shares of
Common Stock for issuance under the Employee Stock Purchase Plan. The
Compensation Committee of the Board of Directors shall administer the Employee
Stock Purchase Plan. The Employee Stock Purchase Plan which is intended to
qualify as an "employee stock purchase plan" within the meaning of Section
423(b) of the Code, as amended, permits eligible employees of the Company to
purchase Common Stock through payroll deductions of up to 10% of their
compensation. The price of the Common Stock purchased under the Employee Stock
Purchase Plan will be 85% of the lower of the fair market value of the Common
Stock on the first or last day of each six month purchase period. Employees
are eligible to participate if they are customarily employed by the Company or
any designated subsidiary for at least 20 hours per week and for more than six
months.
401(K) PLAN
The Company has adopted a 401(k) Employee Savings Plan (the "401(k) Plan").
All full-time employees of the Company are eligible to participate in the
401(k) Plan once they have accumulated 12 months of qualified service with the
Company. The Company currently matches employee contributions to the 401(k)
Plan at a rate of 50% of each employee's contribution up to a total of 3% of
the employee's total compensation.
KEY MAN INSURANCE
The Company maintains key man life insurance policies on Messrs. Stanley and
Isbell.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company formed its Compensation Committee in May 1997. Previously,
compensation decisions were made by the entire Board of Directors. Messrs.
Gormley, Hayes and Richmand comprise the Company's Compensation Committee. No
director of the Company serves on the compensation committee of the board of
directors of any other Company.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of May 31, 1997, and as
adjusted to reflect the sale by the Company of the shares offered in the
Common Stock Offering, (i) by each person who is known by the Company to own
beneficially five percent or more of the outstanding shares of Common Stock,
(ii) by each of the Company's directors, (iii) by each of the Named
Executives, and (iv) by all current directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
COMMON STOCK OFFERING COMMON STOCK OFFERING
NAME AND ADDRESS ----------------------- ----------------------
NUMBER PERCENT(1) NUMBER PERCENT(1)
<S> <C> <C> <C> <C>
Entities affiliated with
Media/Communications
Partners(2)................ 5,463.50 45.25%
75 State Street
Boston, MA 02109
Media/Communications
Partners II Limited
Partnership(2)........... 5,244.96 43.44
Media/Communications
Investors Limited
Partnership(2)........... 218.54 1.81 *
Chase Venture Capital
Associates, L.P.(3)......... 3,636.51 30.12
c/o Chase Capital Partners
380 Madison Avenue
12th Floor
New York, NY 10017
John C Stanley IV(4)........ 1,400.54 11.60
512 Taylor Street
Corinth, MS 38834
A.B. Isbell................. 1,050.00 8.70
512 Taylor Street
Corinth, MS 38834
Richard W. Ebersole......... 35.00 * *
Steven B. Dodge............. -- -- -- --
Douglas W. Ferris........... 87.50 * *
Stephen F. Gormley(5)....... 5,463.50 45.24
John G. Hayes(6)............ 5,463.50 45.24
Brian J. Richmand(7)........ 3,636.51 3,636.51
All directors and executive
officers
as a group (13 persons)(8).. 11,848.05 98.12%
</TABLE>
- ---------------------
*Represents less than 1% of the outstanding shares
(1) Total capital stock prior to this Offering and the Common Stock Offering
consists of 12,075 shares of Common Stock. Total capital stock after the
Common Stock Offering includes shares of Common Stock and 5,000,000
shares of authorized but unissued preferred stock.
(2) Includes (i) 5,244.96 shares of Common Stock held by Media/Communications
Partners II Limited Partnership ("M/C II") and (ii) 218.54 shares of
Common Stock held by Media/Communications
50
<PAGE>
Investors Limited Partnership ("M/C Investors"). Messrs. Gormley and Hayes
are general partners of Media/Communications Partners.
(3) Includes 3,636.51 shares of Common Stock held by Chase Venture Capital
Associates, L.P. ("CVCA"). Mr. Richmand is a partner of the general
partner of CVCA.
(4) Includes (i) 1,204.16 shares of Common Stock held by Mr. Stanley, (ii)
98.19 shares held by the JCS Trust of which Mr. Stanley serves as trustee
and (iii) 98.19 shares held by the LWS Trust of which Mr. Stanley serves
as trustee.
(5) Consists of shares held by M/C II and the M/C Investors. As a general
partner of Media/Communications Partners, Mr. Gormley may be deemed to be
the beneficial owner of such shares. Mr. Gormley disclaims beneficial
ownership of such shares.
(6) Consists of shares held by M/C II and the M/C Investors. As a general
partner of Media/Communications Partners, Mr. Hayes may be deemed to be
the beneficial owner of such shares. Mr. Hayes disclaims beneficial
ownership of such shares.
(7) Consists of shares held by CVCA. As a general partner of CVCA, Mr.
Richmand may be deemed to be the beneficial owner of such shares. Mr.
Richmand disclaims beneficial ownership of such shares.
(8) Includes (i) 5,463.50 shares of Common Stock held by entities affiliated
with Media/Communications Partners, (ii) 3,636.51 shares of Common Stock
held by CVCA and (iii) 98.19 shares of Common Stock held by each of the
JCS Trust and the LWS Trust of which Mr. Stanley serves as trustee.
51
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE FORMATION TRANSACTIONS
On April 3, 1996, the Company's current structure emerged through an equity
financing and the simultaneous acquisition and consolidation of OCI North and
OCI South (collectively, the "Formation Transactions").
Acquisition of OCI North. Pursuant to an Asset Purchase Agreement dated as
of April 3, 1996 (the "OCI North Purchase Agreement"), the Company acquired
from all of the shareholders of OCI North, including Media/Communications
Partners Limited Partnership, Chestnut Street Partners, Inc., Milk Street
Partners, Inc. and TA Investors (collectively, the "Original MCP Investors"),
John C Stanley IV, A.B. Isbell and Richard W. Ebersole, all of the outstanding
capital stock of OCI North. Under the terms of the OCI North Purchase
Agreement, the shares of OCI North common stock and preferred stock held by
Messrs. Stanley, Isbell and Ebersole were initially purchased for cash by M/C
II and M/C Investors (together, the "MCP Investors"). The MCP Investors
subsequently assigned all shares of OCI North common stock and preferred stock
to OCI in exchange for shares of Common Stock of the Company. At the time of
the Formation Transactions, OCI North also paid 100% of the principal and
accrued interest on subordinated notes issued in August 1989 to each of the
Original MCP Investors. Messrs. Gormley and Hayes are partners of entities
affiliated with each of the MCP Investors and the Original MCP Investors.
Acquisition of OCI South. On April 3, 1996, under the terms of a Stock and
Warrant Purchase Agreement, the Company, in conjunction with New South
Holdings Corp., a wholly-owned subsidiary of the Company ("New South
Holdings"), acquired all of the outstanding capital stock of OCI South,
including shares held by Mr. Stanley, A.B. Isbell, Norman Isbell, Priscilla S.
Denton, the JCS Trust and the LWS Trust, in exchange for (i) the issuance by
New South Holdings of $5.9 million aggregate principal amount of notes payable
to Messrs. Stanley and A.B. Isbell and (ii) the issuance of shares of Common
Stock and Series A Notes of OCI to Messrs. Stanley, A.B. Isbell, Norman
Isbell, the JCS Trust and the LWS Trust. Norman Isbell is the son of A.B.
Isbell. Ms. Denton is the sister of Mr. Stanley. Mr. Stanley is the trustee of
the JCS Trust and the LWS Trust. The New South Notes will remain outstanding
and payable by New South Holdings after this Offering.
Equity Financing of OCI. On April 3, 1996, under the terms of a Securities
Purchase Agreement (the "OCI Agreement"), the MCP Investors and CVCA purchased
for cash shares of Common Stock and Series B Notes of the Company. Mr.
Richmand is a partner of the general partner of CVCA. In addition, Mr.
Ebersole purchased for cash shares of Common Stock and Series A Notes. On
April 30, 1996, pursuant to the terms of the OCI Agreement and in connection
with the acquisition of Alabama Outdoor, the MCP Investors and CVCA purchased
for cash additional shares of Common Stock and additional Series B Notes in
exchange for certain cash payments. On September 10, 1996, Gerald P. Scott and
G. Robert Joiner, under the same terms as the April 3, 1996 transactions,
purchased for cash shares of Common Stock and Series A Notes of the Company.
On January 27, 1997, John Andrews and Mark Sherwood, under the same terms as
the April 3, 1996 transactions, purchased for cash shares of Common Stock and
Series A Notes.
REGISTRATION RIGHTS AGREEMENT
In connection with the initial capitalization of the Company, OCI entered
into a Registration Rights Agreement with the holders (the "Holders") of
12,075 shares of its Common Stock ("Registrable Shares") which provides that,
subject to certain limitations, upon a written request by the Holders of at
least fifty-one percent (51%) of the Registrable Shares at any time after the
earlier of six months after the first public offering of securities of the
Company or April 3, 1999, the Company shall use its best efforts to effect the
registration of all or a portion of the shares of Common Stock of such
requesting Holders. If the Company becomes eligible to use a shelf
registration statement, the Holders of at least ten percent (10%) of the
Registrable Shares shall have the right to request, and the Company shall use
its best efforts to have declared effective, not more than two (2) shelf
registration statements per year for a public offering of Registrable
Securities having an aggregate proposed offering price of not less than
$250,000.
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<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
The Company and all of its Subsidiaries have entered into the New Credit
Facility which will become effective upon consummation of the Offering. The
terms and conditions of the New Credit Facility are as set forth below:
REVOLVING CREDIT FACILITY
Commitment; Interest. The Revolving Credit Facility is a revolving line of
credit facility providing for borrowings of up to $ million that may be
used for general corporate purposes including working capital requirements.
Borrowings under the Revolving Credit Facility may be in the form of
Eurodollar loans or announced base rate loans as determined by the Company.
The Company may prepay borrowings under the Revolving Credit Facility, and may
re-borrow (up to the amount of the commitment then in effect) any amounts that
are repaid or prepaid.
Termination of Commitment. The initial commitment of $ million terminates
on , 2004, unless extended, or upon the occurrence of a "change of control"
(as defined in the New Credit Facility). On each of these dates, the Company
is required to repay borrowings (together with fees and interest accrued
thereon and any additional amounts owing under the Revolving Credit Facility)
in excess of the commitment as reduced.
Covenants. The Revolving Credit Facility restricts the Company and its
subsidiaries from, among other things: (i) changes in business; (ii) with
certain exceptions, consolidation, mergers, sales or purchases of assets;
(iii) with certain exceptions, incurring, creating, assuming or suffering to
exist any liens or encumbrances upon property of the Company or assigning any
right to receive income; (iv) with certain exceptions, creating, incurring,
assuming or suffering to exist any indebtedness; (v) making investments or
loans in any other person or entity or acquiring or establishing any
subsidiaries except for investments and subsidiaries permitted under the
Revolving Credit Facility; (vi) selling, assigning or otherwise encumbering or
disposing of the capital stock or other securities of any subsidiary; (vii)
making any optional or voluntary prepayments on indebtedness; (viii) with
certain exceptions, redeeming, retiring or purchasing capital stock of the
Company or declaring or paying dividends on the capital stock of the Company;
and (ix) except as to certain transactions that comply with the terms of the
Revolving Credit Agreement, entering into transactions with affiliates.
Change of Control. A change of control of the Company constitutes an event
of default permitting the lenders to accelerate indebtedness under and
terminate the Revolving Credit Facility.
ACQUISITION CREDIT FACILITY
Commitment; Interest. The Acquisition Credit Facility (as defined in the New
Credit Facility) consists of an acquisition credit line in the amount of $
million pursuant to which $ million is available under a term loan facility
available on the closing date and $ million which is available under a
revolving/term loan facility. The revolving/term loan facility may be re-
borrowed from time to time; the $ million term loan may not be re-borrowed.
Borrowings under the Acquisition Credit Facility may be in the form of
Eurodollar loans or announced base rate loans as determined by the Company.
See "Use of Proceeds."
Covenants. The Acquisition Credit Facility restricts the Company and its
subsidiaries from, among other things: (i) changes in business; (ii) with
certain exceptions, consolidation, mergers, sales or purchases of assets;
(iii) with certain exceptions, incurring, creating, assuming or suffering to
exist any liens or encumbrances upon property of the Company or assigning any
right to receive income; (iv) with certain exceptions, creating, incurring,
assuming or suffering to exist any indebtedness; (v) making investments or
loans in any other person or entity or acquiring or establishing any
subsidiaries except for investments and subsidiaries permitted under the
Acquisition Credit Facility; (vi) selling, assigning or otherwise encumbering
or disposing of the capital stock or other securities of any subsidiary; (vii)
making any optional or voluntary prepayments on indebtedness; (viii) with
certain exceptions, redeeming, retiring or purchasing capital stock of the
Company or declaring or
53
<PAGE>
paying dividends on the capital stock of the Company; and (ix) except as to
certain transactions that comply with the terms of the Acquisition Credit
Agreement, entering into transactions with affiliates. With respect to
additional acquisitions, such additional acquisitions require the consent of
the lenders unless such acquisitions do not exceed $ in the aggregate or
the Holdings Leverage Ratio (as defined in the Credit Agreements) is less
than to 1.0. In addition, the Acquisition Credit Facility also requires the
Company to maintain certain levels of Operating Cash Flow and interest expense
coverage, and limits the Company's capital expenditures to $ million in
each fiscal year (in addition to additional permitted expenditures not in
excess of the "basket" amount set forth therein), which amount is increased to
105% of the maximum amount for the immediately preceding twelve-month period.
Change of Control. A "change of control" of the Company constitutes an event
of default permitting the lenders to accelerate indebtedness under and
terminate the Acquisition Credit Facility.
54
<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to an Indenture, dated as of , 1997
(the "Indenture"), among the Company, the Guarantors and , as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), as in effect on the date of the
Indenture. The Notes are subject to all such terms, and holders of the Notes
are referred to the Indenture and the Trust Indenture Act for a statement of
them. The following is a summary of the material terms and provisions of the
Notes. This summary does not purport to be a complete description of the Notes
and is subject to the detailed provisions of, and qualified in its entirety by
reference to, the Notes and the Indenture (including the definitions contained
therein). A copy of the form of Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The definitions of
certain capitalized terms are set forth under "--Certain Definitions" and
throughout this description. Capitalized terms that are used but not otherwise
defined herein have the meanings assigned to them in the Indenture and such
definitions are incorporated herein by reference. For purposes of this
section, references to the "Company" include only the Company and not its
Subsidiaries.
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to Senior Indebtedness of the Company and
will rank pari passu in right of payment with all other senior subordinated
Indebtedness of the Company. The Notes will be unconditionally guaranteed, on
a senior subordinated basis, as to payment of principal, premium, if any, and
interest, jointly and severally, by the Guarantors.
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $125,000,000 and
will mature on , 2007. The Notes will bear interest at a rate of % per
annum from the date of original issuance until maturity. Interest will be
payable semi-annually in arrears on and , commencing , 1998, to
holders of record of the Notes at the close of business on the immediately
preceding and , respectively.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after , 2002 at the following redemption prices
(expressed as a percentage of principal amount), together, in each case, with
accrued and unpaid interest, if any, to the redemption date, if redeemed
during the twelve-month period beginning on , of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2002......................................................... %
2003......................................................... %
2004......................................................... %
2005 and thereafter.......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up to
one-third of the original principal amount of Notes at any time and from time
to time prior to , 2000 at a redemption price equal to % of the aggregate
principal amount so redeemed, plus accrued interest to the redemption date out
of the Net Proceeds of one or more Public Equity Offerings (other than the
Common Stock Offering); provided that at least two-thirds of the principal
amount of Notes originally issued remain outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs within
60 days following the closing of any such Public Equity Offering.
In the event of a redemption of fewer than all of the Notes, the Trustee
shall select by lot or in such other manner as it shall deem fair and
equitable the Notes to be redeemed; provided, however, that if a partial
55
<PAGE>
redemption is made with the proceeds of a Public Equity Offering, selection of
the Notes for redemption shall be made by the Trustee only on a pro rata
basis, unless such method is otherwise prohibited. The Notes will be
redeemable in whole or in part upon not less than 30 nor more than 60 days'
prior written notice, mailed by first class mail to a holder's last address as
it shall appear on the register maintained by the Registrar of the Notes. On
and after any redemption date, interest will cease to accrue on the Notes or
portions thereof called for redemption unless the Company shall fail to redeem
any such Note.
MANDATORY REDEMPTION
The Notes will not be subject to the benefit of any mandatory sinking fund.
Upon the occurrence of certain Asset Sales or a Change of Control, holders of
the Notes will have the right to require the Company to purchase some or all
of their Notes, as more fully described under "--Repurchase at the Option of
Holders--Change of Control" and "--Asset Sales."
GUARANTEES
The Company's obligations under the Notes will be jointly, severally and
unconditionally guaranteed (the "Guarantees") on a senior subordinated basis
by the Guarantors. All payments pursuant to the Guarantees by the Guarantors
will be subordinated in right of payment to the prior payment in full of all
Guarantor Senior Indebtedness of the Guarantor, to the same extent and in the
same manner that all payments pursuant to the Notes are subordinated in right
of payment to the prior payment in full of all Senior Indebtedness of the
Company.
The obligations of each Guarantor are limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Senior
Indebtedness) and after giving effect to any collections from or payments made
by or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, result in the obligations of such Guarantor
under the Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Guarantor that makes a payment or
distribution under a Guarantee shall be entitled to a contribution from each
other Guarantor in a pro rata amount based on the net assets of each
Guarantor.
Subject to the provisions of "--Merger, Consolidation or Sale of Assets," a
Guarantor will be released from all of its obligations under its Guarantee if
all or substantially all of its assets are sold or all of its Capital Stock is
sold (whether by way of merger, consolidation or otherwise), in each case in a
transaction in compliance with the covenant described under "Repurchase at the
Option of Holders--Asset Sales" and the other provisions of the Indenture.
SUBORDINATION OF NOTES AND GUARANTEES
The indebtedness represented by the Notes will, to the extent and in the
manner provided for in the Indenture, be subordinated in right of payment to
the prior payment and satisfaction in full in cash of all existing and future
Senior Indebtedness of the Company. As of March 31, 1997, after giving pro
forma effect to the application of the net proceeds of the Offering, the
aggregate principal amount of outstanding Senior Indebtedness and Guarantor
Senior Indebtedness would have been approximately $5.9 million and the Company
and the Guarantors would have had the ability to borrow an additional $
million.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case
or proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, whether voluntary or involuntary, or any
liquidation, dissolution or
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other winding-up of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or any general assignment for the
benefit of creditors or other marshalling of assets or liabilities of the
Company (except in connection with the merger or consolidation of the Company
or its liquidation or dissolution following the transfer of substantially all
of its assets, upon the terms and conditions permitted under the circumstances
described under "--Merger, Consolidation or Sale of Assets"), the holders of
Senior Indebtedness of the Company will be entitled to receive payment and
satisfaction in full in cash of all obligations due on or in respect of all
Senior Indebtedness of the Company before the holders of the Notes are
entitled to receive or retain any payment or distribution of any kind (other
than a payment or distribution in the form of Permitted Junior Securities) on
account of the Notes. In the event that, notwithstanding the foregoing, the
Trustee or any holder of Notes receives any payment or distribution of assets
of the Company of any kind, whether in cash, property or securities,
including, without limitation, by way of set-off or otherwise, in respect of
the Notes before all Obligations in respect of Senior Indebtedness of the
Company are paid and satisfied in full in cash, then such payment or
distribution (other than a payment or distribution in the form of Permitted
Junior Securities) will be held by the recipient in trust for the benefit of
holders of Senior Indebtedness and will be immediately paid over or delivered
to the holders of Senior Indebtedness or their representative or
representatives to the extent necessary to make payment in full of all
Obligations with respect to Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution, or provision therefor, to or
for the holders of Senior Indebtedness (except that holders of Notes may
receive payments made from the trust described under "--Defeasance and
Covenant Defeasance" if the deposit into such trust was permitted to be made
under the terms of the Indenture). By reason of such subordination, in the
event of liquidation or insolvency, creditors of the Company who are holders
of Senior Indebtedness may recover more, ratably, than other creditors of the
Company, and creditors of the Company who are not holders of Senior
Indebtedness or of the Notes may recover more, ratably, than the holders of
the Notes.
No payment or distribution (other than a payment or distribution in the form
of Permitted Junior Securities) of any assets or securities of the Company or
any of its Subsidiaries of any kind or character may be made by or on behalf
of the Company or any Subsidiary, including, without limitation, by way of
set-off or otherwise, for or on account of the Notes, or for or on account of
the purchase, redemption or other acquisition of the Notes, and neither the
Trustee nor any holder or owner of any Notes shall take or receive from the
Company or any Subsidiary of the Company, directly or indirectly in any
manner, payment in respect of all or any portion of Notes following the
delivery by the representative of the holders of Designated Senior
Indebtedness (the "Representative") to the Trustee of written notice of the
occurrence of a Payment Default, and in any such event, such prohibition shall
continue until such Payment Default is cured, waived in writing or ceases to
exist. At such time as the prohibition set forth in the preceding sentence
shall no longer be in effect, subject to the provisions of the following
paragraph, the Company shall resume making any and all required payments in
respect of the Notes, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default in respect of
Designated Senior Indebtedness, no payment or distribution (other than a
payment or distribution in the form of Permitted Junior Securities) of any
assets of the Company of any kind or character may be made by the Company,
including, without limitation, by way of set-off or otherwise, for or on
account of the Notes, or for or on account of the purchase, redemption or
other acquisition of Notes, and neither the Trustee nor any holder or owner of
any Notes shall take or receive from the Company, directly or indirectly in
any manner, payment in respect of all or any portion of the Notes, for a
period (a "Payment Blockage Period") commencing on the date of receipt by the
Trustee of written notice from the Representative of such Non-Payment Event of
Default unless and until (subject to any blockage of payments that may then be
in effect under the preceding paragraph) the earliest of (x) more than 179
days shall have elapsed since receipt of such written notice by the Trustee,
(y) such Non-Payment Event of Default shall have been cured or waived in
writing or shall have ceased to exist or such Designated Senior Indebtedness
shall have been paid in full or (z) such Payment Blockage Period shall have
been terminated by written notice to the Company or the Trustee from such
Representative, after which, in the case of clause (x), (y) or (z), the
Company shall resume making any and all required payments in respect of the
Notes, including any missed payments. In no event will a Payment Blockage
Period extend beyond 179 days from the date of the receipt by the Trustee of
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the notice initiating such Payment Blockage Period. Only one Payment Blockage
Period with respect to the Notes may be commenced within any 365-day period.
No Non-Payment Event of Default with respect to Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period will be, or can be, made the basis for the
commencement of a second Payment Blockage Period, unless such default has been
cured or waived for a period of not less than 90 consecutive days. In no event
shall a Payment Blockage Period extend beyond 179 days from the date of the
receipt of the notice referred to above and there must be a 186-consecutive-
day period in any 365-consecutive-day period during which no Payment Blockage
Period is in effect. In the event that, notwithstanding the foregoing, the
Company makes any payment or distribution to the Trustee or any holder of any
Note prohibited by the subordination provision of the Indenture, then such
payment or distribution will be required to be paid over and delivered to the
holders (or their representative) of Designated Senior Indebtedness.
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full of all
Obligations in respect of Guarantor Senior Indebtedness of the applicable
Guarantor, including obligations of such Guarantor with respect to its
guarantee of the Company's obligations under the Credit Agreement, and will be
subject to the rights of holders of Designated Senior Indebtedness of such
Guarantor to initiate blockage periods, upon terms substantially comparable to
the subordination of the Notes to all Senior Indebtedness of the Company.
If the Company or any Guarantor fails to make any payment on the Notes or
any Guarantee, as the case may be, when due or within any applicable grace
period, whether or not on account of payment blockage provisions, such failure
would constitute an Event of Default under the Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "--Events of
Default."
A holder of Notes by his acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee as his
attorney-in-fact for such purpose.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
The Indenture will provide that upon the occurrence of a Change of Control,
each holder of Notes will have the right to require the Company to purchase
all or any part of such holder's Notes pursuant to an offer described below
(the "Change of Control Offer") at a purchase price equal to 101% of the
principal amount thereof plus any accrued and unpaid interest, if any, thereon
to the date of purchase (the "Change of Control Payment").
Within 30 days of the occurrence of a Change of Control, the Company shall
send by first-class mail, postage prepaid, to the Trustee and to each holder
of the Notes, at the address appearing in the register maintained by the
Registrar of the Notes, a notice stating: (1) that the Change of Control Offer
is being made pursuant to this covenant and that all Notes tendered will be
accepted for payment; (2) the purchase price and the purchase date, which
shall be a business day no earlier than 30 business days nor later than 60
business days from the date such notice is mailed (the "Change of Control
Payment Date"); (3) that any Note not tendered will continue to accrue
interest; (4) that, unless the Company defaults in the payment of the Change
of Control Payment, any Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date; (5) that holders accepting the offer to have their Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the business day preceding the Change of Control
Payment Date; (6) that holders will be entitled to withdraw their acceptance
if the Paying Agent receives, not later than the close of business on the
third Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the holder,
the principal amount of the Notes delivered for purchase, and a statement that
such holder is withdrawing his election to have such Notes
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purchased; (7) that holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof; (8) any other procedures that a holder
must follow to accept a Change of Control Offer or effect withdrawal of such
acceptance; and (9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee Notes so
accepted together with an Officers' Certificate stating the Notes or portions
thereof tendered to the Company. The Paying Agent shall promptly mail to each
holder of Notes so accepted payment in an amount equal to the purchase price
for such Notes, and the Company shall execute and issue, and the Trustee shall
promptly authenticate and mail to such holder, a new Note equal in principal
amount to any unpurchased portion of the Notes surrendered; provided that each
such new Note shall be issued in an original principal amount in denominations
of $1,000 and integral multiples thereof. The Company will send to the Trustee
and the holders of Notes on or as soon as practicable after the Change of
Control Payment Date a notice setting forth the results of the Change of
Control Offer.
The Company will not be required to make a Change of Control Offer if a
third party makes the Change of Control Offer in the manner, at the time and
otherwise in compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes or portions thereof validly tendered and not withdrawn under such Change
of Control Offer.
The New Credit Facility will prohibit the Company from repurchasing any
Notes pursuant to a Change of Control Offer prior to the repayment in full of
the Senior Indebtedness under the New Credit Facility. Moreover, the
occurrence of certain change of control events identified in the New Credit
Facility will constitute a default under the New Credit Facility. Any future
credit facilities or other agreements relating to Senior Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions.
If a Change of Control were to occur, the Company may not have sufficient
available funds to pay the Change of Control Payment for all Notes that might
be delivered by holders of the Notes seeking to accept the Change of Control
Offer after first satisfying its obligations under the New Credit Facility or
other agreements relating to Senior Indebtedness, if accelerated. The failure
of the Company to make or consummate the Change of Control Offer or pay the
Change of Control Payment when due will give the Trustee and the holders of
the Notes the rights described under "--Events of Default."
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a holder of the Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, consummate an Asset Sale unless (i) the Company or
such Subsidiary, as the case may be, receives consideration at the time of
such sale or other disposition at least equal to the fair market value thereof
(as determined in good faith by the Company's board of directors, and
evidenced by a board resolution); (ii) not less than 85% of the consideration
received by the Company or such Subsidiary, as the case may be, is in the form
of cash or Cash Equivalents; provided that the Company or such Subsidiary will
not be required to comply with this clause (ii) with respect to a Permitted
Asset Swap; and (iii) the Asset Sale Proceeds received by the Company or such
Subsidiary are applied (a) first, to the extent the Company elects, or is
required, to prepay, repay or purchase
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debt under any then existing Senior Indebtedness of the Company or any
Guarantor Senior Indebtedness of any Subsidiary Guarantor within 180 days
following the receipt of the Asset Sale Proceeds from any Asset Sale; provided
that any such repayment shall result in a permanent reduction of the
commitments thereunder in an amount equal to the principal amount so repaid;
(b) second, to the extent of the balance of Asset Sale Proceeds after
application as described above, to the extent the Company elects, to an
investment in assets (including Capital Stock or other securities purchased in
connection with the acquisition of Capital Stock or property of another
Person) used or useful in businesses similar or ancillary to the business of
the Company and its Subsidiaries as conducted at the time of such Asset Sale,
provided that such investment occurs and such Asset Sale Proceeds are so
applied within 180 days following the receipt of such Asset Sale Proceeds (the
"Reinvestment Date"); and (c) third, (1) to the repayment of an amount of
Other Pari Passu Debt not exceeding the Other Pari Passu Debt Pro Rata Share
(provided that any such repayment shall result in a permanent reduction of the
commitment thereunder in an amount equal to the principal amount so repaid)
and (2) if on the Reinvestment Date with respect to any Asset Sale the Excess
Proceeds exceed $10.0 million, the Company shall apply an amount equal to such
Excess Proceeds to an offer to repurchase the Notes, at a purchase price in
cash equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (an "Excess Proceeds Offer"). If
an Excess Proceeds Offer is not fully subscribed, the Company may retain the
portion of the Excess Proceeds not required to repurchase Notes.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
holders stating, among other things: (1) that such holders have the right to
require the Company to apply the Excess Proceeds to repurchase such Notes at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase; (2) the purchase
date, which shall be no earlier than 30 days and not later than 60 days from
the date such notice is mailed; (3) the instructions, determined by the
Company, that each Holder must follow in order to have such Notes repurchased;
and (4) the calculations used in determining the amount of Excess Proceeds to
be applied to the repurchase of such Notes.
The New Credit Facility may prohibit the Company from purchasing any Notes
from Asset Sale Proceeds. Any future credit agreements or other agreements
relating to Senior Indebtedness to which the Company becomes a party may
contain similar restrictions. In the event an Excess Proceeds Offer occurs at
a time when the Company is prohibited from purchasing the Notes, the Company
could seek the consent of its lenders to the purchase or could attempt to
refinance the Senior Indebtedness, that contains such prohibition. If the
Company does not obtain such a consent or repay such Senior Indebtedness, the
Company may remain prohibited from purchasing the Notes. In such case, the
Company's failure to purchase tendered Notes would constitute an Event of
Default.
CERTAIN COVENANTS
Limitation on Additional Indebtedness
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, incur (as defined) any
Indebtedness (including Acquired Indebtedness), except for Permitted
Indebtedness; provided, that (i) the Company will be permitted to incur
Indebtedness (including Acquired Indebtedness) and (ii) a Subsidiary of the
Company will be permitted to incur Acquired Indebtedness, if, in either case,
after giving pro forma effect to the incurrence of such Indebtedness and the
receipt and application of the proceeds thereof, the Company's Leverage Ratio
is less than (x) 6.50 to 1.00 if such Indebtedness is incurred on or prior to
, 2000, (y) 6.25 to 1.00 if such Indebtedness is incurred after , 2000
and on or prior to , 2002 and (z) 6.00 to 1.00 if such Indebtedness is
incurred thereafter. A Guarantor will be permitted to guarantee Indebtedness
of the Company incurred pursuant to clause (i) of the proviso of the
immediately preceding sentence.
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Limitation on Restricted Payments
The Indenture will provide that the Company will not make, and will not
permit any of its Subsidiaries to, directly or indirectly, make, any
Restricted Payment, unless:
(a) no Default shall have occurred and be continuing at the time of or
immediately after giving effect to such Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted Payment,
the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant set forth under "Limitation on
Additional Indebtedness;" and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) the difference between (x) the Cumulative
EBITDA and (y) 1.5 times the Cumulative Consolidated Interest Expense, plus
(2) the aggregate net cash proceeds received by the Company either (x) as
capital contributions in the form of common equity to the Company after the
Issue Date or (y) from the issuance or sale of Capital Stock (excluding
proceeds from Disqualified Capital Stock and excluding the proceeds to the
Company from the Common Stock Offering, but including Capital Stock issued
upon the conversion of convertible Indebtedness, in exchange for
outstanding Indebtedness or from the exercise of options, warrants or
rights to purchase Capital Stock (other than Disqualified Capital Stock))
of the Company to any person (other than to a Subsidiary of the Company)
after the Issue Date, plus (3) in the case of the disposition or repayment
of any Investment constituting a Restricted Payment made after the Issue
Date, an amount equal to the lesser of the return of capital with respect
to such Investment and the initial amount of such Investment, in either
case, less the cost of the disposition of such Investment. For purposes of
the preceding subclause (2)(y), upon the issuance of Capital Stock either
from the conversion of convertible Indebtedness or exchange for outstanding
Indebtedness or upon the exercise of options, warrants or rights, the
amount counted as net cash proceeds received will be the cash amount
received by the Company at the original issuance of the Indebtedness that
is so converted or exchanged or from the issuance of options, warrants or
rights, as the case may be, plus the incremental amount of cash received by
the Company, if any, upon the conversion, exchange or exercise thereof. For
purposes of determining under this clause (c) the amount expended for
Restricted Payments, cash distributed shall be valued at the face amount
thereof and property other than cash shall be valued at its Fair Market
Value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the retirement of any shares of Capital Stock of the Company
or Subordinated Indebtedness by conversion into, or by or in exchange for,
shares of Capital Stock (other than Disqualified Capital Stock), or out of,
the net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of other shares of Capital Stock of the Company
(other than Disqualified Capital Stock), (iii) the redemption or retirement of
Subordinated Indebtedness of the Company in exchange for, by conversion into,
or out of the net cash proceeds of, a substantially concurrent sale or
incurrence of Subordinated Indebtedness (other than any Indebtedness owed to a
Subsidiary of the Company) of the Company that is contractually subordinated
in right of payment to the Notes to at least the same extent as the
subordinated Indebtedness being redeemed or retired, (iv) the purchase,
redemption or other acquisition for value of shares of Capital Stock of the
Company (other than Disqualified Capital Stock) or options on such shares held
by officers or employees or former officers or employees (or their estates or
beneficiaries under their estates) upon the death, disability, retirement or
termination of employment of such current or former officers or employees
pursuant to the terms of an employee benefit plan or any other agreement
pursuant to which such shares of Capital Stock or options were issued or
pursuant to a severance, buy-sell or right of first refusal agreement with
such current or former officer or employee; provided that the aggregate cash
consideration paid, or distributions made, pursuant to this clause (iv) do not
in any one fiscal year exceed $500,000, or (v) Investments constituting
Restricted Payments made as a result of the receipt of non-cash consideration
from any Asset Sale made pursuant to and in compliance with the covenant
described under "--Repurchase at the Option of Holders--Asset Sales."
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Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements, and that no Default exists and is continuing and no Default will
occur immediately after giving effect to any Restricted Payments.
Limitation on Other Senior Subordinated Debt
The Indenture will provide that the Company will not, and will not permit
any of the Guarantors to, directly or indirectly, incur, contingently or
otherwise, any Indebtedness (other than the Notes and the Guarantees, as the
case may be) that is both (i) subordinate in right of payment to any
Indebtedness of the Company or any Guarantor, as the case may be, and (ii)
senior in right of payment to the Notes or any of the Guarantees, as the case
may be. In addition, the Company will not permit any of the Guarantors to,
directly or indirectly, incur, contingently or otherwise, any guarantee on a
senior basis any Indebtedness of the Company that is subordinate in right of
payment to any other Indebtedness of the Company.
Limitations on Liens
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
of any kind, upon any of its property or assets, whether now owned or acquired
after the Issue Date, or any proceeds therefrom, that secure either (i)
Subordinated Indebtedness unless the Notes and the Guarantees, as applicable,
are secured by a Lien on such property, assets or proceeds that is senior in
priority to the Liens securing such Subordinated Indebtedness or (ii)
Indebtedness that is pari passu with the Notes unless the Notes and the
Guarantees, as applicable, are equally and ratably secured with the Liens
securing such Indebtedness.
Limitation on Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, enter into or suffer to
exist any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate or holder of 10% or more of the Common Stock of
the Company or any Affiliate (each of the foregoing, an "Affiliate
Transaction") or extend, renew, waive or otherwise modify the terms of any
Affiliate Transaction entered into prior to the Issue Date unless (i) such
Affiliate Transaction is between or among the Company and/or Wholly-Owned
Subsidiaries or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Subsidiary, as the case may be, and the
terms of such Affiliate Transaction are at least as favorable as the terms
that could be obtained by the Company or such Subsidiary, as the case may be,
in a comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction involving an amount or having a value in
excess of $1.0 million that is not permitted under clause (i) above, the
Company must obtain a resolution of the board of directors approved by a
majority of the members of the board of directors (and a majority of the
independent directors) of the Company certifying that such Affiliate
Transaction complies with clause (ii) above. In transactions with a value in
excess of $5.0 million that are not permitted under clause (i) above, the
Company must obtain a written opinion as to the fairness of such a transaction
to the Company or its Subsidiary from an independent investment banking firm
of nationally recognized standing.
The foregoing provisions will not apply to (i) any dividend that is not
prohibited by the provisions described under "Limitations on Restricted
Payments" contained herein, (ii) any transaction, approved by the board of
directors of the Company, with an officer or director of the Company or of any
Subsidiary of the Company in his or her capacity as officer or director
entered into in the ordinary course of business, including compensation and
employee benefit arrangements with any officer or director of the Company or
of any of its Subsidiaries that are customary for public companies in the
outdoor advertising industry or (iii) transactions with The Chase Manhattan
Bank or any of its Affiliates in the ordinary course of providing banking,
financial advisory, securities or other financial services.
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Guarantees of Certain Indebtedness
The Indenture will provide that the Company will not permit any of its
Subsidiaries (other than the Guarantors) to (a) guarantee any Indebtedness of
the Company (other than Indebtedness incurred under clause (vii) of Permitted
Indebtedness) or (b) pledge any intercompany notes representing obligations of
any of its Subsidiaries (other than the Guarantors) to secure the payment of
any Indebtedness of the Company (other than Indebtedness incurred under clause
(vii) of Permitted Indebtedness), in each case unless such Subsidiary, the
Company and the Trustee execute and deliver a supplemental indenture
evidencing such Subsidiary's Guarantee under the Indenture. Thereafter, such
Subsidiary shall be a Guarantor for all purposes of the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any of its Subsidiaries to (a) pay
dividends or make any other distributions to the Company or any of its
Subsidiaries on its Capital Stock, (b) pay any Indebtedness owed to the
Company or any of its Subsidiaries, (c) make loans or advances to the Company
or any Subsidiary, (d) transfer any of its properties or assets to the Company
or any Subsidiary, (e) grant liens or security interests on the assets of the
Company or any of its Subsidiaries in favor of the holders of the Notes or (f)
guarantee the Notes or any renewals or refinancings thereof, except for (i)
such encumbrances or restrictions arising by reason of Acquired Indebtedness
of any of the Company's Subsidiaries existing at the time such Person became a
Subsidiary of the Company; provided that such encumbrances or restrictions
were not created in anticipation of such Person becoming a Subsidiary and are
not applicable to the Company or any of its other Subsidiaries, (b) such
encumbrances or restrictions arising under Refinancing Indebtedness; provided
that the terms and conditions of any such restrictions are no less favorable
to the holders of Notes than those under the Indebtedness being refinanced and
(c) customary provisions restricting the assignment of any contract or
interest of the Company or any of its Subsidiaries.
Limitation on Issuance and Sales of Preferred Stock by Subsidiaries
The Indenture will provide that the Company (i) will not permit any of its
Subsidiaries to issue any Preferred Stock (other than to the Company or a
Wholly-Owned Subsidiary) and (ii) will not permit any person (other than the
Company or a Wholly-Owned Subsidiary) to own any Preferred Stock of any
Subsidiary.
Line of Business
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, engage in any business other than the business of
outdoor advertising or a substantially similar or related business.
COMMISSION REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, to the extent
permitted by the Exchange Act, the Company will file with the Commission and
provide, within 15 days after such filing, the Trustee and holders of Notes
and prospective holders of Notes (upon request) with the annual reports and
the information, documents and other reports which are specified in Sections
13 and 15(d) of the Exchange Act. In the event that the Company is not
permitted to file such reports, documents and information with the Commission,
the Company will provide substantially similar information to the Trustee, the
holders of Notes and the prospective holders of Notes upon request) as if the
Company were subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act. The Company also will comply with the other provisions of
Section 314(a) of the Trust Indenture Act.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture will provide that the Company will not, in any transaction or
series of related transactions, merge or consolidate with or into, or sell,
assign, convey, transfer, lease or otherwise dispose of all or
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substantially all of its properties and assets to, any Person or Persons, and
that the Company will not permit any of its Subsidiaries to enter into any
such transaction or series of related transactions if such transaction or
series of related transactions, in the aggregate, would result in a sale,
assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company or of the
Company and its Subsidiaries, taken as whole, to any other Person or Persons,
unless (i) either (a)(1) if the transaction or transactions is a merger or
consolidation involving the Company, the Company shall be the surviving Person
of such merger or consolidation or (2) if the transaction or transactions is a
merger or consolidation involving a Subsidiary of the Company, such Subsidiary
shall be the surviving Person of such merger or consolidation and such
surviving Person shall be a Subsidiary of the Company, or (b)(1) the Person
formed by such consolidation or into which the Company or such Subsidiary is
merged or to which the properties and assets of the Company or such
Subsidiary, as the case may be, are transferred (any such surviving Person or
transferee Person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and (2)(A) in the case of a
transaction involving the Company, the Surviving Entity shall expressly assume
by a supplemental indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company under the
Notes and the Indenture, and in each case, the Indenture shall remain in full
force and effect, or (B) in the case of a transaction involving a Subsidiary
that is a Guarantor, the Surviving Entity shall expressly assume by a
supplemental indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of such Subsidiary under its
Guarantee and related supplemental indenture, and in each case, such Guarantee
and supplemental indenture shall remain in full force and effect; and (ii)
immediately after giving effect to such transaction or series of related
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default shall have
occurred and be continuing and the Company, or the Surviving Entity, as the
case may be, after giving effect to such transaction or series of transactions
on a pro forma basis, could incur $1.00 of additional Indebtedness under the
first paragraph of "--Limitation on Additional Indebtedness."
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease or other disposition and the
supplemental indenture in respect thereof comply with the requirements under
the Indenture. In addition, each Guarantor, unless it is the other party to
the transaction or unless its Guarantee will be released and discharged in
accordance with its terms as a result of the transaction, will be required to
confirm, by supplemental indenture, that its Guarantee will continue to apply
to the obligations of the Company or the Surviving Entity under the Indenture.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, in which the
Company or any Subsidiary of the Company, as the case may be, is not the
continuing corporation, the successor corporation formed by such a
consolidation or into which the Company or such Subsidiary is merged or to
which such transfer is made, will succeed to, and be substituted for, and may
exercise every right and power of, the Company or such Subsidiary, as the case
may be, under the Indenture with the same effect as if such successor
corporation had been named as the Company or such Subsidiary therein; and
thereafter, except in the case of (i) a lease or (ii) any sale, assignment,
conveyance, transfer, lease or other disposition to a Subsidiary of the
Company, the Company or such Guarantor, as the case may be, shall be
discharged from all obligations and covenants under the Indenture and the
Notes.
The Indenture will provide that for all purposes of the Indenture and the
Notes (including the provision of this covenant and the covenants described
under "--Limitation on Additional Indebtedness," "--Limitation on Restricted
Payments" and "--Limitation on Liens"), Subsidiaries of any Surviving Entity
will, upon such transaction or series of related transactions, become
Subsidiaries of the Company and all Indebtedness, and all Liens on property or
assets, of the Company and its Subsidiaries in existence immediately prior to
such transaction or series of related transactions will be deemed to have been
incurred upon such transaction or series of related transactions.
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EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Notes; or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, for 30 days; or
(iii) the Company or any Guarantor fails to comply with any of its
obligations described under "--Merger, Consolidation or Sale of Assets" or
"Redemption at the Option of Holders--Change of Control" or "--Asset
Sales"; or
(iv) the Company or any Guarantor fails to perform or observe any other
term, covenant or agreement contained in the Notes, the Guarantees or the
Indenture (other than a default specified in (i), (ii) or (iii) above) for
a period of 30 days after written notice of such failure requiring the
Company to remedy the same shall have been given (a) to the Company by the
Trustee or (b) to the Company and the Trustee by the holders of 25% in
aggregate principal amount of the Notes then outstanding; or
(v) default or defaults under any agreement, indenture or instrument
under which the Company or any Subsidiary of the Company then has
outstanding Indebtedness in excess of $5,000,000 in the aggregate and
either (a) such Indebtedness is already due and payable in full or (b) such
default or defaults results in the acceleration of the maturity of such
Indebtedness; or
(vi) any Guarantee ceases to be in full force and effect or is declared
null and void or any Guarantor denies that it has any further liability
under any Guarantee, or gives notice to such effect (other than by reason
of the termination of the Indenture or the release of any such Guarantee in
accordance with "--Certain Covenants--Guarantees of Certain Indebtedness");
or
(vii) one or more judgments, orders or decrees of any court or regulatory
or administrative agency for the payment of money in excess of $5,000,000
either individually or in the aggregate, shall have been entered against
the Company or any of its Subsidiaries or any of their respective
properties and shall not have been discharged and either (a) any creditor
shall have commenced an enforcement proceeding upon such judgment, order or
decree or (b) there shall have been a period of 60 consecutive days during
which a stay of enforcement of such judgment, order or decree, by reason of
a pending appeal or otherwise, will not be in effect; or
(viii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Subsidiary of the Company shall have
occurred; or
(ix) either (a) the collateral agent under the New Credit Facility or (b)
if the New Credit Facility shall no longer be in force and effect, any
holder of at least $5,000,000 in aggregate principal amount of Indebtedness
of the Company or any Guarantor shall commence judicial proceedings to
foreclose upon assets of the Company or any of its Subsidiaries having an
aggregate Fair Market Value, individually or in the aggregate, in excess of
$5,000,000 or shall have exercised any right under applicable law or
applicable security documents to take ownership of any such assets in lieu
of foreclosure.
The Indenture will provide that if an Event of Default (other than as
specified in clause (viii) with respect to the Company) shall have occurred
and be continuing, then the Trustee or the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding may declare to be
immediately due and payable the entire principal amount of all the Notes then
outstanding plus accrued interest to the date of acceleration; provided,
however, that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in
aggregate principal amount of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than nonpayment of accelerated principal, premium or interest, have been
cured or waived as provided in the Indenture. In case an Event of Default
specified in clause (viii) above with respect to the Company occurs and is
continuing, the principal, premium and interest amount with respect to all of
the Notes shall be due and payable immediately without any declaration or
other act on the part of the Trustee or the holders of the Notes.
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After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of the outstanding Notes, by written
notice to the Company and the Trustee, may rescind such declaration if (i) the
Company has paid or deposited with the Trustee a sum sufficient to pay (a) all
sums paid or advanced by the Trustee under the Indenture and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (b) all overdue interest on all Notes, (c) the principal of and
premium, if any, on any Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the
Notes, and (c) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate borne by the Notes; and (ii) all Defaults,
other than the non-payment of principal of, premium, if any, and interest on
the Notes that has become due solely by such declaration of acceleration, have
been cured or waived.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
subject to certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing
Event of Default and unless also the holders of at least 25% in aggregate
principal amount of the outstanding Notes shall have made written request and
offered reasonable indemnity to the Trustee to institute such proceeding as a
trustee, and unless the Trustee shall not have received from the holders of a
majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, terminate its obligations
with respect to the outstanding Notes ("defeasance"). Such defeasance means
that the Company shall be deemed to have paid and discharged the entire
Indebtedness presented by the then outstanding Notes, except for (i) the
rights of holders of outstanding Notes to receive payment in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due, (ii) the Company's obligations to issue temporary Notes, register the
transfer or exchange of any Notes, replace mutilated, destroyed, lost or
stolen Notes and maintain an office or agency for receipt of payments in
respect of the Notes, (iii) the rights, powers, trusts, duties and immunities
of the Trustee and (iv) the defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to terminate
its obligations with respect to certain covenants that are set forth in the
Indenture, some of which are described under "--Certain Covenants" above, and
any subsequent failure to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the Notes ("covenant
defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest on the outstanding Notes to redemption or maturity, (ii) the
Company shall have delivered to the Trustee an opinion of counsel to the
effect that the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such defeasance or covenant defeasance had not occurred (in the case of
defeasance, such opinion must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable federal income tax laws),
(iii) no Default shall have occurred and be continuing on the date of such
deposit or at any time during the 90-day period following such date, (iv) such
defeasance or covenant defeasance shall not cause the Trustee to have a
conflicting interest under the Indenture or the Trust Indenture Act with
respect to any securities of the Company, (v) such defeasance or covenant
defeasance shall not result in a breach
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or violation of, or constitute a default under, any other material agreement
or instrument to which the Company is a party or by which the Company is bound
and (vi) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel that, taken together, state that all
conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with and that no violations
under agreements governing any other outstanding Indebtedness would result
therefrom.
SATISFACTION AND DISCHARGE
The Indenture shall upon request of the Company cease to be of further
effect (except as to certain provisions governing registration of transfer and
exchange of the Notes and payments thereon) when (A) either (1) all Notes
theretofore authenticated and delivered (other than (i) Notes that have been
destroyed, lost or stolen and that have been replaced or paid and (ii) Notes
for whose payment (x) cash in United States dollars or (y) U.S. Government
Obligations maturing as to principal, premium, if any, and interest in such
amounts of money and at such times as are sufficient without consideration of
any reinvestment of such interest, to pay principal of and interest on the
outstanding Notes not later than one day before the due date of any payment,
have theretofore been deposited in trust with the Trustee or any Paying Agent)
have been delivered to the Trustee for the cancellation, or (2) all such Notes
not theretofore delivered to the Trustee for cancellation (i) have become due
and payable, or (ii) will become due and payable at their stated maturity
within one year, or (iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the Company, and
the Company in the case of (2)(i), (2)(ii) or (2)(iii) above, has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation, for principal and
interest to the date of such deposit (in the case of Notes which have become
due and payable) or the stated maturity or Redemption Date, as the case may
be, together with instructions from the Company irrevocably directing the
Trustee to apply such funds to the payment thereof at maturity or redemption,
as the case may be; (B) the Company has paid or caused to be paid all other
sums then due and payable hereunder by the Company; and (C) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
that, taken together, state that all conditions precedent herein relating to
the satisfaction and discharge of this Indenture have been complied with.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and
to pay any taxes and fees required by law or permitted by the Indentures. The
Registrar is not required to transfer or exchange any Note selected for
redemption. Also, the Registrar is not required to transfer or exchange any
Note for a period of 15 days before selection of the Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
From time to time, the Company, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including providing
for uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any holder. The Indenture
contains provisions permitting the Company, the Guarantors and the Trustee,
with the consent of holders of at least a majority in principal amount of the
outstanding Notes, to modify or supplement the Indenture or the Notes, except
that no such modification shall, without the consent of each holder affected
thereby, (i) reduce the amount of Notes whose holders must consent to an
amendment, supplement, or waiver to the Indenture or the Notes, (ii) reduce
the rate of or change the time for payment of interest on any Note, (iii)
reduce the principal of or premium on or change the stated maturity of any
Note, (iv) make any Note payable in money other than that stated in the Note
or change the place of payment from New York, New York, (v) change the amount
or time of any payment required by the Notes or reduce the premium payable
upon any redemption of
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Notes, or change the time before which no such redemption may be made, (vi)
waive a default on the payment of the principal of, interest on, or redemption
payment with respect to any Note, (vii) following the occurrence of a Change
of Control or Asset Sale, amend, alter, change or modify the obligation of the
Company to make and consummate a Change of Control Offer or make and
consummate an Excess Proceeds Offer or waive any Default in the performance of
any such offers to the extent relating to such Change of Control or Asset Sale
or modify any of the provisions or definitions with respect to any such offers
or (viii) take any other action otherwise prohibited by the Indenture to be
taken without the consent of each holder affected thereby.
CONCERNING THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture will provide that, except during the
continuance of an Event of Default, the Trustee will perform only such duties
as are specifically set forth in the Indenture. During the existence of an
Event of Default, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person become a Subsidiary or assumed in connection with an Asset
Acquisition by such Person and not incurred in connection with, or in
anticipation of, such Person becoming a Subsidiary or such Asset Acquisition.
"Advertising Displays" mean all posters, signs, billboards and other outdoor
advertising displays and related sites therefor owned or leased (as lessee) by
the Company and its Subsidiaries.
"Affiliate" of any specified Person means any other Person that directly or
indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise. For purposes of this definition, none of The Chase Manhattan Bank
or any of its Affiliates shall be deemed an Affiliate of the Company.
"Asset Acquisition" means (i) an Investment by the Company or any of its
Subsidiaries in any other Person pursuant to which such Person shall become a
Subsidiary of the Company or shall be consolidated or merged with the Company
or any Subsidiary of the Company or (ii) the acquisition by the Company or any
Subsidiary of the Company of assets of any Person comprising a division or
line of business of such Person or which is otherwise outside of the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes)
or other disposition (that is not for security purposes) to any person other
than the Company or a Subsidiary of the Company, in one transaction or a
series of related transactions, of (i) any Capital Stock of any Subsidiary of
the Company, (ii) any assets of the Company or any Subsidiary of the Company
which constitute substantially all of an operating unit or line of business of
the Company and its Subsidiaries or (iii) any other property or asset of the
Company or any Subsidiary of the Company outside of the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (i) any
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disposition of property or assets of the Company that is governed under "--
Consolidation, Merger or Sale of Assets" above, (ii) sales of property and
equipment that have become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or any
Subsidiary of the Company, as the case may be, and (iii) for purposes of the
covenant "Disposition of Proceeds of Asset Sales," any sale, conveyance,
transfer, lease or other disposition of any property or asset, whether in one
transaction or a series of related transactions occurring within one year,
either (x) involving assets with a Fair Market Value not in excess of $250,000
or (y) which constitutes an incurrence of a Capitalized Lease Obligation.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any of its Subsidiaries from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such
Asset Sale, (b) payment of all brokerage commissions, underwriting and other
fees and expenses related to such Asset Sale, (c) provision for minority
interest holders in any Subsidiary of the Company as a result of such Asset
Sale and (d) deduction of appropriate amounts to be provided by the Company or
such Subsidiary as a reserve, in accordance with GAAP, against any liabilities
associated with the assets sold or disposed of in such Asset Sale and retained
by the Company or such Subsidiary after such Asset Sale, including, without
limitation, pension and other post employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in such Asset Sale,
and (ii) promissory notes and other noncash consideration received by the
Company or any Subsidiary from such Asset Sale or other disposition upon the
liquidation or conversion of such notes or noncash consideration into cash.
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sales that have not been applied
in accordance with clauses (iii)(a) or (iii)(b), and that has not yet been the
basis for application in accordance with clause (iii)(c) of the first
paragraph of "Redemption at the Option of Holders--Asset Sales."
"Board Resolution" means a copy of a resolution certified by a Secretary or
an Assistant Secretary of the Company to have been duly adopted by the board
of directors of the Company to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and for purposes of this
definition, the amount of such Indebtedness shall be the capitalized amount of
such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the New
Credit Facility or with any domestic commercial bank having capital and
surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper having a rating of at
least P1 from Moody's or a rating of at least A1 from S&P and (vi) money
market mutual or similar funds having assets in excess of $100 million.
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"Change of Control" means the occurrence of one or more of the following:
(i) any sale, lease, transfer, conveyance or other disposition (in one
transaction or a series of related transactions) of all or substantially all
of the assets of the Company or the Company and its Subsidiaries taken as a
whole to any Person or group of Persons for purposes of Section 13(d) of the
Exchange Act (a "Group"), together with any Affiliates thereof; (ii) the
approval by the holders of Capital Stock of the Company of any plan or
proposal for the liquidation or dissolution of the Company; or (iii) any
Person or Group (other than the Permitted Holders) shall become the owner,
directly or indirectly, beneficially or of record, of Voting Stock
representing 35% or so long as Permitted Holders do not own a greater
percentage of the total voting power of all Voting Stock of the Company than
such Person or Group more of the total voting power of all Voting Stock of the
Company; or (iv) the replacement of a majority of the board of directors of
the Company over a two-year period from the directors who constituted the
board of directors of the Company at the beginning of such period, and such
replacement shall not have been approved by a vote of at least two-thirds of
the board of directors of the Company then still in office who either were
members of such board of directors at the beginning of such period or whose
election as a member of such board of directors was previously so approved.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will
control the management and policies of such Person.
"Common Stock Offering" means the offering of shares of the Company's
Common Stock to occur concurrently with the offering of the Notes.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest that, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(including, but not limited to, imputed interest included in Capitalized Lease
Obligations, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, the net costs
associated with hedging obligations, amortization of other financing fees and
expenses, the interest portion of any deferred payment obligation,
amortization of discount or premium, if any, and all other non-cash interest
expense (other than interest amortized to cost of sales)) plus, without
duplication, all net capitalized interest for such period and all interest
incurred or paid under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of any Person, plus the amount
of all dividends or distributions paid on Disqualified Capital Stock (other
than dividends paid or payable in shares of Capital Stock of the Company).
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
however, that (i) the Net Income (but not loss) of any Person that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid in cash to the
referent Person or a Subsidiary thereof, (ii) the Net Income of any Subsidiary
of such Person shall be excluded to the extent that the declaration or payment
of dividends or similar distributions by that Subsidiary of that Net Income is
not at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Subsidiary
or its stockholders, (iii) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded and (iv) the cumulative effect of a change in accounting
principles shall be excluded.
"Cumulative Consolidated Interest Expense" means, as of any date of
determination, Consolidated Interest Expense of the Company from the Issue
Date to the end of the Company's most recently ended full fiscal quarter prior
to such date, taken as a single accounting period.
"Cumulative EBITDA" means, as of any date of determination, EBITDA of the
Company from the Issue Date to the end of the Company's most recently ended
full fiscal quarter prior to such date, taken as a single accounting period.
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"Default" means any event that is, or after notice of passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under or
in respect of the Credit Agreement and (ii) any other Senior Indebtedness
that, at the time of the Incurrence of such Indebtedness, is specifically
designated in the instrument evidencing such Senior Indebtedness as
"Designated Senior Indebtedness" by the Company.
"Disqualified Capital Stock" means any Capital Stock of the Company or any
of its Subsidiaries that, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the
holder), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness, provided, however, that (i) such Capital Stock shall only
constitute Disqualified Capital Stock to the extent it so matures or is
redeemable or exchangeable at the option of the holder thereof on or prior to
the final maturity date of the Notes and (ii) Preferred Stock that is issued
with the benefit of provisions requiring a change of control offer to be made
for such Preferred Stock in the event of a change of control of the Company,
which provisions have substantially the same effect as the provisions of the
Indenture described under "Change of Control," shall not be deemed to be
Disqualified Capital Stock solely by virtue of such provisions.
"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of, without duplication, Consolidated Net Income for such period, plus, to
the extent reducing Consolidated Net Income, (i) the provision for taxes for
such period based on income or profits to the extent such income or profits
were included in computing Consolidated Net Income and any provision for taxes
utilized in computing net loss under clause (i) hereof, plus (ii) Consolidated
Interest Expense for such period, plus (iii) depreciation for such period on a
consolidated basis, plus (iv) amortization of intangibles for such period on a
consolidated basis, plus (v) any other non-cash items reducing Consolidated
Net Income for such period, minus (b) all non-cash items increasing
Consolidated Net Income for such period, all for such Person and its
Subsidiaries determined in accordance with GAAP, except that with respect to
the Company each of the foregoing items shall be determined on a consolidated
basis with respect to the Company and the Subsidiaries only; and provided,
however, that, for purposes of calculating EBITDA during any fiscal quarter,
cash income from a particular Investment of such Person (other than a
consolidated Subsidiary of the Company) shall be included only (x) if cash
income has been received by such Person with respect to such Investment during
each of the previous four fiscal quarters, or (y) if the cash income derived
from such Investment is attributable to Cash Equivalents.
"Excess Proceeds" means, with respect to any Asset Sale, the then Available
Asset Sale Proceeds less any such Available Asset Sale Proceeds that are
required to be applied and are applied in accordance with clause (iii)(c)(1)
of the first paragraph of "Redemption at the Option of Holders--Asset Sales."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the price
that could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction. Unless otherwise specified
in the Indenture, Fair Market Value shall be determined by the Board acting in
good faith and shall be evidenced by a Board Resolution delivered to the
Trustee.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States on the Issue Date.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part of all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect which is to assure in any way the payment or performance
(or payment of damages in the event of non-performance) of all or any part of
such obligation, including, without limiting the foregoing, the payment of
amounts drawn down by letters of credit.
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"Guarantor Senior Indebtedness" means, with respect to the Indebtedness of
any Guarantor, any such Indebtedness represented by a guarantee by such
Guarantor of any Senior Indebtedness.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness
or other obligation or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet
of such person (and "incurrence," "incurred," "incurable," and "incurring"
shall have meanings correlative to the foregoing); provided that a change in
GAAP that results in an obligation of such Person that exists at such time
becoming Indebtedness shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, that is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the
ordinary course of business) if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, and shall also include, to the extent not
otherwise included (i) any Capitalized Lease Obligations, (ii) obligations
secured by a lien to which the property or assets owned or held by such Person
is subject, whether or not the obligation or obligations secured thereby shall
have been assumed, (iii) guarantees of items of other Persons which would be
included within this definition for such other Persons (whether or not such
items would appear upon the balance sheet of the guarantor), (iv) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (v) Disqualified Capital
Stock of such Person or any of its Subsidiaries and (vi) obligations of any
such Person under any Interest Rate Agreement applicable to any of the
foregoing (if and to the extent such Interest Rate Agreement obligations would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP). The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the
obligation, provided that (i) that the amount outstanding at any time of any
Indebtedness issued with original issue discount, including the Notes, is the
principal amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP and (ii) that Indebtedness shall not include any
liability for federal, state, local or other taxes. Notwithstanding any other
provision of the foregoing definition, any trade payable arising from the
purchase of goods or materials or for services obtained in the ordinary course
of business shall not be deemed to be "Indebtedness" of the Company or any of
its Subsidiaries for purposes of this definition.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement designed to protect the party indicated therein
against fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, loan or other
extension of credit (including by means of a guarantee) or capital
contribution to (by means of transfers of property to others, payments for
property or services for the account or use of others or otherwise), the
purchase of any stock, bonds, notes, debentures, partnership or joint venture
interests or other securities of, the acquisition, by purchase or otherwise,
of all or substantially all of the business or assets or stock or other
evidence of beneficial ownership of, any Person. Investments shall exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices. In addition to the foregoing, any foreign exchange
contract, currency swap, Interest Rate Agreement or similar agreement shall
constitute an Investment.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
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"Leverage Ratio" means the ratio of (i) the sum of the aggregate outstanding
amount of Indebtedness of the Company and its Subsidiaries as of the date of
calculation on a consolidated basis in accordance with GAAP to (ii) the
Company's EBITDA for the four full fiscal quarters (the "Four Quarter Period")
ending on or prior to the date of determination for which financial statements
are available. For purposes of this definition, the Company's "EBITDA" shall
be calculated on a pro forma basis after giving effect to any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition
giving rise to the need to make such calculation as a result of the Company or
one of its Subsidiaries (including any Person who becomes a Subsidiary of the
Company as a result of such Asset Acquisition) incurring, assuming or
otherwise becoming liable for Indebtedness) at any time on or subsequent to
the first day of the Four Quarter Period and on or prior to the date of
determination, as if such Asset Sale or Asset Acquisition (including any
EBITDA associated with such Asset Acquisition relating to such Asset
Acquisition) occurred on the first day of the Four Quarter Period.
"Lien" means with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or assets
(including without limitation, any Capitalized Lease Obligation, conditional
sales, or other title retention agreement having substantially the same
economic effect as any of the foregoing).
"New Credit Facility" means that certain New Credit Facility, dated as of
, 1997 by and among the Company, Chase Manhattan Bank, as agent and as a
lender, and certain banks, financial institutions and other entities, as
lenders, providing for up to $ million of Indebtedness, including any
related notes, letters of credit issued thereunder, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, restated, modified, renewed, refunded, increased,
replaced or refinanced, in whole or in part, from time to time, whether or not
with the same lenders or agents.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate
the maturity of any Designated Senior Indebtedness.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chairman, Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer or any Treasurer of such Person that
shall comply with applicable provisions of the Indenture.
"Other Pari Passu Debt" means Indebtedness of the Company or any Subsidiary
Guarantor that neither constitutes Senior Indebtedness or Guarantor Senior
Indebtedness, as applicable, or Subordinated Indebtedness.
"Other Pari Passu Debt Pro Rata Share" means the amount of the applicable
Available Asset Sale Proceeds obtained by multiplying the amount of such
Available Asset Sale Proceeds by a fraction, (i) the numerator of which is the
aggregate accreted value and/or principal amount, as the case may be, of all
Other Pari Passu Debt outstanding at the time of the applicable Asset Sale
with respect to which the Company is required to use Available Asset Sale
Proceeds to repay or make an offer to purchase or repay and (ii) the
denominator of which is the sum of (a) the aggregate principal amount of all
Notes outstanding at the time of the applicable Asset Sale and (b) the
aggregate principal amount or the aggregate accreted value, as the case
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<PAGE>
may be, of all Other Pari Passu Debt outstanding at the time of the applicable
Asset Sale Offer with respect to which the Company is required to use the
applicable Available Asset Sale Proceeds to offer to repay or make an offer to
purchase or repay.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in
connection with Designated Senior Indebtedness.
"Permitted Asset Swap" means the exchange, in the ordinary course of the
outdoor advertising business, of any interest of the Company or any of its
Subsidiaries in any Advertising Display or Displays for a similar interest in
an Advertising Display or Displays of a Person other than the Company or such
Subsidiary; provided that (i) the aggregate Fair Market Value of the
Advertising Display or Displays being transferred by the Company or such
Subsidiary is not greater than the aggregate Fair Market Value of the
Advertising Display or Displays received by the Company or such Subsidiary in
such exchange and (ii) the aggregate Fair Market Value of all Advertising
Displays transferred by the Company and its Subsidiaries in connection with
exchanges in any period of twelve consecutive months shall not exceed $ .
"Permitted Indebtedness" means each of the following:
(i) Indebtedness of the Company, as borrower, or any Guarantor, as
guarantor, under the New Credit Facility in an amount not to exceed $ ,
less the aggregate amount of all principal repayments thereunder (to the
extent, in the case of payments of revolving credit Indebtedness, that the
corresponding commitments have been permanently reduced) or scheduled
payments actually made thereunder;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) (i) Indebtedness of any Subsidiary of the Company owned to and held
by the Company or a Subsidiary of the Company and (ii) Indebtedness of the
Company owed to and held by any Subsidiary of the Company; provided that an
incurrence of Indebtedness shall be deemed to have occurred upon (x) any
sale or other disposition (excluding assignments as security to financial
institutions) of any Indebtedness of the Company or a Subsidiary of the
Company referred to in this clause (iii) to a person (other than the
Company or a Subsidiary of the Company) or (y) any sole or other
disposition of Capital Stock of a Subsidiary of the Company, which holds
Indebtedness of the Company or another Subsidiary of the Company such that
such Subsidiary, in any such case, ceases to be a Subsidiary of the
Company;
(iv) Interest Rate Agreements of the Company and/or any Subsidiary of the
Company relating to (i) Indebtedness of the Company and/or such Subsidiary,
as the case may be (which Indebtedness (x) bears interest at fluctuating
interest rates and (y) is otherwise permitted to be incurred under the
"Limitation on Additional Indebtedness" covenant), and/or (ii) Indebtedness
(which Indebtedness would bear interest at fluctuating interest rates) for
which a lender has provided a commitment (subject to customary conditions)
in an amount reasonably anticipated to be incurred by the Company and/or a
Subsidiary of the Company in the following 12 months after such Interest
Rate Agreement has been incurred, but only to the extent, in the case of
either subclause (i) or (ii), that the notional principal amount of such
Interest Rate Agreements does not exceed the principal amount of the
Indebtedness (and/or Indebtedness subject to commitments) to which such
Interest Rate Agreements relate;
(v) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business, which
Purchase Money Indebtedness and Capitalized Lease Obligations do not in the
aggregate exceed 5% of the Company's consolidated total assets;
(vi) Indebtedness ("Refinancing Indebtedness") of the Company and/or any
Subsidiary of the Company to the extent it represents a replacement,
renewal, refinancing or extension (a "Refinancing") of outstanding
Indebtedness of the Company and/or of any Subsidiary of the Company
incurred or outstanding
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pursuant to clause (ii) or (vii) of this definition or the proviso to the
covenant "Limitation on Additional Indebtedness", provided that (1)
Indebtedness of the Company may not be Refinanced to such extent under this
clause (vi) with Indebtedness of any Subsidiary of the Company and (2) any
such Refinancing shall only be permitted under this clause (vi) to the
extent that (x) it does not result in a lower Average Life to Stated
Maturity (as defined) of such Indebtedness as compared with the
Indebtedness being Refinanced and (y) it does not exceed the sum of the
principal amount (or, if such Indebtedness provides for a lesser amount to
be due and payable upon a declaration of acceleration thereof, an amount no
greater than such lesser amount) of the Indebtedness being Refinanced plus
the amount of accrued interest thereon and the amount of any reasonably
determined prepayment premium necessary to accomplish such Refinancing and
such reasonable fees and expenses incurred in connection therewith; and
(vii) in addition to the items referred to above, Indebtedness of the
Company and any Subsidiary of the Company having an aggregate principal
amount not to exceed $10,000,000 at any time outstanding.
"Permitted Investments" means (i) Investments in any of the Notes; (ii)
Investments in Cash Equivalents; (iii) Investments by the Company or any of
its Subsidiaries in a Subsidiary of the Company or another person, if as a
result of such Investment (a) such other person becomes a Subsidiary of the
Company or (b) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to, the Company or
a Subsidiary of the Company; (iv) Investments received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement of
delinquent obligations of, and other disputes with, customers and suppliers,
in each case arising in the ordinary course of business; (v) Investments in
Interest Rate Agreements permitted by the covenant described under "--
Limitation on Additional Indebtedness"; and (vi) loans or advances to officers
or employees of the Company and its Subsidiaries in the ordinary course of
business for bona fide business purposes of the Company and its Subsidiaries
(including travel and moving expenses) not in excess of $1,000,000 in the
aggregate at any one time outstanding.
"Permitted Junior Securities" means equity securities or subordinated
securities of an issuer as reorganized or readjusted or securities of the
Company or any other Company, trust, corporation or partnership provided for
by a plan of reorganization or readjustment, that, in the case of any such
subordinated securities as junior or the payment of which is otherwise
subordinated, at least to the extent provided in the Indenture with respect to
the Notes, to the payment and satisfaction in full in cash of all Senior
Indebtedness of the Company at the time outstanding, and to the payment of all
securities issued in exchange therefor, to the holders of the Senior
Indebtedness at the time outstanding.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
that entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Public Equity Offering" means a public offering by the Company of shares of
its common stock on a primary basis pursuant to a registration statement filed
and declared effective pursuant to the Securities Act for gross proceeds of
not less than $20,000,000 in cash.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the
cost of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock
of the Company or any of its Subsidiaries or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any of its Subsidiaries (other than (x) dividends or distributions payable
solely in Capital Stock (other than Disqualified
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Stock) or in options, warrants or other rights to purchase Capital Stock
(other than Disqualified Stock), and (y) in the case of Subsidiaries of the
Company, dividends or distributions payable to the Company or to a Wholly-
Owned Subsidiary), (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company or any of its
Subsidiaries (other than Capital Stock owned by the Company or a Subsidiary of
the Company), (iii) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for
value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, of any Subordinated Indebtedness other than Subordinated
Indebtedness acquired in anticipation of satisfying a scheduled sinking fund
obligation, principal installment or final maturity, in each case due within
one year of the date of acquisition) and (iv) the making of any Investment in
any Person other than a Permitted Investment.
"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, charges, expense reimbursement
obligations and other amounts due pursuant to the terms of all agreements,
documents and instruments providing for, creating, securing or evidencing or
otherwise entered into in connection with (a) all obligations of the Company
owed to lenders under the New Credit Facility, (b) all obligations of the
Company with respect to any Interest Rate Agreement, (c) all obligations of
the Company to reimburse any bank or other person in respect of amounts paid
under letters of credit, acceptances or other similar instruments, (d) all
other Indebtedness of the Company that does not provide that it is to rank
pari passu with or subordinate to the Notes and (e) all deferrals, renewals,
extensions and refundings of, and amendments, modifications and supplements
to, any of the Senior Indebtedness described above. Notwithstanding anything
to the contrary in the foregoing, Senior Indebtedness will not include (i)
Indebtedness of the Company to any of its Subsidiaries, (ii) Indebtedness
represented by the Notes, (iii) any Subordinated Indebtedness, (iv) any trade
payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business or (v) that portion of any
Indebtedness (other than Indebtedness under the New Credit Facility which
relates to reimbursement obligations (whether in the form of loans or
otherwise) under letters of credit with respect to drawings made thereunder
and not yet reimbursed incurred on the basis of a representation from the
Company that such Indebtedness is permitted to be incurred) which is incurred
in violation of the Indenture.
"Subordinated Indebtedness" means with respect to the Company, Indebtedness
of the Company that is expressly subordinated in right of payment to the Notes
or, with respect to any Guarantor, Indebtedness of such Guarantor that is
expressly subordinated in right of payment to the Guarantee of such Guarantor.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which
more than 50% of the total voting power of the Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, officers or trustees thereof is held by such first-named Person or
any of its Subsidiaries; or (ii) in the case of a partnership, joint venture,
association or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the
direction of the management and policies of such entity by contract or
otherwise or if in accordance with GAAP such entity is consolidated with the
first-named Person for financial statement purposes.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof to vote
under ordinary circumstances in the election of members of the board of
directors or other governing body of such Person.
"Wholly-Owned Subsidiary" means any Subsidiary of the Company, all of the
outstanding voting securities (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company.
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UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") dated 1997, among the Company, the
Guarantors and the Underwriters, the Company has agreed to sell to the
Underwriters, and the Underwriters have severally agreed to purchase from the
Company, the following respective amounts of the Notes:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
UNDERWRITER NOTES
<S> <C>
Chase Securities Inc.................................... $
Donaldson, Lufkin and Jenrette Securities Corporation...
Salomon Brothers Inc....................................
----
Total................................................. $
====
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any of the Notes are purchased. The Company has been advised by the
Underwriters that the Underwriters propose to offer the Notes to the public
initially at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers initially at such price less a discount not
in excess of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession to certain other dealers not
in excess of % of the principal amount of the Notes. After the initial
offering of the Notes to the public, the Underwriters may change the public
offering price, the discount and the concession.
The Notes comprise new issues of securities with no established trading
market. The Company has been advised by the Underwriters that the Underwriters
intend to make a market in the Notes, as permitted by applicable laws and
regulations. No assurance can be given, however, that the Underwriters will
make a market in the Notes, or as to the liquidity of, or the trading market
for the Notes.
Chase Securities Inc. ("CSI") is an affiliate of The Chase Manhattan Bank,
which is the agent bank and a lender under the Existing Credit Facility and
will be the agent bank and a lender under the New Credit Facility. The Chase
Manhattan Bank will receive its proportionate share of any repayment by the
Company of amounts outstanding under the Existing Credit Facility from the
proceeds of the Offerings. Chase Venture Capital Associates, L.P. ("CVCA"), an
affiliate of CSI, owns approximately 30.1% of the Company's outstanding Common
Stock (or approximately % after completion of the Common Stock Offering). In
addition, CVCA owns approximately $6.8 million principal amount of the
Company's Series B Notes. The Company intends to use a portion of the proceeds
of the Offerings to redeem the Series B Notes. Brian J. Richmand, a director
of the Company, is a general partner of Chase Capital Partners, which is the
general partner of CVCA. See "Principal Stockholders."
Under Rule 2720 of the Conduct Rules of the NASD ("Rule 2720"), the Company
is considered an affiliate of CSI. This offering is being conducted in
accordance with Rule 2720, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's debt
securities, the yield to maturity can be no lower than recommended by a
"qualified independent underwriter" meeting certain standards ("QIU"). In
accordance with this requirement, Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") has assumed the responsibilities of acting as QIU and will
recommend a minumum yield to maturity in compliance with the requirements of
Rule 2720. In connection with the offering, DLJ is performing due diligence
investigations and reviewing and participating in the preparation of the
Prospectus and the Registration Statement of which this Prospectus forms a
part. As compensation for services of DLJ as QIU, the Company has agreed to
pay DLJ $5,000, which fee will be waived.
The Underwriters have informed the Company that they will not confirm sales
to any accounts over which they exercise discretionary authority without prior
written approval of such transactions by the customer.
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In connection with the offering of the Notes, CSI, on behalf of the
Underwriters, may engage in overallotment, stabilizing transactions and
syndicate covering transactions in accordance with Regulation M under the
Securities Exchange Act of 1934, as amended. Overallotment involves sales in
excess of the offering size, which creates a short position for the
Underwriters. Stabilizing transactions involve bids to purchase the Notes in
the open market for purposes of pegging, fixing or maintaining the price of
the Notes. Syndicate covering transactions involve purchases of the Notes in
the open market after the distribution has been completed in order to cover
short positions. Such stabilizing transactions and syndicate covering
transactions may cause the price of the Notes to be higher than it would
otherwise be in the absence of such transactions. Such activities, if
commenced, may be discontinued at any time.
The Company and the Guarantors have agreed to indemnify the Underwriters,
jointly and severally, against certain civil liabilities, including
liabilities under the Securities Act, and to contribute to payments which the
Underwriters might be required to make in respect thereof.
Concurrently with the Offering, the Company is offering shares of Common
Stock. The representatives of the underwriters for the Common Stock Offering
are DLJ, Alex. Brown & Sons Incorporated and Salomon Brothers Inc.
CERTAIN LEGAL MATTERS
Certain legal matters with respect to the legality of the Notes offered
hereby will be passed upon for the Company by Goodwin, Procter & Hoar LLP,
Boston, Massachusetts. Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York will pass upon certain legal
matters relating to the Offering for the Underwriters. In rendering their
opinions on the validity of the Notes, counsel for the Company and the
Underwriters will express no opinion as to federal or state laws relating to
fraudulent transfers.
EXPERTS
The consolidated financial statements of (i) OCI as of June 30, 1996, and
for the period April 4, 1996 to June 30, 1996, (ii) OCI North as of April 3,
1996 and for the period August 1, 1995 to April 3, 1996 and as of July 31,
1995, and for each of the years in the two-year period ended July 31, 1995 and
(iii) OCI South as of April 3, 1996 and for the period September 1, 1995 to
April 3, 1996 and the financial statements of Georgia Outdoor as of December
31, 1995 and 1994, and for each of the years in the two-year period ended
December 31, 1995 have been included herein and in the Registration Statement
in reliance upon the applicable reports, of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of OCI South as of August 31, 1995 and
for each of the years in the two-year period ended August 31, 1995, included
in this Prospectus and the Registration Statement of which it is a part have
been audited by Moore & Gray, independent certified public accountants, and
have been included herein and in the Registration Statement in reliance upon
the report, appearing elsewhere herein, of Moore & Gray and upon the authority
of said firm as experts in giving said report.
The consolidated financial statements of Alabama Outdoor at December 31,
1995 and the related consolidated statements of income, changes in members'
equity and cash flows for the year then ended and for the two months ended
December 31, 1994, appearing in this Prospectus and the Registration Statement
of which it is a part have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The combined financial statements of Skoglund as of December 31, 1995 and
for the year ended December 31, 1995 and the financial statements of (i) The
Ragan Outdoor Advertising Company of Rockford, L.L.C. as of December 31, 1996
and 1995 and for each of the years in the two-year period ended December 31,
1996 and (ii) The Ragan Outdoor Advertising Company as of December 31, 1996
and 1995 and for each of the years in the
78
<PAGE>
two-year period ended December 31, 1996, included in this Prospectus and the
Registration Statement of which it is a part have been included herein and in
the Registration Statement in reliance upon the applicable reports, appearing
elsewhere herein, of McGladrey & Pullen, LLP, independent certified public
accountants, and upon the authority of said firm as experts in giving said
reports.
The combined financial statements of Skoglund as of December 31, 1994 and
for the year then ended included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and is
included herein in reliance upon the authority of said firm as experts in
giving said report.
The financial statements of Outdoor West as of December 31, 1996 and 1995
and for each of the years in the two-year period ended December 31, 1996,
included in this Prospectus and the Registration Statement of which it is a
part have been audited by Morrison and Smith, independent public accountants,
and have been included herein and in the Registration Statement in reliance
upon the report, appearing elsewhere herein, of Morrison and Smith and upon
the authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Notes offered hereby. As permitted by the
rules and regulations of the Securities and Exchange Commission (the
"Commission"), this Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any agreement or other
document referred to are not necessarily complete. With respect to each such
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in all respects by
such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC
20549 and at the following regional offices of the Commission: Seven World
Trade Center, New York, New York 10048, and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials may be obtained from
the public reference section of the Commission at its Washington address upon
payment of the prescribed fees. In addition, the Company is required to file
electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
system, and such electronic versions are available to the public at the
Commission's World-Wide Web Site, http://www.sec.gov.
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports and other information
with the Commission. The Company intends to furnish its stockholders with
annual reports containing financial statements audited by the Company's
independent accountants and quarterly reports for the first three fiscal
quarters of each fiscal year containing unaudited interim financial
information.
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
THE COMPANY
-----------
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF OCI HOLDINGS CORP. AND SUBSIDIARIES
. Independent Auditors' Report for the period April 4, 1996 to June 30,
1996................................................................... F-3
. Consolidated Balance Sheets as of March 31, 1997 and June 30, 1996..... F-4
. Consolidated Statements of Operations for the nine months ended March
31, 1997 and the period April 4, 1996 to June 30, 1996................. F-6
. Consolidated Statements of Stockholders' Deficit for the nine months
ended March 31, 1997 and the period April 4, 1996 to June 30, 1996..... F-7
. Consolidated Statement of Cash Flows for the period April 4, 1996 to
June 30, 1996.......................................................... F-8
. Condensed Consolidated Statement of Cash Flows for the nine months
ended March 31, 1997................................................... F-9
. Notes to Consolidated Financial Statements............................. F-10
THE PREDECESSORS
----------------
OCI NORTH
CONSOLIDATED FINANCIAL STATEMENTS OF OCI CORP. OF MICHIGAN (NOW KNOWN AS
OCI (N) CORP.) AND SUBSIDIARIES
. Independent Auditors' Report for the period August 1, 1995 to April 3,
1996 and for the years ended July 31, 1995 and 1994.................... F-22
. Consolidated Balance Sheets as of April 3, 1996 and July 31, 1995...... F-24
. Consolidated Statements of Operations for the period August 1, 1995 to
April 3, 1996 and for the years ended July 31, 1995 and 1994........... F-26
. Consolidated Statements of Stockholders' Deficit for the period August
1, 1995 to April 3, 1996 and for the years ended July 31, 1995 and
1994................................................................... F-27
. Consolidated Statements of Cash Flows for the period August 1, 1995 to
April 3, 1996 and for the years ended July 31, 1995 and 1994........... F-28
. Notes to Consolidated Financial Statements............................. F-29
OCI SOUTH
CONSOLIDATED FINANCIAL STATEMENTS OF MASS COMMUNICATIONS CORP. AND
SUBSIDIARY
. Independent Auditors' Report for the period September 1, 1995 to April
3, 1996................................................................ F-38
. Independent Auditors' Report for the years ended August 31, 1995 and
1994................................................................... F-39
. Consolidated Balance Sheets as of April 3, 1996 and August 31, 1995.... F-40
. Consolidated Statements of Income for the period September 1, 1995 to
April 3, 1996 and for the years ended August 31, 1995 and 1994......... F-42
. Consolidated Statements of Stockholders' Deficit for the period
September 1, 1995 to April 3, 1996 and for the years ended August 31,
1995 and 1994.......................................................... F-43
. Consolidated Statements of Cash Flows for the period September 1, 1995
to April 3, 1996 and for the years ended August 31, 1995 and 1994...... F-44
. Notes to Consolidated Financial Statements............................. F-45
ACQUIRED COMPANIES
------------------
GEORGIA OUTDOOR
FINANCIAL STATEMENTS OF GEORGIA OUTDOOR ADVERTISING COMPANY INC.
. Independent Auditors' Report for the years ended December 31, 1995 and
1994................................................................... F-53
. Balance Sheets as of December 31, 1995 and 1994........................ F-54
. Statements of Operations for the years ended December 31, 1995 and
1994................................................................... F-55
. Statements of Stockholders' Deficit for the years ended December 31,
1995 and 1994.......................................................... F-56
. Statements of Cash Flows for the years ended December 31, 1995 and
1994................................................................... F-57
. Notes to Financial Statements.......................................... F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
ALABAMA OUTDOOR
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AOA HOLDING L.L.C.
. Report of Independent Auditors for the year ended December 31, 1995
and for the two months ended December 31, 1994........................ F-61
. Consolidated Balance Sheet as of December 31, 1995.................... F-62
. Consolidated Statements of Income for the year ended December 31, 1995
and the two months ended December 31, 1994............................ F-63
. Consolidated Statements of Changes in Members' Equity for the year
ended December 31, 1995 and the two months ended December 31, 1994.... F-64
. Consolidated Statements of Cash Flows for the year ended December 31,
1995 and the two months ended December 31, 1994....................... F-65
. Notes to Consolidated Financial Statements............................ F-66
SKOGLUND
COMBINED FINANCIAL STATEMENTS OF SKOGLUND COMMUNICATIONS, INC. AND
SKOGLUND COMMUNICATIONS OF ST. CLOUD, INC.
. Independent Auditor's Report for the year ended December 31, 1995..... F-72
. Independent Auditor's Report for the year ended December 31, 1994..... F-73
. Combined Balance Sheets as of December 31, 1995 and 1994.............. F-74
. Combined Statements of Operations and Retained Earnings (Deficit) for
the years ended
December 31, 1995 and 1994............................................ F-75
. Combined Statements of Cash Flows for the years ended December 31,
1995 and 1994......................................................... F-76
. Notes to Combined Financial Statements................................ F-77
OUTDOOR WEST
FINANCIAL STATEMENTS OF OUTDOOR WEST, INC. OF TENNESSEE
. Report of Independent Public Accountants for the years ended June 30,
1996 and 1995......................................................... F-82
. Balance Sheets as of March 31, 1997 and 1996 and June 30, 1996 and
1995.................................................................. F-83
. Statements of Operations and Retained Earnings (Deficit) for the nine
months ended March 31, 1997 and 1996 and for the years ended June 30,
1996 and 1995......................................................... F-84
. Statements of Cash Flows for the nine months ended March 31, 1997 and
1996 and for the years ended June 30, 1996 and 1995................... F-85
. Notes to Financial Statements......................................... F-86
RAGAN
FINANCIAL STATEMENTS OF THE RAGAN OUTDOOR ADVERTISING COMPANY
.Independent Auditor's Report for the years ended December 31, 1996 and
1995................................................................... F-93
.Balance Sheets as of December 31, 1996 and 1995........................ F-94
.Statements of Income for the years ended December 31, 1996 and 1995.... F-96
.Statements of Stockholders' Equity for the years ended December 31,
1996 and 1995.......................................................... F-97
.Statements of Cash Flows for the years ended December 31, 1996 and
1995................................................................... F-98
.Notes to Financial Statements.......................................... F-99
FINANCIAL STATEMENTS OF THE RAGAN OUTDOOR ADVERTISING COMPANY OF
ROCKFORD, L.L.C.
.Independent Auditor's Report for the years ended December 31, 1996 and
1995................................................................... F-103
.Balance Sheets as of December 31, 1996 and 1995........................ F-104
.Statements of Income for the years ended December 31, 1996 and 1995.... F-105
.Statements of Members' (Deficit) for the years ended December 31, 1996
and 1995............................................................... F-106
.Statements of Cash Flows for the years ended December 31, 1996 and
1995................................................................... F-107
.Notes to Financial Statements.......................................... F-108
</TABLE>
F-2
<PAGE>
When the transactions referred to in Notes 16 and 17 of the Notes to
Consolidated Financial Statements have been consummated, we will be in a
position to render the following report.
/s/ KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
OCI Holdings Corp.:
We have audited the accompanying consolidated balance sheet of OCI Holdings
Corp. and subsidiaries (the Company) as of June 30, 1996, and the related
consolidated statements of operations, stockholders' deficit, and cash flows
for the period April 4, 1996 to June 30, 1996. These consolidated 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 financial position of the
Company as of June 30, 1996, and the results of its operations and its cash
flows for the period April 4, 1996 to June 30, 1996, in conformity with
generally accepted accounting principles.
East Lansing, Michigan
September 5, 1996, except as to notes 16 and 17
which are as of May 27, 1997
F-3
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
MARCH 31, 1997 JUNE 30, 1996
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 4,566,387 $ 1,259,441
Trade accounts receivable, less allowance for
doubtful accounts of $536,763 and $273,110 in
1997 and 1996, respectively.................... 6,318,149 5,050,490
Refundable income taxes......................... -- 185,893
Inventories..................................... 1,075,228 389,458
Prepaid rent expense............................ 1,786,469 1,077,830
Other assets.................................... 644,205 382,521
Deferred income taxes (note 9).................. 471,818 276,703
------------ -----------
Total current assets........................ 14,862,256 8,622,336
------------ -----------
Property and equipment, net (note 3).............. 63,185,184 37,765,591
Intangible assets, less accumulated amortization
(note 4)......................................... 57,309,152 45,446,523
Deferred financing costs.......................... 4,704,888 3,169,224
Other assets...................................... 114,250 116,638
------------ -----------
Total assets................................ $140,175,730 $95,120,312
============ ===========
</TABLE>
(Continued)
F-4
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
AS OF
MARCH 31, AS OF
1997 JUNE 30, 1996
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt (note 5).. $ 4,500,000 $ 4,750,000
Obligation under non-compete agreement........... -- 100,000
Trade accounts payable........................... 313,858 770,147
Income taxes payable............................. 190,217 179,822
Accrued salaries, wages and benefits............. 566,529 708,252
Accrued interest................................. 870,344 1,038,833
Other accrued expenses........................... 520,591 620,318
Deferred advertising revenues and non-compete in-
come............................................ 329,385 303,512
------------ -----------
Total current liabilities.................... 7,290,924 8,470,884
------------ -----------
Long-term debt:
Credit facility, excluding current installments
(note 5)........................................ 103,200,000 57,750,000
Subordinated debt (note 6)....................... 22,425,000 22,100,000
Notes payable--stockholders (note 7)............. 5,876,875 5,876,875
------------ -----------
Total long-term debt......................... 131,501,875 85,726,875
Accrued interest (note 6).......................... 1,318,171 262,488
Deferred non-compete income, less current portion.. 46,667 106,667
Deferred income taxes (note 9)..................... 5,331,567 5,280,079
------------ -----------
Total liabilities............................ 145,489,204 99,846,993
------------ -----------
Stockholders' deficit (note 10):
Class A common stock, $.01 par value. Authorized
10,000 shares; issued and outstanding 8,410.72
and 8,210.72 shares, respectively............... 84 82
Class B common stock, $.01 par value. Authorized
10,000 shares; issued and outstanding 3,689.28
shares.......................................... 37 37
Additional paid-in capital....................... 3,811,475 3,636,477
Accumulated deficit.............................. (9,125,070) (8,363,277)
------------ -----------
Total stockholders' deficit.................. (5,313,474) (4,726,681)
------------ -----------
Commitments and contingencies (notes 10, 11, and
12)
Total liabilities and stockholders' deficit.. $140,175,730 $95,120,312
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE FOR THE PERIOD
MONTHS ENDED APRIL 4, 1996 TO
MARCH 31, 1997 JUNE 30, 1996
(UNAUDITED)
<S> <C> <C>
Gross revenues................................. $35,105,189 $9,535,542
Less agency commissions........................ 3,363,915 987,032
----------- ----------
Net revenues............................... 31,741,274 8,548,510
----------- ----------
Operating expenses:
Direct operating expenses.................... 6,714,666 1,758,070
Selling, general, and administrative (notes
11 and 12).................................. 12,118,720 3,304,213
Depreciation and amortization................ 6,103,479 1,638,417
----------- ----------
Total operating expenses................... 24,936,865 6,700,700
----------- ----------
Operating income........................... 6,804,409 1,847,810
Interest expense............................. (7,597,020) (1,826,137)
Loss on disposal of equipment................ (94,816) (67,328)
Other income, net............................ 147,365 67,347
----------- ----------
Income (loss) before income tax expense.... (740,062) 21,692
Income tax expense (note 9).................... 21,731 105,718
----------- ----------
Net loss................................... $ (761,793) $ (84,026)
=========== ==========
Net loss per common share...................... $ $
=========== ==========
Weighted average number of shares..............
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED MARCH 31, 1997
AND THE PERIOD APRIL 4, 1996 TO JUNE 30, 1996
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT DEFICIT
<S> <C> <C> <C> <C> <C>
Balances at April 3,
1996................... $ 82 2 136,512 (8,279,251) (8,142,655)
Issuance of common
stock.................. -- 35 3,499,965 -- 3,500,000
Net loss................ -- -- -- (84,026) (84,026)
---- --- --------- ---------- ----------
Balances at June 30,
1996................... 82 37 3,636,477 (8,363,277) (4,726,681)
Issuance of common stock
(unaudited)............ 2 -- 174,998 -- 175,000
Net loss (unaudited).... -- -- -- (761,793) (761,793)
---- --- --------- ---------- ----------
Balances at March 31,
1997 (unaudited)....... $ 84 37 3,811,475 (9,125,070) (5,313,474)
==== === ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 4, 1996
TO JUNE 30, 1996
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss...................................................... $ (84,026)
Adjustments to reconcile net loss to net cash used in operat-
ing activities:
Allowance for doubtful accounts............................. 163,265
Depreciation of equipment................................... 903,191
Amortization of intangible assets........................... 735,226
Loss on disposal of equipment............................... 67,328
Deferred income taxes....................................... 3,756
Changes in assets and liabilities, net of effects from pur-
chase of company, which increase (decrease) cash flows:
Trade accounts receivable................................. (2,976,742)
Refundable income taxes................................... (81,182)
Inventories............................................... (143,526)
Prepaid rent expense...................................... (430,821)
Other assets.............................................. 64,329
Trade accounts payable.................................... 294,939
Income taxes payable...................................... 179,822
Accrued expenses.......................................... 944,233
Deferred advertising revenues and non-compete income...... (142,665)
-----------
Net cash used in operating activities................... (502,873)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of companies......................................... (32,000,000)
Capital expenditures.......................................... (562,232)
Proceeds from sale of property and equipment.................. 2,625
Other......................................................... (541,283)
-----------
Net cash used in investing activities................... (33,100,890)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt...................... 31,700,000
Repayment of long-term debt................................... (1,000,000)
Deferred financing costs...................................... (250,000)
Proceeds from issuance of common stock........................ 3,500,000
Payments on obligation under non-compete agreement............ (100,000)
-----------
Net cash provided by financing activities............... 33,850,000
-----------
Net increase in cash and cash equivalents..................... 246,237
Cash and cash equivalents at beginning of the period.......... 1,013,204
-----------
Cash and cash equivalents at end of the period................ $ 1,259,441
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
MARCH 31, 1997
<S> <C>
Net cash provided by operating activities.......................... $ 2,306,133
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of companies.............................................. (39,781,187)
Deferred acquisition costs......................................... (1,478,222)
Capital expenditures............................................... (1,611,510)
-----------
Net cash used in investing activities............................ (42,870,919)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on long-term debt................................... 45,100,000
Deferred acquisition costs......................................... (1,728,268)
Issuance of subordinated notes..................................... 325,000
Issuance of common stock........................................... 175,000
-----------
Net cash provided by financing activities........................ 43,871,732
-----------
Net increase in cash and equivalents............................... 3,306,946
Cash and cash equivalents at beginning of the period............... 1,259,441
-----------
Cash and cash equivalents at end of the period..................... $ 4,566,387
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND JUNE 30, 1996
(THE NINE MONTHS ENDED MARCH 31, 1997 IS UNAUDITED)
(1) ORGANIZATION AND ACQUISITION OF ASSETS
At the close of business on April 3, 1996, the stockholders of OCI Corp. of
Michigan ("OCIM") and Mass Communications Corp. ("MCC") (collectively the
"companies") entered into a plan of reorganization (the "Reorganization Plan")
to restructure and merge the companies. Pursuant to the Reorganization Plan,
the stockholders agreed to sell their entire interests in the common and
preferred stock of the companies. In conjunction with the Reorganization Plan,
OCI Holding Corp. ("Holdings") was incorporated for the purpose of effecting
the reorganization and merger.
Certain outside investors of OCIM (the "Investors") purchased 24.67 shares
and 60 shares of OCIM's common and preferred stock, respectively, from the
minority stockholders of OCIM for $1,990,463. These same shares were
subsequently assigned by the Investors to Holdings in exchange for 5,410.73
and 3,689.28 shares of Holding's Class A and B common stock, respectively. The
remaining 75.33 shares and 840 shares of OCIM's common and preferred stock,
respectively, were purchased by Holdings for $7,508,367, which resulted in
Holdings being the sole stockholder of OCIM's common and preferred stock.
The stockholders of MCC exchanged 7,371.01 shares of common stock with a
value of $7,562,656 and 308.78 shares of preferred stock with a value of
$337,344 for 2,764.99 shares of Class A common stock and $5,135,000 in Series
A subordinated notes of Holdings. The stockholders of MCC also sold 657.895
warrants, 5,128.99 shares of common stock, and 691.22 shares of preferred
stock for cash and new subordinated notes totaling $6,692,500. This
transaction resulted in Holdings ultimately owning all of the stock of MCC.
The acquisition has been accounted for using the purchase method of accounting
and, accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair value at the date of
acquisition as follows:
<TABLE>
<S> <C>
Adjusted working capital........................................ $ 1,133,774
Goodwill........................................................ 8,309,952
Property and equipment.......................................... 11,529,274
Customer list................................................... 4,027,000
-----------
$25,000,000
===========
</TABLE>
The business operations of OCI Holdings Corp. and subsidiaries (the
"Company") consist of outdoor billboard advertising in the states of Alabama,
Georgia, Illinois, Kentucky, Michigan, Mississippi, Tennessee, and Wisconsin.
Georgia Acquisition
At the close of business on April 3, 1996, Outdoor Communications, Inc., a
subsidiary of MCC, completed the purchase of certain assets of Georgia Outdoor
Advertising ("GOA"), pursuant to an Asset Purchase Agreement dated March 8,
1996, for cash of $11,650,000. The acquisition has been accounted for using
the purchase method of accounting and, accordingly, the purchase price has
been allocated to the net assets based upon their fair values at the date of
acquisition as follows:
<TABLE>
<S> <C>
Adjusted working capital........................................ $ 415,864
Goodwill........................................................ 2,968,896
Property and equipment.......................................... 2,282,240
Non-compete agreement........................................... 700,000
Customer list................................................... 5,283,000
-----------
Purchase price.................................................. $11,650,000
===========
</TABLE>
F-10
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Alabama Acquisition
On April 30, 1996, Outdoor Communications, Inc. completed the purchase of
certain assets and assumed certain liabilities of AOA Acquisition, L.L.C.
("AOA"), pursuant to an Asset Sale Agreement dated March 19, 1996, for cash of
$34,132,908. The acquisition has been accounted for using the purchase method
of accounting and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the fair value at the
date of acquisition. The excess of the purchase price over the fair values of
the net assets acquired was $9,911,190 and has been recorded as goodwill. The
net purchase price was allocated as follows:
<TABLE>
<S> <C>
Adjusted working capital........................................ $ 2,132,908
Goodwill........................................................ 9,911,190
Property and equipment.......................................... 15,012,810
Customer list................................................... 7,076,000
-----------
Purchase price.................................................. $34,132,908
===========
</TABLE>
The consolidated financial statements include the operating results of each
business from the date of acquisition.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company, as summarized below, conform with
generally accepted accounting principles and reflect practices appropriate to
the business in which it operates.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
OCI Holdings Corp. and its wholly owned subsidiaries, OCI Corp. of Michigan,
New South Holdings Corp., and Mass Communications Corp. and its subsidiary
Outdoor Communications, Inc. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) CASH EQUIVALENTS
Cash equivalents consist of repurchase agreements and money market funds.
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments with maturities of three months
or less at the time of purchase to be cash equivalents.
(c) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on plant and
equipment is computed using the straight-line method over the estimated useful
lives of the assets.
(e) INTANGIBLE ASSETS
Intangible assets include goodwill, non-compete agreements and customer
lists. Goodwill, which represents the excess of purchase price over fair value
of net assets acquired on their dates of acquisition, is amortized on a
F-11
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
straight-line basis over the expected periods to be benefited, ranging from 20
to 25 years. The non-compete agreements are amortized over the terms of the
respective agreements, which range from 4 to 10 years. Customer lists
resulting from acquisitions are amortized on the straight-line method ranging
from 21 to 27 years.
The Company assesses the recoverability of all long-lived intangible assets
by determining whether the amortization of the intangible assets over their
remaining lives can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of impairment, if any, is measured
based on projected discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds.
(f) DEFERRED FINANCING COSTS
Financing costs incurred as a result of obtaining long-term debt are
recorded as deferred financing costs and are amortized on a straight-line
basis over the term of the related debt (see note 5).
(g) EMPLOYEE BENEFITS
The Company is self-insured for its employee health care plan. The liability
for self-insurance reflects the estimated cost for the uninsured portion of
claims not paid prior to year end. The liability is based on estimates for
losses reported prior to year end and estimates for incurred but unreported
losses.
(h) RETIREMENT PROGRAM
OCIM provides a defined contribution 401(k) plan, which covers all of its
full-time employees with one or more years of service. Eligible employees can
contribute up to 12% of their compensation through payroll deductions. OCIM
will contribute an amount equal to 50% of each employee's contribution up to
3% of the employee's total compensation.
(i) REVENUE RECOGNITION
The Company recognizes revenue from advertising contracts on an accrual
basis ratably over the term of the contracts, as advertising services are
provided.
(j) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(k) OTHER ASSETS
Other assets consist principally of the cash surrender value of officer life
insurance.
(l) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-12
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(m) FINANCIAL INSTRUMENTS
The Company utilizes a hedged interest rate swap agreement. The interest
rate swap agreement involves the exchange of fixed- and floating-rate interest
payments periodically over the life of the agreement without the exchange of
the underlying principal amounts. The differential to be paid or received, on
a quarterly basis, is accrued as interest rates change and is recognized as an
adjustment to interest expense.
(n) NET LOSS PER SHARE
Net loss per share is computed by dividing net loss applicable to common
stock by the weighted average number of common shares outstanding during each
period presented. Such amounts have been adjusted to reflect the approximately
-for-1 stock split and the concurrent exchanges of shares in a
recapitalization that occurred in connection with the Offering referred to in
Note 16.
(3) PROPERTY AND EQUIPMENT
Major categories of property, plant and equipment at April 3, 1996 were as
follows:
<TABLE>
<CAPTION>
ESTIMATED
LIFE (YEARS)
<S> <C> <C>
Land.............................................. -- $ 1,204,494
Building and improvements......................... 10-25 564,274
Advertising structures............................ 8-15 38,309,049
Leasehold improvements............................ 2-20 832,203
Equipment......................................... 3-10 2,737,091
Construction in progress.......................... -- 41,256
------------
43,688,367
Less accumulated depreciation..................... 5,922,776
------------
Net property and equipment...................... $ 37,765,591
============
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets at June 30, 1996 consist of the following:
<TABLE>
<S> <C>
Covenants not to compete........................................ $ 3,935,667
Goodwill........................................................ 29,756,723
Customer lists.................................................. 16,386,000
-----------
50,078,390
Less accumulated amortization................................... 4,631,867
-----------
$45,446,523
===========
</TABLE>
(5) CREDIT FACILITY
The Company entered into a credit agreement (the "Credit Facility") with
Chase Manhattan Bank, N.A. and a syndicate consisting of various other
financial institutions (collectively called the "Bank") on the close of
business on April 3, 1996. The Credit Facility consists of a Term Loan A
Commitment for $40,000,000, Term Loan B Commitment for $20,000,000, (the "Term
Loans") and a Revolving Loan Commitment (the "Revolver") of $30,000,000
(collectively the "Borrowings"). The Term Loans are due June 30, 2003.
Collateral includes a first lien on all tangible and intangible property of
the Company, assignment of all leases, and a guaranty by Holdings, OCIM, and
MCC.
F-13
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Credit Facility enables the Company to borrow funds at a rate equal to
3% plus the London Interbank Offered Rate (LIBOR) or 1.75% over the Bank's
prime lending rate. The Credit Facility also enables the Company to realize a
lower interest rate if its leverage ratio meets certain levels as stipulated
in the Credit Facility. At June 30, 1996, the interest rate was 8.5%. Accrued
interest is payable in quarterly installments on March 31, June 30, September
30, and December 31. The Credit Facility also requires payment of a commitment
fee of 1/2 of 1% per annum on the daily average aggregate unutilized
commitment from the Bank. Accrued commitment fees are due quarterly on March
31, June 30, September 30, and December 31.
Available borrowings under the Revolver are permanently reduced on the last
day of each fiscal quarter beginning September 30, 1997 by $1,250,000, thereby
reducing the availability to zero on June 30, 2003. At June 30, 1996, the
Company had borrowed $2,500,000, and $27,500,000 of the Revolver was available
for additional borrowings by the Company.
The Credit Facility contains certain warranties and affirmative covenants
that must be complied with on a continuing basis. In addition, the Credit
Facility contains certain restrictive covenants which, among other things,
restrict the Company from incurring additional debt and liens on assets,
limits the amount of capital expenditures during any fiscal year, and
prohibits the consolidation, merger or sale of assets, or issuance of common
stock except as permitted by the Credit Facility. The Credit Facility also
requires the Company to maintain certain financial ratios.
The Company has the right to prepay the Borrowings in whole or in part,
without premium or penalty, as stipulated in the Credit Facility. Annual
maturities of the long-term borrowings under the term loans at June 30, 1996,
are as follows: 1997: $4,750,000; 1998: $6,000,000; 1999: $6,750,000; 2000:
$7,750,000; 2001: $8,750,000; and $28,250,000 thereafter.
(6) SUBORDINATED DEBT
The Company entered into a Securities Purchase Agreement (the "Agreement")
at the close of business on April 3, 1996 with certain management investors
and outside investors. In connection with the reorganization discussed in note
1, the Company issued its 10% subordinated notes ("notes") due December 31,
2003 in the aggregate principal amount of $22,100,000. The subordinated notes
at June 30, 1996, were comprised of two series; Series A 10% subordinated
notes in the amount of $5,200,000, and Series B 10% subordinated notes in the
amount of $16,900,000.
Accrued interest on the outstanding principal balance of the notes is
payable at a rate of 10% per annum, computed on the basis of a 365 day year,
and is payable annually on March 31, commencing in 1997. The Agreement allows
the Company to only pay 46% of the accrued and unpaid interest on an annual
basis. The remaining 54% is deferred and bears interest at a rate of 10% per
annum and is due in accordance with the terms of the Agreement, but in any
event no later than December 31, 2003. Accrued interest at June 30, 1996
amounted to $489,370.
The Agreement contains certain warranties and affirmative covenants that
must be complied with on a continuing basis. The Agreement also contains
certain restrictive covenants which, among other things, restricts the Company
from entering into transactions with affiliates outside the ordinary course of
business, consummating a sale of the Company, or engaging in any new lines of
business.
F-14
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) NOTES PAYABLE--STOCKHOLDERS
On the close of business on April 3, 1996, New South Holdings Corp. (a
wholly owned subsidiary of Holdings) entered into written agreements with the
Company's chairman and president, borrowing in total $5,876,875. The entire
principal balance is due in full on April 3, 1998. The notes bear interest at
a rate which fluctuates quarterly based on the interest rate per the Credit
Agreement less the sum of the applicable eurodollar margin (as defined in the
Credit Agreement) and 1/8 of 1%. The interest rate at June 30, 1996 was 5.41%.
Accrued interest on the outstanding principal balance of the notes is payable
quarterly, commencing June 30, 1996. The notes are secured by a Letter of
Credit issued by The Chase Manhattan Bank, N.A.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of the Company's
financial instruments is made in accordance with the requirements of FASB
Statement No. 107, "Disclosure about Fair Value of Financial Instruments"
("Statement 107"). Statement 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
The carrying values of cash and cash equivalents, trade accounts receivable,
due from affiliated entity, trade accounts payable, accrued expenses, and
obligations under non-compete agreements approximate fair values due to the
short-term maturities of these instruments. Long-term debt instruments and
notes payable stockholders are estimated to approximate fair values as rates
are tied to short-term indices. The subordinated debt bears interest at a rate
which approximates market for unsecured debt.
(9) INCOME TAXES
Income tax expense (benefit) attributable to loss before income tax expense
for the period ended June 30, 1996 consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
Federal........................................... $ 81,962 26,164 108,126
State and local................................... 20,000 (22,408) (2,408)
-------- ------- -------
Total........................................... $101,962 3,756 105,718
======== ======= =======
</TABLE>
Income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% for the period ended June 30, 1996 to income
before income tax expense as a result of the following:
<TABLE>
<S> <C>
Computed "expected" tax expense................................... $ 7,375
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal income tax ex-
pense.......................................................... 1,589
Non-deductible expenses......................................... 6,599
Nondeductible goodwill.......................................... 44,242
Adjustment of prior period accrual.............................. 74,292
Other, net...................................................... 11,621
Change in the beginning-of-the-year balance of the valuation al-
lowance for deferred tax assets allocated to income tax ex-
pense.......................................................... (40,000)
--------
$105,718
========
</TABLE>
F-15
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1996 is presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................. $ 320,576
Alternative minimum tax credit carryforwards................. 60,606
Investment tax credit carryforwards.......................... 12,949
Deferred revenue, principally related to advertising leases.. 72,944
Accrued expenses, principally related to compensated
absences, health care claims and sales discounts............ 158,346
Deferred noncompete income................................... 63,466
Other........................................................ 45,413
-----------
Total gross deferred tax assets............................ 734,300
Less valuation allowance................................... (160,000)
-----------
Net deferred tax assets.................................... 574,300
-----------
Deferred tax liabilities:
Property and equipment, principally due to differences in
financial statement carrying amounts and tax basis.......... (3,952,655)
Intangible assets, principally due to differences in length
of amortization period...................................... (1,625,021)
-----------
Total gross deferred tax liabilities....................... (5,577,676)
-----------
Net deferred tax liabilities............................... $(5,003,376)
===========
</TABLE>
The net change in the total valuation allowance for the period ended June
30, 1996 was a decrease of $40,000.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversals of deferred taxes, projected future taxable
income, and tax planning strategies in making this assessment. In order to
fully realize the deferred tax assets, the Company will need to generate
future taxable income of approximately $833,000 and $110,000 for OCIM and MCC,
respectively, prior to the expiration of the net operating loss carryforwards
in 2010. Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not that the Company
will realize the benefits of these deductible differences, net of the existing
valuation allowance at June 30, 1996. The amount of the deferred tax assets
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
The Company also has an alternative minimum tax credit carryforward of
$60,606, which is available to reduce future regular income taxes, if any,
over an indefinite period. In addition, the Company has an investment tax
credit carryforward of $12,949, which is available to reduce future regular
income taxes, if any, through 2001.
At June 30, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $943,000, of which approximately
$833,000 and $110,000 were incurred prior to the restructuring of the
ownership of OCIM and MCC, respectively, with Holdings becoming the common
parent. As a result of
F-16
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the restructuring, future utilization of the net operating loss carryforwards
is limited under Internal Revenue Code Section 382 to approximately $487,000
and $110,000 annually for OCIM and MCC, respectively. Additionally, these net
operating loss carryforwards can only be utilized to offset future taxable
income of OCIM and MCC, respectively, if any, through the year 2010.
(10) STOCKHOLDERS' EQUITY
All general voting power is vested in the holders of Class A common stock.
The holders of Class B common stock are not entitled to vote at any
stockholders' meetings. Any share of Class B common stock can be converted, at
the option of the holder, into Class A common stock at the rate of one share
of Class A common stock for each share of Class B common stock, subject to
certain approvals.
Also, any share of Class A common stock can be converted, at the option of
the holder, into Class B common stock at the rate of one share of Class B
common stock for each share of Class A common stock, subject to and upon
compliance with the provisions of the Certificate of Incorporation of OCI
Holdings Corp.
Dividends or distributions of common stock shall be payable on shares of
Class A and B common stock, share and share alike.
In the event of liquidation, the holders of Class A and B common stock shall
be entitled to share ratably in the net assets of the Company after payment of
debts and other liabilities.
The Corporation shall not take any action (e.g., redeem, purchase, or
acquire) affecting outstanding shares of common stock if after giving effect
to such action any one, as defined, stockholder would own more than 24.95% of
Class A common stock.
(11) LEASES
The Company leases substantially all of the land presently used as sites for
poster panels under various terms. The leases are classified as operating
leases. These leases generally contain renewal options ranging from 1 to 15
years and require the Company to pay all executory costs, such as maintenance
and insurance. Rental expense for operating leases amounted to approximately
$931,000 for the period April 4, 1996 to June 30, 1996.
Future minimum lease payments under noncancellable operating leases with
non-related parties (with initial or remaining lease terms in excess of one
year) as of June 30, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
<S> <C>
1997........................................................... $ 3,467,502
1998........................................................... 2,843,614
1999........................................................... 2,322,841
2000........................................................... 1,957,953
2001........................................................... 1,295,727
-----------
$11,887,637
===========
</TABLE>
(12) RELATED PARTY TRANSACTIONS
MCC leases real property from a trust for which Holdings' chairman, who is a
stockholder of the Company, serves as trustee. Rental expense to the trust
amounted to approximately $6,800 for the period April 4, 1996 to June 30,
1996. The Company also leases a sign location from the chairman and president
of Holdings. The rental payment for the sign location amounted to
approximately $250 for the period April 4, 1996 to June 30, 1996.
F-17
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancellable operating leases with
related party (with initial or remaining lease terms in excess of one year) as
of June 30, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
<S> <C>
1997............................................................... $27,320
1998............................................................... 27,320
1999............................................................... 27,320
2000............................................................... 13,660
2001............................................................... --
-------
$95,620
=======
</TABLE>
(13) RETIREMENT PROGRAM
Retirement program expense with respect to OCIM's defined contribution
401(k) plan approximated $11,000 for the period April 4, 1996 to June 30,
1996.
(14) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid $3,322 for income taxes during the period April 4, 1996 to
June 30, 1996. Cash payments for interest approximated $6,981,000 for the
period April 4, 1996 to June 30, 1996, of which $6,531,384 pertained to the
interest paid on the junior and senior subordinated debt and senior debt
existing prior to the close of business on April 3, 1996.
Net proceeds for the acquisition of AOA were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired................................... $32,000,000
Working capital acquired........................................ 2,132,908
-----------
Net proceeds.................................................... $34,132,908
===========
</TABLE>
(15) FINANCIAL INSTRUMENTS
On May 30, 1996, the Company entered into a three-year interest swap
agreement, expiring on June 30, 1999, with First Union National Bank of North
Carolina to manage its interest rate exposure. Interest rate exchange
transactions generally involve the exchange of fixed and floating-rate
interest payment obligations without the exchange of the underlying principal
amounts. Entering into interest rate exchange agreements involves the risk of
dealing with counterparties and their ability to meet the terms of the
contracts. Notional principal amounts are used to express the volume of these
transactions. The floating interest rate on the interest swap agreement is
based on three month U.S. dollar LIBOR. The fixed-for-floating interest rate
swap agreement as of June 30, 1996 is summarized as follows:
<TABLE>
<S> <C>
Notional principal amount....................................... $15,000,000
Fixed rate paid................................................. 6.34%
Floating rate................................................... 5.49219%
</TABLE>
F-18
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) SUBSEQUENT EVENTS
Acquisitions
On September 3, 1996, the Company completed the purchase of advertising
structures located in Georgia previously owned by Hawthorne Outdoor
Advertising, Inc. pursuant to an Asset Purchase Agreement for cash of
$3,800,000. The acquisition was accounted for by the purchase method.
On October 1, 1996, the Company completed the purchase of advertising
structures located in Alabama previously owned by Hawthorne Outdoor
Advertising, Inc. pursuant to an Asset Purchase Agreement for cash of
$500,000. The acquisition was accounted for by the purchase method.
The Company entered into an asset purchase agreement with Skoglund
Communications, Inc. and Skoglund Communications of St. Cloud, Inc.
("Skoglund"), in the amount of $21,246,850. The Company expects this
transaction, which includes business operations in Minnesota and Wisconsin, to
be consummated by October 31, 1996. This acquisition will be accounted for by
the purchase method.
Stock Split
On June , 1997, the Board of Directors is expected to authorize a for
stock split on June , 1997 to holders of record on June , 1997. All share
and per share data in these financial statements have been adjusted to reflect
the split.
(17) UNAUDITED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
applicable to interim financial statements. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments and reclassifications considered necessary for a fair and
comparable presentation have been included and are of a normal recurring
nature. Operating results for the nine months ended March 31, 1997, are not
necessarily indicative of the results that may be expected for the year ending
June 30, 1997.
Acquisitions
The Company entered into an asset purchase agreement with Skoglund in the
amount of $21,246,850. The transaction, which includes business operations in
Minnesota and Wisconsin, was consummated on October 31, 1996. This acquisition
was accounted for by the purchase method and, accordingly, the purchase price
has been allocated to the assets purchased and the liabilities assumed based
upon the fair value at the date of acquisition as follows:
<TABLE>
<S> <C>
Adjusted working capital........................................ $ 1,336,989
Goodwill........................................................ 7,953,899
Property and equipment.......................................... 7,537,470
Customer list................................................... 4,418,492
-----------
Purchase price.................................................. $21,246,850
===========
</TABLE>
F-19
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Acquisitions, Continued
On March 31, 1997, the Company acquired substantially all of the assets of
Outdoor West for $11.8 million. As a result of this acquisition, the Company
acquired display faces in Tennessee and a right of first refusal to purchase
Outdoor West, Inc. of Georgia, an affiliate of Outdoor West. This purchase
will be accounted for by the purchase method.
In May 1997, the Company entered into agreements to acquire, in June 1997,
substantially all of the assets of The Ragan Outdoor Advertising Company of
Rockford, L.LC., The Ragan Outdoor Advertising Company, d/b/a Robinswood
Outdoor Advertising, and The Ragan Outdoor Advertising Company of Cedar Rapids
for an aggregate purchase price of $27 million. Upon consummation of this
acquisition, the Company will acquire display faces in Rockford, Illinois,
Cedar Rapids, Iowa and the Quad Cities of Moline, Illinois, Rock Island,
Illinois, Davenport, Iowa and Bettendorf, Iowa. This purchase will be
accounted for by the purchase method.
In addition to the acquisition described above, the Company has recently
consummated numerous smaller acquisitions for aggregate cash payments totaling
more than $8.5 million.
Stock Option Plan
On , 1997, the Board of Directors adopted, and the stockholders of the
Company approved, the Company's 1997 Stock Option and Incentive Plan (the
"1997 Stock Option Plan"), which authorizes the issuance of up to shares
of common stock. The 1997 Stock Option Plan permits the grant of (i) options
to purchase shares of common stock intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended,
(the "Code"), (ii) options that do not so qualify, (iii) stock appreciation
rights and (iv) restricted and unrestricted stock awards.
The 1997 Stock Option Plan is designed and intended as a performance
incentive for officers, directors, employees, consultants and other key
persons performing services for the Company to encourage such persons to
acquire or increase a proprietary interest in the success of the Company.
Employee Stock Purchase Plan
On , 1997, the Board of Directors adopted and the stockholders of the
Company approved, the Company's Employee Stock Purchase Plan (the "Plan"). The
Company has reserved a total of shares of common stock for issuance under
the Plan. The Plan permits eligible employees of the Company to purchase
common stock through payroll deductions of up to 10% of their compensation.
The price of the common stock purchased under the Plan will be 85% of the
lower of the fair market value of the common stock on the first or last day of
each six month purchase period. Employees are eligible to participate if they
are customarily employed by the Company or any designated subsidiary for at
least 20 hours per week and for more than six months.
New Accounting Pronouncements
In October, 1995, SFAS No. 123 Accounting for Stock-Based Compensation was
issued by the Financial Accounting Standards Board. This Statement encourages,
but does not require, companies to measure stock-based compensation cost using
a fair value method, rather than intrinsic value method prescribed by the
Accounting Principle Board (APB) Opinion No. 25. Companies choosing to
continue to measure stock-based compensation using the intrinsic value method
must disclose on a pro forma basis net earnings per share as if the fair value
were used. Management has determined that upon formation of the 1997 Stock
Option Plan, they will adopt the disclosure-only provisions of SFAS No. 123.
As such, the adoption of this Statement is not expected to have an impact on
the Company's results of operations.
F-20
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In February, 1997, SFAS No. 128 Earnings per Share was issued by the
Financial Accounting Standards Board. This Statement is effective for both
interim and annual periods ending after December 15, 1997, earlier adoption is
not permitted.
Offerings
On , 1997, the Board of Directors of the Company authorized a Note
Offering of $125 million aggregate principal amount of subordinated notes. The
Board of Directors also authorized the offering of up to $50 million of Class
A $0.01 par value common stock. The filings will be registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
OCI Corp. of Michigan:
We have audited the accompanying consolidated balance sheets of OCI Corp. of
Michigan and subsidiaries (the Company) as of April 3, 1996 and July 31, 1995,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for the period August 1, 1995 through April 3, 1996 and for the
years ended July 31, 1995 and 1994. These consolidated 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
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of April 3, 1996 and July 31, 1995, and the results of their
operations and their cash flows for the period August 1, 1995 through April 3,
1996 and for the years ended July 31, 1995 and 1994 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
East Lansing, Michigan
June 4, 1996
F-22
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-23
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 3, JULY 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 259,200 396,061
Trade accounts receivable, less allowance for doubtful
accounts of $48,900 in 1996 and $18,000 in 1995...... 1,268,800 1,293,742
Due from affiliated entity (note 12).................. 98,374 144,651
Income taxes receivable............................... 7,159 --
----------- ----------
Inventories:
Construction material................................. 113,741 76,572
Electrical supplies................................... 39,634 29,810
----------- ----------
Total inventories................................... 153,375 106,382
Prepaid rent expense.................................. 441,990 370,296
Other prepaid expenses................................ 85,005 30,977
Deferred tax assets................................... 229,929 162,647
----------- ----------
Total current assets................................ 2,543,832 2,504,756
----------- ----------
Property, plant, and equipment, net (note 3)........ 9,316,562 9,763,900
Intangible assets, less accumulated amortization
(note 4)........................................... 1,999,607 2,346,039
Other deferred costs (note 17)...................... 635,551 100,028
----------- ----------
Total assets........................................ $14,495,552 14,714,723
=========== ==========
</TABLE>
(Continued)
F-24
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
APRIL 3, JULY 31,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt (notes 5 and
17)................................................ $ 1,045,000 4,900,000
Obligations under noncompete agreements............. 200,000 400,000
Trade accounts payable.............................. 175,183 115,880
Income taxes payable (note 9)....................... -- 1,309
Due to stockholder (note 12)........................ -- 50,000
Accrued expenses:
Salaries and wages................................ 211,780 401,421
Payroll and other taxes........................... 82,013 21,194
Employee benefits................................. 114,420 104,820
Interest.......................................... 104,139 214,826
Other............................................. 103,856 70,310
----------- ----------
Total accrued expenses.......................... 616,208 812,571
Deferred advertising revenues....................... 346,177 145,671
Deferred noncompete income.......................... 80,000 80,000
----------- ----------
Total current liabilities....................... 2,462,568 6,505,431
Long-term debt, excluding current installments (notes
5 and 17)............................................ 3,555,000 --
Senior subordinated debt (notes 6 and 17)............. 4,000,000 4,000,000
Junior subordinated debt, stockholders (notes 7 and
17).................................................. 3,600,000 3,600,000
Accrued interest (notes 5, 6, 7 and 17)............... 6,332,869 5,409,848
Deferred noncompete income, less current portion...... 126,667 180,000
Deferred income taxes (note 9)........................ 1,459,420 1,236,064
----------- ----------
Total liabilities............................... 21,536,524 20,931,343
----------- ----------
Stockholders' deficit (notes 10 and 17):
12.5% cumulative preferred stock, $.10 par value.
Authorized 1,000 shares; issued and outstanding 900
shares............................................. 90 90
Class A common stock, $.10 par value. Authorized
2,000 shares; issued and outstanding 100 and 97
shares at April 3, 1996 and July 31, 1995,
respectively....................................... 10 10
Class B common stock, $.10 par value. Authorized
2,000 shares; issued and outstanding -0- shares.... -- --
Additional paid-in capital.......................... 1,235,326 1,009,168
Accumulated deficit................................. (8,276,398) (7,225,888)
----------- ----------
Total stockholders' deficit..................... (7,040,972) (6,216,620)
----------- ----------
Commitments and contingencies (notes 10, 11 and 12)
Total liabilities and stockholders' deficit..... $14,495,552 14,714,723
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 1, 1995 FOR THE YEARS ENDED JULY 31,
THROUGH ------------------------------
APRIL 3, 1996 1995 1994
<S> <C> <C> <C>
Revenues:
Poster........................ $ 3,581,596 6,076,107 5,219,208
Painted....................... 3,406,560 4,833,174 4,566,124
Other......................... 447,319 653,456 708,093
----------- -------------- --------------
Gross revenues.............. 7,435,475 11,562,737 10,493,425
Less commissions and dis-
counts....................... 752,093 1,193,283 992,995
----------- -------------- --------------
Net operating revenues...... 6,683,382 10,369,454 9,500,430
----------- -------------- --------------
Operating expenses:
Operations (note 12).......... 1,651,583 2,435,839 2,467,755
Selling, general, and adminis-
trative (note 12)............ 3,019,373 3,952,785 3,897,229
Depreciation.................. 1,021,901 1,472,053 1,550,296
Amortization of intangible as-
sets......................... 346,432 535,408 620,455
Amortization of other deferred
costs........................ 61,248 105,182 105,418
----------- -------------- --------------
Total operating expenses.... 6,100,537 8,501,267 8,641,153
----------- -------------- --------------
Operating income............ 582,845 1,868,187 859,277
Other income (deductions):
Gain (loss) on disposal of
property, plant, and equip-
ment......................... (9,973) 87,274 (55,160)
Loss on sale of Mansfield Di-
vision (note 16)............. -- -- (446,299)
Interest expense.............. (1,460,671) (2,126,614) (2,041,862)
Interest income............... 8,142 44,951 16,371
Management fees (note 12)..... (68,649) (195,998) (248,815)
Miscellaneous, net............ 319 4,849 17,992
Noncompete income............. 53,333 80,000 60,000
----------- -------------- --------------
Loss before income tax (ben-
efit) expense.............. (894,654) (237,351) (1,838,496)
Income tax expense (benefit)
(note 9)....................... 155,856 (132,666) (472,748)
----------- -------------- --------------
Net loss.................... $(1,050,510) (104,685) (1,365,748)
=========== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD AUGUST 1, 1995 THROUGH APRIL 3, 1996
AND FOR THE YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
12.5% UNEARNED
CUMULATIVE CLASS A ADDITIONAL RESTRICTED TOTAL
PREFERRED COMMON PAID-IN ACCUMULATED STOCK STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT COMPENSATION DEFICIT
<S> <C> <C> <C> <C> <C> <C>
Balances at July 31,
1993................... $ 90 10 1,009,168 (5,755,455) (12,081) (4,758,268)
Restricted stock
compensation
(note 15).............. -- -- -- -- 12,081 12,081
Net loss................ -- -- -- (1,365,748) -- (1,365,748)
---- --- --------- ---------- ------- ----------
Balances at July 31,
1994................... 90 10 1,009,168 (7,121,203) -- (6,111,935)
Net loss................ -- -- -- (104,685) -- (104,685)
---- --- --------- ---------- ------- ----------
Balances at July 31,
1995................... 90 10 1,009,168 (7,225,888) -- (6,216,620)
Issuance of 3 shares of
Class A common stock
(note 15).............. -- -- 226,158 -- -- 226,158
Net loss................ -- -- -- (1,050,510) -- (1,050,510)
---- --- --------- ---------- ------- ----------
Balances at April 3,
1996................... $ 90 10 1,235,326 (8,276,398) -- (7,040,972)
==== === ========= ========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
FOR THE PERIOD ENDED JULY 31,
ENDED AUGUST 1, 1995 ----------------------
TO APRIL 3, 1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVI-
TIES:
Net loss......................... $(1,050,510) (104,685) (1,365,748)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Stock compensation expense..... 226,158 -- 12,081
Depreciation of plant and
equipment..................... 1,021,901 1,472,053 1,550,296
Amortization of intangible as-
sets.......................... 346,432 535,408 620,455
Amortization of other deferred
costs......................... 61,248 105,182 105,418
Noncurrent accrued interest.... 1,027,160 1,213,927 1,083,604
Loss (gain) on disposal of
property, plant, and equip-
ment.......................... 9,973 (87,274) 55,160
Loss on sale of Mansfield Divi-
sion.......................... -- -- 446,299
Changes in assets and
liabilities which increase
(decrease) cash flows:
Trade accounts receivable.... 24,942 (13,860) (83,341)
Due from affiliated entity... 46,277 48,599 (117,465)
Refundable income taxes...... (7,159) -- --
Inventories.................. (46,993) (10,266) (6,671)
Prepaid rent expense......... (71,694) (29,861) 24,843
Other prepaid expenses....... (54,028) 1,738 (2,752)
Other deferred costs......... (596,771) -- --
Trade accounts payable....... 59,303 66,196 (36,111)
Income taxes payable......... (1,309) (88,691) 90,000
Due to stockholder........... (50,000) -- 48,050
Accrued expenses............. (300,502) (5,286) 188,617
Deferred advertising reve-
nues........................ 200,506 (17,956) 6,067
Deferred noncompete income... (53,333) (80,000) 340,000
Deferred income taxes........ 156,074 (123,685) (574,352)
----------- ---------- ----------
Net cash provided by oper-
ating activities.......... 947,675 2,881,539 2,384,450
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVI-
TIES:
Capital expenditures............. (587,537) (521,964) (609,745)
Proceeds from sale of property,
plant, and equipment............ 3,001 177,222 26,710
Proceeds from sale of Mansfield
Division........................ -- -- 1,600,000
----------- ---------- ----------
Net cash (used in) provided
by investing activities... (584,536) (344,742) 1,016,965
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVI-
TIES:
Principal payments on long-term
debt............................ (300,000) (2,200,000) (3,648,207)
Payments on obligations under
noncompete agreements........... (200,000) (100,000) (100,000)
----------- ---------- ----------
Net cash used in financing
activities................ (500,000) (2,300,000) (3,748,207)
----------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents............ (136,861) 236,797 (346,792)
Cash and cash equivalents at be-
ginning of the period........... 396,061 159,264 506,056
----------- ---------- ----------
Cash and cash equivalents at end
of the period................... $ 259,200 396,061 159,264
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 1996, JULY 31, 1995 AND JULY 31, 1994
(1) BUSINESS OPERATIONS
The business operations of OCI Corp. of Michigan and subsidiaries (the
"Company") consist of outdoor billboard advertising in the states of Michigan,
Illinois, and Wisconsin.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company, as summarized below, conform with
generally accepted accounting principles and reflect practices appropriate to
the business in which it operates.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of OCI
Corp. of Michigan and its two wholly owned subsidiaries, OCI Corp. of Port
Huron and OCI Management Corp. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) CASH EQUIVALENTS
Cash equivalents of $183,718 and $148,916 at April 3, 1996 and July 31, 1995,
respectively, consist of overnight repurchase agreements. For purposes of the
consolidated statements of cash flows, the Company considers all highly liquid
debt instruments with maturities of three months or less at the time of
purchase to be cash equivalents.
(c) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
(d) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation on plant and
equipment is computed using straight-line and accelerated methods over the
estimated useful lives of the assets.
(e) INTANGIBLE ASSETS
Intangible assets include noncompete agreements and goodwill. Goodwill, which
represents the excess of purchase price over fair value of net assets acquired
on their dates of acquisition, is amortized on a straight-line basis over the
expected periods to be benefited, generally 20 years. The noncompete agreements
are amortized over the terms of the respective agreements, which range from 4
to 10 years.
The Company assesses the recoverability of goodwill by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
(f) OTHER DEFERRED COSTS
Other deferred costs consist principally of organizational costs and debt
acquisition costs related to the reorganization plan discussed in note 17.
F-29
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) EMPLOYEE BENEFITS
The Company participates in a self-insured employee health care plan as
provided for in an agreement with an affiliated entity. The liability for
self-insurance reflects the estimated cost for the uninsured portion of claims
not paid prior to year end. The liability is based on estimates for losses
reported prior to year end and estimates for incurred but not reported losses.
(h) RETIREMENT PROGRAM
The Company provides a defined contribution 401(k) plan, which covers all
full-time employees of the Company with one or more years of service. Eligible
employees can contribute up to 12% of their compensation through payroll
deductions. The Company contributes an amount equal to 50% of each employee's
contribution up to 3% of the employee's total compensation.
(i) REVENUE RECOGNITION
The Company recognizes revenue from advertising contracts on an accrual
basis ratably over the term of the contracts, as advertising services are
provided.
(j) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(k) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(l) EARNINGS PER SHARE
An earnings per share calculation had not been presented because the Company
is closely held and owned by a private investor group and accordingly,
earnings per share is not required or meaningful.
(3) PROPERTY, PLANT, AND EQUIPMENT
Major categories of property, plant, and equipment at April 3, 1996 and July
31, 1995 were as follows:
<TABLE>
<CAPTION>
ESTIMATED
LIFE (YEARS) 1996 1995
<S> <C> <C> <C>
Land.................................... -- $ 256,300 212,800
Advertising structures.................. 12-15 15,925,151 15,486,536
Leasehold improvements.................. 10-20 743,938 731,238
Equipment............................... 5-10 1,215,309 1,196,342
----------- ----------
18,140,698 17,626,916
Less accumulated depreciation........... 8,824,136 7,863,016
----------- ----------
Net property, plant, and equipment.... $ 9,316,562 9,763,900
=========== ==========
</TABLE>
F-30
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INTANGIBLE ASSETS
Intangible assets at April 3, 1996 and July 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Covenants not to compete................................ $3,235,667 3,235,667
Goodwill................................................ 2,829,688 2,829,688
---------- ---------
6,065,355 6,065,355
Less accumulated amortization........................... 4,065,748 3,719,316
---------- ---------
$1,999,607 2,346,039
========== =========
</TABLE>
(5) LONG-TERM DEBT
The Company has a loan agreement with a bank which provides for a revolving
credit commitment (the "Revolving Commitment") of up to $12,000,000, which
decreases through the expiration of the loan in July 1996, and a special
purpose revolving credit commitment (the "Acquisition Commitment") not to
exceed $1,500,000, to be used solely to finance the cost of an acquisition and
permitted future acquisitions (collectively called the "Commitment"). However,
the Acquisition Commitment will be temporarily reduced by the principal amount
of any additional seller debt incurred by the Company. The Commitment is
available through July 1996. At April 3, 1996, the Company had borrowings of
$875,000 under the Acquisition Commitment and $3,725,000 under the Revolving
Commitment due July 31, 1996. At April 3, 1996, $625,000 of the Acquisition
Commitment was available for additional borrowings to finance permitted future
acquisitions. The remaining $1,475,000 of the Revolving Commitment was
available to support additional borrowings by the Company at April 3, 1996.
The loan agreement, in general, enables the Company to borrow funds at a
rate equal to either the London Interbank Offered Rate (LIBOR) plus 2.9% or
the bank's base rate plus 1.5%. The loan agreement also enables the Company to
realize a lower interest rate if certain financial results, as stipulated in
the loan agreement, are achieved. At April 3, 1996, the interest rate for the
individual loans underlying the loan agreement amounted to 9.25%. Generally,
accrued interest is payable in quarterly installments on each October 31,
January 31, April 30, and July 31, with a final payment due July 31, 1996.
The Company is obligated to pay a commitment fee to the bank for the loan
agreement. This fee is payable quarterly, and is equal to 1/2 of 1% of the
average daily unused portion of the Commitment. Collateral includes a first
lien on all tangible and intangible property of the Company, assignment of
substantially all leases, a pledge of all common stock, and a guaranty by the
subsidiaries.
The loan agreement contains certain warranties and affirmative covenants
that must be complied with on a continuing basis. In addition, the loan
agreement contains certain restrictive covenants which, among other things,
restricts the Company from incurring additional debt and liens on assets,
prohibits it from paying dividends, and limits the amount of capital
expenditures. The loan agreement also contains certain restrictions on working
capital and subordinated debt, and requires the maintenance of certain
financial ratios.
At the close of business on April 3, 1996, the Company, along with related
affiliates, entered into a Credit Agreement with Chase Manhattan Bank N.A.
(see note 17). Funds from the Credit Agreement were used to pay off the long-
term and subordinated debt as of the close of business on April 3, 1996. The
current portion of long-term debt as of April 3, 1996 reflects the current
portion due as noted in the new Credit Agreement. Interest on the debt is
payable at a rate equal to LIBOR plus 3.0% or the bank's base rate. Maturities
of long-term debt under the Credit Agreement during the next five years are:
1997, $1,045,000; 1998, $2,022,500; 1999, $2,170,625; 2000, $2,475,000; and
2001, $2,805,000.
F-31
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) SENIOR SUBORDINATED DEBT
The Company entered into a Note Purchase Agreement in 1989 and issued
$4,000,000 of its 14.825% senior subordinated notes due August 31, 1996.
Accrued interest on the senior subordinated notes is payable at a rate of 10%
on February 28 and August 31 of each year commencing in 1990. Interest on the
notes at a rate of 4.825% will accrue and payment of such interest is deferred
until the due date of the senior subordinated notes. The deferred interest
portion of such notes bears interest at 14.825% and is payable upon maturity
of the senior subordinated notes. At April 3, 1996 and July 31, 1995, interest
deferred on the senior subordinated notes amounted to $2,092,396 and
$1,776,908, respectively.
The Note Purchase Agreement contains certain warranties and affirmative
covenants that must be complied with on a continuing basis. The Note Purchase
Agreement also contains certain restrictive covenants which, among other
things, restricts the Company from incurring additional debt and liens on
assets, limits stock payments and purchases, and prohibits the Company from
amending its charter or by-laws.
The Note Purchase Agreement includes cross-default provisions which specify
that if the Company is in default under the terms of the loan agreement (see
note 5) or Securities Purchase Agreement (see note 7), the senior subordinated
debt holders have the right, under the provisions of an intercreditor
agreement, to demand immediate payment of the senior subordinated debt if the
long-term debt is accelerated by the bank.
(7) JUNIOR SUBORDINATED DEBT, STOCKHOLDERS
The Company entered into a Securities Purchase Agreement (the "Agreement")
in 1989 and issued $3,600,000 of its 12.5% junior subordinated notes due
August 31, 1996 to holders of its preferred stock. Accrued interest on the
junior subordinated notes is payable at a rate of 12.5%. However, such
interest is deferred and added to the outstanding principal amount on each
anniversary date of the junior subordinated notes. At April 3, 1996 and July
31, 1995, interest deferred on the junior subordinated notes amounted to
$4,240,473 and $3,632,940, respectively.
The Agreement contains certain warranties and affirmative covenants that
must be complied with on a continuing basis. The Agreement also contains
certain restrictive covenants which, among other things, restricts the Company
from incurring additional debt and liens on assets, limits stock payments and
purchases, and prohibits the Company from amending its charter or by-laws.
The Agreement includes cross-default provisions which specify that if the
Company is in default under the terms of the loan agreement (see note 5) and
Note Purchase Agreement (see note 6), the junior subordinated debt holders
have the right, under the provisions of an intercreditor agreement, to demand
immediate payment of the junior subordinated debt if the long-term debt is
accelerated by the bank.
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of the Company's
financial instruments is made in accordance with the requirements of FASB
Statement No. 107, "Disclosure about Fair Value of Financial Instruments"
("Statement 107"). Statement 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
The carrying values of cash and cash equivalents, trade accounts receivable,
due from affiliated entity, trade accounts payable, accrued expenses, and
obligations under noncompete agreements approximate fair values due to the
short-term maturities of these instruments. Long-term debt instruments are
estimated to approximate fair
F-32
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
values as rates are tied to short-term indices. Senior subordinated debt and
junior subordinated debt instruments are estimated to approximate fair values
due to their current maturity dates.
(9) INCOME TAXES
Income tax expense (benefit) attributable to loss before income tax expense
(benefit) for the period ended April 3, 1996 and the year ended July 31, 1995
and 1994 consists of:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal--current............................... $ (1,718) 12,220 16,089
Federal--deferred.............................. 156,074 (123,685) (574,352)
State and local................................ 1,500 (21,201) 85,515
-------- -------- --------
Total........................................ $155,856 (132,666) (472,748)
======== ======== ========
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the federal income tax rate of 34% for the period ended April 3, 1996 and the
year ended July 31, 1995 and 1994 to loss before income tax benefit as a
result of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed "expected" tax benefit.............. $(304,182) (80,699) (625,089)
Increase (reduction) in income taxes result-
ing from:
State and local income taxes, net of fed-
eral income tax benefit (expense)......... 990 (13,999) 56,440
Non-deductible expenses.................... 32,237 51,177 50,736
Adjustment of prior year accrual........... 226,811 (89,145) 45,165
Change in the beginning-of-the-year balance
of the valuation allowance for deferred
tax assets allocated to income tax ex-
pense..................................... 200,000 -- --
--------- -------- --------
$ 155,856 (132,666) (472,748)
========= ======== ========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 3,
1996 and July 31, 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 323,001 364,257
Alternative minimum tax credit carryforwards....... 22,479 23,664
Deferred revenue, principally due to advertising
leases............................................ 117,700 49,528
Deferred noncompete income......................... 70,267 88,400
Accrued expenses, principally due to compensated
absences, health care claims and sales discounts.. 95,048 75,154
Other.............................................. 17,181 37,965
----------- ----------
Total gross deferred tax assets.................. 645,676 638,968
Less valuation allowance......................... 200,000 --
----------- ----------
Net deferred tax assets.......................... 445,676 638,968
----------- ----------
Deferred tax liabilities--property, plant, and
equipment, principally due to differences in
financial statement carrying amounts and tax bases.. (1,675,167) (1,712,385)
----------- ----------
Net deferred tax liabilities..................... $(1,229,491) (1,073,417)
=========== ==========
</TABLE>
F-33
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net change in the total valuation allowance for the period ended April
3, 1996 was an increase of $200,000, none for the year ended July 31, 1995.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversals of deferred taxes, projected future taxable
income, and tax planning strategies in making this assessment. In order to
fully realize the deferred tax asset, the Company will need to generate future
taxable income of approximately $1,900,000 prior to the expiration of the net
operating loss carryforwards in 2011. Based upon the level of historical
taxable income and projections for future taxable income over the periods
which the deferred tax assets are deductible, management believes it is more
likely than not that the Company will realize the benefits of these deductible
differences, net of the existing valuation allowance at April 3, 1996. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
At April 3, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of $950,003, which are available to offset future
federal taxable income, if any, through 2011. The Company has an alternative
minimum tax credit carryforward of $22,479, which is available to reduce
future regular income taxes, if any, over an indefinite period.
(10) STOCKHOLDERS' EQUITY
All general voting power is vested in the holders of Class A common stock.
The holders of Class B common stock and preferred stock are not entitled to
vote at any stockholders' meetings. Any share of Class B common stock can be
converted, at the option of the holder, into Class A common stock at the rate
of one share of Class A common stock for each share of Class B common stock,
subject to certain approvals.
No dividends will be declared or paid on the common stock during any year
unless the full amount of dividends on the preferred stock accrued to the
proposed date of declaration has been paid. Upon declaration, the holders of
the preferred stock are entitled to receive an annual cumulative dividend at a
rate of 12.5% of the liquidation value of the preferred stock, as defined
below. Dividends, if declared, are payable in cash annually on each August 31.
If any accrued and unpaid dividends exist as of August 31 of any year, the
amount of the dividends payable in respect to the preferred stock will be
increased at a rate of 12.5%, compounded annually as of August 31. Cumulative
preferred stock dividend rights were unaccrued and unpaid at April 3, 1996 and
July 31, 1995, in the amount of $1,060,185 and $907,665, respectively.
In the event of liquidation or dissolution of the Company, the holders of
the preferred stock are entitled to receive a preferential amount equal to
$1,000 per share of the issued and outstanding preferred stock ("liquidation
value") and a further preferential amount equal to all declared and unpaid
dividends thereon. This liquidation value will be paid before the payment or
distribution of any assets of the Company to the holders of common stock.
(11) LEASES
The Company leases substantially all of the land presently used as sites for
poster panels under various terms. The leases are classified as operating
leases. These leases generally contain renewal options ranging from one to 15
years and require the Company to pay all executory costs such as maintenance
and insurance. Rental
F-34
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
expense for operating leases amounted to approximately $655,000, $922,000, and
$911,000 during the period ended April 3, 1996 and the years ended July 31,
1995 and 1994, respectively.
Future minimum lease payments under noncancelable operating leases with non-
related parties (with initial or remaining lease terms in excess of one year)
as of April 3, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 3:
<S> <C>
1997............................................................ $ 783,962
1998............................................................ 661,937
1999............................................................ 568,413
2000............................................................ 486,875
2001............................................................ 331,651
----------
$2,832,838
==========
</TABLE>
(12) RELATED PARTY TRANSACTIONS
The Company has entered into an agreement with an affiliated entity that
requires the Company to purchase specific employee benefits. The Company and
certain affiliated entities are primarily self-insured for employee health
care costs. Employee benefit payments, for costs incurred under this
agreement, approximated $158,000, $206,000 and $230,000 during the period
ended April 3, 1996 and the years ended July 31, 1995 and 1994, respectively.
As a result of this arrangement, the consolidated balance sheets reflected
$98,374 and $144,651 due from an affiliated entity at April 3, 1996 and July
31, 1995, respectively, resulting primarily from payments in excess of
estimated employee benefit costs incurred.
The Company receives management and accounting consultation services from
certain stockholders and an affiliated entity related through common
ownership. The affiliated entity and the Company have entered into a
continuing agreement which may be canceled by either party upon 30 days
written notice. Total management fee expense incurred under the above
arrangements amounted to $68,649, $195,998 and $248,815 during the period
ended April 3, 1996 and the years ended July 31, 1995 and 1994, respectively.
The Company has several noncancelable operating leases with a stockholder
for administrative offices, operating facilities, and land presently used as
sites for billboard structures. The leases are classified as operating leases.
These leases generally contain renewal options ranging from two to five years
and require the Company to pay all executory costs such as maintenance and
insurance. Rental expense for operating leases with the stockholder amounted
to approximately $100,000, $146,000 and $153,000 during the period ended April
3, 1996 and the year ended July 31, 1995 and 1994, respectively.
Future minimum lease payments under noncancelable operating leases with the
stockholder (with initial or remaining lease terms in excess of one year) as
of April 3, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 3:
<S> <C>
1997.............................................................. $156,898
1998.............................................................. 163,579
1999.............................................................. 170,928
2000.............................................................. 118,951
2001.............................................................. 97,814
--------
$708,170
========
</TABLE>
As a result of all the above transactions, the consolidated balance sheet
reflects $50,000 due to stockholder at July 31, 1995.
F-35
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) RETIREMENT PROGRAM
Retirement program expense with respect to the Company's defined
contribution 401(k) plan approximated $29,000, $40,000 and $37,000 during the
period ended April 3, 1996 and the years ended July 31, 1995 and 1994,
respectively.
(14) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid $8,250, $59,735 and $10,000 for income taxes during the
period ended April 3, 1996 and the years ended July 31, 1995 and 1994,
respectively. Cash payments for interest approximated $648,000, $865,000 and
$967,000 during the period ended April 3, 1996 and the years ended July 31,
1995 and 1994, respectively.
(15) STOCK COMPENSATION
The Company has a restricted stock award plan whereby the Company can issue
restricted common stock to retain key employees, including officers. The
shares are awarded in the name of the employee, who has all rights of a
stockholder, subject to certain restrictions and forfeitures. Restrictions on
awards to date lapsed on July 31, 1994. Such stock awarded is subject to an
agreement requiring forfeiture by the employee in the event of termination of
employment within five years of the date of grant other than as a result of
death or disability.
The market value of shares awarded under the plan is recorded as unearned
restricted stock compensation on the date of award and is shown as a separate
component of stockholders' deficit until earned. The compensation is charged
to the consolidated statements of operations over the period in which the
employees are expected to perform services and amounted to $12,081 for the
year ended July 31, 1994. There were no such awards during the period August
1, 1995 through April 3, 1996 or for the year ended July 31, 1995.
Under a written agreement dated August 9, 1994 between the Company and
certain members of management, three shares of Class A common stock would be
granted to them upon accomplishing certain goals. The terms of the agreement
were met and the three shares of stock were issued during the period ended
April 3, 1996 at $75,386 per share, which was determined to be the fair market
value at the date of transaction. This transaction was treated as compensation
expense.
(16) SALE OF MANSFIELD DIVISION
During November 1993, the Company sold its Mansfield Division Outdoor
Advertising Plant (the "Mansfield Division") located in Ohio under an asset
purchase agreement. Through this transaction, the buyer acquired specific
tangible and intangible assets from the Company for $1,600,000 cash proceeds.
The sale resulted in a pretax loss of $446,299.
The Company agreed not to engage in competition with the buyer in the Ohio
area, for a period of five years from November 1993. In consideration for
entering into this non-compete agreement, the Company received a cash payment
of $400,000, of which $340,000 has been deferred and recognized at the rate of
$6,667 per month over the five year agreement.
The $2,000,000 cash proceeds from the sale of the Mansfield Division and
non-compete agreement were used for principal payments on long-term debt.
During fiscal 1994 and 1993, the Mansfield Division's revenues approximated
$420,000 and $1,150,000, respectively, and operating income before
depreciation approximated $50,000 and $240,000, respectively.
F-36
<PAGE>
OCI CORP. OF MICHIGAN
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) SUBSEQUENT EVENT
At the close of business on April 3, 1996, the Company's stockholders (the
"Stockholders") entered into a plan of reorganization (the "Reorganization
Plan") to restructure and merge the Company with an affiliated entity in the
same line of business. Pursuant to the Reorganization Plan, the Stockholders
agreed to sell and/or exchange their entire interests in the common and
preferred stock of the Company. In conjunction with the Reorganization Plan,
OCI Holdings Corp. ("Holdings") was incorporated for the purpose of effecting
the reorganization and merger.
Certain outside investors (the "Investors") purchased 24.67 shares and 60
shares of the Company's common and preferred stock, respectively, from the
Stockholders. These same shares were subsequently assigned by the Investors to
Holdings in exchange for Holdings' common stock. The remaining 75.33 shares
and 840 shares of the Company's common and preferred stock, respectively, were
purchased for cash by Holdings, which resulted in Holdings' being the sole
stockholder of all the Company's outstanding common and preferred stock.
Concurrent with the reorganization and merger, the Company, Holdings, and
Outdoor Communications, Inc. (collectively the "Borrowers") entered into a
Credit Agreement with Chase Manhattan Bank N.A. Under the Credit Agreement,
the Company borrowed $20,000,000 under a term loan which was principally used
to pay off the existing long-term debt, senior subordinated debt, and junior
subordinated debt, including all accrued interest. In addition to the
aforementioned term loan, the Credit Agreement also provides a revolving loan
commitment to the Borrowers, collectively.
The effects of the aforementioned transactions have not been included in the
financial statements as they occurred subsequent to the closing balance sheet.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mass Communications Corp.:
We have audited the accompanying consolidated balance sheet of Mass
Communications Corp. and subsidiary (the Company) as of April 3, 1996 and the
related consolidated statements of income, stockholders' deficit, and cash
flows for the period September 1, 1995 through April 3, 1996. These
consolidated 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 financial position of the Company
as of April 3, 1996 and the results of their operations and their cash flows
for the period September 1, 1995 through April 3, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
East Lansing, Michigan
May 31, 1996
F-38
<PAGE>
October 18, 1995
INDEPENDENT AUDITOR'S REPORT
The Officers and Directors
Mass Communications Corp.
Corinth, Mississippi
We have audited the accompanying consolidated balance sheets of Mass
Communications Corp. and subsidiary as of August 31, 1995, and the related
consolidated statements of income, stockholders' deficit, and cash flows for
each of the years ended August 31, 1995 and 1994. These consolidated 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 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mass
Communications Corp. and subsidiary as of August 31, 1995, and the results of
their operations and their cash flows for the years ended August 31, 1995 and
1994 in conformity with generally accepted accounting principles.
Moore & Gray
Corinth, Mississippi
F-39
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 3, AUGUST 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 453,202 476,636
Trade accounts receivable, less allowance for doubtful
accounts of $60,945 in 1996 and $88,817 in 1995....... 851,531 682,514
Income taxes receivable................................ 97,552 --
Other receivables...................................... 14,043 109,365
Due from affiliated entity (note 9).................... 54,310 --
Inventory--construction material....................... 92,557 106,670
Prepaid rent expense................................... 205,019 223,762
Other prepaid expenses................................. 131,118 61,448
Deferred income taxes (note 6)......................... 65,930 267,895
---------- ---------
Total current assets............................... 1,965,262 1,928,290
---------- ---------
Property, plant, and equipment, net (note 3)............. 3,439,990 3,238,981
Goodwill, less accumulated amortization.................. 2,025,973 2,066,984
Deferred financing fees, less accumulated amortization... 468,914 523,799
Deferred income taxes (note 6)........................... 801,218 723,394
Other assets (notes 4 and 13)............................ 152,315 108,564
---------- ---------
Total assets....................................... $8,853,672 8,590,012
========== =========
</TABLE>
(Continued)
F-40
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
APRIL 3, 1996 AND AUGUST 31, 1995
<TABLE>
<CAPTION>
APRIL 3, AUGUST 31,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt (note 5)...... $2,121,600 1,050,000
Trade accounts payable............................... 300,026 186,653
Income taxes payable................................. -- 303,632
Accrued expenses:
Salaries and wages................................. 165,244 142,971
Payroll and other taxes............................ 32,766 39,812
Employee benefits.................................. 65,714 --
Interest........................................... 97,229 --
Other.............................................. 170,509 163,665
---------- ----------
Total accrued expenses........................... 531,462 346,448
---------- ----------
Total current liabilities........................ 2,953,088 1,886,733
Long-term debt, excluding current installments (note
5).................................................... 8,628,400 9,700,000
---------- ----------
Total liabilities................................ 11,581,488 11,586,733
---------- ----------
Stockholders' deficit (notes 7, 12 and 13):
10% cumulative preferred stock, $1 par value.
Authorized 5,000 shares; issued and outstanding
1,000 shares........................................ 1,000 1,000
Class A common stock, no par value. Authorized 30,000
shares; issued and outstanding 12,500 shares........ 3,500 3,500
Additional paid-in capital........................... 999,000 999,000
Accumulated deficit.................................. (3,731,316) (4,000,221)
---------- ----------
Total stockholders' deficit...................... (2,727,816) (2,996,721)
---------- ----------
Commitments and contingencies (notes 7, 8 and 12)
Total liabilities and stockholders deficit....... $8,853,672 8,590,012
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEARS ENDED
SEPTEMBER 1, 1995 AUGUST 31,
THROUGH ---------------------
APRIL 3, 1996 1995 1994
<S> <C> <C> <C>
Revenues:
Poster.............................. $3,097,607 5,084,371 4,795,353
Painted............................. 2,306,790 3,686,379 3,019,976
Other............................... 98,142 263,905 95,036
---------- ---------- ---------
Gross revenues.................... 5,502,539 9,034,655 7,910,365
Less commissions and discounts...... 545,537 881,273 783,551
---------- ---------- ---------
Net operating revenues............ 4,957,002 8,153,382 7,126,814
---------- ---------- ---------
Operating expenses:
Operations (note 9)................. 1,166,765 1,879,777 1,616,015
Selling, general, and administrative
(note 9)........................... 2,039,476 2,908,412 2,912,833
Depreciation........................ 550,869 897,804 848,159
Amortization of intangible assets... 41,011 70,304 70,304
Amortization of deferred financing
costs.............................. 54,885 95,995 11,124
---------- ---------- ---------
Total operating expenses.......... 3,853,006 5,852,292 5,458,435
---------- ---------- ---------
Operating income.................. 1,103,996 2,301,090 1,668,379
Other income (deductions):
Loss on disposal of property, plant,
and equipment...................... (832) (39,087) (72,040)
Interest expense.................... (644,606) (1,172,645) (852,415)
Interest income..................... 3,876 11,392 16,483
Management fee income (note 9)...... 58,333 150,000 150,000
Miscellaneous, net.................. (50,449) 56,878 (30,278)
---------- ---------- ---------
Income before income tax expense.. 470,318 1,307,628 880,129
Income tax expense (note 6)........... 201,413 523,620 339,773
---------- ---------- ---------
Net income........................ $ 268,905 784,008 540,356
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD SEPTEMBER 1, 1995 THROUGH APRIL 3, 1996
AND FOR THE YEARS ENDED AUGUST 31, 1995 AND 1994
<TABLE>
<CAPTION>
5% 10%
NONCUMULATIVE CUMULATIVE ADDITIONAL TOTAL
PREFERRED PREFERRED COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL DEFICIT DEFICIT
<S> <C> <C> <C> <C> <C> <C>
Balances at August 31,
1993................... $ 5,000 -- 5,000 495,000 (3,127,335) (2,622,335)
Stock redemption........ (5,000) -- (1,500) (495,000) (2,097,250) (2,598,750)
Issuance of 1,000
shares................. -- 1,000 -- 999,000 -- 1,000,000
Net income.............. -- -- -- -- 540,356 540,356
------- ----- ------ -------- ---------- ----------
Balances at August 31,
1994................... -- 1,000 3,500 999,000 (4,684,229) (3,680,729)
Net income.............. -- -- -- -- 784,008 784,008
Dividend................ -- -- -- -- (100,000) (100,000)
------- ----- ------ -------- ---------- ----------
Balances at August 31,
1995................... -- 1,000 3,500 999,000 (4,000,221) (2,996,721)
Net income.............. -- -- -- -- 268,905 268,905
------- ----- ------ -------- ---------- ----------
Balances at April 3,
1996................... $ -- 1,000 3,500 999,000 (3,731,316) (2,727,816)
======= ===== ====== ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE YEARS
SEPTEMBER 1, 1995 ENDED AUGUST 31,
THROUGH -------------------------
APRIL 3, 1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVI-
TIES:
Net income........................ $ 268,905 784,008 540,356
Adjustments to reconcile net in-
come to net cash provided by op-
erating activities:
Depreciation of plant and equip-
ment........................... 550,869 897,804 848,159
Amortization of intangible as-
sets........................... 41,011 70,304 70,304
Amortization of deferred financ-
ing costs...................... 54,885 95,995 11,124
Decrease in deferred income tax-
es............................. 124,141 264,827 259,193
Loss on disposal of plant and
equipment...................... 832 39,087 72,040
Changes in assets and liabili-
ties which increase (decrease)
cash flows:
Trade accounts receivable..... (169,017) (80,185) (39,609)
Income taxes receivable....... (97,552) -- --
Due from affiliated entity.... (54,310) -- --
Inventory--construction mate-
rial......................... 676 (42,414) (5,110)
Prepaid rent expense.......... 18,743 (18,614) (970)
Other prepaid expenses........ (69,670) 52,315 (41,280)
Other assets.................. 51,571 (145,152) (666,741)
Trade accounts payable........ 113,373 (10,234) 37,139
Income taxes payable.......... (303,632) 246,590 39,206
Accrued expenses.............. 185,014 (31,768) (845,220)
--------- ----------- ------------
Net cash provided by operat-
ing activities............. 715,839 2,122,563 278,591
--------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVI-
TIES:
Capital expenditures.............. (745,996) (1,313,239) (642,283)
Proceeds from sale of plant and
equipment........................ 6,723 33,930 86,294
--------- ----------- ------------
Net cash used in investing
activities................. (739,273) (1,279,309) (555,989)
--------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVI-
TIES:
Principal payments on long-term
debt............................. (500,000) (1,000,000) (10,540,000)
Proceeds from issuance of long-
term debt........................ 500,000 -- 12,000,000
Proceeds from assurance of stock.. -- -- 1,000,000
Stock redemption.................. -- -- (2,598,750)
Dividends......................... -- (100,000) --
--------- ----------- ------------
Net cash used in financing
activities................. -- (1,100,000) (138,750)
--------- ----------- ------------
Net decrease in cash and cash
equivalents...................... (23,434) (256,746) (416,148)
Cash and cash equivalents at be-
ginning of the period............ 476,636 733,382 1,149,530
--------- ----------- ------------
Cash and cash equivalents at end
of the period.................... $ 453,202 476,636 733,382
========= =========== ============
Supplemental schedule of noncash
investing activities:
Transfer of salvage materials
from inventory to property,
plant, and equipment........... $ 13,437 15,113 23,616
========= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 3, 1996, AUGUST 31, 1995 AND AUGUST 31, 1994
(1) BUSINESS OPERATIONS
The business operations of Mass Communications Corp. and subsidiary (the
"Company") consist of outdoor billboard advertising in the states of
Mississippi, Tennessee, Georgia, and Kentucky.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company, as summarized below, conform with
generally accepted accounting principles and reflect practices appropriate to
the business in which it operates.
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Mass Communications Corp. and its wholly owned subsidiary, Outdoor
Communications, Inc. All significant intercompany balances and transactions
have been eliminated in consolidation.
(b) CASH EQUIVALENTS
Cash equivalents of $286,705 and $268,661 at April 3, 1996 and August 31,
1995, respectively, consist of money market funds. For purposes of the
consolidated statements of cash flows, the Company considers all highly liquid
debt instruments with maturities of three months or less at the time of
purchase to be cash equivalents.
(c) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
(d) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation on plant and
equipment is computed using straight-line and accelerated methods over the
estimated useful lives of the assets.
(e) GOODWILL
Goodwill, which represents the excess of purchase price over the fair value
of net assets acquired, is being amortized on a straight-line basis over a 40
year period.
The Company assesses the recoverability of goodwill by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
(f) DEFERRED FINANCING COST
Debt financing costs incurred as a result of debt restructuring are recorded
as deferred financing costs and amortized on a straight-line basis over the
term of the related debt.
F-45
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(g) EMPLOYEE BENEFITS
The Company participates in a self-insured employee health care plan as
provided for in an agreement with an affiliated entity. The liability for
self-insurance reflects the estimated cost for the uninsured portion of claims
not paid prior to year end. The liability is based on estimates for losses
reported prior to year end and estimates for incurred but not reported losses.
(h) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 amounts to
conform to the current period presentation.
(j) REVENUE RECOGNITION
The Company recognizes revenue from advertising contracts on an accrual
basis ratably over the term of the contracts, as advertising services are
provided.
(k) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(l) EARNINGS PER SHARE
An earnings per share calculation has not been presented, because the
Company is closely held and owned by a private investor group, and
accordingly, earnings per share is not required or meaningful.
F-46
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY, PLANT, AND EQUIPMENT
Major categories of property, plant, and equipment at April 3, 1996 and
August 31, 1995 were as follows:
<TABLE>
<CAPTION>
ESTIMATED
LIFE (YEARS) 1996 1995
<S> <C> <C> <C>
Land................................... -- $ 228,878 228,878
Building............................... 10-25 399,414 397,745
Advertising structures................. 8 11,517,231 11,026,147
Leasehold improvements................. 2-5 100,185 100,186
Equipment.............................. 3-5 1,004,635 957,019
Construction in progress............... -- 35,617 2,080
---------- ----------
13,285,960 12,712,055
Less accumulated depreciation.......... (9,845,970) (9,473,074)
---------- ----------
Net property, plant, and equipment... $3,439,990 3,238,981
========== ==========
</TABLE>
(4) OTHER ASSETS
Other assets consist principally of the cash surrender value of officer life
insurance and deferred acquisition costs related to the acquisition of Georgia
Outdoor Advertising as discussed in note 13.
(5) LONG-TERM DEBT
Long-term debt at April 3, 1996 and August 31, 1995 consists of the
following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Term loans payable in quarterly installments with
the final payment due May 31, 2001; interest at
prime plus 1.5%; secured by the outstanding stock
and a first lien on all assets of the Company.
Loans payable to:
IBJ Schroder Bank and Trust Company, New York, New
York............................................. $5,125,000 5,375,000
Shawmut Bank Connecticut, National Association,
Hartford, Connecticut............................ 5,125,000 5,375,000
Revolving credit loans payable on demand with the
final payment due upon termination of the
agreement; interest at prime plus 1.5%; secured by
the outstanding stock and a first lien on all
assets of the Company. Loans payable to:
IBJ Schroder Bank and Trust Company, New York, New
York............................................. 250,000 --
Shawmut Bank Connecticut, National Association,
Hartford, Connecticut............................ 250,000 --
---------- ----------
Total long-term debt............................ 10,750,000 10,750,000
Less current portion................................ 2,121,600 1,050,000
---------- ----------
Long-term debt, excluding current installments.. $8,628,400 9,700,000
========== ==========
</TABLE>
The revolving credit and term loan agreement (the "loan agreement")
contains, among other things, restrictions with respect to payment of
dividends, additional borrowings, current ratios, acquisitions or issuance of
capital stock, capital expenditures, sale of assets, and mergers or
consolidations or formation of subsidiaries. The loan agreement contains
minimum requirements for current ratios, consolidated earnings before
interest, taxes, depreciation and amortization, and fixed charge coverage.
F-47
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The loan agreement limits the capital expenditures for the period ended
April 3, 1996 to $550,000. Capital expenditures are defined as expenditures
for property, plant and equipment, less salvage materials from billboards
reused, and proceeds from the sale of billboards reinvested in new billboards.
Any unspent portion of the limitation can be deposited to a capital
expenditure account and used to increase the following year's capital
expenditure limitation.
On April 3, 1996, subsequent to the Company's closing balance sheet, the
Company, along with related affiliates, entered into a Credit Agreement with
Chase Manhattan Bank N.A. (see note 13). Funds from the Credit Agreement were
used to pay off the existing term loans and revolving credit loans as of April
3, 1996. The current portion of long-term debt as of April 3, 1996 reflects
the current portion due as noted in the new Credit Agreement. Maturities of
long-term debt under the Credit Agreement during the next four years are:
1997, $2,121,600; 1998, $4,060,900; 1999, $4,391,875; and 2000, $175,625.
(6) INCOME TAXES
Income tax expense attributable to income before income tax expense consists
of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
Period ended April 3, 1996:
Federal........................................ $ 80,043 108,321 188,364
State and local................................ (2,771) 15,820 13,049
-------- ------- -------
Total........................................ $ 77,272 124,141 201,413
======== ======= =======
Year ended August 31, 1995:
Federal........................................ $237,390 165,198 402,588
State and local................................ 31,455 89,577 121,032
-------- ------- -------
Total........................................ $268,845 254,775 523,620
======== ======= =======
Year ended August 31, 1994:
Federal........................................ $ 44,050 254,391 298,441
State and local................................ 36,530 4,802 41,332
-------- ------- -------
Total........................................ $ 80,580 259,193 339,773
======== ======= =======
</TABLE>
Income tax expense differed from the amounts computed by applying the
federal income tax rate of 34% for the period ended April 3, 1996 and the year
ended August 31, 1995 to income before income tax expense as a result of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed "expected" tax expense................ $159,908 444,593 299,244
Increase (reduction) in income taxes resulting
from:
State and local income taxes, net of federal
income tax expense.......................... (4,436) (41,151) (14,053)
Non-deductible expenses...................... 18,900 28,096 27,563
Alternative minimum tax expense.............. 59,693 68,866 --
Other, net................................... (32,652) 23,216 27,019
-------- ------- -------
$201,413 523,620 339,773
======== ======= =======
</TABLE>
F-48
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 3,
1996 and August 31, 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts....................... $ 23,769 34,639
Property, plant, and equipment, principally due to
differences in depreciation.......................... 779,270 734,165
Net operating loss carryforwards...................... 53,258 134,730
Alternative minimum tax credit carryforwards.......... 138,993 79,300
Other................................................. 12,950 8,455
---------- -------
Total gross deferred tax assets..................... 1,008,240 991,289
Deferred tax liabilities--accrued expenses.............. 141,092 --
---------- -------
Net deferred tax assets............................. $ 867,148 991,289
========== =======
</TABLE>
The Company recorded no valuation allowance for deferred tax assets as of
April 3, 1996 and August 31, 1995. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversals of deferred taxes,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not that the Company
will realize the benefits of these deductible differences.
At April 3, 1996, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $156,600, which are available to
offset future federal taxable income, if any, through 2006. The Company has an
alternative minimum tax credit carryforward of approximately $139,000, which
is available to reduce future regular income taxes, if any, over an indefinite
period. The Company also has an investment tax credit carryforward of
approximately $13,000, which is available to reduce future regular income
taxes, if any, through 2001.
(7) STOCKHOLDERS' EQUITY
All general voting power is vested in the holders of Class A common stock.
The holders of preferred stock are not entitled to vote at any stockholders'
meetings.
No dividends will be declared or paid on the common stock during any year
unless the full amount of dividends on the preferred stock accrued to the
proposed date of declaration has been paid. Upon declaration, the holders of
the preferred stock are entitled to receive an annual cumulative dividend at a
rate of 10% per annum of the liquidation value of the preferred stock, as
defined below. Dividends, if declared, are payable in cash annually on each
April 30. Cumulative preferred stock dividend rights were unaccrued and unpaid
at April 3, 1996 and August 31, 1995, in the amount of $92,500 and $33,333,
respectively.
In the event of liquidation or dissolution of the Company, the holders of
the preferred stock are entitled to receive a preferential amount equal to
$1,000 per share of the issued and outstanding preferred stock ("liquidation
value") and a further preferential amount equal to all declared and unpaid
dividends thereon. This liquidation value will be paid before the payment or
distribution of any assets of the Company to the holders of common stock.
F-49
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) LEASES
The Company leases substantially all of the land presently used as sites for
poster panels under various terms. The leases are classified as operating
leases. These leases generally contain renewal options ranging from one to 15
years and require the Company to pay all executory costs such as maintenance
and insurance. Rental expense for operating leases amounted to approximately
$398,000, $607,000 and $689,000 during the period ended April 3, 1996 and the
years ended August 31, 1995 and 1994, respectively.
Future minimum lease payments under noncancelable operating leases with non-
related parties (with initial or remaining lease terms in excess of one year)
as of April 3, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 3:
<S> <C>
1997............................................................ $ 497,163
1998............................................................ 440,915
1999............................................................ 386,368
2000............................................................ 321,829
2001............................................................ 280,954
----------
$1,927,229
==========
</TABLE>
(9) RELATED PARTY TRANSACTIONS
The Company leases real property from a trust for which the president, who
is a major stockholder of the Company, serves as trustee. Rental expense to
the trust amounted to approximately $18,000, $27,000, and $25,000 for the
period ended April 3, 1996 and the years ended August 31, 1995 and 1994,
respectively. The Company also leases a sign location from the president and
vice president of the Company. The rental payment for the sign location
amounted to approximately $600, $1,000 and $1,000 for the period ended April
3, 1996 and the years ended August 31, 1995 and 1994, respectively.
Future minimum lease payments under noncancelable operating leases with the
stockholder (with initial or remaining lease terms in excess of one year) as
of April 3, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 3:
<S> <C>
1997.............................................................. $ 27,320
1998.............................................................. 27,320
1999.............................................................. 27,320
2000.............................................................. 20,996
--------
$102,956
========
</TABLE>
The Company provides management and accounting consultation services to an
affiliated entity related through common ownership. The affiliated entity and
the Company have entered into a continuing agreement which may be canceled by
either party upon 30 days written notice. Total management fee income incurred
under the above arrangements have been included as a component of other income
(deductions) in the accompanying consolidated statement of operations.
(10) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid approximately $482,000, $65,500 and $43,000 for income
taxes during the period ended April 3, 1996 and the years ended August 31,
1995 and 1994, respectively. Cash payments for interest
F-50
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximated $547,000, $1,173,000 and $1,829,000 for the period ended April 3,
1996 and the years ended August 31, 1995 and 1994, respectively.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of the Company's
financial instruments is made in accordance with the requirements of FASB
Statement No. 107, "Disclosure about Fair Value of Financial Instruments"
("Statement 107"). Statement 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
The carrying values of cash and cash equivalents, trade accounts receivable,
due from affiliated entity, trade accounts payable, and accrued expenses
approximate fair values due to the short-term maturities of these instruments.
Long-term debt instruments are estimated to approximate fair values, as rates
are tied to short-term indices.
(12) STOCK WARRANTS OUTSTANDING
In accordance with the loan agreement, the Company issued common stock
warrants to the lenders of the Company. The warrants can be exercised at any
time or from time to time prior to April 30, 2004. The exercise price of the
warrants shall be the current market price of the stock (as defined in the
stock warrants) on the date the warrants are exercised. The common stock
warrants outstanding as of April 3, 1996 and August 31, 1995 are as follows:
<TABLE>
<S> <C>
IBJ Schroder Bank and Trust Company........................... 328.947 shares
Shawmut Bank Connecticut, National Bank Association........... 328.947 shares
</TABLE>
(13) SUBSEQUENT EVENT
At the close of business on April 3, 1996, the Company's stockholders (the
"Stockholders") entered into a plan of reorganization (the "Reorganization
Plan") to restructure and merge the Company with an affiliated entity in the
same line of business. Pursuant to the Reorganization Plan, the Stockholders
agreed to sell their entire interests in the common and preferred stock of the
Company. In conjunction with the Reorganization Plan, OCI Holdings Corp.
("Holdings") was incorporated for the purpose of effecting the reorganization
and merger.
The Stockholders of the Company exchanged 7,371.01 shares of common stock,
308.78 shares of preferred stock, and their Series A subordinated notes for
2,764.99 shares of Class A common stock of OCI Holdings Corp. The Stockholders
of the Company also sold 657,895 warrants, 5,128.99 shares of common stock and
691.22 shares of preferred stock for cash and new subordinated notes totaling
$6,692,500. This transaction resulted in Holdings ultimately owning all of the
stock of the Company.
Concurrent with the reorganization and merger, the Company, Holdings, and
OCI North (collectively, the "Borrowers") entered into a Credit Agreement with
Chase Manhattan Bank N.A. Under the Credit Agreement, the Company borrowed
$40,000,000 under a term loan which was used to pay off the existing long-term
debt, including all accrued interest, and the acquisitions discussed below. In
addition to the aforementioned term loan, the Credit Agreement also provides a
revolving loan commitment to the Borrowers, collectively.
The effects of the aforementioned transactions have not been included in the
financial statements as they occurred subsequent to the closing balance sheet.
F-51
<PAGE>
MASS COMMUNICATIONS CORP.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Georgia Acquisition
At the close of business on April 3, 1996, Outdoor Communications, Inc.
completed the purchase of certain assets of Georgia Outdoor Advertising,
pursuant to an Asset Purchase Agreement dated March 8, 1996, for cash of
$11,650,000. The acquisition was accounted for by the purchase method.
Alabama Acquisition
On April 30, 1996, Outdoor Communications, Inc. completed the purchase of
certain assets and assumed certain liabilities of AOA Acquisition, L.L.C.,
pursuant to an Asset Sale Agreement dated March 19, 1996, for cash of
$32,000,000. The acquisition was accounted for by the purchase method.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders
Georgia Outdoor Advertising Company, Inc.:
We have audited the accompanying balance sheets of Georgia Outdoor
Advertising Company, Inc. as of December 31, 1995 and 1994, and the related
statements of operations, stockholders' deficit, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 Georgia Outdoor
Advertising Company, Inc. as of December 31, 1995 and 1994, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Atlanta, Georgia
May 16, 1997
F-53
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS (NOTE 2)
Current assets:
Cash and cash equivalents.......................... $ 468,168 298,197
Receivables:
Trade accounts.................................... 317,068 294,512
Other............................................. 1,106 175
Prepaid rent expense............................... 131,986 133,294
Other prepaid expenses............................. 3,995 15,511
----------- ----------
Total current assets............................. 922,323 741,689
----------- ----------
Property and equipment:
Land............................................... 8,108 39,123
Buildings and improvements......................... 359,001 359,001
Advertising structures............................. 5,556,489 5,613,786
Equipment.......................................... 370,702 337,617
----------- ----------
6,294,300 6,349,527
Less accumulated depreciation...................... 5,407,871 4,980,816
----------- ----------
Net property and equipment....................... 886,429 1,368,711
----------- ----------
Goodwill, net of accumulated amortization of $96,667
and $86,667 in 1995 and 1994, respectively.......... 153,333 163,333
Other assets......................................... 20,876 18,745
----------- ----------
$ 1,982,961 2,292,478
=========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt (note 2).... $ 376,971 767,347
Trade accounts payable............................. 63,104 53,444
Accrued expenses:
Salaries and wages................................ 83,242 63,783
Interest payable to related parties............... -- 25,820
Other............................................. 1,264 1,394
----------- ----------
Total accrued expenses........................... 84,506 90,997
----------- ----------
Deferred advertising revenues...................... 16,631 20,171
----------- ----------
Total current liabilities........................ 541,212 931,959
Long-term debt, excluding current installments (note
2).................................................. 555,081 588,078
Long-term debt to related parties (notes 2 and 3).... 3,500,000 3,335,732
Interest payable to related parties.................. -- 62,843
----------- ----------
Total liabilities................................ 4,596,293 4,918,612
----------- ----------
Stockholders' deficit:
Common stock, no par value. Authorized 100,000
shares; issued and outstanding 1,320 shares....... -- --
Additional paid-in capital......................... 430,000 430,000
Accumulated deficit................................ (3,043,332) (3,056,134)
----------- ----------
Total stockholders' deficit...................... (2,613,332) (2,626,134)
----------- ----------
Commitments and contingencies (note 4)...............
$ 1,982,961 2,292,478
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues:
Poster and paint....................................... $3,512,944 3,209,740
Other.................................................. 210,096 202,239
---------- ---------
Gross revenues....................................... 3,723,040 3,411,979
Less commissions and discounts......................... 575,648 496,479
---------- ---------
Net operating revenues............................... 3,147,392 2,915,500
---------- ---------
Operating expenses:
Operations............................................. 858,728 805,578
Selling, general, and administrative................... 976,137 976,513
Depreciation........................................... 529,652 546,283
Amortization........................................... 20,750 13,583
---------- ---------
Total operating expenses............................. 2,385,267 2,341,957
---------- ---------
Operating income..................................... 762,125 573,543
Other income (expense):
(Loss) gain on disposal of equipment................... (15,480) 8,577
Interest expense....................................... (129,832) (115,558)
Interest expense to related parties.................... (303,433) (297,844)
Other income........................................... 11,360 7,330
---------- ---------
Net income........................................... $ 324,740 176,048
========== =========
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT DEFICIT
<S> <C> <C> <C> <C>
Balances at December 31, 1993..... $-- 430,000 (3,016,388) (2,586,388)
Net income........................ -- -- 176,048 176,048
Distributions..................... -- -- (215,794) (215,794)
---- ------- ---------- ----------
Balances at December 31, 1994..... -- 430,000 (3,056,134) (2,626,134)
Net income........................ -- -- 324,740 324,740
Distributions..................... -- -- (311,938) (311,938)
---- ------- ---------- ----------
Balances at December 31, 1995..... $-- 430,000 (3,043,332) (2,613,332)
==== ======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 324,740 176,048
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 554,643 570,580
Loss (gain) on disposal of equipment................. 15,488 (8,578)
(Increase) decrease in:
Receivables......................................... (23,487) (80,500)
Prepaid rent expense................................ 1,308 (18,493)
Other prepaid expenses and other assets............. 9,385 39,250
(Increase) decrease in:
Trade accounts payable.............................. 9,660 (23,879)
Accrued expenses--salaries.......................... 19,459 9,790
Accrued expenses--interest payable to related par-
ties............................................... (88,663) 26,307
Accrued expenses--other............................. (130) (1,764)
Deferred advertising revenues....................... (3,540) 11,657
---------- --------
Net cash provided by operating activities.......... 818,863 700,418
---------- --------
Cash flows from investing activities:
Purchases of property and equipment................... (130,889) (364,120)
Proceeds from sale of property and equipment.......... 53,040 31,278
---------- --------
Net cash used in investing activities.............. (77,849) (332,842)
---------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.............. 3,554,486 354,291
Repayment of long-term debt........................... (3,813,591) (887,386)
Distributions to stockholders......................... (311,938) (215,794)
---------- --------
Net cash used in financing activities.............. (571,043) (748,889)
---------- --------
Net increase (decrease) in cash and cash equiva-
lents............................................. 169,971 (381,313)
Cash and cash equivalents at beginning of year.......... 298,197 679,510
---------- --------
Cash and cash equivalents at end of year................ $ 468,168 298,197
========== ========
Supplemental disclosure of cash flow information--cash
paid during the year for interest...................... $ 521,930 389,687
========== ========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Presentation
Georgia Outdoor Advertising Company, Inc. (the "Company") operates outdoor
billboard advertising in the States of Georgia and South Carolina. Management
of the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
(b) Cash Equivalents
Cash equivalents consist of money market funds. For purposes of the
statement of cash flows, the Company considers all highly liquid debt
instruments with maturities of three months or less at the time of purchase to
be cash equivalents.
(c) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation on property and equipment is provided using straight-line and
accelerated methods over the estimated useful lives of the assets. The
estimated useful lives for the major categories of property and equipment are
summarized below:
<TABLE>
<S> <C>
Buildings and improvements........................................ 31.5 years
Advertising structures............................................ 7-15 years
Equipment......................................................... 3-7 years
</TABLE>
(d) Goodwill
Goodwill, which represents the excess purchase price over fair value of net
assets acquired, is amortized using the straight-line basis over 25 years.
(e) Deferred Advertising Revenues
Amounts received from outdoor billboard advertising contracts in advance are
deferred and amortized into revenue over the life of the related contracts.
(f) Revenue Recognition
The Company recognizes revenue from advertising contracts on the accrual
basis ratably over the term of the contracts, as advertising services are
provided.
(g) Income Taxes
The Company, with the consent of its stockholders, has elected to be taxed
as an S Corporation under the Internal Revenue Code. As a result of this
election, the Company has been taxed in a manner similar to a partnership and
has not provided for any Federal or state income taxes in the financial
statements as the results of operations are passed through to, and the related
income taxes become the individual responsibility of the Company's
stockholders.
(h) Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, trade and other accounts
receivable, trade accounts payable, accrued expenses, and interest payable
approximate fair values due to the short-term maturities of these instruments.
The carrying values of long-term debt instruments approximate fair value as
they bear interest at rates which approximate market.
F-58
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC,
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
10.5% installment notes payable in monthly
installments of $16,222, including interest......... $ 792,354 897,729
Installment note payable to bank with interest at 80%
of prime plus a margin rate factor (1.204 at
December 31, 1995), payable in monthly installments
of $1,666, plus accrued interest, secured by
mortgage............................................ 72,601 92,593
Installment notes payable to stockholders with
interest at prime plus .75%, payable in monthly
installments, refinanced in 1995.................... -- 3,156,250
Installment notes payable to stockholders with
interest at prime plus 1%, payable in monthly
installments of $24,306, plus interest.............. 3,500,000 --
11.5% installment note payable to bank in monthly
installments of $1,504, including interest, due
January 1996........................................ 1,499 18,304
9.5% installment note payable to bank in monthly
installments of $887, including interest, paid
December 1995....................................... -- 10,000
12% subordinated promissory note payable to
stockholders, refinanced in 1995.................... -- 179,482
10% subordinated promissory note payable, refinanced
in 1995............................................. -- 275,000
Various installment notes payable in varying monthly
installments, including interest.................... 65,598 61,799
---------- ---------
Total long-term debt............................. 4,432,052 4,691,157
Less current maturities.............................. (376,971) (767,347)
---------- ---------
Long-term debt, excluding current maturities..... $4,055,081 3,923,810
========== =========
</TABLE>
Substantially all of the assets of the Company are pledged as security on
the debt outstanding. Certain of the debt agreements impose financial
covenants which require, among other things, provisions for the maintenance of
a minimum liquidation value and restrictions on the ability of the Company to
incur additional indebtedness. Management of the Company has stated that these
covenant restrictions have been met by the Company or waived by the creditors
as of December 31, 1995 and 1994.
The aggregate maturities of long-term debt based on amounts outstanding at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 376,971
1997.............................................................. 463,039
1998.............................................................. 470,152
1999.............................................................. 470,510
2000.............................................................. 2,587,896
Thereafter........................................................ 63,484
----------
$4,432,052
==========
</TABLE>
(3) RELATED PARTY TRANSACTIONS
In December 1995, the Company refinanced several loans (including balances
outstanding at December 31, 1994 of $3,156,250 payable to stockholders and
$179,482 payable to stockholders under "Keep Well" provisions of stockholder
loan agreements) by executing a $3,500,000 loan with an entity related to the
Company through partial common ownership. The $3,500,000 balance was
outstanding as of December 31, 1995.
F-59
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company leases property from an entity related to the Company through
common ownership. Total related party lease expense was $9,350 and $-0- during
the years ended December 31, 1995 and 1994, respectively.
The Company paid management fees to its stockholders of approximately
$10,000 and $8,000 during the years ended December 31, 1995 and 1994,
respectively.
One of the stockholders of the Company received an annual salary for his
position as President of the Company during the years ended December 31, 1995
and 1994.
(4) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases substantially all of the land presently used as sites for
its advertising structures under operating leases. These leases generally
contain renewal options ranging from 1 to 10 years and require the Company to
pay all executory costs such as maintenance and insurance. Rental expense for
operating leases was approximately $364,000 and $334,000 during the years
ended December 31, 1995 and 1994, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31,
1995 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1996............................................................ $ 277,000
1997............................................................ 270,000
1998............................................................ 262,000
1999............................................................ 254,000
2000............................................................ 13,000
Thereafter...................................................... --
----------
$1,076,000
==========
</TABLE>
(b) Contingencies
The Company is involved in various lawsuits arising in the normal course of
its business. In the opinion of management, the ultimate outcome of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
(5) SALE OF OPERATIONS
On April 3, 1996, certain assets of the Company's operations were purchased
by Outdoor Communications, Inc. for cash of $11,650,000, pursuant to an asset
purchase agreement dated March 6, 1996. Substantially all of the Company's
indebtedness was repaid as a result of this transaction.
F-60
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Members
AOA Holding, L.L.C.
We have audited the accompanying consolidated balance sheet of AOA Holding,
L.L.C. as of December 31, 1995, and the related consolidated statements of
income, changes in members' equity and cash flows for the year then ended and
for the two months ended December 31, 1994. 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 AOA Holding, L.L.C. at
December 31, 1995, and the consolidated results of its operations and its cash
flows for the year then ended and for the two months ended December 31, 1994,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
February 20, 1996
Birmingham, Alabama
F-61
<PAGE>
AOA HOLDING, L.L.C.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
1995
<S> <C>
ASSETS
Current assets:
Cash............................................................. $ 255,755
Accounts receivable, net of allowance of $72,800................. 1,595,288
Receivable from officers......................................... 110,587
Prepaid expenses................................................. 382,993
-----------
Total current assets............................................... 2,344,623
Property, plant and equipment, net................................. 14,057,279
Debt issuance cost, net of accumulated amortization of $142,156.... 467,094
Deposits and prepaid miscellaneous................................. 182,199
-----------
Total assets....................................................... $17,051,195
===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 138,643
Accrued interest................................................. 258,625
Accrued and other liabilities.................................... 612,913
-----------
Total current liabilities.......................................... 1,010,181
Long-term debt, net of debt discount of $182,499................... 11,780,647
Deferred compensation.............................................. 158,858
Members' equity:
Class A units, no par value; 498,240 units authorized, 255,007
units issued and outstanding.................................... 211,912
Class B units, no par value; 8,466,743 units authorized,
3,250,000 units issued and outstanding.......................... 2,689,766
Unit warrants subject to put option.............................. 1,199,831
Retained earnings................................................ --
-----------
Total members' equity.............................................. 4,101,509
-----------
Total liabilities and members' equity.............................. $17,051,195
===========
</TABLE>
See accompanying notes.
F-62
<PAGE>
AOA HOLDING, L.L.C.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31
1995 1994
<S> <C> <C>
Advertising revenues.................................... $13,372,651 $2,185,119
Less commissions and discounts.......................... 1,313,514 232,130
----------- ----------
12,059,137 1,952,989
Expenses:
Operating............................................. 2,562,678 377,085
Real estate........................................... 2,122,395 360,907
Selling............................................... 1,501,219 214,492
General and administrative............................ 1,854,792 340,366
Depreciation and amortization......................... 1,829,947 153,344
Deferred compensation................................. 368,858 --
----------- ----------
10,239,889 1,446,194
----------- ----------
Income from operations.................................. 1,819,248 506,795
Other expense:
Interest expense...................................... 1,317,555 258,060
Other expenses, net................................... 27,016 5,960
----------- ----------
1,344,571 264,020
----------- ----------
Net income.............................................. $ 474,677 $ 242,775
=========== ==========
</TABLE>
See accompanying notes.
F-63
<PAGE>
AOA HOLDING, L.L.C.
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
CLASS CLASS UNIT RETAINED MEMBERS'
A UNITS B UNITS WARRANTS EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
Members' contribution on
October 28, 1994....... $255,007 $3,250,000 $ -- $ -- $3,505,007
Issuance of unit
warrants subject to put
option................. -- -- 238,043 -- 238,043
Net income.............. -- -- -- 242,775 242,775
-------- ---------- ---------- -------- ----------
Balances at December 31,
1994................... 255,007 3,250,000 238,043 242,775 3,985,825
Net income.............. -- -- -- 474,677 474,677
Distributions to mem-
bers................... -- -- -- (358,993) (358,993)
Increase in redemption
price of unit warrants
subject to put option.. (43,095) (560,234) 961,788 (358,459) --
-------- ---------- ---------- -------- ----------
Members' equity at De-
cember 31, 1995........ $211,912 $2,689,766 $1,199,831 $ -- $4,101,509
======== ========== ========== ======== ==========
</TABLE>
See accompanying notes.
F-64
<PAGE>
AOA HOLDING, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED
DECEMBER 31 DECEMBER 31
1995 1994
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................... $ 474,677 $ 242,775
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,829,947 153,344
Amortization of debt discount.................... 55,544 --
Provision for bad debts.......................... 59,936 19,465
Changes in operating assets and liabilities:
Accounts receivable............................. (164,709) 12,026
Prepaid expenses................................ 10,501 (40,490)
Other assets.................................... (86,479) --
Accounts payable................................ 66,131 (56,138)
Deferred compensation........................... 158,858 --
Accrued interest................................ 81,877 176,748
Accrued and other liabilities................... (357,299) 2,545
----------- ------------
Net cash provided by operating activities.......... 2,128,984 510,275
INVESTING ACTIVITIES:
Business acquisition............................... -- (14,263,750)
Acquisition of property, plant and equipment....... (479,822) (23,157)
----------- ------------
Net cash used in investing activities.............. (479,822) (14,286,907)
FINANCING ACTIVITIES:
Proceeds from issuance of members' equity.......... $ -- $ 3,505,007
Capital lease payments............................. -- (48,890)
Buy-out capital lease obligation................... (1,077,045) --
Proceeds from issuance of debt, net of cost........ -- 10,868,246
Net payments on revolving credit agreement......... (200,000) (305,100)
Distributions to members........................... (358,993) --
----------- ------------
Net cash (used in) provided by financing activi-
ties.............................................. (1,636,038) 14,019,263
----------- ------------
Net increase in cash and cash equivalents.......... 13,124 242,631
Cash and cash equivalents at beginning of period... 242,631 --
----------- ------------
Cash and cash equivalents at end of period......... $ 255,755 $ 242,631
----------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Cash paid for interest............................. $1,180,134 $ 81,312
=========== ============
</TABLE>
See accompanying notes.
F-65
<PAGE>
AOA HOLDING, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) ORGANIZATION
AOA Holding, L.L.C. (Holding) was formed on October 28, 1994 to acquire
Alabama Outdoor Advertising, Inc. through its majority-owned subsidiary AOA
Acquisition L.L.C. (Acquisition) (collectively referred to as the Company).
The Company maintains and operates outdoor advertising displays throughout
northern Alabama. The display structures are the property of the Company and
the real estate on which the structures are built is leased by the Company
under cancelable leases with terms ranging from one to twenty years. The
Company's marketing department actively seeks out businesses and organizations
to sell billboard space for defined periods of time. Sales are negotiated on
term contracts. The Company's art department creates and assembles designs for
the operations department to hang on billboard locations.
The debts, obligations and liabilities of the Company will be solely the
debts, obligations and liabilities of the Company, and no member of the
Company is liable or will be obligated personally for any such debt,
obligation or liability of the Company solely by reason of such status.
(2) ACCOUNTING POLICIES
Consolidation
The financial statements include the accounts of AOA Holding, L.L.C. and its
majority-owned subsidiary, AOA Acquisition, L.L.C. All significant
intercompany accounts and transactions have been eliminated.
PROPERTY, PLANT AND EQUIPMENT
For income tax and financial reporting purposes, the Company uses the
Modified Accelerated Cost Recovery System for fixed asset depreciation. The
estimated useful lives of the various classes of assets are as follows:
<TABLE>
<S> <C>
Buildings........................................................ 40 years
Advertising structures........................................... 16 years
Trucks and automobiles........................................... 5 years
Furniture and equipment.......................................... 5 years
</TABLE>
Replacement parts, grouped with work-in-progress (see Note 4) are not
depreciated until placed in service.
ADVERTISING REVENUES
Advertising revenues are recognized ratably on a monthly basis over the
period in which advertisement displays are posted on the advertising
structures. Discounts are granted to customers who contract for specified
levels of advertising and longer term contracts, generally at least 12 months.
Commissions represent the portion of revenues paid to the agency placing the
advertisement.
REAL ESTATE LEASES
Real estate lease payments are generally paid in advance and charged to
expense over the life of the lease. For most lease agreements, the lease term
renews if payment is accepted subsequent to the original lease term. Operating
lease expense related to real estate totaled $2,000,315 and $336,301 for 1995
and the two months ended December 31, 1994, respectively.
INCOME TAXES
The accompanying consolidated financial statements do not include provision
for income taxes because the taxable income or loss of the Company is included
in the tax returns of the members.
F-66
<PAGE>
AOA HOLDING, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid securities with maturities of three months or less at the time
of purchase to be cash equivalents.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement
121 in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
RISKS AND UNCERTAINTIES
The use of estimates developed by management is inherent in the preparation
of financial statements in conformity with generally accepted accounting
principles.
(3) BUSINESS ACQUISITION
The Company acquired substantially all of the assets and assumed certain
liabilities of Alabama Outdoor Advertising, Inc. in October 1994. Funds for
the acquisition were provided from a $1,600,000 seller note (see Note 6),
proceeds from the issuance of 3,505,007 total Class A and Class B units at $1
per unit and from the Company's initial borrowing of approximately
$11,000,000. The purchase price was allocated as follows:
<TABLE>
<S> <C>
Assets:
Accounts receivable........................................... $ 1,632,593
Prepaid expenses.............................................. 353,004
Property, plant and equipment................................. 15,395,435
Debt issue costs.............................................. 609,250
Other......................................................... 95,720
-----------
18,086,002
Less:
Liability assumed............................................. 2,222,252
-----------
$15,863,750
===========
</TABLE>
The acquisition was accounted for using the purchase method of accounting
and is included in the Company's financial statements from the date of
acquisition.
(4) PREPAID EXPENSES
Prepaid expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Real estate leases.................................................. $272,172
Insurance........................................................... 83,023
Other............................................................... 27,798
--------
$382,993
========
</TABLE>
F-67
<PAGE>
AOA HOLDING, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the
following at December 31:
<TABLE>
<CAPTION>
1995
-----------
<S> <C>
Land............................................................ $ 750,923
Buildings....................................................... 271,846
Advertising structures.......................................... 13,751,018
Trucks and automobiles.......................................... 412,555
Furniture and equipment......................................... 310,271
Replacement parts and work-in-progress.......................... 401,702
-----------
15,898,315
Less accumulated depreciation................................... 1,841,036
-----------
$14,057,279
===========
</TABLE>
(6) LONG-TERM DEBT
Long-term debt at December 31, 1995 consisted of the following:
<TABLE>
<S> <C>
Revolving credit facility, net of discount of $182,499........... $10,180,647
Seller note...................................................... 1,600,000
-----------
$11,780,647
Less current portion............................................. --
$11,780,647
===========
</TABLE>
The revolving credit facility is provided under a financing agreement with a
bank which expires October 28, 1999. Under the revolving credit facility, the
Company may borrow up to $14,500,000. Borrowing limits under the revolving
credit facility are reduced over the term of the agreement to the following:
<TABLE>
<S> <C>
1996............................................................. $12,500,000
1997............................................................. 10,500,000
1998............................................................. 7,500,000
1999............................................................. --
</TABLE>
Borrowings under the facility bear interest, at the Company's option, at the
bank's eurodollar rate, LIBOR plus 3.25%, or base rate, prime plus 2%. The
eurodollar rate and base rate in effect at December 31, 1995 was 9.00% and
10.25%, respectively.
The revolving credit facility agreement is collateralized with substantially
all the assets of the Company and restricts distributions to its members to
those necessary for payment of taxes. If the Company's cash balance exceeds
$500,000 for three consecutive business days, the Company must pay down the
revolving credit balance by the excess amount. The agreement also restricts
the amount of capital expenditures and requires that the Company maintain
certain financial performance measures and financial ratios related to EBITDA
on a quarterly basis (as defined).
The $1,600,000 seller note accrues interest at a rate equal to the six-month
Treasury Bill (6% at December 31, 1995), and all accrued interest is due and
payable upon maturity on October 28, 1999. Quarterly principal payments of
$50,000 are due beginning January 15, 1997. The note is secured by a letter of
credit issued in
F-68
<PAGE>
AOA HOLDING, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
conjunction with the revolving credit facility described above. The $1,600,000
seller note reduces the borrowing limits of the revolving credit facility.
The fair value of the Company's financing arrangements approximates their
carrying values.
(7) MEMBERS' EQUITY
The members' interest in the Company is divided into Class A units and Class
B units. The Company has reserved 17,175 Class A units and 297,825 Class B
units for issuance upon exercise of the unit warrants related to the financing
agreement (see unit warrants below). Each holder of Class A and Class B units
shall have the right to one vote for each unit held.
DISTRIBUTIONS
Prior to dissolution, liquidation or the occurrence of a sale transaction,
the holders of the Class B units shall be entitled to receive distributions,
when and if declared by the Management Committee. No periodic distributions
may be paid on Class A units unless, simultaneously, an identical or greater
amount is distributed with respect to each Class B unit then outstanding.
Upon dissolution, either voluntary or involuntary, the holders of the Class
B units shall be entitled to receive a distribution amount equal to $1 per
unit (original Class B purchase price) in preference to any distributions to
the Class A units. The remaining proceeds of such transaction shall be
distributed to the holders of the Class A units in accordance with their
respective holdings.
CLASS B UNIT REDEMPTION
At any time after repayment in full of all obligations under the debt
agreement, the holders of a majority of the outstanding Class B units may
elect to have the Class B units redeemed, in whole or in part as indicated in
the election, to the extent of funds legally available therefore, by paying in
cash a price equal to the original Class B purchase price of $1 per unit.
CLASS B UNIT EXCHANGE
At any time following repayment in full of the obligations under the debt
agreement, the holders of the Class B units may, by affirmative vote of the
holders of a majority of the Class B units then outstanding, require the
Company to exchange their Class B units for subordinated, interest-only notes
of the Company having other terms and conditions as follows:
(a) an aggregate principal amount equal to the original Class B purchase
price of such Class B units;
(b) a variable interest rate equal to LIBOR plus five percent (5%);
(c) a maturity of three years from the date of such exchange; and
(d) such other reasonable and customary terms as the Management Committee
shall determine.
CLASS B UNIT CONVERSION
Each Class B unit shall be convertible to a Class A unit, at any time upon
written notice by the Company of an impending sale transaction, pursuant to
the vote of the holders of a majority of the Class B units. Such a conversion
shall not actually take place until immediately prior to the consummation of
such sale transaction and if such sale transaction shall not occur then no
conversion shall occur.
F-69
<PAGE>
AOA HOLDING, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNIT WARRANTS
In connection with the financing agreement discussed in Note 6, the Company
issued 17,175 Class A unit warrants and 223,272 Class B unit warrants to an
affiliate of the lending institution. Each warrant entitles the holder to
purchase one unit at an exercise price of $.01 at any time after the warrants
are issued until the earlier of October 14, 2004 or the sixth anniversary of
the date in which all other units owned by the holder of the warrants have
been repurchased by the Company. Pursuant to the Warrant Agreement, under
certain circumstances the Company may in its sole discretion repurchase all
outstanding warrants for cash, on a pro rata basis among the holders of all
warrants. The Warrant Agreement contains a put option, exercisable after
October 31, 1999, which allows the holder of the warrants to require the
Company to purchase the warrants at fair market value.
A portion of the proceeds from the financing agreement (see Note 6) were
allocated to the warrants resulting in a debt discount of $238,043. The debt
discount is amortized over the term of the debt. The warrants have been
subsequently adjusted to their fair market value of $5 per warrant as
determined at December 31, 1995.
UNIT OPTION AGREEMENTS
The Company entered into unit option agreements with its President and CFO
for Class A units. The options are granted based on the Company reaching
certain performance measures in 1995 and 1996, with catch-up provisions in
1997 and 1998 if not previously reached. The options have an exercise price of
$.005 and vest over three years (25%, 25% and 50%). Total Units of 14,630 are
available to be awarded and the 1995 compensation expense related to these
options was $18,125. The unit option agreements also contain provisions for
substantially more options in the event a class B unit conversion occurs as
described above, and upon a liquidity event, as defined, if the Company meets
the stated internal rate of return.
(8) RELATED PARTY TRANSACTIONS
An affiliate of the bank providing the financing agreement (see Note 6) owns
approximately 41% of the total outstanding Class A and B units. The bank was
paid fees of $25,000 and the bank's affiliate was paid a distribution of
$146,190 during 1995.
(9) EMPLOYEE RETIREMENT PLAN
The Company maintains a 401(k) retirement plan in which all employees are
eligible upon reaching twenty one years of age and after providing one year of
service. The Company matches a percentage of the employee's contributions up
to certain limits. The Company incurred $13,527 of expense in 1995 relating to
this retirement plan.
(10) DEFERRED COMPENSATION
The Company maintains a deferred compensation award plan for employees in
the management group as determined by the Management Committee. The President
and CFO are not eligible for the plan. The award is based on a percentage of
earnings in any plan year provided the Company meets certain financial
performance measures as outlined in the plan document. Awards under the plan,
effective January 1, 1995, accrue over the vesting period which is one to five
years from the effective date of the plan or when the Company is sold, if
sooner. After vesting, the Management Committee shall allocate such bonus
awards to each participant in accordance with the plan document. Deferred
compensation expense related to this plan totaled $140,733 for 1995.
F-70
<PAGE>
AOA HOLDING, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company maintains a deferred compensation award plan for the President
and CFO as part of the acquisition agreement. The award is calculated as a
percentage of the executives annual salary and is paid annually. The
percentage paid is up to 100% based on the Company's EBITDA, as defined, at
year end. Deferred compensation expense related to this agreement totaled
$210,000 for the year ended December 31, 1995.
F-71
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Skoglund Communications, Inc. and
Skoglund Communications of St. Cloud, Inc.
Duluth, Minnesota
We have audited the accompanying combined balance sheet of Skoglund
Communications, Inc. and Skoglund Communications of St. Cloud, Inc. as of
December 31, 1995, and the related combined statements of operations, retained
earnings (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Skoglund
Communications, Inc. and Skoglund Communications of St. Cloud, Inc. as of
December 31, 1995, and the results of their operations and their cash flows
for the year then ended in conformity with generally accepted accounting
principles.
McGLADREY & PULLEN, LLP
Duluth, Minnesota
February 2, 1996
F-72
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Skoglund Communications, Inc. and
Skoglund Communications of St. Cloud, Inc.:
We have audited the accompanying combined balance sheet of Skoglund
Communications, Inc. and Skoglund Communications of St. Cloud, Inc. (Minnesota
corporations) as of December 31, 1994 and the related combined statements of
operations and retained earnings (deficit) and cash flows for the year then
ended. The combined financial statements referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Skoglund
Communications, Inc. and Skoglund Communications of St. Cloud, Inc. as of
December 31, 1994 and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Minneapolis, Minnesota
March 24, 1995
F-73
<PAGE>
SKOGLUND COMMUNICATIONS, INC. AND
SKOGLUND COMMUNICATIONS OF ST. CLOUD, INC.
COMBINED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS (Note 3)
Current Assets:
Cash and cash equivalents............................ $ 239,629 $ 406,553
Trade receivables, less allowance for doubtful
accounts of $141,000 in 1995 and $116,000 in 1994... 728,900 740,530
Note receivable from shareholder (Note 6)............ -- 300,000
Note receivable, current maturities (Note 8)......... 3,185 --
Inventories, at cost................................. 63,882 74,671
Prepaid rent expense................................. 202,103 217,091
Other prepaid expenses............................... 109,889 176,432
---------- ----------
Total current assets............................. 1,347,588 1,915,277
---------- ----------
Property and Equipment, at cost:
Land................................................. 529,380 529,163
Advertising display structures....................... 6,336,340 6,078,081
Buildings............................................ 1,122,984 1,112,349
Equipment............................................ 1,215,987 1,190,230
---------- ----------
9,204,691 8,909,823
Accumulated depreciation............................. (4,574,251) (4,218,413)
---------- ----------
Net property and equipment....................... 4,630,440 4,691,410
---------- ----------
Other Assets:
Investment in partnership............................ 166,127 163,197
Note receivable, less current maturities (Note 8).... 144,598 --
Property held for resale............................. -- 140,888
Other................................................ 131,660 158,510
---------- ----------
Total other assets............................... 442,385 462,595
---------- ----------
$6,420,413 $7,069,282
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current maturities of long-term debt (Note 3)........ $ 527,443 $ 467,253
Accounts payable..................................... 52,509 88,230
Accrued expenses:
Salaries and wages................................. 162,680 139,492
Payroll and other taxes............................ 74,021 63,861
Employee benefits.................................. 90,661 113,496
Other.............................................. 64,966 50,984
Distributions payable (Note 6)....................... 200,000 300,000
---------- ----------
Total current liabilities........................ 1,172,280 1,223,316
Long-Term Debt, less current maturities (Note 3)..... 3,211,591 3,839,385
Subordinated Note Payable to Stockholder (Note 6).... 1,100,000 1,100,000
---------- ----------
Total liabilities................................ 5,483,871 6,162,701
---------- ----------
Stockholder's Equity (Note 6):
Common stock....................................... 130,000 130,000
Additional paid-in capital......................... 2,800,000 2,800,000
Retained earnings (deficit)........................ (1,993,458) (2,023,419)
---------- ----------
Total stockholder's equity....................... 936,542 906,581
---------- ----------
$6,420,413 $7,069,282
========== ==========
</TABLE>
See Notes to Combined Financial Statements.
F-74
<PAGE>
SKOGLUND COMMUNICATIONS, INC. AND
SKOGLUND COMMUNICATIONS OF ST. CLOUD, INC.
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
REVENUES:
Poster................................................ $2,558,572 $2,439,560
Painted............................................... 3,363,323 3,126,131
Other................................................. 192,865 225,786
---------- ----------
Gross revenues...................................... 6,114,760 5,791,477
Less commissions and discounts........................ 623,542 638,890
---------- ----------
Net operating revenues.............................. 5,491,218 5,152,587
---------- ----------
OPERATING EXPENSES:
Operations............................................ 1,926,350 1,885,250
Selling, general, and administrative.................. 1,833,347 1,779,297
Depreciation.......................................... 435,240 433,337
Amortization.......................................... 50,835 106,117
---------- ----------
Total operating expenses............................ 4,245,772 4,204,001
---------- ----------
Operating income.................................... 1,245,446 948,586
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense...................................... (509,483) (453,357)
Interest income....................................... 33,578 25,942
Miscellaneous, net.................................... 9,614 31,721
---------- ----------
(466,291) (395,694)
---------- ----------
Net income.......................................... $ 779,155 $ 552,892
========== ==========
PRO FORMA DATA (UNAUDITED):
Net income, as reported............................... $ 779,155 $ 552,892
Pro forma provision for income taxes.................. 315,300 223,738
---------- ----------
Pro forma net income................................ $ 463,855 $ 329,154
========== ==========
Pro forma net income per common share................. $ 579.82 $ 411.44
========== ==========
Weighted average shares outstanding................... 800 800
========== ==========
</TABLE>
COMBINED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
(Deficit), beginning of year......................... $(2,023,419) $(2,276,311)
Distributions to stockholder....................... (749,194) (300,000)
Net income......................................... 779,155 552,892
----------- -----------
(Deficit), end of year (Note 6)...................... $(1,993,458) $(2,023,419)
=========== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-75
<PAGE>
SKOGLUND COMMUNICATIONS, INC. AND
SKOGLUND COMMUNICATIONS OF ST. CLOUD, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 779,155 $552,892
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 486,075 539,454
Gain on sale of property and equipment................. (10,816) --
Equity in earnings of partnership...................... (2,930) (18,137)
Change in working capital components
(Increase) decrease in:
Trade receivables.................................... (33,965) (74,089)
Inventories.......................................... 10,789 (27,818)
Prepaid rent expense and other prepaid expenses...... 81,531 (99,676)
Increase (decrease) in:
Accounts payable..................................... (35,721) (125,561)
Accrued expenses..................................... 20,896 97,194
---------- --------
Net cash provided by operating activities........... 1,295,014 844,259
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (399,614) (301,458)
Proceeds from sale of property and equipment............ 23,426 --
Payments received on notes receivable................... 2,217 --
Increase in other assets................................ (33,097) --
Condemnation proceeds................................... 12,734 22,647
Payment for asset acquisitions.......................... -- (154,773)
---------- --------
Net cash used for investing activities.............. (394,334) (433,584)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on term note......................... (516,796) (381,737)
Principal payments on other long-term debt.............. (50,808) (378,317)
Proceeds from long-term debt............................ -- 300,000
Net payments on revolving credit note................... -- (48,482)
Distributions paid to stockholder....................... (500,000) --
---------- --------
Net cash used for financing activities.............. (1,067,604) (508,536)
---------- --------
Net decrease in cash and cash equivalents........... (166,924) (97,861)
CASH AND CASH EQUIVALENTS:
Beginning of year ...................................... 406,553 504,414
---------- --------
End of year............................................. $ 239,629 $406,553
========== ========
</TABLE>
See Notes to Combined Financial Statements.
F-76
<PAGE>
SKOGLUND COMMUNICATIONS, INC. AND
SKOGLUND COMMUNICATIONS OF ST. CLOUD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND PRESENTATION
Nature of business: The Company is engaged in outdoor advertising through
the display of posters and painted bulletins, principally in Duluth and St.
Cloud, Minnesota, and Eau Claire, Wisconsin. The Company extends credit to its
customers, all on an unsecured basis, on terms that it establishes for
individual customers.
Presentation: The accompanying combined financial statements include the
accounts of Skoglund Communications, Inc. (SCI) and Skoglund Communications of
St. Cloud, Inc. (SCSC), collectively referred to as the Company. Combined
financial statements are being presented due to the common ownership and
interdependence of SCI and SCSC. All significant intercompany accounts and
transactions have been eliminated in combination. Both companies are wholly-
owned by the same individual.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents: The Company considers all investments with an
original maturity of 90 days or less to be cash equivalents. The Company
invests primarily in short-term money market instruments.
Disclosures about fair value of financial instruments: The following methods
and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate that value:
Cash and cash equivalents--The carrying amount approximates fair value
because of the short maturity of those instruments.
Note receivable--The carrying amount approximates fair value because the
note was received in 1995 and no significant changes have occurred since
that time.
Long-term debt and note payable to shareholder--The carrying amount
approximates fair value because the interest rate is at a variable rate
corresponding to the prime rate.
Property and equipment: Depreciation of advertising display structures,
buildings and equipment was provided principally on a straight-line basis for
financial reporting purposes, using the following estimated lives:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Advertising display structures......................................... 15
Buildings.............................................................. 25
Equipment.............................................................. 3-10
</TABLE>
The Company follows the composite method of depreciation for advertising
display structures whereby the cost and related accumulated depreciation of
advertising display structures retired or otherwise disposed of are eliminated
from the respective accounts and the resulting gains or losses are credited or
charged to the allowance for accumulated depreciation. In addition, proceeds
received for the condemnation of advertising display structures are credited
to accumulated depreciation to the extent such proceeds exceed the direct
legal and other related costs incurred during the condemnation proceedings.
Accumulated depreciation included in the accompanying combined balance
sheets consists of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Advertising display structures........................ $3,018,310 $2,736,202
Buildings............................................. 504,166 457,817
Equipment............................................. 1,051,775 1,024,394
---------- ----------
$4,574,251 $4,218,413
========== ==========
</TABLE>
F-77
<PAGE>
SKOGLUND COMMUNICATIONS, INC. AND
SKOGLUND COMMUNICATIONS OF ST. CLOUD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Investment in partnership: The Company owns a 1% general and 41.5% limited
partnership interest in a partnership that engages in outdoor advertising
activities in Florida. These partnership interests are accounted for by the
equity method of accounting under which the Company's share of the income or
loss of the partnership is recognized as income in the Company's income
statement and added to the investment account and distributions received are
deducted from the investment account.
Revenue recognition: The Company recognizes revenue from advertising
contracts on an accrual basis ratably over the term of the contract, as
advertising services are provided.
Amortization: Deferred financing costs are amortized on a straight-line
basis over the term of the related debt. The cost of noncompete agreements are
amortized on a straight-line basis over the term of the agreements, generally
three to five years.
Income taxes: SCI and SCSC have elected to be taxed as S corporations. As
such, the taxable income of SCI and SCSC is includable in the individual
returns of the shareholder for federal and state tax purposes. The Company
reports certain income and expense items, principally depreciation methods and
lives, for income tax purposes on a basis different from that reflected in the
combined financial statements. Total accumulated taxable temporary differences
amounted to $2,100,000 as of December 31, 1995. The Company also has federal
investment tax credit carryforwards of $152,000 and net operating loss
carryforwards of $1,816,000 as of December 31, 1995 which relate to years
prior to the S corporation election and expire in varying amounts from 1998 to
2003. These carryforwards will only be available for use if the Company
reverts to a C corporation during the carryforward period and generates
taxable income.
Use of estimates in the preparation of financial statements: 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.
Pro forma net income per common share (unaudited): Pro forma net income per
common share is computed based upon the total weighted average number of
common shares outstanding during the period of Skoglund Communications, Inc.
and Skoglund Communications of St. Cloud, Inc.
Pro forma income taxes (unaudited): The unaudited pro forma adjustment to
reflect income taxes in the accompanying statement of operations is for
informational purposes only and has been calculated based on the estimated
effective tax rate in each year, assuming the Company had been subject to
corporate income taxes.
F-78
<PAGE>
SKOGLUND COMMUNICATIONS, INC. AND
SKOGLUND COMMUNICATIONS OF ST. CLOUD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Term note, interest at 0.75% over bank's base rate
(base rate 8.5% at December 31, 1995 and 1994), due
in monthly installments of $65,000 including
interest, through December 1997 when the remaining
balance of the note is due........................... $3,501,841 $4,018,263
Industrial development revenue note, interest at 85%
of the bank's base rate (base rate 9.5% at December
31, 1995 and 1994), due in monthly installments of
$3,944, plus interest, through March 2000,
collateralized by certain property and equipment and
personally guaranteed by the shareholder............. 198,191 245,519
Other................................................. 39,002 42,856
---------- ----------
3,739,034 4,306,638
Current maturities................................ (527,443) (467,253)
---------- ----------
$3,211,591 $3,839,385
========== ==========
</TABLE>
The Company has a credit agreement with a bank which provides the Company
with a revolving credit note and a term note. Under the revolving credit note
the amount of funds available to the Company ($368,000 as of December 31,
1995) is based on the Company's qualified trade receivables, as defined in the
agreement, with a maximum borrowing level of $500,000. In addition, the
Company may borrow any amounts which have been prepaid on the term note
($100,000 as of December 31, 1995) up to an additional $500,000. The credit
agreement is collateralized by substantially all the Company's assets and is
guaranteed by the shareholder.
The credit agreement and the industrial development revenue note contain
restrictive covenants which require, among other matters, that the Company
maintain a defined level of combined tangible net worth and meet other
financial performance measures. The covenants also restrict additional
indebtedness and certain payments, including dividends (except for
distribution of current year profits) and officers' compensation. As of
December 31, 1995 the Company was in compliance with the terms of these
agreements.
Aggregate annual maturities required on long-term debt as of December 31,
1995 are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1996............................................................ $ 527,000
1997............................................................ 3,078,000
1998............................................................ 52,000
1999............................................................ 53,000
2000............................................................ 15,000
Thereafter........................................................ 14,000
----------
$3,739,000
==========
</TABLE>
NOTE 4. RETIREMENT PLANS
The Company has an employee retirement savings 401(k) plan for employees not
covered by a collective bargaining agreement. Employees become eligible for
participation in the plan upon completion of one year of service and
attainment of age 21. Under the terms of the plan, participants may elect to
contribute up to 10% of their salaries to the plan. The Company matches 50% of
all participant contributions until the participant's
F-79
<PAGE>
SKOGLUND COMMUNICATIONS, INC. AND
SKOGLUND COMMUNICATIONS OF ST. CLOUD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
contribution reaches 6% of eligible wages. Company contributions to an
individual participant's account vest after three years of service;
forfeitures are reallocated among the remaining plan participants. The
Company's contributions totaled approximately $29,000 in 1995 and $26,000 in
1994.
The Company also contributes to a multiemployer defined benefit pension plan
covering union employees. These contributions are determined in accordance
with the provisions of a negotiated labor contract and are based on the number
of employee hours worked. The Company's contributions totaled approximately
$26,000 in 1995 and $23,000 in 1994.
NOTE 5. OPERATING LEASES
The Company leases certain facilities, equipment and vehicles under
operating leases which expire at various dates through 2000. Rent expense
related to these operating leases was approximately $162,000 in 1995 and
$128,000 in 1994. Future minimum lease commitments for all noncancelable
operating leases with initial or remaining terms in excess of one year are
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1996.............................................................. $101,000
1997.............................................................. 76,000
1998.............................................................. 76,000
1999.............................................................. 78,000
2000.............................................................. 46,000
--------
$377,000
========
</TABLE>
A number of the Company's advertising display structures are located on
leased property. Total expense applicable to these leases was approximately
$682,000 in 1995 and $611,000 in 1994.
NOTE 6. RELATED PARTY AND INTERCOMPANY TRANSACTIONS
STOCKHOLDER'S EQUITY:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
SCI common stock, no par value, 2,500 shares autho-
rized; 300 shares issued and outstanding........... $ 30,000 $ 30,000
SCSC common stock, no par value, 25,000 shares
authorized; 500 shares issued and outstanding...... 100,000 100,000
----------- -----------
130,000 130,000
----------- -----------
SCI additional paid-in capital...................... -- --
SCSC additional paid-in capital..................... 2,800,000 2,800,000
----------- -----------
2,800,000 2,800,000
----------- -----------
SCI retained earnings............................... 82,357 200,742
SCSC retained earnings (deficit).................... (2,075,815) (2,224,161)
----------- -----------
(1,993,458) (2,023,419)
----------- -----------
$ 936,542 $ 906,581
=========== ===========
</TABLE>
F-80
<PAGE>
SKOGLUND COMMUNICATIONS, INC. AND
SKOGLUND COMMUNICATIONS OF ST. CLOUD, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Stockholder transactions: SCI declared a $300,000 distribution to the
stockholder in 1994 that was paid in 1995. During 1995 SCI declared
distributions to the stockholder of $749,194 of which $200,000 was paid in
1995, $349,194 was distributed in the form of cancellation of a note
receivable and accrued interest from the stockholder in 1995 and $200,000 was
paid in January 1996.
The note receivable from the stockholder was collected in the form of a
distribution to the stockholder during 1995. Interest income on the note
receivable was approximately $23,000 and $26,000 for the years ended December
31, 1995 and 1994, respectively.
The subordinated note payable to the stockholder of $1,100,000 at December
31, 1995 and 1994 bears interest at prime rate plus 1% (prime 8.5% at December
31, 1995 and 1994). The note is due on demand after January 1, 1997 and is
subordinated to the revolving credit note and the term note. Interest expense
on the note payable was approximately $108,000 and $90,000 for the years ended
December 31, 1995 and 1994, respectively.
Management agreement: SIC has an agreement with SCSC to provide management,
accounting, advertising, maintenance and other services as required for the
day-to-day operations of the business. All direct costs incurred on behalf of
SCI or SCSC are charged directly to the respective company. The indirect costs
of these services are allocated between SCI and SCSC based on their pro-rata
share of revenues. Total allocated expenses to SCSC were approximately
$272,000 and $272,000 for the years ended December 31, 1995 and 1994,
respectively, and have been eliminated in the combination.
NOTE 7. SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest..................................... $509,485 $463,966
======== ========
Supplemental Schedule of Noncash Investing and Financing Ac-
tivity:
Note receivable............................................ $150,000 $ --
======== ========
Note receivable and accrued interest distributed to stock-
holder.................................................... $349,194 $ --
======== ========
</TABLE>
NOTE 8. NOTE RECEIVABLE
The note requires monthly installments of $1,302, including interest at
8.5%, through March 2000 when the remaining balance of the note is due.
NOTE 9. EVENT SUBSEQUENT TO DECEMBER 31, 1995 (UNAUDITED)
On October 31, 1996, OCI (N) Corp. acquired substantially all of the assets
of Skoglund Communications, Inc. and Skoglund Communications of St. Cloud,
Inc. (the Companies). The Companies ceased operations in the outdoor
advertising industry at that time.
F-81
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Outdoor West, Inc. of Tennessee
Atlanta, Georgia
We have audited the accompanying balance sheets of Outdoor West, Inc. of
Tennessee as of June 30, 1996 and 1995 and the related statements of
operations and retained earnings (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 Outdoor West, Inc. of
Tennessee as of June 30, 1996 and 1995 and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
MORRISON AND SMITH
Certified Public Accountants
Tuscaloosa, Alabama
August 22, 1996
(Except for Note 14, as to which the date is February 7, 1997,
and Note 15, as to which the date is May 26, 1997)
F-82
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1996 1995 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash in Banks.............. $ 207,137 $ 96,971 $4,142,342 $ 128,779
Receivables, Net of
Allowance for Doubtful
Accounts.................. 507,722 367,279 2,444 429,512
Materials Inventory........ 17,802 5,743 5,743
Prepayments................ 59,206 54,424 65,871
Insurance Escrow Deposits.. 24,376 31,680
----------- ----------- ---------- ----------
791,867 548,793 4,144,786 661,585
----------- ----------- ---------- ----------
Properties and Facilities--
Cost........................ 4,336,972 4,198,697 470,521 4,360,755
Less: Accumulated Deprecia-
tion and Amortization....... (3,549,183) (3,546,803) (172,500) (3,572,706)
----------- ----------- ---------- ----------
787,789 651,894 298,021 788,049
----------- ----------- ---------- ----------
Other Assets
Cash Held in Escrow........ 4,480,383
Receivables, Affiliates.... 587,903 612,254
Intangible Assets.......... 63,778 115,472 66,927
Deposits................... 1,555 1,555 1,755 1,555
Deferred Tax Benefit....... 97,820 999,935 97,820
----------- ----------- ---------- ----------
751,056 1,116,962 4,482,138 778,556
----------- ----------- ---------- ----------
TOTAL ASSETS............. $ 2,330,712 $ 2,317,649 $8,924,945 $2,228,190
=========== =========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable........... $ 106,893 $ 94,291 $ 197,156 $ 100,808
Long-term Debt, Current
Portion................... 241,534 1,453,577 37,748 216,338
Net Obligations under
Capital Leases--Current
Portion................... 7,208 6,606 7,864 6,606
Accrued Expenses........... 98,748 120,913 83,852 15,537
Unearned Income............ 177,107 98,544 161,282
Income Taxes Payable....... 70,099 1,684,039 40,195
----------- ----------- ---------- ----------
701,589 1,773,931 2,010,659 540,766
----------- ----------- ---------- ----------
Long-Term Liabilities
Notes Payable.............. 1,095,618 1,178,754 180,456 1,130,233
Notes Payable, Affiliates.. 2,560,282 1,067,402 2,244,420 2,802,915
Net Obligations Under Capi-
tal Leases................ 77,284 84,491 71,892 79,591
Deferred Income Tax Pay-
able...................... 1,350,121
----------- ----------- ---------- ----------
3,733,184 2,330,647 3,846,889 4,012,739
----------- ----------- ---------- ----------
TOTAL LIABILITIES........ 4,434,773 4,104,578 5,857,548 4,553,505
----------- ----------- ---------- ----------
Stockholders' Equity (Defi-
cit)
Common Stock ($1 par value,
250,000 shares authorized;
1,000 shares issued and
outstanding).............. 1,000 1,000 1,000 1,000
Retained Earnings (Defi-
cit)...................... (2,105,061) (1,787,929) 3,066,397 (2,326,315)
----------- ----------- ---------- ----------
Total Stockholders' Eq-
uity (Deficit).......... (2,104,061) (1,786,929) 3,067,397 (2,325,315)
----------- ----------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY
(DEFICIT)............... $ 2,330,712 $ 2,317,649 $8,924,945 $2,228,190
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1996 1995 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Outdoor Advertising........ $ 3,982,830 $ 3,706,759 $3,219,089 $ 2,951,323
Less: Agency Commissions... (383,611) (367,214) (269,224) (280,328)
----------- ----------- ---------- -----------
3,599,219 3,339,545 2,949,865 2,670,995
Other Income................ 38,275 (7,100) 2,259 37,709
----------- ----------- ---------- -----------
Net Revenues.............. 3,637,494 3,332,445 2,952,124 2,708,704
----------- ----------- ---------- -----------
Operating Expenses:
Direct Advertising......... 1,263,620 1,083,245 1,068,156 896,543
General and
Administrative............ 1,424,764 1,476,097 1,371,035 1,176,417
Depreciation and
Amortization.............. 138,338 153,838 107,309 114,921
----------- ----------- ---------- -----------
Total Operating Expenses.. 2,826,722 2,713,180 2,546,500 2,187,881
----------- ----------- ---------- -----------
Operating Income............ 810,772 619,265 405,624 520,823
Gain on Sale of
Substantially all Operating
Assets..................... 8,072,220
Interest expense............ (172,048) (279,167) (95,451) (142,768)
Net loss on sale of fixed
assets..................... (9,511) (319) (71)
----------- ----------- ---------- -----------
Net income before income
taxes and extraordinary
item....................... 629,213 339,779 8,382,322 378,055
----------- ----------- ---------- -----------
Provision for income tax
expense:
Current.................... 60,427 981 1,762,923 30,523
Deferred................... 902,115 132,691 1,447,941 902,115
----------- ----------- ---------- -----------
Total provision for income
taxes...................... 962,542 133,672 3,210,864 932,638
----------- ----------- ---------- -----------
Net income before
extraordinary items........ (333,329) 206,107 5,171,458 (554,583)
Extraordinary item--gain on
early extinguishment of
debt (net of income taxes
of $9,671)................. 16,197 16,197
----------- ----------- ---------- -----------
Net income (loss)........... (317,132) 206,107 5,171,458 (538,386)
Retained earnings
(deficit)--beginning....... (1,787,929) (1,994,036) (2,105,061) (1,787,929)
----------- ----------- ---------- -----------
Retained earnings
(deficit)--ending.......... $(2,105,061) $(1,787,929) $3,066,397 $(2,326,315)
=========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED ENDED ENDED
JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1996 1995 1997 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Cash received from
customers & affiliates.... $3,537,339 $3,290,228 $2,842,136 $2,671,500
Cash paid for direct
advertising............... (1,275,679) (1,086,654) (1,050,354) (896,543)
Cash paid for general &
administrative............ (1,372,937) (1,390,195) (1,312,974) (1,270,217)
Interest expense........... (188,013) (286,943) (96,295) (159,577)
Income taxes paid.......... (981) (148,983)
Interest & dividends
received.................. 1,685 390 2,220 515
Other income (expense)..... 62,459 (7,490) 39 63,063
---------- ---------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES........ 764,854 518,355 235,789 408,741
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
property & equipment...... 6,499 526 9,150,000
Proceeds from sale placed
in escrow................. (4,480,383)
Payments for purchase of
property & equipment...... (245,052) (162,900) (118,358) (209,532)
Payments from deposits..... (125) (200)
Payments (to) from
employees for advances.... 109
Payments (to) from
affiliates for advances... 898,023 (95,403) 278,995 1,123,259
Payments (for) from
investments &
intangibles............... (19,328) 16,602
---------- ---------- ---------- ----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES........ 640,142 (241,191) 4,830,054 913,727
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from borrowings... 1,421,511 64,464 163,973 1,421,511
Repayment of debt.......... (2,716,341) (323,330) (1,294,611) (2,712,171)
---------- ---------- ---------- ----------
NET CASH USED BY FINANCING
ACTIVITIES.................. (1,294,830) (258,866) (1,130,638) (1,290,660)
---------- ---------- ---------- ----------
NET CHANGE IN CASH AND CASH
EQUIVALENTS................. 110,166 18,298 3,935,205 31,808
CASH AND CASH EQUIVALENTS--
BEGINNING................... 96,971 78,673 207,137 96,971
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS--
ENDING...................... $ 207,137 $ 96,971 $4,142,342 $ 128,779
========== ========== ========== ==========
Reconciliation of net income
to net cash provided by
operating activities:
Net income (loss).......... $ (317,132) $ 206,107 $5,171,458 $ (554,583)
Depreciation and
Amortization.............. 138,338 153,838 107,309 114,921
(Gain) loss on sale of
property & equipment...... 9,511 319 (8,072,149)
(Gain) loss on early
extinguishment of debt.... 25,831 25,831
(Increase) decrease in
accounts receivable....... (140,443) (28,693) 55,659 (62,233)
(Increase) decrease in
inventory................. (12,059) (3,409) 9,827
(Increase) decrease in
prepayments & escrow...... 19,594 (31,484) 3,544 (18,751)
Increase (decrease) in
accounts payable, accrued
expenses & unearned
income.................... 139,099 88,986 1,512,200 1,441
Increase (decrease) in
deferred taxes ........... 902,115 132,691 1,447,941 902,115
---------- ---------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES........ $ 764,854 $ 518,355 $ 235,789 $ 408,741
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1: ORGANIZATIONAL HISTORY OF THE COMPANY
Outdoor West, Inc. of Tennessee ("the Company"), organized in 1980, operates
an outdoor advertising business in the east Tennessee market. The Company
currently has 958 displays.
The Company is a wholly owned subsidiary of Outdoor West, Inc., a management
and holding company. Outdoor West, Inc. also owns one other subsidiary which
operates in the outdoor advertising business, Outdoor West, Inc. of Georgia,
and Data Management Business Records Storage, Inc., a subsidiary formerly in
the data management and storage service business.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
The Company's financial statements are presented on the accrual basis.
Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
money market accounts and highly liquid debt instruments purchased with a
maturity of three months or less.
The Company maintains cash balances at several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured balances held in accounts aggregate to
$55,843 at June 30, 1996.
Allowance for Doubtful Trade Receivables
Bad debts are accounted for on the reserve method. The allowances for
doubtful accounts at June 30, 1996 and 1995 were $640 and $1,860,
respectively.
Materials Inventory
Materials inventory is construction and maintenance materials on hand, new
and used. New materials are valued at original cost. Used materials are priced
at cost when purchased or one-half estimated new cost, when original cost is
not available.
Billboard Capitalization and Depreciation Policy
Billboards are capitalized at materials cost, freight, subcontract fees,
direct labor and related overhead. Depreciation on billboards is calculated
using the straight-line method at estimated useful lives ranging from five to
twenty years, depending on the tax law in effect at the time of
capitalization.
Property and Depreciation
Property and equipment are recorded at cost. Depreciation is provided on the
straight-line method over the estimated useful lives of the respective assets.
Maintenance and repairs are charged to expense as incurred; major renewals and
betterments are capitalized. When items of property and equipment are sold or
retired, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is recognized.
F-86
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
In acquisitions of billboard businesses, agreements not to compete were part
of the purchase price. Non-compete agreements are amortized over the lives of
the agreements. Loan costs are amortized over the lives of the loans.
Income Taxes
The Company is included in a consolidated federal income tax return of an
affiliated group. Income tax expense in the Company's statement of operations
has been allocated based on the ratio that each member's separate taxable
income bears to the sum of the separate taxable incomes of all members having
taxable income for the year. Unused net operating losses and tax credits
available for carryforward to future years are detailed in Note 4.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 3: INTANGIBLE ASSETS
Intangible assets as of June 30, 1996 and 1995 consist of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Non-compete agreements...................................... $45,834 $ 58,335
Loan costs.................................................. 17,944 57,137
------- --------
Total..................................................... $63,778 $115,472
======= ========
</TABLE>
NOTE 4: INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statements of Financial Accounting Standards Number 109, "Accounting for
Income Taxes". Under the provisions of Statement 109, a current tax liability
or asset should be recognized for the estimated taxes currently payable or
refundable for the current year and a deferred tax liability or asset should
be recognized for the estimated future tax effects attributable to temporary
differences and carryforwards. Temporary differences represent the difference
between the book and tax bases of assets or liabilities that will result in
taxable or deductible amounts in future years when the asset or liability is
recovered or settled.
Summaries of the provision for income tax expense for the years ended June
30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Currently payable.......................................... $ 60,427 $ 981
Deferred................................................... 26,948 4,605
Utilization of operating loss carryforward................. 875,167 128,086
-------- --------
Provision for income tax expense......................... $962,542 $133,672
======== ========
</TABLE>
F-87
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of income tax at the statutory rate to the Company's
effective rate for the years ended June 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Computed at the expected statutory rate............................ 38.0% 38.0%
Utilization of deferred tax asset by affiliate..................... 114.0
Other differences.................................................. 1.0 1.3
----- ----
Effective rate..................................................... 153.0% 39.3%
===== ====
</TABLE>
During the fiscal year ended June 30, 1996, a member of the Company's
affiliated group recognized a significant gain on the sale of substantially
all operating assets. As a result, a significant portion of net operating loss
carryforwards generated by the Company and recorded as a deferred tax asset
was utilized by the affiliate.
For the year ended June 30, 1996, the Company was included in a consolidated
federal income tax return. The Company has carryovers as follows:
<TABLE>
<CAPTION>
CARRYOVER AMOUNT EXPIRATION
<S> <C> <C>
Net operating loss--state only............................ $1,739,537 1999-2008
</TABLE>
The deferred tax benefit comprised the following at June 30, 1996:
<TABLE>
<S> <C>
Deferred tax benefit:
Net operating loss carryforward..................................... $104,372
Other temporary differences......................................... (6,552)
Valuation Allowance................................................. -0-
--------
Net deferred tax benefit.............................................. $ 97,820
========
</TABLE>
Management believes it is more likely than not that it will generate taxable
income sufficient to realize the tax benefit associated with state net
operating loss carryforwards. This belief is based upon, among other factors,
expectations of continued growth in sales, changes in operations, and the
significant reduction of notes payable which occurred during the fiscal year
ended June 30, 1996. If the Company is unable to generate sufficient taxable
income in the future through operating results, increases in the valuation
allowance will be required through a charge to income tax expense.
NOTE 5: CAPITAL STOCK
The par value of the common stock of the Company is $1. 250,000 shares are
authorized, 1,000 shares are issued and outstanding.
NOTE 6: PROPERTIES AND FACILITIES
<TABLE>
<CAPTION>
ESTIMATED
JUNE 30, JUNE 30, LIVES
1996 1995 (IN YEARS)
<S> <C> <C> <C>
Leasehold improvements......................... $ 96,985 $ 96,985 5-40
Billboards and vinyl........................... 3,633,028 3,578,053 15-20
Autos and trucks............................... 315,208 224,943 3-6
Equipment...................................... 25,963 32,407 5-12
Computer equipment............................. 92,639 92,639 5
Office furniture and fixtures.................. 54,999 55,520 5-10
Leased assets.................................. 118,150 118,150 7-25
---------- ----------
4,336,972 4,198,697
Less accumulated depreciation.................. 3,549,183 3,546,803
---------- ----------
$ 787,789 $ 651,894
========== ==========
</TABLE>
F-88
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7: NOTES PAYABLE
<TABLE>
<CAPTION>
BALANCE
JUNE 30,
MATURITY COLLATERAL INTEREST RATE 1996
<C> <S> <C> <C>
12/00-12/02 Substantially all assets of the
Company except those subject to prior
liens................................. 8.125%-8.375% $1,141,324
8/97-10/02 Rolling stock and equipment........... Various 195,828
</TABLE>
Principal maturities of notes payable for the five years ending after June
30, 1996 are:
<TABLE>
<S> <C>
6/30/97.......................................................... $ 241,534
6/30/98.......................................................... 242,849
6/30/99.......................................................... 217,339
6/30/00.......................................................... 235,174
6/30/01.......................................................... 190,132
Maturities after 5 years......................................... 210,124
----------
Total Maturities............................................... 1,337,152
Less: current maturities......................................... 241,534
----------
Long-Term Maturities........................................... $1,095,618
==========
</TABLE>
Additional Restrictions Required by Long-Term Debt
The Company entered into loan agreements with First American National Bank.
The Company is required to comply with certain restrictive covenants which
require, among other things, minimum net worth and a maximum debt to net worth
ratio. While the Company was in violation of these two covenants, the lender
has issued a waiver for these violations as of June 30, 1996.
NOTE 8: TRANSACTIONS WITH RELATED PARTIES
The Company has various lease and management agreements with affiliates.
Amounts included in the statement of income with respect to transactions with
affiliates for June 30, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996
---------------------------------
OUTDOOR THE EAGLE PEACHTREE
WEST, INC. GROUP PROPERTIES
<S> <C> <C> <C>
Expenses
Land lease................................. $ $ 74,520 $ 27,650
Interest................................... 1,033
Management fees............................ 275,000
--------- -------- --------
Net transactions with related parties........ $(275,000) $(75,553) $(27,650)
========= ======== ========
<CAPTION>
1995
---------------------------------
OUTDOOR THE EAGLE PEACHTREE
WEST, INC. GROUP PROPERTIES
<S> <C> <C> <C>
Expenses
Land lease................................. $ $ 34,800 $ 25,500
Management fees............................ 275,000
--------- -------- --------
Net transactions with related parties........ $(275,000) $(34,800) $(25,500)
========= ======== ========
</TABLE>
F-89
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Receivables from and payables to affiliates as of June 30, 1996 and 1995
are:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
RECEIVABLES FROM:
Outdoor West, Inc. of Georgia....................... $ 587,903 $
========== ==========
NOTES PAYABLE TO:
The Eagle Group..................................... $ 18,774 $
Outdoor West, Inc................................... 753,234 995,358
Data Management Business Records Storage, Inc....... 1,788,274
Outdoor West, Inc. of Georgia....................... 72,044
---------- ----------
$2,560,282 $1,067,402
========== ==========
</TABLE>
Charles H. Renfroe is the Chairman of the Board of Directors of Outdoor
West, Inc. The Eagle Group is a sole proprietorship, owned by Mr. Renfroe,
which operates a mini-warehouse project and leases office and warehouse space
to Outdoor West, Inc. of Georgia. In addition, The Eagle Group owns 19 parcels
of land leased to Outdoor West, Inc. of Georgia and the Company.
Peachtree Properties, a general partnership, was created by Charles H.
Renfroe to allow key personnel to participate in acquiring parcels of land to
be leased to the outdoor advertising companies for billboard sites. Ten
billboard sites were leased to Outdoor West, Inc. of Georgia and Tennessee.
Peachtree Properties was liquidated effective April 1, 1996.
In the opinion of management, all of the transactions with related parties
are at rates and terms equivalent to those that prevail in arm's-length
transactions.
NOTE 9: UNEARNED INCOME
Unearned income represents primarily income billed one month in advance for
billboard advertising. Most of this was recognized as income in July, 1996.
NOTE 10: OBLIGATIONS UNDER CAPITAL LEASE
The Company is the lessee of property under capital leases with expirations
as disclosed in the following table. Assets and liabilities under capital
leases are recorded at the lower of the present value of the minimum lease
payments or the fair value of the asset. The assets are depreciated over the
lower of their related lease terms or their estimated productive lives.
Depreciation of assets under capital leases is included in depreciation
expense for 1996 and 1995.
Interest rates on capitalized leases are imputed based on the lower of the
Company's incremental borrowing rate at the inception of the lease or the
lessor's implicit rate of return.
F-90
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
General Description of Capital Leases
<TABLE>
<CAPTION>
JUNE 30, 1996
LEASED PROPERTY BALANCE TERMINATION DATE
<S> <C> <C>
Land and building................................ $84,492 11/01/04
=======
</TABLE>
Net Obligations Under Capital Leases
at June 30, 1996:
<TABLE>
<CAPTION>
CAPITAL LESS: BALANCE
LEASE IMPUTED SHEET
BALANCE INTEREST VALUES
<S> <C> <C> <C>
Current liabilities................................. $ 14,316 $ 7,108 $ 7,208
======== ======= =======
Long-term liabilities............................... $106,177 $28,893 $77,284
======== ======= =======
</TABLE>
Gross Assets and Accumulated Depreciation
<TABLE>
<CAPTION>
JUNE 30, 1996
<S> <C>
Land and office building........................................ $118,150
Less accumulated depreciation................................... (59,990)
--------
$ 58,160
========
</TABLE>
Minimum Future Lease Payments
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
<S> <C>
1997.............................................................. $14,316
1998.............................................................. 14,316
1999.............................................................. 14,316
2000.............................................................. 14,316
2001.............................................................. 14,316
After 2001........................................................ 48,913
-------
Total Minimum Lease Payments...................................... 120,493
Less imputed interest............................................. 36,001
-------
Present value of net minimum lease payments....................... $84,492
=======
</TABLE>
NOTE 11: OPERATING LEASES
The Company leases equipment and ground space for billboard sites under
cancelable operating leases. Rental expense under operating leases for the
fiscal years ended June 30, 1996 and 1995 was $380,853 and $335,196,
respectively.
NOTE 12: PROFIT SHARING PLAN
Effective January 1, 1994, the Company implemented a profit sharing plan
described in Internal Revenue Code Section 401(k). All employees of the
Company are eligible to participate once they meet the eligibility and
participation requirements of the plan. Employees become eligible for
participation in the plan after attaining age 21 and completed 12 months of
service.
F-91
<PAGE>
OUTDOOR WEST, INC. OF TENNESSEE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the plan, participants may contribute a portion of their
compensation to the plan on a tax deferred basis. Employee contributions may
not exceed the annual limitations established by the Treasury. The Company
matches 10% of the first 6% of compensation contributed by each participant.
During the years ended June 30, 1996 and 1995, the cost of the plan to the
Company totaled $7,165 and $3,777, respectively.
NOTE 13: EXTRAORDINARY ITEM
At June 30, 1995, the Company was obligated to pay its major lenders an
amendment fee of $79,599 at such time that all debts with the major lenders
are repaid. The entire amendment fee of $79,599 is included in notes payable
due within one year as of June 30, 1995. However, the major lenders agreed to
forgive $59,199 of the amendment fee if all debts were repaid by December 31,
1995. In December, 1995, the Company repaid all debts to the major lenders and
amendment fee was forgiven. The debt forgiveness of $59,199 less $33,331
unamortized loan costs and $9,671 income taxes resulted in an extraordinary
gain of $16,197 which was recognized during the fiscal year ended June 30,
1996.
NOTE 14: SUBSEQUENT EVENTS
On February 7, 1997, the Company entered into an agreement to sell
substantially all of its operating assets. The sale is expected to result in a
gain of approximately $8,000,000.
NOTE 15: UNAUDITED NOTES TO INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles applicable to interim
financial statements. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of normal recurring nature. Operating results for
the nine months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending June 30, 1997.
F-92
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
The Ragan Outdoor Advertising Company
Rock Island, Illinois
We have audited the accompanying balance sheets of The Ragan Outdoor
Advertising Company as of December 31, 1996 and 1995, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 The Ragan Outdoor
Advertising Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
McGladrey & Pullen, LLP
Moline, Illinois
January 10, 1997
F-93
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS (NOTE 2)
Current Assets:
Cash................................................... $ 219,418 $ 151,159
Receivables:
Trade accounts, less allowance for doubtful accounts
1996 and 1995 none................................... 417,525 260,225
Other................................................. 8,667 4,787
Inventories............................................ 16,247 13,877
Prepaid expenses....................................... 78,066 82,159
---------- ----------
Total current assets................................. 739,923 512,207
---------- ----------
Long-Term Officer-Stockholder Receivable, unsecured...... 16,000 18,703
---------- ----------
Property and Equipment:
Land................................................... 174,966 174,966
Buildings and improvements............................. 301,191 302,454
Advertising display structures......................... 2,344,844 2,348,811
Office furniture and equipment......................... 169,187 160,734
Leasehold improvements................................. 1,972 1,972
Transportation equipment............................... 122,529 118,738
---------- ----------
3,114,689 3,107,675
Less accumulated depreciation.......................... 1,468,366 1,400,114
---------- ----------
1,646,323 1,707,561
---------- ----------
Intangibles:
Goodwill, net of accumulated amortization 1996
$100,000; 1995 $91,667................................ 35,000 43,333
Covenants not-to-compete, net of accumulated
amortization 1996 $59,488; 1995 $29,739 (Note 3)...... 59,512 89,261
---------- ----------
94,512 132,594
---------- ----------
$2,496,758 $2,371,065
========== ==========
</TABLE>
See Notes to Financial Statements.
F-94
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY
BALANCE SHEETS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt (Note 2):
Related party........................................... $ 215,396 $ 162,708
Other................................................... 23,538 114,707
Accounts payable......................................... 11,914 11,013
Accrued expenses:
Property taxes.......................................... 31,700 36,613
Salaries and wages...................................... 30,376 39,600
Payroll and other taxes................................. 8,749 5,753
Interest................................................ 12,540 2,272
Other................................................... 7,229 --
Dividends payable........................................ 8,531 --
---------- ----------
Total current liabilities.............................. 349,973 372,666
---------- ----------
Long-Term Debt, Less Current Maturities (Note 2):
Related parties.......................................... 1,132,740 1,330,785
Other.................................................... 220,628 121,489
---------- ----------
1,353,368 1,452,274
---------- ----------
Commitment and Contingencies (Notes 2 and 4)
Stockholders' Equity:
Common stock, par value $1 per share; authorized and
issued 1,000 shares..................................... 1,000 1,000
Additional paid-in capital............................... 1,658,077 1,658,077
Retained earnings (deficit).............................. (731,382) (978,674)
---------- ----------
927,695 680,403
Less cost of treasury stock 1996 and 1995 100 shares..... 134,278 134,278
---------- ----------
793,417 546,125
---------- ----------
$2,496,758 $2,371,065
========== ==========
</TABLE>
See Notes to Financial Statements.
F-95
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenue, advertising display rentals.................... $2,810,369 $2,437,288
Less commissions........................................ 266,842 228,790
---------- ----------
Net operating revenue............................... 2,543,527 2,208,498
---------- ----------
Operating expenses:
Operations............................................ 729,039 708,225
Selling, general and administrative................... 873,722 768,762
Depreciation and amortization......................... 204,190 284,489
---------- ----------
1,806,951 1,761,476
---------- ----------
Operating income.................................... 736,576 447,022
---------- ----------
Nonoperating income (expense):
Interest expense...................................... (157,032) (179,885)
Miscellaneous, net.................................... 3,015 295
(Loss) on disposal of property and equipment.......... (30,735) (25,056)
---------- ----------
(184,752) (204,646)
---------- ----------
Net income.......................................... $ 551,824 $ 242,376
========== ==========
Pro forma data (unaudited):
Net income as reported................................ $ 551,824 $ 242,376
Pro forma provision for income taxes.................. 224,060 100,550
---------- ----------
Pro forma net income................................ $ 327,764 $ 141,826
========== ==========
Pro forma net income per common share................... $ 364.18 $ 157.58
========== ==========
Weighted average shares outstanding..................... 900 900
========== ==========
</TABLE>
See Notes to Financial Statements.
F-96
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS TREASURY
STOCK CAPITAL (DEFICIT) STOCK TOTAL
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994... $1,000 $1,658,077 $(964,355) $(134,278) $560,444
Net income................. -- -- 242,376 -- 242,376
Dividends ($285.22 per
share).................... -- -- (256,695) -- (256,695)
------ ---------- ---------- --------- --------
Balance, December 31, 1995... 1,000 1,658,077 (978,674) (134,278) 546,125
Net income................. -- -- 551,824 -- 551,824
Dividends ($338.37 per
share).................... -- -- (304,532) -- (304,532)
------ ---------- ---------- --------- --------
Balance, December 31, 1996... $1,000 $1,658,077 $(731,382) $(134,278) $793,417
====== ========== ========== ========= ========
</TABLE>
See Notes to Financial Statements.
F-97
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net income........................................... $ 551,824 $ 242,376
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation........................................ 166,108 166,469
Amortization........................................ 38,082 118,020
Loss on sale of property and equipment.............. 30,735 25,056
(Increase) decrease in:
Trade accounts and other receivables............... (161,180) (8,415)
Inventories........................................ (2,370) 2,188
Prepaid expenses................................... 4,093 (1,390)
Increase in accounts payable and accrued expenses... 7,257 4,995
--------- -----------
Net cash provided by operating activities......... 634,549 549,299
--------- -----------
Cash Flows From Investing Activities:
Purchase of property and equipment................... (162,525) (86,704)
Proceeds from sale of property and equipment......... 26,920 5,000
Principal collections on note receivable............. 2,703 341
--------- -----------
Net cash (used in) investing activities........... (132,902) (81,363)
--------- -----------
Cash Flows From Financing Activities:
Proceeds from long-term borrowings................... 25,000 1,429,000
Principal payments on debt........................... (162,387) (1,629,144)
Cash dividends paid.................................. (296,001) (256,695)
--------- -----------
Net cash (used in) financing activities........... (433,388) (456,839)
--------- -----------
Net increase in cash.............................. 68,259 11,097
Cash, beginning........................................ 151,159 140,062
--------- -----------
Cash, ending........................................... $ 219,418 $ 151,159
========= ===========
Supplemental Disclosure of Cash Flow Information, cash
payments for interest................................. $ 146,764 $ 180,028
Supplemental Disclosure of Noncash Financing
Activities, dividend payable.......................... 8,531 --
</TABLE>
See Notes to Financial Statements.
F-98
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The operations of the Company are in outdoor advertising in the Quad Cities
area of Illinois and Iowa. Revenue is derived primarily from poster panel and
painted bulletin rentals on credit terms that the Company establishes for
individual customers. A significant portion of the Company's customers are
local businesses.
The Company has used the trade name of "Schwab Advertising Systems, Inc."
for certain of its operations.
SIGNIFICANT ACCOUNTING POLICIES:
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount 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.
Inventories: Inventories are stated at the lower of cost (first-in, first-
out method) or market.
Property and equipment: Property and equipment is carried at cost.
Depreciation is computed by the straight-line method over the following
estimated useful lives of the related assets:
<TABLE>
<S> <C>
Buildings and improvements..................................... 7-20 years
Advertising display structures................................. 15 years
Office furniture and equipment................................. 3-10 years
Leasehold improvements......................................... 5 years
Transportation equipment....................................... 5 years
</TABLE>
Intangibles: Goodwill represents the cost of a business combination in
excess of the fair value of the net assets acquired and is being amortized
over a period of fifteen years by the straight-line method. The covenants not-
to-compete are being amortized over the life of the agreements by the
straight-line method.
Revenue recognition: The Company recognizes revenue from advertising
contracts on an accrual basis ratably over the term of the contract, as
advertising services are provided.
Income taxes: The Company, with the consent of its stockholders, has elected
to be taxed as an S-Corporation which provides that, in lieu of corporation
income taxes, the stockholders separately account for their pro rata shares of
the Company's items of income, deductions and losses. Therefore, these
statements do not include any provision for corporation income taxes.
The Company pays dividends to assist the individual stockholders in paying
their federal and state income tax liabilities resulting from the taxation of
their proportionate share of the Company's S-Corporation income and
deductions. Total dividends paid in 1996 include $203,590 for expected 1996
taxes.
Pro forma net income per common share (unaudited): Pro forma net income per
common share is computed based upon the total weighted average number of
common shares outstanding during the period.
Pro forma income taxes (unaudited): The unaudited pro forma adjustment to
reflect income taxes in the accompanying statement of operations is for
informational purposes only and has been calculated based on the estimated
effective tax rate in each year, assuming the Company had been subject to
corporate income taxes.
F-99
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Fair value of financial instruments: The carrying amount of cash,
receivables, accounts payable and accrued expenses approximates fair value
because of the short maturity of these instruments. The carrying amount of
long-term debt which carries current interest rates, approximates fair value.
NOTE 2. LONG-TERM DEBT
Long-term debt as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Notes payable, stockholders, subordinated, due in monthly
principal installments of $17,361 with interest payable monthly
at prime rate plus 1.0%, (9.25% at December 31, 1996) balance
due December 31, 2000.(A)....................................... $1,290,111
Contract payable, individual, due in monthly installments of
$1,621 including 8.75% interest with the balance due May 1,
2001.(B)........................................................ 121,488
Note payable, individual, due in monthly installments of $1,305
including 9.5% interest, balance due May 1, 2001.(B)............ 100,472
Note payable, stockholder, unsecured, due in monthly installments
of $1,000 including 9% interest, balance due December 31, 2001.. 58,025
Note payable, bank, due in monthly installments of $472,
including 8.25% interest, balance due April 4, 1999............. 12,451
Note payable, bank, due in monthly installments of $314,
including 8.25% interest, balance due October 23, 1999.......... 9,755
----------
1,592,302
Less current maturities.......................................... 238,934
----------
Long-term portion................................................ $1,353,368
==========
</TABLE>
(A) The notes payable are subject to the terms of a loan agreement between the
Company, its stockholders and a third-party lender. The loan agreement
provides for up to $2,500,000 of stockholder debt of which $2,361,111 is
currently outstanding. The Company intends to pay dividends to assist the
stockholders for the purpose of making required principal and interest
payments on their personal debt. The loan agreement prohibits payment of
dividends in excess of these amounts and the distributions for income
taxes described in Note 1.
The loan agreement also has various requirements and restrictions which
include a minimum net worth level. As of December 31, 1996, the Company was
in compliance with these covenants.
Substantially all assets of the Company are pledged as collateral under
this agreement, which covers the corporate and stockholder debt.
The stockholders of the Company have also pledged their stock in the
Company as security for the stockholder debt and the Company has guaranteed
the stockholder debt.
(B) The note and contract payable are both collateralized by land and
buildings with a carrying value of approximately $105,000.
Future annual maturities of the long-term debt are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1997........................................................... $ 238,934
1998........................................................... 241,750
1999........................................................... 241,051
2000........................................................... 694,779
2001........................................................... 175,788
----------
$1,592,302
==========
</TABLE>
F-100
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. COVENANTS NOT-TO-COMPETE
During 1991, the Company entered into a noncompetition agreement with the
purchaser of certain assets located in the Galesburg, Illinois market area.
Under this agreement, the Company had agreed not to directly or indirectly
compete with the purchaser in outdoor advertising in the Galesburg market for
a period of five years from the date of sale and had received $2,365 per month
in exchange through October 1996.
The Company entered into an agreement in the amount of $119,000 with a
former stockholder not to compete in the Quad Cities market for a period of
four years commencing January 1, 1995. This covenant is being amortized over
the life of the agreement.
NOTE 4. LEASE COMMITMENTS AND RENT EXPENSE
The Company leases, primarily on a short-term basis, the land on which it
may erect advertising display structures. The total rent expense applicable to
these display structures for the years ended December 31, 1996 and 1995 was
$189,136 and $164,902, respectively.
Certain transportation equipment and office space are also being leased
under agreements which require monthly cash rentals and monthly trade-out
rentals. These leases expire on various dates between July 1997 and March
2000. The total rent expense applicable to these leases for the years ended
December 31, 1996 and 1995 was $40,894 and $30,865, respectively.
As of December 31, 1996, future minimum lease payments due under these
operating leases are as follows:
<TABLE>
<CAPTION>
NONCASH
TRADE-OUT
YEARS ENDING DECEMBER 31: RENTALS CASH RENTALS TOTAL
<S> <C> <C> <C>
1997....................................... $21,510 $ 6,825 $28,335
1998....................................... -- 7,125 7,125
1999....................................... -- 7,425 7,425
2000....................................... -- 1,875 1,875
------- ------- -------
Total...................................... $21,510 $23,250 $44,760
======= ======= =======
</TABLE>
NOTE 5. RELATED PARTIES AND RESTRICTIONS ON TRANSFER OF SHARES
The Company is affiliated through common ownership with The Ragan Outdoor
Advertising Company of Rockford and The Ragan Outdoor Advertising Company of
Cedar Rapids, Inc. There were no material transactions with these affiliates
during the years ended December 31, 1996 and 1995.
The Company's bylaws grant the Company the first option to purchase, in
whole but not in part, any shares of its common stock which a stockholder
proposes to sell, transfer or otherwise dispose of. The price per share to be
paid by the Company upon the exercise of its option shall be an amount
established by the unanimous vote of the entire Board of Directors applicable
to all outstanding shares of the Company.
NOTE 6. PROFIT-SHARING PLAN
Effective August 1, 1995, the Company has a profit-sharing plan under
Section 401(k) of the Internal Revenue Code for eligible employees. The Plan
provides for both employee and company contributions. Contributions to the
Plan are determined at the discretion of the Board of Directors. The Company
did not make contributions to the Plan for the years ended December 31, 1996
and 1995.
F-101
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. EVENT SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
In May 1997 the Company entered into an agreement to sell substantially all
of its assets to OCI Holdings Corp. Upon consummation of the sale, the Company
will cease operations in the outdoor advertising industry.
F-102
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Governors
The Ragan Outdoor Advertising Company of Rockford, L.L.C.
d/b/a Robbinswood Outdoor Advertising
(A Limited Liability Company)
Rockford, Illinois
We have audited the accompanying balance sheets of The Ragan Outdoor
Advertising Company of Rockford, L.L.C. d/b/a Robbinswood Outdoor Advertising
(A Limited Liability Company) as of December 31, 1996 and 1995, and the
related statements of income, members' (deficit), and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 The Ragan Outdoor
Advertising Company of Rockford, L.L.C. d/b/a Robbinswood Outdoor Advertising
(A Limited Liability Company) as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
Rockford, Illinois
February 27, 1997
F-103
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY OF ROCKFORD, L.L.C.
D/B/A ROBBINSWOOD OUTDOOR ADVERTISING
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Current Assets
Cash................................................... $ 281,923 $ 153,277
Trade accounts receivable, less allowance for doubtful
accounts 1996 $25,000; 1995 $10,000................... 267,514 306,538
Prepaid rent expenses.................................. 80,021 74,932
Other prepaid expenses................................. 61,806 55,629
----------- -----------
Total current assets................................. 691,264 590,376
----------- -----------
Property and Equipment
Land................................................... 268,100 255,100
Building............................................... 394,312 382,582
Advertising structures................................. 3,955,263 3,848,388
Leasehold improvements................................. -- 14,079
Equipment.............................................. 251,509 245,678
----------- -----------
4,869,184 4,745,827
Less accumulated depreciation and amortization......... 2,418,109 2,240,842
----------- -----------
Net property and equipment........................... 2,451,075 2,504,985
Intangible and Other Assets
Goodwill, less accumulated amortization 1996 $131,822;
1995 $110,932......................................... 232,178 39,068
Deferred financing costs, less accumulated amortization
1996 $13,852; 1995 $11,234............................ 6,877 1,266
----------- -----------
$ 3,381,394 $ 3,135,695
=========== ===========
LIABILITIES AND MEMBERS' (DEFICIT)
Current Liabilities
Current maturities of long-term debt:
Notes payable, other.................................. $ 489,499 $ 28,288
Note payable, affiliated corporation.................. 226,083 149,375
Note payable, member.................................. 47,626 43,541
Trade accounts payable................................. 68,581 32,327
Accrued expenses:
Salaries and wages.................................... 18,059 41,080
Payroll and other taxes............................... 1,240 555
Interest.............................................. 34,176 14,273
Other................................................. 19,787 17,898
Deferred advertising revenues.......................... 37,812 19,181
----------- -----------
Total current liabilities............................ 942,863 346,518
Long-Term Debt, less current maturities
Notes payable, other................................... 297,285 486,787
Note payable, affiliated corporation................... 2,336,195 2,540,625
Note payable, member................................... 1,181,787 1,229,089
----------- -----------
Total liabilities.................................... 4,758,130 4,603,019
Members' (Deficit)....................................... (1,376,736) (1,467,324)
----------- -----------
$ 3,381,394 $ 3,135,695
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-104
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY OF ROCKFORD, L.L.C.
D/B/A ROBBINSWOOD OUTDOOR ADVERTISING
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues:
Poster................................................ $1,352,333 $1,291,174
Painted............................................... 1,044,741 1,045,620
Other................................................. 23,885 19,122
---------- ----------
2,420,959 2,355,916
Less commissions...................................... 237,266 225,321
---------- ----------
Net operating revenues.............................. 2,183,693 2,130,595
---------- ----------
Operating expenses:
Operations............................................ 723,014 703,437
Selling, general and administrative................... 626,168 620,069
Depreciation.......................................... 245,021 244,041
Amortization.......................................... 23,508 10,308
---------- ----------
Total operating expenses............................ 1,617,711 1,577,855
---------- ----------
Operating income.................................... 565,982 552,740
Other income (expense):
(Loss) on disposal of property and equipment.......... (41,205) (42,246)
Interest expense...................................... (440,001) (416,595)
Interest income....................................... 5,812
---------- ----------
Net income.......................................... $ 90,588 $ 93,899
========== ==========
Pro forma data (unaudited):
Net income, as reported............................... $ 90,588 $ 93,899
Pro forma provision for income taxes.................. 23,300 24,600
---------- ----------
Pro forma net income.................................. $ 67,288 $ 69,299
========== ==========
</TABLE>
See Notes to Financial Statements.
F-105
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY OF ROCKFORD, L.L.C.
D/B/A ROBBINSWOOD OUTDOOR ADVERTISING
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF MEMBERS' (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance, beginning................................... $(1,467,324) $(1,498,123)
Net income......................................... 90,588 93,899
Distributions to members........................... -- (63,100)
----------- -----------
Balance, ending...................................... $(1,376,736) $(1,467,324)
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-106
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY OF ROCKFORD, L.L.C.
D/B/A ROBBINSWOOD OUTDOOR ADVERTISING
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities
Net income............................................. $ 90,588 $ 93,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 245,021 244,041
Amortization of intangibles and other assets.......... 23,508 10,308
Loss on disposal of property and equipment............ 41,205 42,246
Change in operating assets and liabilities, net of
effects from purchase of Stan-Mor Outdoor
Advertising, Inc.
Decrease (increase) in receivables.................... 39,024 (4,701)
(Increase) in prepaid expenses........................ (11,266) (1,765)
Increase in accounts payable and accrued expenses..... 35,710 1,504
Increase in deferred advertising revenues............. 18,631 11,606
--------- ---------
Net cash provided by operating activities............ 482,421 397,138
--------- ---------
Cash Flows From Investing Activities
Purchase of property and equipment..................... (134,176) (479,173)
Purchase of certain assets of Stan-Mor Outdoor
Advertising, Inc...................................... (323,000) --
Proceeds from sale of property and equipment........... 10,860 1,800
--------- ---------
Net cash (used in) investing activities.............. (446,316) (477,373)
--------- ---------
Cash Flows From Financing Activities
Proceeds from long-term borrowings..................... 323,000 355,360
Principal payments on long-term borrowings............. (222,230) (237,419)
Loan origination costs incurred........................ (8,229) --
Cash distributions paid................................ -- (63,100)
--------- ---------
Net cash provided by financing activities............ 92,541 54,841
--------- ---------
Net increase (decrease) in cash...................... 128,646 (25,394)
Cash:
Beginning.............................................. 153,277 178,671
--------- ---------
Ending................................................. $ 281,923 $ 153,277
========= =========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest............................. $ 420,098 $ 447,065
========= =========
Supplemental Schedule of Noncash Investing and Financing
Activities:
Notes payable refinanced as long-term debt............. $ -- $ 452,000
========= =========
Acquisition of certain assets of Stan-Mor Outdoor Adver-
tising, Inc.:
Cash purchase price.................................... $ 323,000 $ --
========= =========
Composition of assets purchased:
Land, property and equipment.......................... $ 109,000 $ --
Excess of purchase price over net assets acquired..... 214,000 --
--------- ---------
Cash paid............................................. $ 323,000 $ --
========= =========
</TABLE>
See Notes to Financial Statements.
F-107
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY OF ROCKFORD, L.L.C.
D/B/A ROBBINSWOOD OUTDOOR ADVERTISING
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS, ORGANIZATIONAL CHANGE AND SIGNIFICANT ACCOUNTING
POLICIES
Nature of business: The Company's operations are in outdoor advertising with
revenue derived primarily from poster and paint board rentals throughout
Northern Illinois and Southern Wisconsin. The Company extends credit on terms
established on an individual customer basis.
On December 20, 1995 the Company changed from a partnership to a limited
liability company and changed its name from The Ragan Outdoor Advertising
Company of Rockford to The Ragan Outdoor Advertising Company of Rockford,
L.L.C. All assets and liabilities of the partnership were transferred to the
Company at historical cost. This had no effect on the amounts reported on the
financial statements. The organizational change had the effect of limiting the
member's liability and limited the life of the Company to December, 2045.
A summary of significant accounting policies follows:
Accounting estimates: The preparation of financial statements requires
management to make estimates and assumptions that affect the reported amounts
in the financial statements and accompanying notes. Actual results could
differ from those estimates.
Fair value of financial instruments: Financial instruments include cash,
trade accounts receivables and trade accounts payables, and long-term debt.
For each class of financial instruments, the carrying amount approximates fair
value.
Personal assets and liabilities and members' compensation: In accordance
with the generally accepted method of presenting limited liability company
financial statements, the financial statements do not include the personal
assets and liabilities of the members, including their obligations for income
taxes on its net income or their rights to income tax refunds on its net
(loss), nor any provision for income tax expense or refunds.
The expenses shown in the income statement include $50,200 and $72,230 of
salary expense paid to the managing member for the years ended December 31,
1996 and 1995, respectively.
Cash: The Company maintains all of its cash in one financial institution.
The Company does not believe this exposes the Company to any significant
risks.
Property and equipment: Property and equipment is carried at cost.
Depreciation and amortization is computed primarily by the straight-line
method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Building........................................................... 40
Advertising structures............................................. 16-20
Equipment.......................................................... 3-8
Leasehold improvements............................................. 5
</TABLE>
Intangible: Goodwill represents the cost of the assets acquired in excess of
their fair values at the date of purchase of Robbinswood, Inc. and certain
assets of Stan-Mor Outdoor Advertising, Inc. and is being amortized over a
period of sixteen years and fifteen years, respectively, by the straight-line
method.
Other assets: Deferred financing costs are being amortized over the life of
the loan by the straight-line method.
Revenue Recognition: The Company recognizes revenue from advertising
contracts on an accrual basis ratebly over the term of the contract, as
advertising services are provided.
Barter transactions: Revenue from barter transactions (advertising provided
in exchange for goods and services) is recognized as income when the outdoor
advertisements are run and merchandise or services received
F-108
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY OF ROCKFORD, L.L.C.
D/B/A ROBBINSWOOD OUTDOOR ADVERTISING
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
are charged to expense (or capitalized as appropriate) when received or used.
The transactions are recorded at the fair market value of the asset or service
received.
Pro forma income taxes (unaudited): The unaudited pro forma adjustment to
reflect income taxes in the accompanying statements of income is for
informational purposes only and has been calculated based on the estimated
effective tax rate in each year, assuming the Company had been subject to
corporate income taxes.
Reclassification: Certain items in the financial statements for the year
ended December 31, 1995 have been reclassified to conform with the
classifications adopted for the year ended December 31, 1996.
NOTE 2. PLEDGED ASSETS, RELATED PARTY DEBT AND LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<S> <C>
Notes payable related parties:
Affiliated Corporation through common ownership, due in monthly
principal payments of $18,840 plus interest at prime rate plus
1% with final payment due December 31, 2000, collateralized by
all assets of the Company and personally guaranteed by the
members....................................................... $2,562,278
Member, due in monthly installments of $13,000, including
interest at 9% with the final payment due December 31, 2001,
collateralized by a secondary lien on substantially all assets
of the Company except those acquired in the purchase of the
Cherry Valley Company and guaranteed by the other members for
70% of the balance............................................ 1,229,413
----------
3,791,691
Less current maturities........................................ 273,709
----------
Long-term portion.............................................. $3,517,982
==========
Notes payable other:
Cherry Valley Company and related parties of the Cherry Valley
Company, interest due monthly at 10%, principal due September
15, 1997, collateralized by a secondary lien on all assets
acquired in the purchase of the Cherry Valley Company and
guaranteed by the members..................................... $ 464,404
Bank, due in monthly installments of $318, including interest
at 8.75%, maturing in 1997, collateralized by equipment with a
depreciated cost of $884 1,472
Individual, due in monthly installments of $2,860, including
interest at 9.75%, maturing April 3, 2000, collateralized by
land and commercial property with a depreciated cost of
$364,712...................................................... 255,594
Bank, due in monthly installments of $1,017, including interest
at 10.5%, maturing April 3, 2000, collateralized by
substantially all assets of the Company....................... 49,309
Bank, due in monthly installments of $643, including interest
at 9.9%, maturing April 1, 1999, collateralized by
transportation equipment with a depreciated cost of $16,484... 16,005
----------
786,784
Less current maturities........................................ 489,499
----------
Long-term portion.............................................. $ 297,285
==========
</TABLE>
F-109
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY OF ROCKFORD, L.L.C.
D/B/A ROBBINSWOOD OUTDOOR ADVERTISING
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, the prime rate was 8.25%.
Aggregate maturities of the long-term debt as of December 31, 1996 are due
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1997............................................................ $ 763,208
1998............................................................ 304,278
1999............................................................ 306,599
2000............................................................ 2,194,002
2001............................................................ 1,010,388
----------
$4,578,475
==========
</TABLE>
NOTE 3. LEASE COMMITMENTS AND RENT EXPENSE
The Partnership has leased properties on which it builds advertising
displays under various agreements which expire between 1997 and 2011 and
require various minimum rentals.
The total minimum rental commitment at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1997................................................................ $186,923
1998................................................................ 139,992
1999................................................................ 119,277
2000................................................................ 95,544
2001................................................................ 79,510
During the remaining term of the leases............................. 365,836
--------
$987,082
========
</TABLE>
Total rental expense for the years ended December 31, 1996 and 1995 was
approximately $228,000 and $222,000, respectively.
NOTE 4. EMPLOYEE BENEFIT PLAN
On August 1, 1995, the Company established a profit-sharing plan under
Section 401(k) of the Internal Revenue Code, covering all employees who have
completed at least one year of full-time service and are at least 21 years of
age. Eligible employees may contribute compensation up to the maximum amount
allowed in accordance with Internal Revenue Service regulations ($9,500 for
1996). The Company's contribution is determined annually on a discretionary
basis. There was no Company contribution for the years ended December 31, 1996
and 1995.
NOTE 5. INCOME TAX MATTERS
The Company is taxed in a manner similar to a partnership. For income tax
purposes the Company had income of approximately $72,800 and $133,000 for the
years ended December 31, 1996 and 1995, respectively. The difference between
the net income for financial reporting purposes and for income tax purposes is
due primarily to the use of accelerated depreciation methods and basis
differences in the allowance for doubtful
F-110
<PAGE>
THE RAGAN OUTDOOR ADVERTISING COMPANY OF ROCKFORD, L.L.C.
D/B/A ROBBINSWOOD OUTDOOR ADVERTISING
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
accounts and accrued expenses for income tax purposes. At December 31, 1996,
accumulated depreciation for income tax purposes is approximately $385,000
greater than for financial reporting purposes and the total accumulated
taxable temporary difference amounted to approximately $351,000.
NOTE 6. ACQUISITION OF BUSINESS
On January 30, 1996, the Company purchased certain assets and the operations
of Stan-Mor Outdoor Advertising, Inc., an outdoor advertising company that
sells billboard space to customers in the Rockford, Illinois area, for a cash
purchase price of $323,000. A summary of the assets acquired follows:
<TABLE>
<S> <C>
Assets acquired:
Land, property and equipment.................................... $109,000
Excess of purchase price over net assets acquired (amortized
over 15 years on the straight-line method).................... 214,000
--------
Net assets acquired............................................... $323,000
========
</TABLE>
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated to the
assets purchased based upon the fair values at the date of acquisition. The
results of operations of the acquired business since the date of acquisition
are being included in these financial statements.
Pro forma supplemental information on the results of operations assuming the
acquisition had occurred at the beginning of 1996 and 1995 has not been
provided as the effect would not be material.
NOTE 7. EVENT SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)
In May 1997, the Company entered into an agreement to sell substantially all
of its assets to OCI Holdings Corp. Upon consummation of the sale, the Company
will cease operations in the outdoor advertising industry.
F-111
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO BE GIVEN ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SUCH SECURITIES
IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
Use of Proceeds........................................................... 14
Capitalization............................................................ 15
Unaudited Pro Forma Consolidated Financial Statements..................... 16
Selected Historical Consolidated Financial and Other Information.......... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Business.................................................................. 34
Management................................................................ 46
Principal Stockholders.................................................... 50
Certain Relationships and Related Transactions............................ 52
Description of New Credit Facility........................................ 53
Description of Notes...................................................... 55
Underwriting.............................................................. 77
Certain Legal Matters..................................................... 78
Experts................................................................... 78
Additional Information.................................................... 79
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS
$125,000,000
OCI HOLDINGS CORP.
% SENIOR SUBORDINATED
NOTES DUE 2007
[LOGO APPEARS HERE]
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
SALOMON BROTHERS INC
, 1997
<PAGE>
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the fees and expenses payable by the
Company in connection with the issuance and distribution of the shares of
Common Stock:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................... $
NASD filing fees......................................................
Blue Sky fees and expenses............................................
Printing expenses.....................................................
Legal fees and expenses...............................................
Accounting fees and expenses..........................................
Indenture Trustee fees................................................
Miscellaneous.........................................................
-----
Total............................................................... $
=====
</TABLE>
---------------------
* To be completed by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Article V of the Amended and Restated By-laws of the
Company which provides for indemnification by the Company of its directors and
officers under certain circumstances against expenses (including attorneys'
fees, judgments, fines and amounts paid in settlement) actually and reasonably
incurred in connection with the defense or settlement of any threatened,
pending or completed legal proceeding in which any such person is involved by
reason of the fact that such person is or was a director or officer of the
Company if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to criminal actions or proceedings, if such person
had no reasonable cause to believe that his or her conduct was unlawful.
Reference is made to the form of Underwriters Agreement (to be attached as
Exhibit 1 to this Registration Statement) which provides for indemnification
by the Underwriters of the directors and officers of the Company signing the
Registration Statement and certain controlling persons of the Company against
certain liabilities, including those arising under the Securities Act.
The Company carries directors' and officers' liability insurance covering
its directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each
transaction was exempt from registration requirements of the Securities Act,
by reason of Section 4(2) thereof, based on the private nature of the
transactions and the financial sophistication of the purchasers, all of whom
had access to complete information concerning the Company and acquired the
securities for investment and not with a view to the distribution thereof.
On April 3, 1996, under the terms of a Securities Purchase Agreement (the
"Holdings Agreement"), (i) Mr. A.B. Isbell purchased from the Company 1,050
shares of Class A Common Stock, par value $.01 per share, of the Registrant
("Class A Common Stock") and $1,950,000 principal amount of Series A 10%
Subordinated Notes ("Series A Notes") in exchange for 2,923.98 shares of
Common Stock of Mass Communication Corp. ("OCI South Common Stock"); (ii) Mr.
John C Stanley IV purchased from the Company 1,204.16 shares of Class A Common
Stock and $2,236,304.68 principal amount of Series A Notes in exchange for
3,353.28 shares of OCI South Common Stock; (iii) Mr. Norman Isbell purchased
from the Company 51.95 shares of Class A Common Stock and $96,481.04 principal
amount of Series A Notes in exchange for 78.12 shares of OCI South
II-1
<PAGE>
Common Stock and 62.50 shares of 10% Cumulative Preferred Stock, par value $1
per share, of Mass Communication Corp. ("OCI South Preferred Stock"); (iv) Ms.
Priscilla S. Denton purchased from the Company 87.50 shares of Class A Common
Stock and $162,500 principal amount of Series A Notes in exchange for 156.25
shares of OCI South Common Stock and 82.09 shares of OCI South Preferred
Stock; (v) Mr. William Hull Davis purchased from the Company 87.50 shares of
Class A Common Stock and $162,500 principal amount of Series A Notes in
exchange for 156.25 shares of OCI South Common Stock and 82.09 shares of OCI
South Preferred Stock; (vi) Mr. Douglas W. Ferris, Jr. purchased from the
Company 87.50 shares of Class A Common Stock and $162,500 principal amount of
Series A Notes in exchange for 156.25 shares of OCI South Common Stock and
82.09 shares of OCI South Preferred Stock; (vii) Mr. Richard W. Ebersole
purchased from the Company 35.00 shares of Class A Common Stock and $65,000
principal amount of Series A Notes in exchange for $100,000 cash; (viii) John
C Stanley IV, as trustee of the JCS Trust, purchased from the Company 98.19
shares of Class A Common Stock and $182,357.14 principal amount of Series A
Notes in exchange for 273.44 shares of OCI South Common Stock; (ix) John C
Stanley, as trustee of the LWS Trust, purchased from the Company 98.19 shares
of Class A Common Stock and $182,357.14 principal amount of Series A Notes in
exchange for 273.44 shares of OCI South Common Stock; (x) Media/Communications
Partners II Limited Partnership ("M/C II") purchased from the Company 3,227.67
shares of Common Stock and $5,994,236.05 principal amount of Series B 10%
Subordinated Notes of the Registrant ("Series B Notes") in exchange for 23.68
shares of common stock of OCI (N) Corp. ("OCI North Common Stock"), 57.60
shares of 12.5% Cumulative Preferred Stock of OCI (N) Corp. ("OCI North
Preferred Stock"), and $7,389,455.47 cash; (xi) Media/Communications Investors
Limited Partnership ("M/C Investors") purchased from the Company 134.49 shares
of Class A Common Stock and $249,759.99 principal amount of Series B Notes in
exchange for 0.99 shares of OCI North Common Stock, 2.40 shares of OCI North
Preferred Stock, and $307,894.21 cash; and (xii) Chase Venture Capital
Associates, L.P. ("CVCA") purchased from the Company 2,048.57 shares of
Class A Common Stock, 189.28 shares of Class B Common Stock, par value $.01
per share, of the Registrant ("Class B Common Stock"), and $4,156,003.96
principal amount of Series B Notes in exchange for $6,393,852.24 cash.
On April 30, 1996, pursuant to the terms of the OCI Agreement, and in
connection with the acquisition of Alabama Outdoor: (i) M/C II purchased from
the Company 2,017.29 shares of Class B Common Stock and $3,746,397.53
principal amount of Series B Notes from the Company in exchange for
$5,763,687.53 cash; (ii) M/C Investors purchased from the Company 84.05 shares
of Class B Common Stock and $156,100 principal amount of Series B Notes in
exchange for $240,150 cash; (iii) CVCA purchased from the Company 1,398.66
shares of Class B Common Stock and $2,597,502.47 principal amount of Series B
Notes in exchange for $3,996,162.47 cash.
On September 10, 1996, each of Mr. Gerald P. Scott and Mr. G. Robert Joiner,
pursuant to an amendment to the OCI Agreement, purchased from the Company
52.50 shares of Common Stock and $97,500 principal amount of Series A Notes of
the Company in exchange for a payment of $150,000 cash.
On January 27, 1997, each of Mr. John Andrews and Mr. Mark Sherwood,
pursuant to an amendment to the OCI Agreement, purchased from the Company 35
shares of Common Stock and $65,000 principal amount of Series A Notes in
exchange for a cash payment of $100,000 cash.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
1 Form of Underwriting Agreement among the Underwriters named
therein and the Company
*3.1 Second Amended and Restated Certificate of Incorporation of the
Company
*3.2 Amended and Restated By-laws of the Company
*4.1 Form of Indenture among the Company the Guarantors named therein
and the Trustee
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
*4.2 Form of Note
*4.3 Form T-1
*5 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
shares of the Company's Class Common Stock
10.1 Registration Rights Agreement dated as of April 3, 1996 among the
Registrant, certain management investors and certain venture
investors
*10.2 OCI Holdings Corp. 1997 Stock Option and Grant Plan
*10.3 OCI Holdings Corp. Employee Stock Purchase Plan
*11.1 Statement regarding computation of earnings per share
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Company
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in their opinion
filed as Exhibit 5 hereto)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Moore & Gray
23.6 Consent of KPMG Peat Marwick LLP
23.7 Consent of Ernst & Young LLP
23.8 Consent of McGladrey & Pullen, LLP
23.9 Consent of Arthur Andersen LLP
23.10 Consent of Morrison and Smith
23.11 Consent of McGladrey & Pullen, LLP
23.12 Consent of McGladrey & Pullen, LLP
24 Power of Attorney (included on signature page of Registration
Statement as filed)
27 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
SCHEDULE NO. DESCRIPTION
Other financial schedules have not been included because they are not
applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
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 provisions referred to in Item 14 above, 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
II-3
<PAGE>
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, 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 whether such indemnification by it is against public
policy as expressed in the 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 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 the 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, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CORINTH, STATE OF
MISSISSIPPI ON THE 4TH DAY OF JUNE, 1997.
OCI Holdings Corp.
/s/ John C Stanley IV
By: _________________________________
JOHN C STANLEY IV
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of OCI Holdings Corp. hereby severally constitute John C Stanley IV
and Richard W. Ebersole and each of them singly, our true and lawful attorneys
with full power to them, and each of the singly, to sign for us and in our
names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments (including any post-effective amendments)
to said Registration Statement (or any other registration statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act), and generally to do all such things in our names
and in our capacities as officers and directors to enable OCI Holdings Corp.
to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any
of them, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act).
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ John C Stanley IV Director, Chief June 4, 1997
- ------------------------------------- Executive Officer
JOHN C STANLEY IV and Chairman
(Principal
Executive Officer)
/s/ A.B. Isbell Director, Chief June 4, 1997
- ------------------------------------- Operating Officer
A.B. ISBELL and President
/s/ Richard W. Ebersole Treasurer and Chief June 4, 1997
- ------------------------------------- Financial Officer
RICHARD W. EBERSOLE (Principal
Financial Officer
and Principal
Accounting Officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Steven B. Dodge Director June 4, 1997
- -------------------------------------
STEVEN B. DODGE
/s/ Douglas W. Ferris, Jr. Director June 4, 1997
- -------------------------------------
DOUGLAS W. FERRIS, JR.
/s/ Stephen F. Gormley Director June 4, 1997
- -------------------------------------
STEPHEN F. GORMLEY
/s/ John G. Hayes Director June 4, 1997
- -------------------------------------
JOHN G. HAYES
/s/ Brian J. Richmand Director June 4, 1997
- -------------------------------------
BRIAN J. RICHMAND
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CORINTH, STATE OF
MISSISSIPPI ON THE 4TH DAY OF JUNE, 1997.
Outdoor Communications, Inc.
/s/ John C Stanley IV
By: _________________________________
JOHN C STANLEY IV
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Outdoor Communications, Inc. hereby severally constitute John C
Stanley IV and Richard W. Ebersole and each of them singly, our true and
lawful attorneys with full power to them, and each of the singly, to sign for
us and in our names in the capacities indicated below, the Registration
Statement filed herewith and any and all amendments (including any post-
effective amendments) to said Registration Statement (or any other
registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act), and generally to do
all such things in our names and in our capacities as officers and directors
to enable OCI Holdings Corp. to comply with the provisions of the Securities
Act of 1933, and all requirements of the Securities and Exchange Commission,
hereby ratifying and confirming our signatures as they may be signed by our
said attorneys, or any of them, to said Registration Statement and any and all
amendments (including any post-effective amendments) thereto (or any other
registration statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act).
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ John C Stanley IV Director, Chief June 4, 1997
- ------------------------------------- Executive Officer
JOHN C STANLEY IV and Chairman
(Principal
Executive Officer)
/s/ Richard W. Ebersole Director, Treasurer June 4, 1997
- ------------------------------------- and Chief Financial
RICHARD W. EBERSOLE Officer (Principal
Financial Officer
and Principal
Accounting Officer)
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CORINTH, STATE OF
MISSISSIPPI ON THE 4TH DAY OF JUNE, 1997.
Mass Communications Corp.
By: /s/ John C Stanley IV
----------------------------------
JOHN C STANLEY IV
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Mass Communications Corp. hereby severally constitute John C
Stanley IV and Richard W. Ebersole and each of them singly, our true and lawful
attorneys with full power to them, and each of the singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement
filed herewith and any and all amendments (including any post-effective
amendments) to said Registration Statement (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act), and generally to do all such things in our
names and in our capacities as officers and directors to enable OCI Holdings
Corp. to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any
of them, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act).
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ John C Stanley IV Director, Chief June 4, 1997
- ------------------------------------ Executive Officer
JOHN C STANLEY IV and Chairman
(Principal
Executive Officer)
/s/ Richard W. Ebersole Director, Treasurer June 4, 1997
- ------------------------------------ and Chief
RICHARD W. EBERSOLE Financial Officer
(Principal
Financial Officer
and Principal
Accounting
Officer)
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CORINTH, STATE OF
MISSISSIPPI ON THE 4TH DAY OF JUNE, 1997.
OCI (N) Corp.
By: /s/ John C Stanley IV
-----------------------------------
JOHN C STANLEY IV
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of OCI (N) Corp. hereby severally constitute John C Stanley IV and
Richard W. Ebersole and each of them singly, our true and lawful attorneys
with full power to them, and each of the singly, to sign for us and in our
names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments (including any post-effective amendments)
to said Registration Statement (or any other registration statement for the
same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act), and generally to do all such things in our names
and in our capacities as officers and directors to enable OCI Holdings Corp.
to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any
of them, to said Registration Statement and any and all amendments (including
any post-effective amendments) thereto (or any other registration statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act).
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
John C Stanley IV Director, Chief June 4, 1997
- ------------------------------------- Executive Officer
JOHN C STANLEY IV and Chairman
(Principal
Executive Officer)
Richard W. Ebersole Director, Treasurer June 4, 1997
- ------------------------------------- and Chief Financial
RICHARD W. EBERSOLE Officer (Principal
Financial Officer
and Principal
Accounting Officer)
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
1 Form of Underwriting Agreement among the Underwriters named
therein and the Company
*3.1 Second Amended and Restated Certificate of Incorporation of the
Company
*3.2 Amended and Restated By-laws of the Company
*4.1 Form of Indenture among the Company, the Guarantors named therein
and the Trustee
*4.2 Form of Note
*4.3 Form T-1
*5 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
shares of the Company's Class Common Stock
10.1 Registration Rights Agreement dated as of April 3, 1996 among the
Registrant, certain management investors and certain venture
investors
*10.2 OCI Holdings Corp. 1997 Stock Option and Grant Plan
*10.3 OCI Holdings Corp. Employee Stock Purchase Plan
*11.1 Statement regarding computation of earnings per share
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Company
*23.1 Consent of Goodwin, Procter & Hoar LLP (included in their opinion
filed as Exhibit 5 hereto)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of KPMG Peat Marwick LLP
23.5 Consent of Moore & Gray
23.6 Consent of KPMG Peat Marwick LLP
23.7 Consent of Ernst & Young LLP
23.8 Consent of McGladrey & Pullen, LLP
23.9 Consent of Arthur Andersen LLP
23.10 Consent of Morrison and Smith
23.11 Consent of McGladrey & Pullen, LLP
23.12 Consent of McGladrey & Pullen, LLP
24 Power of Attorney (included on signature page of Registration
Statement as filed)
27 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 1
OCI HOLDINGS CORPORATION
$125,000,000
% Senior Subordinated Notes due 2007
UNDERWRITING AGREEMENT
----------------------
, 1997
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
c/o Chase Securities Inc.
270 Park Avenue, 4th floor
New York, New York 10017
Ladies and Gentlemen:
OCI Holdings Corporation, a Delaware corporation (the "Company"),
-------
proposes to issue and sell $125,000,000 aggregate principal amount of its %
Senior Subordinated Notes due 2007 (the "Securities"). The Securities will be
----------
issued pursuant to an Indenture to be dated as of , 1997 (the "Indenture")
---------
between the Company, the Guarantors named therein (the "Guarantors")
and , as trustee (the "Trustee"), the form of
-------
which has been filed as an exhibit to the Registration Statement (as defined
below). The securities will be unconditionally guaranteed on a senior
subordinated basis, as to payment of principal, premium, if any, and interest,
jointly and severally, by the Guarantors (the "Guarantee").
---------
Simultaneously with the issuance and sale by the Company of the Securities, the
Company is offering shares of its common stock, par value $0.01 (the "Common
Stock Offering"). The Company hereby confirms its agreement with Chase
Securities Inc. ("CSI"), Donaldson, Lufkin & Jenrette Securities Corporation
---
("DLJ") and Salomon Brothers Inc (together with CSI, the
<PAGE>
-2-
"Underwriters") concerning the purchase of the Securities from the Company by
------------
the several Underwriters.
1. Registration Statement and Prospectus. A registration statement
-------------------------------------
on Form S-1 (File No. 333- ), including a form of prospectus, relating to the
Securities has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "Securities Act"), and the rules
--------------
and regulations (the "Rules and Regulations") of the Securities and Exchange
---------------------
Commission (the "Commission") thereunder and has been filed by the Company with
----------
the Commission. The Company may have filed one or more amendments thereto,
including the related preliminary prospectus, each of which has previously been
furnished to you. The Company will next file with the Commission either (i)
prior to effectiveness of such registration statement, a further amendment to
such registration statement (including the form of final prospectus) or (ii)
after effectiveness of such registration statement, a final prospectus in
accordance with Rules 430A and 424(b)(1) or (4). In the case of clause (ii)
above, the Company has included in such registration statement, as amended at
the Effective Time (as defined below), all information (other than information
permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A ("Rule 430A Information")) required by the
---------------------
Securities Act and the Rules and Regulations to be included in the final
prospectus with respect to the Securities and the offering thereof. As filed,
such amendment and form of final prospectus, or such final prospectus, shall
contain all Rule 430A Information, together with all other such required
information, with respect to the Securities and the offering thereof and, except
to the extent the Underwriters shall agree in writing to a modification, shall
be in all substantive respects in the form furnished to you prior to the
execution of this Agreement (this "Agreement") or, to the extent not completed
at such time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as the
Company has advised you, prior to the execution of this Agreement, will be
included or made therein. For purposes of this Agreement, "Effective Time"
means the date and time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was or is declared effective by
the Commission, and "Preliminary Prospectus" means each prospectus included in
such registration statement, or amendments thereof, before it becomes effective
under the Securities Act, any prospectus filed with the Commission by the
Company pursuant to Rule 424(a) and the prospectus included in the Registration
Statement at the Effective Time that omits Rule 430A Information. Such
registration statement, as amended at the Effective Time, including all Rule
430A Information, if any, is hereinafter referred to as the "Registration
Statement," and the form of prospectus relating to the Securities, as first
filed with the Commission pursuant to and in accordance with Rule 424(b) or, if
no such filing is required, as included in the Registration Statement is
hereinafter referred to as the "Prospectus."
2. Representations, Warranties and Agreements of the Company and the
-----------------------------------------------------------------
Guarantors. The Company and the Guarantors, jointly and severally,
- ----------
<PAGE>
-3-
represent and warrant to, and agree with, the several Underwriters on and as of
the date hereof and the Closing Date (as defined in Section 3) that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness
of this Agreement), when it became effective, did not contain and, as
amended, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) the
Registration Statement (other than any Rule 462(b) Registration Statement
to be filed by the Company after the effectiveness of this Agreement) and
the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Securities Act and (iii) the
Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act complied when so filed in all material
respects with the Act; and did not contain an untrue statement of a
material fact or omit to state a 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, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in any preliminary prospectus based upon
information relating to any underwriter furnished to the Company in writing
by such underwriter through you expressly for use therein.
(d) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties, and each is duly qualified and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
<PAGE>
-4-
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole.
(e) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and nonassessable, and are owned by the Company, free and clear
of any security interest, claim, lien, encumbrance or adverse interest of
any nature.
(f) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, nonassessable
and not subject to any preemptive or similar rights.
(g) The Company has the authorized capitalization as set forth in the
Prospectus under the caption "Capitalization."
(h) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement or condition contained in any bond, debenture, note
or any other evidence of indebtedness or in any other agreement, indenture
or instrument material to the conduct of the business of the Company and
its subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective property is bound.
(i) Each of the Company and the Guarantors has all requisite corporate
power and authority to enter into this Agreement, the Indenture, the
Securities and the Guarantees and to consummate the transactions
contemplated hereby and thereby, and each of the Company and the
Guarantors has all requisite corporate power and authority to issue and
sell the Securities to be offered and sold by it hereunder. This Agreement
has been duly authorized, executed and delivered by each of the Company and
the Guarantors.
(j) The Indenture has been duly authorized by each of the Company and
the Guarantors and, when duly executed and delivered in accordance with its
terms by each of the parties thereto, will constitute a valid and legally
binding agreement of each of the Company and the Guarantors enforceable
against each of the Company and the Guarantors in accordance with its
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and
<PAGE>
-5-
other similar laws affecting creditors' rights generally and by general
equitable principles (whether considered in a proceeding in equity or at
law).
(k) The Securities have been duly authorized by the Company and, when
duly executed, authenticated, issued and delivered as provided in the
Indenture and paid for as provided herein, will be duly and validly issued
and outstanding and will constitute valid and legally binding obligations
of the Company entitled to the benefits of the Indenture and enforceable
against the Company in accordance with their terms, except to the extent
that such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law). The
Guarantees endorsed on the Notes have been duly authorized by the
Guarantors and, when the Securities are executed by the Company and the
Guarantees are endorsed by the Guarantors and the Securities are
authenticated by the Trustee as provided in the Indenture and delivered and
paid for by the Underwriters as provided herein, the Guarantees will
constitute valid and legally binding obligations of the Subsidiary
Guarantors entitled to the benefits of the Indenture and enforceable
against the Guarantors in accordance with their terms, except to the extent
that such enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors rights generally and by general equitable
principles (whether considered in a proceeding in equity or at law).
(l) The execution, delivery and performance of this Agreement,
compliance by the Company and the Guarantors with all the provisions hereof
and the consummation of the transactions contemplated hereby will not
require any consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body (except
as such may be required under the securities or Blue Sky laws of the
various states) and will not conflict with or constitute a breach of any of
the terms or provisions of, or a default under, the charter or by-laws of
the Company or any of its subsidiaries or any agreement, indenture or other
instrument to which it or any of its subsidiaries is a party or by which it
or any of its subsidiaries or their respective property is bound, or
violate or conflict with any laws, administrative regulations or rulings or
court decrees applicable to the Company, any of its subsidiaries or their
respective property.
(m) Each of this Agreement, the Indenture, the Securities and the
Guarantees conforms in all material respects to the description thereof
contained in the Prospectus.
<PAGE>
-6-
(n) There are no material legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any of
their respective property is the subject, and, to the best of the Company's
and the Guarantors' knowledge, no such proceedings are threatened or
contemplated.
(o) There are no contracts or other documents of a character required
to be described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement that is not so described
or filed as required.
(p) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), nor any federal or state law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable federal or state
wages and hours laws, nor any provisions of the Employee Retirement Income
Security Act or the rules and regulations promulgated thereunder, that in
each case might result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company and
its subsidiaries, taken as a whole.
(q) Each of the Company and its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate
its respective properties and to conduct its business; each of the Company
and its subsidiaries has fulfilled and performed all of its material
obligations with respect to such permits and no event has occurred that
allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the
rights of the holder of any such permit; and, except as described in the
Prospectus, such permits contain no restrictions that are materially
burdensome to the Company or any of its subsidiaries.
(r) Except as otherwise set forth in the Prospectus or such as are not
material to the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole, the
Company and each of its subsidiaries has good and marketable title, free
and clear of all liens, claims, encumbrances and restrictions except liens
for taxes not yet due and payable, to all property and assets described in
the Registration Statement as being owned by it. All leases to which the
Company or any of its subsidiaries is a party are valid and binding and no
default has occurred or is continuing thereunder that might result in any
material adverse change in the business, prospects, financial condition or
results of operation of the Company and its subsidiaries taken as a whole,
and the Company
<PAGE>
-7-
and its subsidiaries enjoy peaceful and undisturbed possession under all
such leases to which any of them is a party as lessee with such exceptions
as do not materially interfere with the use made by the Company or such
subsidiary.
(s) Each of the Company and its subsidiaries maintains reasonably
adequate insurance for the business in which it is engaged.
(t) Each of KPMG Peat Marwick LLP, Moore & Gray, Ernst & Young LLP,
McGladrey & Pullen, LLP, Morrison & Smith and Arthur Andersen LLP
(collectively, the "Independent Public Accountants") is an independent
public accountants with respect to the Company and the Subsidiary
Guarantors as required by the Securities Act.
(u) The consolidated financial statements, together with related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in
financial position of the Company and its subsidiaries on the basis stated
in the Registration Statement at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; and the other financial and statistical information and
data set forth in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) is, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements
and the books and records of the Company. The pro forma financial
statements and data set forth in the Registration Statement and the
Prospectus present fairly in all material respects the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma information, have been properly
compiled on the pro forma basis described therein and the assumptions used
in the preparation thereof are reasonable and the adjustments therein are
appropriate to give effect to the transactions and circumstances referred
to therein.
(v) None of the Company or any of the Guarantors is an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(w) No holder of any security of the C ompany has any right to require
registration of shares of Common Stock or any other security of the
Company.
<PAGE>
-8-
(x) Each of the Company and the Guarantors has complied with all
provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of
Florida).
(y) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
(z) There is no (i) significant unfair labor practice complaint
pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against any of them, before the
National Labor Relations Board or any state or local relations board, and
no significant grievance or more significant arbitration proceeding arising
out of or under any collective bargaining agreement is so pending against
the Company or any of its subsidiaries or, to the best knowledge of the
Company, threatened against any of them, and (ii) no significant strike,
labor dispute, slowdown or stoppage pending against the Company or any of
its subsidiaries or, to the best knowledge of the Company, threatened
against it or any of its subsidiaries except for such actions specified in
clause (i) or (ii) above that, singly or in the aggregate, could not
reasonably be expected to have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(aa) Each of the Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(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 the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(bb) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided.
<PAGE>
-9-
(cc) Each of the Company and the Guarantors has filed a registration
statement pursuant to Section 12(g) of the Exchange Act, to register the
Securities.
(dd) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or
-----
Section 4975 of the Internal Revenue Code of 1986, as amended from time to
time (the "Code")) or "accumulated funding deficiency" (as defined in
----
Section 302 of ERISA) or any of the events set forth in Section 4043(b) of
ERISA (other than events with respect to which the 30-day notice
requirement under Section 4043 of ERISA has been waived) has occurred with
respect to any employee benefit plan of the Company or any of its
subsidiaries that could reasonably be expected to have a material adverse
effect on the Company or its subsidiaries; each such employee benefit plan
is in compliance in all material respects with applicable law, including
ERISA and the Code; the Company and each of its subsidiaries have not
incurred and do not expect to incur liability under Title IV of ERISA with
respect to the termination of, or withdrawal from, any pension plan for
which the Company or any of its subsidiaries would have any liability; and
each such pension plan 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, that could
reasonably be expected to cause the loss of such qualification.
(ee) Neither the Company nor, to the best knowledge of the Company,
any director, officer, agent, employee or other person associated with or
acting on behalf of the Company has (i) used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
(ff) None of the Company or any of the Guarantors has taken or will
take, directly or indirectly, any action designed to or that could
reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Securities.
(gg) No forward-looking statement (within the meaning of Section 27A
of the Act and Section 21E of the Exchange Act) contained in the
Registration Statement has been made or reaffirmed without a reasonable
basis or has been disclosed other than in good faith.
<PAGE>
-10-
(hh) Since the respective dates as of which information is given in
the Prospectus, except as otherwise stated therein, (i) there has been no
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or in the
earnings, business, prospects, financial condition or results of operations
of the Company or any of the Guarantors taken as a whole, whether or not
arising in the ordinary course of business, (ii) none of the Company or any
of the Guarantors has incurred any material liability or obligation, direct
or contingent, other than in the ordinary course of business, (iii) none of
the Company or any of the Guarantors has entered into any material
transaction other than in the ordinary course of business and (iv) there
has not been any change in the capital stock or long-term debt of the
Company or any of the Guarantors, or any dividend or distribution of any
kind declared, paid or made by the Company or any of the Guarantors on any
class of its capital stock.
3. Purchase of the Securities. (a) On the basis of the
--------------------------
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, each of the Company and the Guarantors
agrees to issue and sell to each of the Underwriters, severally and not jointly,
and each of the Underwriters, severally and not jointly, agrees to purchase from
each of the Company and the Guarantors, the principal amount of Securities set
forth opposite the name of such Underwriter on Schedule 1 hereto at a purchase
price equal to 0% of the principal amount thereof.
The Company shall not be obligated to deliver any of the Securities
except upon payment for all of the Securities to be purchased as provided
herein. The Company acknowledges and agrees that the Underwriters may sell
Securities to any affiliate of an Underwriter and that any such affiliate may
sell Securities purchased by it to an Underwriter.
The Company hereby confirms its engagement of DLJ as, and DLJ hereby
confirms its agreement with the Company to render services as, a "qualified
independent underwriter", within the meaning of Section (b)(15) of Rule 2720 of
the Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD") with respect to the offering and sale of the Securities. DLJ, solely in
its capacity as qualified independent underwriter and not otherwise, is referred
to herein as the "QIU." As compensation for the services of the QIU hereunder,
the Company agrees to pay the QIU $5,000 on the Closing Date, which fee shall be
waived. The yield to maturity at which the securities will be sold to the
public shall be no lower than the minimum yield to maturity recommended by DLJ
acting as QIU.
4. Delivery of and Payment for the Securities. (a) Delivery of and
------------------------------------------
payment for the Securities shall be made at the offices of Cahill Gordon &
Reindel, New York, New York, or at such other place as shall be agreed upon by
the Underwriters and the Company, at 9:00 A.M., New York City time, on ,
1997, or at such other time or date, not later than seven full business days
thereafter, as shall be agreed upon by the Underwriters and the Company (such
date and time of payment and delivery being referred to herein as the "Closing
-------
Date").
- ----
(b) On the Closing Date, payment of the purchase price for the
Securities shall be made to the Company by wire transfer (same-day funds) to
such account or accounts as specified by the Company, or by such other means as
the parties hereto shall agree prior to the Closing Date, against delivery to
the Underwriters of the certificates evi-
<PAGE>
-11-
dencing the Securities. Time shall be of the essence, and delivery at the time
and place specified pursuant to this Agreement is a further condition of the
obligations of the Underwriters hereunder. Upon delivery, the Securities shall
be in global form, registered in such names and in such denominations as CSI on
behalf of the Underwriters shall have requested in writing not less than two
full business days prior to the Closing Date. The Company agrees to make one or
more global certificates evidencing the Securities available for inspection by
CSI on behalf of the Underwriters in New York, New York at least 24 hours prior
to the Closing Date.
5. Further Agreements of the Company and the Guarantors.
----------------------------------------------------
Each of the Company and the Guarantors agrees with each of the several
Underwriters:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to
the Registration Statement or amendments or supplements to the Prospectus
or for additional information, (ii) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of the suspension of qualification of the Shares for offering or sale in
any jurisdiction, or the initiation of any proceeding for such purposes,
(iii) when any amendment to the Registration Statement becomes effective,
(iv) if the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, when the Rule 462(b)
Registration Statement has become effective and (v) of the happening of any
event during the period referred to in Section 5(d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires any additions to or changes in the
Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the
Company will use its best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(b) to furnish to each of the Underwriters and counsel for the
Underwriters, without charge, four signed copies of the Registration
Statement as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and exhibits
filed therewith; and to deliver promptly without charge to the Underwriters
such number of the following documents as the Underwriters may from time to
time reasonably request: (i) conformed copies of the Registration
Statement as originally filed with the Commission and each amendment
thereto (in each case excluding exhibits other than this Agreement, the
Indenture and the computation of the ratio of earnings to fixed charges)
and (ii) each Preliminary Prospectus, the Prospectus and any amended or
supplemented Prospectus;
<PAGE>
-12-
(c) if the delivery of a prospectus is required at any time in
connection with the sale of the Securities and if at such time any events
shall have occurred as a result of which, in the opinion of counsel for the
Underwriters, the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is delivered,
not misleading, or if for any other reason it shall be necessary or
advisable at such time to amend or supplement the Prospectus in order to
comply with the Securities Act or the Exchange Act or with a request from
the Commission, to notify the Underwriters immediately thereof, and to
promptly prepare and file with the Commission an amended Prospectus or a
supplement to the Prospectus that will correct such statement or omission
or effect such compliance;
(d) as soon as practicable to make generally available to the
Company's security holders and to deliver to the Underwriters an earning
statement of the Company and its subsidiaries (which need not be audited)
complying with Section 11(a) of the Securities Act and the Rules and
Regulations (including, at the option of the Company, Rule 158);
(e) for so long as the Securities are outstanding, to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company furnished by the Company to the Trustee or filed
with the Commission and such other publicly available information as you
may reasonably request concerning the Company and its subsidiaries;
(f) to promptly take from time to time such actions as the
Underwriters may reasonably request to qualify the Securities for offering
and sale under the securities or Blue Sky laws of such jurisdictions as the
Underwriters may designate and to continue such qualifications in effect
for so long as required for the resale of the Securities; and to arrange
for the determination of the eligibility for investment of the Securities
under the laws of such jurisdictions as the Underwriters may reasonably
request; provided that the Company and its subsidiaries shall not be
--------
obligated to qualify as foreign corporations in any jurisdiction in which
they are not so qualified or to file a general consent to service of
process in any jurisdiction;
(g) for a period of 180 days from the date of the Prospectus, not to
offer for sale, sell, contract to sell or otherwise dispose of, directly or
indirectly, or file a registration statement for, or announce any offer,
sale, contract for sale of or other disposition of any debt securities
issued or guaranteed by the Company or any of its subsidiaries (other than
the Securities) without the prior written consent of CSI;
<PAGE>
-13-
(h) not to, for so long as the Securities are outstanding, be or
become, or be or become owned by, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act, and to not
be or become, or be or become owned by, a closed-end investment company
required to be registered, but not registered thereunder;
(i) in connection with the offering of the Securities, until CSI on
behalf of the Underwriters shall have notified the Company of the
completion of the distribution of the Securities, not to, and to cause its
affiliated purchasers (as defined in Regulation M under the Exchange Act)
not to, either alone or with one or more other persons, bid for or
purchase, for any account in which it or any of its affiliated purchasers
has a beneficial interest, any Securities, or attempt to induce any person
to purchase any Securities; and not to, and to cause its affiliated
purchasers not to, make bids or purchase for the purpose of creating
actual, or apparent, active trading in or of raising the price of the
Securities;
(j) in connection with the offering of the Securities, to make its
officers, employees, independent accountants and legal counsel reasonably
available upon request by the Underwriters;
(k) to furnish to each of the Underwriters on the date hereof a copy
of the independent accountants' report included in Registration Statement
signed by the accountants rendering such report;
(l) to do and perform all things required to be done and performed by
it under this Agreement that are within its control prior to or after the
Closing Date, and to use its best efforts to satisfy all conditions
precedent on its part to the delivery of the Securities;
(m) to not take any action prior to the execution and delivery of the
Indenture that, if taken after such execution and delivery, would have
violated any of the covenants contained in the Indenture;
(n) to not take any action prior to the Closing Date that would
require the Prospectus to be amended or supplemented pursuant to Section
4(d);
(o) prior to the Closing Date, not to issue any press release or other
communication directly or indirectly or hold any press conference with
respect to the Company, its condition, financial or otherwise, or earnings,
business affairs or business prospects (except for routine oral marketing
communications in the ordi-
<PAGE>
-14-
nary course of business and consistent with the past practices of the
Company and of which the Underwriters are notified), without the prior
written consent of the Underwriters, unless in the judgment of the Company
and its counsel, and after notification to the Underwriters, such press
release or communication is required by law; and
(p) to apply the net proceeds from the sale of the Securities as set
forth in the Prospectus under the heading "Use of Proceeds".
6. Conditions of Underwriters' Obligations. The respective obligations
---------------------------------------
of the several Underwriters hereunder are subject to the accuracy, on and as of
the date hereof and the Closing Date, of the representations and warranties of
the Company and the Guarantors contained herein, to the accuracy of the
statements of the Company and its officers made in any certificates delivered
pursuant hereto, to the performance by each of the Company and the Subsidiary
Guarantors of its obligations hereunder, and to each of the following additional
terms and conditions:
(a) All of the representations and warranties of the Company and the
Guarantors contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the
Closing Date.
(b) If the Effective Time is not prior to the execution and delivery
of this Agreement, the Registration Statement shall have become effective
and the Indenture shall have been qualified under the Trust Indenture Act,
and the Underwriters shall have received notice thereof, not later than (i)
5:00 p.m. New York City time on the date of determination of the public
offering price, if such determination occurred at or prior to 3:00 p.m. New
York City time on such date or (ii) 12:00 noon New York City time on the
business day following the day on which the offering price was determined
if such determination occurred after 3:00 p.m. New York City time on such
date. If the Effective Time is prior to the execution and delivery of this
Agreement, the Prospectus shall have been timely filed with the Commission
in accordance with Section 4(a) of this Agreement. Prior to the Closing
Date, no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
any request of the Commission for inclusion of additional information in
the Registration Statement or the Prospectus or otherwise shall have been
complied with to the reasonable satisfaction of the Underwriters.
(c) The Prospectus (and any amendments or supplements thereto) shall
have been printed and copies distributed to the Underwriters as promptly as
practicable on or
<PAGE>
-15-
following the date of this Agreement or at such other date and time as to
which the Underwriters may agree.
(d) None of the Underwriters shall have discovered and disclosed to
the Company on or prior to the Closing Date that the Prospectus or any
amendment or supplement thereto contains an untrue statement of a fact
which, in the opinion of counsel for the Underwriters, is material or omits
to state any fact which, in the opinion of such counsel, is material and is
required to be stated therein or is necessary to make the statements
therein not misleading.
(e) All corporate proceedings and other legal matters incident to the
authorization, form and validity of each of this Agreement, the Indenture
and the Securities (collectively, the "Transaction Documents") and the
Prospectus, and all other legal matters relating to the Transaction
Documents and the transactions contemplated thereby, shall be satisfactory
in all material respects to the Underwriters, and the Company shall have
furnished to the Underwriters all documents and information that they or
their counsel may reasonably request to enable them to pass upon such
matters.
(f) Goodwin, Proctor & Hoar LLP shall have furnished to the
Underwriters their written opinion, as counsel to the Company and the
Guarantors, addressed to the Underwriters and dated the Closing Date, in
form and substance reasonably satisfactory to the Underwriters,
substantially to the effect set forth in Annex A hereto.
(g) The Underwriters shall have received from Cahill Gordon & Reindel,
counsel for the Underwriters, such opinion, dated the Closing Date, with
respect to such matters as the Underwriters may reasonably require, and the
Company shall have furnished to such counsel such documents and information
as they request for the purpose of enabling them to pass upon such matters.
(h) The Company shall have furnished to the Underwriters a letter (the
"Initial Letter") the Independent Public Accountants, addressed to the
--------------
Underwriters and dated the date hereof, in form and substance reasonably
satisfactory to the Underwriters and counsel for the Underwriters.
(i) The Company shall have furnished to the Underwriters a letter (the
"Bring-Down Letter") of the Independent Public Accountants, addressed to
-----------------
the Underwriters and dated the Closing Date (i) confirming that they are
independent public accountants with respect to the Company and its
subsidiaries as required by the Securities Act and the Rules and
Regulations, (ii) stating, as of the date of the Bring-Down
<PAGE>
-16-
Letter (or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than three business days prior to
the date of the Bring-Down Letter), that the conclusions and findings of
such accountants with respect to the financial information and other
matters covered by the Initial Letter are accurate and (iii) confirming in
all material respects the conclusions and findings set forth in the Initial
Letter.
(j) The Company and each of the Guarantors shall have furnished to the
Underwriters a certificate, dated the Closing Date, of its chief executive
officer and its chief financial officer stating that (A) such officers have
carefully examined the Registration Statement and the Prospectus, (B) in
their opinion, the Registration Statement and the Prospectus, as of the
Effective Time, did not include any untrue statement of a material fact and
did not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and since the
Effective Time, no event has occurred that should have been set forth in a
supplement or amendment to the Registration Statement and the Prospectus so
that the Registration Statement and the Prospectus (as so amended or
supplemented) would not include any untrue statement of a material fact and
would not omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading and (C) as of the
Closing Date, the representations and warranties of the Company and each of
the Guarantors in this Agreement are true and correct in all material
respects, each of the Company and the Guarantors has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder on or prior to the Closing Date, no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or, to the best of
such officer's knowledge, are contemplated by the Commission, and
subsequent to the date of the most recent financial statements contained in
the Registration Statement and the Prospectus, there has been no material
adverse change in the financial position or results of operation of the
Company or any of its subsidiaries, or any change, or any development
including a prospective change, in or affecting the condition (financial or
otherwise), results of operations, business or prospects of the Company and
its subsidiaries taken as a whole, except as set forth in the Prospectus.
(k) The Indenture shall have been duly executed and delivered by the
Company, the Guarantors and the Trustee, the Securities shall have been
duly
<PAGE>
-17-
executed and delivered by the Company and duly authenticated by the Trustee
and the Guarantees were duly endorsed by the Guarantors.
(l) If any event shall have occurred that requires the Company under
Section 5(d) to prepare an amendment or supplement to the Prospectus, such
amendment or supplement shall have been prepared, the Underwriters shall
have been given a reasonable opportunity to comment thereon, and copies
thereof shall have been delivered to the Underwriters reasonably in advance
of the Closing Date.
(m) Subsequent to the execution and delivery of this Agreement or, if
earlier, the dates as of which information is given in the Registration
Statement (exclusive of any amendment thereto) and the Prospectus
(exclusive of any supplement thereto), there shall not have been any change
in the capital stock or long-term debt or any change, or any development
involving a prospective change, in or affecting the condition (financial or
otherwise), results of operations, business or prospects of the Company and
its subsidiaries taken as a whole, the effect of which, in any such case
described above, is, in the judgment of the Underwriters, so material and
adverse as to make it impracticable or inadvisable to proceed with the
public offering of the Securities on the terms and in the manner
contemplated by this Agreement and the Prospectus (exclusive of any
supplement thereto).
(n) The Company shall have consummated the Common Stock Offering.
(o) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued by any governmental
agency or body that would, as of the Closing Date, prevent the issuance or
sale of the Securities; and no injunction, restraining order or order of
any other nature by any federal or state court of competent jurisdiction
shall have been issued as of the Closing Date which would prevent the
issuance or sale of the Securities.
(p) Subsequent to the execution and delivery of this Agreement (i) no
downgrading shall have occurred in the rating accorded the Securities or
any of the Company's other debt securities or preferred stock by any
"nationally recognized statistical rating organization," as such term is
defined by the Commission for purposes of Rule 436(g)(2) of the Rules and
Regulations and (ii) no such organization shall have publicly announced
that it has under surveillance or review (other than an announcement with
positive implications of a possible upgrading), its rating of the
Securities or any of the Company's other debt securities or preferred
stock.
(q) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the
<PAGE>
-18-
New York Stock Exchange, the American Stock Exchange or the over-the-
counter market shall have been suspended or limited, or minimum prices
shall have been established on any such exchange or market by the
Commission, by any such exchange or by any other regulatory body or
governmental authority having jurisdiction, or trading in any securities of
the Company on any exchange or in the over-the-counter market shall have
been suspended or (ii) any moratorium on commercial banking activities
shall have been declared by federal or New York state authorities or (iii)
an outbreak or escalation of hostilities or a declaration by the United
States of a national emergency or war or (iv) a material adverse change in
general economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States
shall be such) the effect of which, in the case of this clause (iv), is, in
the judgment of the Underwriters, so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
sale or the delivery of the Securities on the terms and in the manner
contemplated by this Agreement and in the Prospectus (exclusive of any
amendment or supplement thereto).
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
7. Effectiveness and Termination. This Agreement shall become
-----------------------------
effective upon the later of (i) when the Underwriters and the Company shall have
received notification of the effectiveness of the Registration Statement or (ii)
the execution of this Agreement. The obligations of the Underwriters hereunder
may be terminated by the Underwriters, in their absolute discretion, by notice
given to and received by the Company prior to delivery of and payment for the
Securities if, prior to that time, any of the events described in Section 6(l),
(m), (n) or (o) shall have occurred and be continuing.
8. Defaulting Underwriters. (a) If, on the Closing Date, any
-----------------------
Underwriter defaults in the performance of its obligations under this Agreement,
the non-defaulting Underwriters may make arrangements for the purchase of the
Securities that such defaulting Underwriter agreed but failed to purchase by
other persons satisfactory to the Company and the non-defaulting Underwriters,
but if no such arrangements are made within 36 hours after such default, this
Agreement shall terminate without liability on the part of the non-defaulting
Underwriters or the Company, except that the Company will continue to be liable
for the payment of expenses to the extent set forth in Sections 9 and 13 and
except that the provisions of Sections 10 and 11 shall not terminate and shall
remain in effect. As used in this Agreement, the term "Underwriters" includes,
for all purposes of this Agreement unless the context otherwise requires, any
party not listed in Schedule 1 hereto that, pursu-
<PAGE>
-19-
ant to this Section 8, purchases Securities which a defaulting Underwriter
agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Underwriter of
any liability it may have to the Company or any non-defaulting Underwriter for
damages caused by its default. If other persons are obligated or agree to
purchase the Securities of a defaulting Underwriter, either the non-defaulting
Underwriters or the Company may postpone the Closing Date for up to seven full
business days in order to effect any changes that in the opinion of counsel for
the Company or counsel for the Underwriters may be necessary in the Registration
Statement and the Prospectus or in any other document or arrangement, and the
Company agrees to promptly prepare any amendment or supplement to the
Registration Statement and the Prospectus that effects any such changes.
9. Reimbursement of Underwriters' Expenses. If (a) no notice shall
---------------------------------------
have been given pursuant to Section 7 causing this Agreement to become
effective, (b) the Company shall fail to tender the Securities for delivery to
the Underwriters for any reason permitted under this Agreement or (c) the
Underwriters shall decline to purchase the Securities for any reason permitted
under this Agreement, the Company shall reimburse the Underwriters for such out-
of-pocket expenses (including reasonable fees and disbursements of counsel for
the Underwriters) as shall have been reasonably incurred by the Underwriters in
connection with this Agreement and the proposed public offering and sale of the
Securities, and upon demand the Company shall pay the full amount thereof to the
Underwriters. If this Agreement is terminated pursuant to Section 8 by reason of
the default of one or more of the Underwriters, the Company shall not be
obligated to reimburse any defaulting Underwriter on account of such expenses.
10. Indemnification. (a) The Company and the Guarantors, jointly
---------------
and severally, shall indemnify and hold harmless each Underwriter, its
affiliates, their respective officers, directors, employees, representatives and
agents, and each person, if any, who controls any Underwriter within the meaning
of the Securities Act or the Exchange Act (collectively referred to for purposes
of this Section 10(a) and Section 11 as an Underwriter), from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, without limitation, any loss, claim, damage, liability or
action relating to purchases and sales of the Securities), to which that
Underwriter may become subject, whether commenced or threatened, under the
Securities Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the
<PAGE>
-20-
light of the circumstances under which they were made, not misleading, and shall
reimburse each Underwriter promptly upon demand for any legal or other expenses
reasonably incurred by that Underwriter in connection with investigating or
defending or preparing to defend against or appearing as a third party witness
in connection with any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company and the Guarantors
-------- -------
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, an untrue statement
or alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with any Underwriters' Information;
and provided, further, that with respect to any such untrue statement in or
-------- -------
omission from any Preliminary Prospectus, the indemnity agreement contained in
this Section 10(a) shall not inure to the benefit of any such Underwriter to the
extent that the sale to the person asserting any such loss, claim, damage,
liability or action was an initial resale by such Underwriter and any such loss,
claim, damage, liability or action of or with respect to such Underwriter
results from the fact that both (A) to the extent required by applicable law, a
copy of the Prospectus was not sent or given to such person at or prior to the
written confirmation of the sale of such Securities to such person and (B) the
untrue statement in or omission from such Preliminary Prospectus was corrected
in the Prospectus unless, in either case, such failure to deliver the Prospectus
was a result of non-compliance by the Company and the Guarantors with
Section 5(c).
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company and the Guarantors, and any affiliates, including any
of their respective officers, directors, employees, representatives and agents,
and each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act (collectively referred to for purposes of
this Section 10(b) and Section 11 as the Company), from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof,
to which the Company may become subject, whether commenced or threatened, under
the Securities Act, the Exchange Act, any other federal or state statutory law
or regulation, at common law or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with any Underwriters' Information, and shall
reimburse the Company and the Guarantors for any legal or other
expenses reasonably incurred by the Company and the Guarantors in connection
with investigating or defending or preparing to
<PAGE>
-21-
defend against or appearing as a third party witness in connection with any such
loss, claim, damage, liability or action as such expenses are incurred.
(c) The Company and the Guarantors also agree to indemnify
and hold harmless DLJ, its directors, officers and employees and each person, if
any, who controls DLJ within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments incurred as a result of DLJ's participation
as a "qualified independent underwriter" within the meaning of Conduct Rule 2720
of the By-Laws of the National Association of Securities Dealers, Inc. in
connection with the offering of the Notes, insofar as such loss, claim, damage,
liability or action arises out of or is based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, any material fact required to be stated therein
or necessary to make the statements therein not misleading, except for any
losses, claims, damages, liabilities and judgments resulting from DLJ's, or such
controlling person's, willful misconduct or gross negligence.
(d) Promptly after receipt by an indemnified party under this Section
10 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to Section 10(a) or 10(b), notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
--------
however, that the failure to notify the indemnifying party shall not relieve it
- -------
from any liability which it may have under this Section 10 except to the extent
that it has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and, provided, further, that the failure to
-------- -------
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 10. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that an
-------- -------
indemnified party shall have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel for the
indemnified party will be at the expense of such indemnified party unless (1)
the employment of counsel by the indemnified
<PAGE>
-22-
party has been authorized in writing by the indemnifying party, (2) the
indemnified party has reasonably concluded (based upon advice of counsel to the
indemnified party) that there may be legal defenses available to it or other
indemnified parties that are different from or in addition to those available to
the indemnifying party, (3) a conflict or potential conflict exists (based upon
advice of counsel to the indemnified party) between the indemnified party and
the indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified party)
or (4) the indemnifying party has not in fact employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such action
within a reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and other
charges of counsel will be at the expense of the indemnifying party or parties.
It is understood that the indemnifying party or parties shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees, disbursements and other charges of more than one
separate firm of attorneys (in addition to any local counsel) at any one time
for all such indemnified party or parties. Each indemnified party, as a
condition of the indemnity agreements contained in Sections 10(a) and 10(b),
shall use all reasonable efforts to cooperate with the indemnifying party in the
defense of any such action or claim. No indemnifying party shall be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
The obligations of the Company, the Guarantors and the Underwriters in
this Section 10 and in Section 12 are in addition to any other liability that
the Company, the Guarantors or the Underwriters, as the case may be, may
otherwise have, including in respect of any breaches of representations,
warranties and agreements made herein by any such party.
Section 11. Indemnification QIU
-------------------
(a) The Company agrees to indemnify and hold harmless the QIU, its
directors, its officers and each person, if any, who controls the QIU within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with defending or investigating any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) related to, based upon or arising out of (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), the Prospectus (or any amendment or
supplement thereto) or any preliminary prospectus, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) the QIU's
activities as QIU under it engagement pursuant to Section 3, hereof, except in
the case of this clause (ii) insofar as any such losses, claims, damages,
liabilities or judgments are found in a final judgment by a court of competent
jurisdiction, not subject to further appeal, to have resulted solely from the
willful misconduct or gross negligence of the QIU.
(b) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to paragraph (a) of this
Section 11 (the "QIU Indemnified Party"), the QIU Indemnified Party shall
promptly notify the Company in writing and the Company shall assume the defense
of such action, including the employment of counsel reasonably satisfactory to
the QIU Indemnified Party and the payment of all fees and expenses of such
counsel, as incurred. Any QIU Indemnified Party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of the QIU
Indemnified Party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the Company,(ii) the Company shall have
failed to assume the defense of such action or employ counsel reasonably
satisfactory to the QIU Indemnified Party or (iii) the name parties to any such
action (including any impleaded parties) include both the QIU Indemnified Party
and the Company, and the QIU Indemnified Party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the Company (in which case
the Company shall not have the right to assume the defense of such action on
behalf of the QIU Indemnified Party). In any such case, the Company shall not,
in connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all QIU
Indemnified Parties, which firm shall be designated by the QIU, and all such
fees and expenses shall be reimbursed as they are incurred. The Company shall
indemnify and hold harmless the QIU Indemnified Party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than ten
business days after the Company shall have received a request from the QIU
Indemnified Party for reimbursement for the fees and expenses of counsel (in any
case where such fees and expenses are at the expense of the Company) and, prior
to the date of such settlement, the Company shall have failed to comply with
such reimbursement request. The Company shall not, without the prior written
consent of the QIU Indemnified Party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the QIU Indemnified Party is or could have been a
party and indemnity or contribution may be or could have been sought hereunder
by the QIU Indemnified Party, unless such settlement, compromise or judgment (i)
includes an unconditional release of the QIU Indemnified Party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or failure to act, by or on behalf of the QIU Indemnified Party.
(c) To the extent the indemnification provided for in this Section 11
is unavailable to a QIU Indemnified Party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then the
Company, in lieu of indemnifying such QIU Indemnified party, shall contribute to
the amount paid or payable by such QIU Indemnified Party as a result of such
losses, claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the QIU on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the QIU in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
QIU shall be deemed to be in the same proportion as the total net proceeds from
the offering (before deducting expenses) received by the Company as set forth in
the table on the cover page of the Prospectus, and the fee received by the QIU
pursuant to Section 3 hereof, bear to the sum of such total net proceeds and
such fee. The relative fault of the Company and the QIU 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 QIU and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission and whether the QIU's activities as QIU under
its engagement pursuant to Section 3 hereof involved any willful misconduct or
gross negligence on the part of the QIU.
The Company and the QIU agree that it would not be just and equitable
if contribution pursuant to this Section 11(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by a QIU Indemnified Party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such QIU Indemnified Party
in connection with investigating or defending any matter that could have given
rise to such losses, claims, damages, liabilities or judgments. 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.
(d) The remedies provided for in this Section 11 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
QIU Indemnified Party at law or in equity.
12. Contribution. If the indemnification provided for in Section 10 is
------------
unavailable or insufficient to hold harmless an indemnified party under Section
10(a) or 10(b), then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropri-
<PAGE>
-23-
ate to reflect the relative benefits received by the Company and the Guarantors
on the one hand and the Underwriters on the other from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Guarantors on the one hand and the Underwriters on
the other with respect to the statements or omissions that resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Guarantors on the one hand and the Underwriters on the other
with respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Securities purchased under this
Agreement (before deducting expenses) received by or on behalf of the Company
and the Guarantors, on the one hand, and the total underwriting discounts and
commissions received by the Underwriters with respect to the Securities
purchased under this Agreement, on the other, bear to the total gross proceeds
from the sale of the Securities under this Agreement, 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 the Company and the Guarantors or information
supplied by the Company and the Guarantors on the one hand or to any
Underwriters' Information on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company, the Guarantors and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 12 were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 12 shall be deemed to include, for
purposes of this Section 12, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending or
preparing to defend any such action or claim. Notwithstanding the provisions of
this Section 12, no Underwriter shall be required to contribute any amount in
excess of the amount by which the total underwriting discounts and commissions
received by such Underwriter with respect to the Securities purchased by it
under this Agreement exceeds the amount of any damages which such Underwriter
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 12 are several in proportion to their respective
purchase obligations and not joint.
<PAGE>
-24-
13. Persons Entitled to Benefit of Agreement. This Agreement shall
----------------------------------------
inure to the benefit of and be binding upon the Underwriters, the Company, the
Guarantors and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except as
provided in Sections 10 and 12 with respect to affiliates, officers, directors,
employees, representatives, agents and controlling persons of the Company, the
Guarantors and the Underwriters. Nothing in this Agreement is intended or shall
be construed to give any person, other than the persons referred to in this
Section 13, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
14. Expenses. Each of the Company and the Guarantors agrees
--------
with the Underwriters to pay (a) the costs incident to the authorization,
issuance, sale, preparation and delivery of the Securities and any taxes payable
in that connection; (b) the costs incident to the preparation, printing and
filing under the Securities Act of the Registration Statement and any amendments
and exhibits thereto; (c) the costs of printing and distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement thereto,
all as provided in this Agreement; (d) the costs of printing, reproducing and
distributing the Indenture, this Agreement and any underwriting and selling
group documents; (e) the filing fees incident to securing any required review by
the National Association of Securities Dealers, Inc. of the terms of sale of the
Securities; (f) the fees and expenses of the Company's counsel and independent
accountants; (g) the fees and expenses of preparing, printing and distributing
Blue Sky Memoranda (including related fees and expenses of counsel to the
Underwriters); (h) any fees charged by rating agencies for rating the
Securities; (i) all fees and expenses of the Trustee and any paying agent
(including related fees and expenses of any counsel to such parties); (j) the
fees and expenses of the QIU (including the fees and disbursements of courses to
the QIU; and (k) all other costs and expenses incident to the performance of the
obligations of the Company under this Agreement; provided that, except as
provided in this Section 14 and Section 9, the Underwriters shall pay their own
costs and expenses.
15. Survival. The respective indemnities, rights of contribution,
--------
representations, warranties and agreements of the Company, the Subsidiary
Guarantors and the Underwriters contained in this Agreement or made by or on
behalf of the Company the Guarantors or the Underwriters pursuant to
this Agreement or any certificate delivered pursuant hereto shall survive the
delivery of and payment for the Securities and shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of any of them or any of their respective
affiliates, officers, directors, employees, representatives, agents or
controlling persons.
16. Notices, etc. All statements, requests, notices and agreements
-------------
hereunder shall be in writing, and:
<PAGE>
-25-
(a) if to the Underwriters, shall be delivered or sent by mail or
telecopy transmission to Chase Securities Inc., 270 Park Avenue, New York,
New York 10017, Attention: Wilfred A. Finnegan (telecopier no.: (212) 270-
0994); or
(b) if to the Company, shall be delivered or sent by mail or telecopy
transmission to OCI Holdings Corporation, P.O. Box 1580, 512 Taylor Street,
Corinth, Mississippi 38834, Attention: John C. Stanley IV, Chairman
(telecopier no.: (601) 286-3334;
provided that any notice to an Underwriter pursuant to Section 10(c) shall also
- --------
be delivered or sent by mail to such Underwriter at its address set forth on the
signature page hereof. Any such statements, requests, notices or agreements
shall take effect at the time of receipt thereof. The Company shall be entitled
to act and rely upon any request, consent, notice or agreement given or made on
behalf of the Underwriters by CSI.
16. Definition of Terms. For purposes of this Agreement, (a) the term
-------------------
"business day" means any day on which the New York Stock Exchange, Inc. is open
for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405
under the Securities Act and (c) except where otherwise expressly provided, the
term "affiliate" has the meaning set forth in Rule 405 of the Rules and
Regulations.
17. Underwriters' Information. The parties hereto acknowledge and
-------------------------
agree that the Underwriters' Information consists solely of the following
information in any Preliminary Prospectus and the Prospectus: (i) the last
paragraph on the front cover page concerning the terms of the offering by the
Underwriters; (ii) the legend on the inside front cover page concerning over-
allotment and trading activities by the Underwriters; and (iii) the statements
concerning the Underwriters contained in the under the heading Underwriting".
18. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
19. Counterparts. This Agreement may be executed in one or more
------------
counterparts (which may include counterparts delivered by telecopier) and, if
executed in more than one counterpart, the executed counterparts shall each be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
20. Amendments. No amendment or waiver of any provision of this
----------
Agreement, nor any consent or approval to any departure therefrom, shall in any
event be effective unless the same shall be in writing and signed by the parties
hereto.
<PAGE>
-26-
21. Headings. The headings herein are inserted for convenience of
--------
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
-27-
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
OCI HOLDINGS CORPORATION
By
-----------------------------------
Name:
Title:
MASS COMMUNICATIONS CORP.
By
-----------------------------------
Name:
Title:
OCI (N) CORP.
By
-----------------------------------
Name:
Title:
OUTDOOR COMMUNICATIONS, INC.
By
-----------------------------------
Name:
Title:
Accepted:
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
c/o CHASE SECURITIES INC.
By
---------------------------
Authorized Signatory
Address for notices pursuant to Section 9(c):
1 Chase Plaza, 25th floor
New York, New York 10081
Attention: Legal Department
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Principal
Amount
Underwriters of Securities
- ------------ -------------
<S> <C>
Chase Securities Inc. $
Donaldson, Lufkin & Jenrette Securities Corporation
Salomon Brothers Inc
=============
Total $
</TABLE>
<PAGE>
ANNEX A
[Form of Opinion of Counsel for the Company]
Goodwin, Proctor & Hoar LLP shall have furnished to the Underwriters
their written opinion, as counsel to the Company and the Guarantors, addressed
to the Underwriters and dated the Closing Date, in form and substance reasonably
satisfactory to the Underwriters, substantially to the effect set forth below:
(i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority required to carry on its business as it is currently being
conducted and to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly qualified and
is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole;
(iii) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly and validly authorized and issued and
are fully paid and nonassessable, and are owned by the Company, free and
clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature;
(iv) the Company has an authorized capitalization as set forth in the
Prospectus under the caption "Capitalization";
(v) The Registration Statement was declared effective under the
Securities Act and the Indenture was qualified under the Trust Indenture
Act as of the date and time specified in such opinion; the Prospectus was
filed with the Commission pursuant to the subparagraph of Rule 424(b) of
the Rules and Regulations specified in such opinion on the date specified
therein; and no stop order suspending the effectiveness of the Registration
Statement has been issued and, to the best of such counsel's knowledge, no
proceeding for that purpose is pending or threatened by the Commission;
(vi) The Indenture complies as to form in all material respects with
the requirements of the Trust Indenture Act and the rules and regulations
of the Commission thereunder;
<PAGE>
-2-
(vii) neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws and, to the best of such counsel's
knowledge after due inquiry, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation, agreement
or condition contained in any bond, debenture, note or any other evidence
of indebtedness or in any other agreement, indenture or instrument material
to the conduct of the business of the Company and its subsidiaries, taken
as a whole, to which the Company or any of its subsidiaries is a party or
by which it or any of its subsidiaries or their respective property is
bound;
(viii) each of the Company and Guarantors has full right, power and
authority to execute and deliver each of the Underwriting Agreement, the
Indenture, the Securities and the Guarantees and to perform its obligations
thereunder; and all corporate action required to be taken for the due and
proper authorization, execution and delivery of each of the Underwriting
Agreement, the Indenture, the Securities and the Guarantees and the
consummation of the transactions contemplated thereby have been duly and
validly taken;
(ix) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company and each of the Guarantors and constitutes a
valid and legally binding agreement of the Company and each of the
Guarantors enforceable against the Company and each of the Guarantors in
accordance with its terms, except to the extent that such enforceability
may be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law) and except as rights to indemnity and
contribution hereunder may be limited by applicable law;
(x) the Indenture has been duly authorized, executed and delivered
by the Company and each of the Guarantors and, assuming due authorization,
execution and delivery thereof by the Trustee, constitutes a valid and
legally binding agreement of the Company and each of the Guarantors
enforceable against the Company and each of the Guarantors in accordance
with its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether considered in
a proceeding in equity or at law);
(xi) the Securities have been duly authorized and issued by the
Company and, assuming due authentication thereof by the Trustee and upon
payment and delivery in accordance with the Underwriting Agreement, will
constitute valid and le-
<PAGE>
-3-
gally binding obligations of the Company entitled to the benefits of the
Indenture and enforceable against the Company in accordance with their
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting creditors' rights generally and
by general equitable principles (whether considered in a proceeding in
equity or at law); the Guarantees have been duly endorsed by the Subsidiary
Guarantors and, assuming the Securities have been duly authorized and
issued by the Company and assuming due authentication thereof by the
Trustee, the Guarantees will constitute valid and legally binding
obligations of the Guarantors entitled to the benefits of the Indenture and
enforceable against the Guarantors in accordance with their terms, except
to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws affecting creditors' rights generally and by general
equitable principles (whether considered in a preceding in equity or at
law);
(xii) the execution, delivery and performance of the Underwriting
Agreement by the Company and the Guarantors, compliance by the Company and
the Guarantors with all of the provisions thereof and the consummation of
the transactions contemplated thereof will not require any consent,
approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may be
required under the Act or other securities or Blue Sky laws) and will not
conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the charter or by-laws of the Company or any of its
subsidiaries, or any agreement, indenture or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or their respective properties are bound, or
violate or conflict with any laws, administrative regulations or rulings or
court decrees applicable to the Company or any of its subsidiaries or their
respective properties;
(xiii) after due inquiry, such counsel does not know of any legal or
governmental proceeding pending or threatened to which the Company or any
of its subsidiaries is a party or to which any of their respective property
is subject that is required to be described in the Registration Statement
or the Prospectus and is not so described, or of any contract or other
document which is required to be described in the Registration Statement or
the Prospectus or is required to be filed as an exhibit to the Registration
Statement that is not described or filed as required;
(xiv) to the best of such counsel's knowledge, after due inquiry,
neither the Company nor any of its subsidiaries has violated any
Environmental Laws, nor any federal or state law relating to discrimination
in the hiring, promotion or pay of em-
<PAGE>
-4-
ployees nor any applicable federal or state wages and hours laws, nor any
provisions of ERISA or the rules and regulations promulgated thereunder,
which in each case might result in any material adverse change in the
business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole;
(xv) each of the Company and its subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease and operate
its respective properties and to conduct its business in the manner
described in the Prospectus; to the best of such counsel's knowledge, after
due inquiry, the Company and each of its subsidiaries has fulfilled and
performed all of its material obligations with respect to such permits and
no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit, subject in each
case to such qualification as may be set forth in the Prospectus; and,
except as described in the Prospectus, such permits contain no restrictions
that are materially burdensome to the Company or any of its subsidiaries;
(xvi) to the best of such counsel's knowledge, after due inquiry,
except as otherwise set forth in the Registration Statement or such as are
not material to the business, prospects, financial condition or results of
operation of the Company and its subsidiaries, taken as a whole, the
Company and each of its subsidiaries has good and marketable title, free
and clear of all liens, claims, encumbrances and restrictions except liens
for taxes not yet due and payable, to all property and assets described in
the Registration Statement as being owned by it;
(xvii) to the best of such counsel's knowledge, after due inquiry, all
leases to which the Company or any of its subsidiaries is a party are valid
and binding and no default has occurred or is continuing thereunder, which
might result in any material adverse change in the business, prospects,
financial condition or results of operation of the Company and its
subsidiaries taken as a whole, and the Company and its subsidiaries enjoy
peaceful and undisturbed possession under all such leases to which any of
them is a party as lessee with such exceptions as do not material interfere
with the use made by the Company or such subsidiary;
(xviii) (1) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for financial statements as to
which no opinion need be expressed) comply as to form in all material
respects with the Act, and (2) such counsel believes that (except for
financial statements, as aforesaid) the Registration
<PAGE>
-5-
Statement and the prospectus included therein at the time the Registration
Statement became effective did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that the Prospectus, as amended or supplemented, if applicable (except for
financial statements, as aforesaid) does not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(xix) neither the Company nor any of its subsidiaries is (A) an
"investment company" or a company "controlled by" an investment company
within the meaning of the Investment Company Act and the rules and
regulations of the Commission thereunder, without taking account of any
exemption under the Investment Company Act arising out of the number of
holders of the Company's securities or (B) a "holding company" or a
"subsidiary company" of a holding company or an "affiliate" thereof within
the meaning of the Public Utility Holding Company Act of 1935, as amended;
and
(xx) neither the consummation of the transactions contemplated by
this Agreement nor the sale, issuance, execution or delivery of the
Securities will violate Regulation G, T, U or X of the Federal Reserve
Board.
Such counsel shall also state that they have participated in
conferences with representatives of the Company and each of the Subsidiary
Guarantors and with representatives of their independent accountants and counsel
at which conferences the contents of the Registration Statement and the
Prospectus and any amendment and supplement thereto and related matters were
discussed and, although such counsel assume no responsibility for the accuracy,
completeness or fairness of the Registration Statement, the Prospectus and any
amendment or supplement thereto (except as expressly provided above), nothing
has come to the attention of such counsel to cause such counsel to believe that
the Registration Statement (or any post-effective amendment thereto), at the
time of its effective date (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A or
Rule 434, if applicable), contained any 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, or that the Prospectus or any
amendment or supplement thereto as of its date and the Closing Date contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading (other than the financial statements and other
financial and statistical information contained therein, as to which such
counsel need express no belief).
<PAGE>
-6-
In rendering such opinion, such counsel may rely as to matters of fact,
to the extent such counsel deems proper, on certificates of responsible officers
of the Company, the Guarantors and public officials which are furnished to the
Underwriters.
<PAGE>
EXHIBIT 10.1
------------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of April 3, 1996,
by and among OCI HOLDINGS CORP., a Delaware corporation (the "Company"), and
A.B. ISBELL, JOHN C. STANLEY, IV, NORMAN ISBELL, PRISCILLA S. DENTON, WILLIAM
HULL DAVIS, DOUGLAS W. FERRIS, JR., RICHARD W. EBERSOLE, JOHN C. STANLEY, IV,
TRUSTEE OF THE JCS TRUST, JOHN C. STANLEY, IV, TRUSTEE OF THE LWS TRUST,
MEDIA/COMMUNICATIONS PARTNERS II LIMITED PARTNERSHIP, MEDIA/COMMUNICATIONS
INVESTORS LIMITED PARTNERSHIP and CHASE VENTURE CAPITAL ASSOCIATES, L.P.
(collectively, the "Purchasers" and individually, each a "Purchaser").
WHEREAS, concurrently with the execution hereof, the Company and the
Purchasers are entering into a Securities Purchase Agreement (the "Securities
Purchase Agreement"), pursuant to which, among other things, the Company is
issuing and selling to the Purchasers and the Purchasers are acquiring from the
Company, shares of common stock of the Company; and
WHEREAS, the Company and the Purchasers desire to agree on certain
arrangements with regard to the registration of the shares of common stock of
the Company being acquired by the Purchasers;
NOW, THEREFORE, to induce the Purchasers to enter into the Securities
Purchaser Agreement, and in consideration of the mutual promises and agreements
hereinafter set forth, the parties hereto do hereby agree as follows:
SECTION 1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
"Advice" has the meaning set forth in Section 4.
------
"Affiliate" means, with respect to any Person, any other Person (a) that
---------
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, the specified Person; (b) that
is a director or officer of, partner in, or trustee of, or serves in a similar
capacity with respect to, the specified Person or of which the specified Person
is a director, officer, partner or trustee, or with respect to which the
specified Person serves in a similar capacity; (c) of which the specified Person
is directly or indirectly through one or more intermediaries the owner of ten
percent (10%) or more of the equity securities, or (d) that is acting at the
direction and primarily in furtherance of the interests of the specified Person.
<PAGE>
"Business Day" means any day other than a day on which banks are authorized
------------
or required to be closed in The Commonwealth of Massachusetts and the State of
New York.
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the capital stock of the Company, however designated,
------------
which is not limited as to the amount of dividends, or which is not limited to
the amount of distributions to which it is entitled upon liquidation or
dissolution of the Company, and shall include, without limitation, the Company's
presently authorized Class A Common Stock, par value $.01 per share, and Class
B Common Stock, par value $.01 per share.
"Company" has the meaning set forth in the preamble and shall include the
-------
Company's successors by merger, acquisition, reorganization or otherwise.
"Controlling Persons" has the meaning set forth in Section 7(a).
-------------------
"Damages" has the meaning set forth in Section 7(a).
-------
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"Holder" means each holder of record of Registrable Securities.
------
"Inspectors" has the meaning set forth in Section 3(m).
----------
"Lock-up Request" has the meaning set forth in Section 9.
---------------
"NASD" has the meaning set forth in Section 3(q).
----
"Person" means any individual, corporation, partnership, limited liability
------
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
"Piggy-Back Registration" has the meaning set forth in Section 2(a).
-----------------------
"Prospectus" means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to the prospectus, including post-effective
amendments,
2
<PAGE>
and in each case including all material incorporated by reference or deemed to
be incorporated by reference in such prospectus.
"Public Sale" means any sale of shares of Common Stock to the public
-----------
pursuant to an offering registered under the Securities Act or subsequent to the
Company registering any Common Stock under the Securities Act to the public
through a broker, dealer or market maker (pursuant to the provisions of Rule 144
promulgated under the Securities Act or otherwise).
"Purchasers' Shares" means all shares of Common Stock from time to time
------------------
issued to or acquired by any of the Purchasers or any of their Affiliates, other
than shares of Common Stock which may be issued and/or sold to certain of the
Purchasers who are employees of the Company as part of the compensation paid or
other benefits made available to such employee in connection with his or her
employment after approval of such issuance or sale by the board of directors of
the Company pursuant to a stock, stock option or similar benefit plan approved
by the board of directors of the Company.
"Records" has the meaning set forth in Section 3(m).
-------
"Registrable Securities" means the Purchasers' Shares until such time as
----------------------
(i) a Registration Statement covering such Registrable Securities has been
declared effective and such Registrable Securities have been disposed of
---
pursuant to such effective Registration Statement, (ii) such Registrable
Securities are transferred to any Person other than a Holder pursuant to Rule
144 (or any similar provision then in force, but not Rule 144A) under the
Securities Act, including a sale pursuant to the provisions of Rule 144(k), or
(iii) such Registrable Securities shall cease to be outstanding.
"Registration Expenses" has the meaning set forth in Section 6.
---------------------
"Registration Statement" means any registration statement of the Company
----------------------
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement (including any Shelf Registration Statement), and all amendments and
supplements to any such registration statement, including post-effective
amendments, in each case including the Prospectus, all exhibits, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.
"Requisite Holders" shall mean Persons holding fifty-one percent (51%) or
-----------------
more of the outstanding Purchasers' Shares.
"Rule 144A" has the meaning set forth in Section 8(b).
---------
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
3
<PAGE>
"Shelf Registration Statement" has the meaning set forth in Section 2(c).
----------------------------
"Suspension Notice" has the meaning set forth in Section 4.
-----------------
"Suspension Period" has the meaning set forth in Section 4.
-----------------
SECTION 2. REGISTRATION RIGHTS
-------------------
(a) Piggy-Back Registration. If at any time or times after the date
-----------------------
hereof, the Company shall determine to register any of its Common Stock under
the Securities Act (whether in connection with a public offering of securities
by the Company, a public offering of securities by shareholders, or both, but
not in connection with a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 or any other similar rule of the
Commission under the Securities Act is applicable), the Company shall promptly
give written notice thereof to the Holders, and such notice shall offer such
Holders the opportunity to register such Registrable Securities as each such
Holder may request (which request shall specify the number of Registrable
Securities intended to be disposed of by such Holder and the intended method of
distribution thereof) within 15 days after the date such notice is sent to such
Holder by the Company (a "Piggy-Back Registration"). The Company shall cause
the managing underwriter or underwriters of a proposed underwritten offering to
permit the Registrable Securities requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company or any other security holder included therein and to
permit the sale or distribution of such Registrable Securities in accordance
with the intended method of distribution thereof; provided, however, that if the
-------- -------
managing underwriter or underwriters of an underwritten public offering with
respect to which Piggy-Back Registration has been requested shall have informed
the Company, in writing, that in the opinion of such underwriter or underwriters
the total number of shares which the Company, the Holders and any other Persons
participating in such registration intend to include in such offering is such as
to materially and adversely affect the success of such offering, then there
shall be included in such offering only such number of shares as such
underwriter or underwriters advise the Company can be sold in such offering, and
the shares to be included in such offering shall be determined in accordance
with the following priorities: (x) first, there shall be included all of the
shares requested to be sold by the Company for the Company's own account, (y)
second, there shall be included such Registrable Securities as were requested to
be included by the Holders in such offering, reduced or limited, to the extent
necessary, pro rata among the Holders requesting such registration based on the
--- ----
number of Registrable Securities requested to be included in such registration
by each such Holder, and (z) third, there shall be included such shares as were
requested to be included by all other Persons in such offering, reduced or
limited, to the extent necessary, in accordance with the priorities, if any,
then existing among the Company and such other Persons. Without in any way
limiting the types of registrations to which this Section 2(a) shall apply, in
the event that the Company shall effect a Shelf Registration under Rule 415
promulgated under the Securities Act, or any other similar rule or regulation,
the Company
4
<PAGE>
shall take all necessary action, including, without limitation, the filing of
post-effective amendments, to permit the Holders to include their shares in such
registration in accordance with the terms of this Section 2(a). No Person may
participate in any registration hereunder that is underwritten unless such
Person (A) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Company and the Requisite Holders, (B)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting agreements, and (C) takes such other actions as the Company or the
underwriters retained by the Company may reasonably request in order to expedite
or facilitate the disposition of such Person's securities.
(b) Required Registrations. If at any time after the earlier of (i)
----------------------
six months after the first public offering of securities of the Company or (ii)
the third anniversary of the date of this Agreement, the Company shall receive
from the Requisite Holders a written notice requesting the Company to effect a
registration of a public sale of all or any portion of the Registrable
Securities, the Company shall notify all Holders of Registrable Securities who
would be entitled to notice of a proposed registration under Section 2(a) of its
receipt of such notification from such Requisite Holders. Upon the written
request of any such Holder of Registrable Securities delivered to the Company
within fifteen (15) days after receipt from the Company of such a notification
from the Requisite Holders, the Company shall, as soon as practicable, either
(i) make a public offering of its securities pursuant to a Registration
Statement in which case the rights of such Holders shall be as set forth in
Section 2(a) or (ii) use its best efforts to cause such of the Registrable
Securities as may be requested by any Holders (including the Requisite Holders
giving the initial notice of intent to register hereunder) to be registered on a
Registration Statement. Notwithstanding the foregoing, the Company shall not be
required to cause a Registration Statement requested pursuant to this Section
2(b) to become effective prior to one hundred eighty (180) days following the
effective date of a registration statement initiated by the Company, if the
request for registration has been received by the Company subsequent to the
giving of written notice by the Company, made in good faith, to the Holders to
the effect that the Company is commencing to prepare a Company-initiated
registration statement (other than a registration effected solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Commission under the Securities Act is applicable); provided,
--------
however, that the Company shall use its best efforts to achieve such
- -------
effectiveness promptly following such one hundred eighty (180)-day period if the
request pursuant to this Section 2(b) has been made prior to the expiration of
such one hundred eighty (180)-day period. The Company may postpone the filing
of any Registration Statement required hereunder for a reasonable period of
time, not to exceed sixty (60) days, if the Company has been advised by legal
counsel that such filing would require the disclosure of a material transaction
or other matter and the Company determines reasonably and in good faith that
such disclosure would have a material adverse effect on the Company. If, in
connection with any underwritten public offering of securities of the Company
that is initiated by the Holders pursuant to this Section 2(b), the managing
underwriter or underwriters shall have informed the Company, in writing, that in
the opinion of such underwriter or underwriters the total number of shares which
the Company, the
5
<PAGE>
Holders and any other Persons participating in such registration intend to
include in such offering is such as to materially and adversely affect the
success of such offering, then there shall be included in such offering only
such number of shares as such underwriter or underwriters advise the Company can
be sold in such offering, and the shares to be included in such offering shall
be determined in accordance with the following priorities: (w) first, there
shall be included such Registrable Securities as were requested to be included
by the Holders who requested such registration pursuant to the terms of this
Section 2(b), (x) second, there shall be included such Registrable Securities as
other Holders have requested to be included by in such offering pursuant to
their rights under the terms of Section 2(a) hereof, reduced or limited, to the
extent necessary, pro rata among such Holders based on the number of Registrable
--------
Securities requested to be included in such registration by each such Holder,
(y) third, there shall be included such shares as were requested by the Company
to be included in such offering for the Company's own account, reduced or
limited to the extent necessary, and (z) fourth, there shall be included such
shares as were requested to be included by all other Persons in such offering,
reduced or limited, to the extent necessary, in accordance with the priorities,
if any, then existing among the Company and such other Persons. No Person may
participate in any registration hereunder that is underwritten unless such
Person (A) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Company and the Requisite Holders, (B)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting agreements, and (C) takes such other actions as the Company, the
Requisite Holders or the underwriters retained by the Company may reasonably
request in order to expedite or facilitate the disposition of such Person's
securities.
(c) Shelf Registration. If the Company becomes eligible to use Form
------------------
S-3 under the Securities Act or a comparable successor form (a "Shelf
Registration Statement"), the Company shall use its best efforts to continue to
qualify at all times for registration on a Shelf Registration Statement. Upon
such qualification for use of a Shelf Registration Statement, the Holders of an
aggregate of not less than ten percent (10%) of Registrable Securities shall
have the right to request and have effected not more than two (2) registrations
per year of shares of Registrable Securities on a Shelf Registration Statement
for a public offering of shares of Registrable Securities having an aggregate
proposed offering price of not less than two hundred fifty thousand dollars
($250,000) (such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of such shares by such Holder or Holders). As soon as practicable
after receipt of such a notice from a Holder or Holders, the Company shall use
its best efforts to have a Shelf Registration Statement declared effective and
to keep such Shelf Registration Statement continuously effective for a period of
thirty-six (36) months following the date on which such Shelf Registration
Statement was declared effective. The Company shall not be required to cause a
Registration Statement requested pursuant to this Section 2(c) to become
effective prior to one hundred eighty (180) days following the effective date of
a registration statement initiated by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Holders to the effect
that the Company is commencing to prepare a Company-initiated
6
<PAGE>
registration statement (other than a registration effected solely to implement
an employee benefit plan or a transaction to which Rule 145 or any other similar
rule of the Commission under the Securities Act is applicable); provided,
--------
however, that the Company shall use its best efforts to achieve such
- -------
effectiveness promptly following such one hundred eighty (180)-day period if the
request pursuant to this Section 2(c) has been made prior to the expiration of
such one hundred eighty (180)-day period. The Company may postpone the filing of
any Registration Statement required hereunder for a reasonable period of time,
not to exceed sixty (60) days, if the Company has been advised by legal counsel
that such filing would require the disclosure of a material transaction or other
factor and the Company determines reasonably and in good faith that such
disclosure would have a material adverse effect on the Company. The Company
shall give notice to all Holders of the receipt of a request for registration
pursuant to this Section 2(c) and shall provide a reasonable opportunity for
such Holders to participate in the registration. If so requested by any Holder
in connection with a registration under this Section 2(c), the Company shall
take such steps as are required to register such Holder's Registrable Securities
for sale on a delayed or continuous basis under Rule 415, and to keep such
registration effective until all of such Holder's Registrable Securities
registered thereunder are sold.
SECTION 3. REGISTRATION PROCEDURES.
-----------------------
In connection with the obligations of the Company to effect or cause the
registration of any Registrable Securities pursuant to the terms and conditions
of this Agreement, the Company shall use its reasonable business efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly as practicable, and
in connection therewith:
(a) The Company shall prepare and file with the Commission a Registration
Statement on the appropriate form under the Securities Act, which form shall
comply as to form in all materials respects with the requirements of the
applicable form and include all financial statements required by the Commission
to be filed therewith, and use its reasonable business efforts to cause such
Registration Statement to become effective and remain effective in accordance
with the provisions of this Agreement.
(b) The Company shall promptly prepare and file with the Commission such
amendments and post-effective amendments to each Registration Statement as may
be necessary to keep such Registration Statement effective for as long as such
registration is required to remain effective pursuant to the terms hereof; shall
cause the Prospectus to be supplemented by any required Prospectus supplement,
and, as so supplemented, to be filed pursuant to Rule 424 under the Securities
Act; and shall comply with the provisions of the Securities Act applicable to it
with respect to the disposition of all Registrable Securities covered by such
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders set forth in such Registration
Statement or supplement to the Prospectus;
7
<PAGE>
(c) The Company shall promptly furnish to any Holder and the underwriters,
if any, without charge, such number of conformed copies of each Registration
Statement and any post-effective amendment thereto and such number of copies of
the Prospectus (including each preliminary Prospectus) and any amendments or
supplements thereto, any documents incorporated by reference therein and such
other documents as such Holder or underwriter may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities
being sold by such Holder.
(d) The Company shall, on or prior to the date on which a Registration
Statement is declared effective, (i) use its reasonable business efforts to
register or qualify the Registrable Securities covered by such Registration
Statement under such other securities or "blue sky" laws of such states of the
United States as any Holder or underwriter requests; (ii) do any and all other
acts and things which may be necessary or advisable to enable such Holder to
consummate the disposition of such Registrable Securities owned by such Holder;
(iii) use its reasonable business efforts to keep each such registration or
qualification (or exemption therefrom) effective during the period which the
Registration Statement is required to be kept effective in accordance with the
provisions of this Agreement; and (iv) do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of such Registrable Securities; provided, however, that the
-------- -------
Company shall not be required (x) to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (y) to file any general consent to service of process, or (z) to
subject itself to taxation in any jurisdiction where it would not otherwise be
subject to taxation.
(e) The Company shall cause the Registrable Securities covered by a
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the Holders to consummate the
disposition of such Registrable Securities.
(f) The Company shall promptly notify each Holder and any underwriter in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission or any state securities authority for amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
Registration Statement or the initiation or threatening of any proceedings for
that purpose, (iv) of the issuance by any state securities commission or other
regulatory authority of any order suspending the qualification or exemption from
qualification of any of the Registrable Securities under state securities or
"blue sky" laws or the initiation of any proceedings for that purpose, (v) if,
between the effective date of a Registration Statement and the closing of any
sale of Registrable Securities covered thereby, the representations and
warranties of the Company contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to the offering
cease to be true and correct in all material respects,
8
<PAGE>
and (vi) of the happening of any event which makes any statement made in a
Registration Statement or related Prospectus untrue or which requires the making
of any changes in such Registration Statement or Prospectus so that they will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Immediately following expiration of any Suspension Period, the
Company shall prepare and file with the Commission and furnish a supplement or
amendment to such Prospectus so that, as thereafter deliverable to the
purchasers of such Registrable Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(g) The Company shall make generally available to the Holders an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act no
later than 45 days (90 days in the event it relates to a fiscal year) after the
end of the 12-month period beginning with the first day of the Company's first
fiscal quarter commencing after the effective date of a Registration Statement,
which earnings statement shall cover said 12-month period, and which requirement
will be deemed to be satisfied if the Company timely files complete and accurate
information on forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise
complies with Rule 158 under the Securities Act.
(h) The Company shall promptly use its reasonable business efforts to
prevent the issuance of any order suspending the effectiveness of a Registration
Statement, and if one is issued use its reasonable business efforts to obtain
the withdrawal of any order suspending the effectiveness of a Registration
Statement at the earliest possible moment.
(i) The Company shall, if requested by the managing underwriter or
underwriters, if any, or any Holder promptly incorporate in a Prospectus
supplement or post-effective amendment such information as such managing
underwriter or underwriters or Holder reasonably requests, to be included
therein, including, without limitation, with respect to the Registrable
Securities being sold by such Holder to such underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters and with
respect to any other terms of an underwritten offering of the Registrable
Securities to be sold in such offering, and promptly make all required filings
of such Prospectus supplement or post-effective amendment.
(j) The Company shall, as promptly as practicable after filing with the
Commission any document which is incorporated by reference into a Registration
Statement (in the form in which it was incorporated), deliver a copy of each
such document to each of the Holders.
(k) The Company shall cooperate with the Holders and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates (which shall not bear any restrictive legends unless
required under applicable law) representing securities sold under a Registration
Statement, and enable such securities to be in such denominations
9
<PAGE>
and registered in such names as the managing underwriter or underwriters, if
any, or such Holders may reasonably request and keep available and make
available to the Company's transfer agent prior to the effectiveness of such
Registration Statement a supply of such certificates.
(l) The Company shall enter into such customary agreements (including, if
applicable, an underwriting agreement in customary form) and take such other
actions as the Holders or the underwriters retained by the Holders participating
in an underwritten public offering, if any, may reasonably request in order to
expedite or facilitate the disposition of Registrable Securities.
(m) The Company shall promptly make available to each Holder, any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney, accountant or other agent or representative
retained by any such Holder or underwriter (collectively, the "Inspectors"), all
financial and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such Inspector in connection with such Registration Statement;
provided that, unless the disclosure of such Records is necessary to avoid or
- --------
correct a misstatement or omission in such Registration Statement or the release
of such Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction, the Company shall not be required to provide any
information under this paragraph (1) if the Company believes, after consultation
with counsel for the Company and counsel for the Holders, that to do so would
cause the Company to forfeit an attorney-client privilege that was applicable to
such information or (2) if either (i) the Company has requested and been granted
from the Commission confidential treatment of such information contained in any
filing with the Commission or documents provided supplementally or otherwise or
(ii) the Company reasonably determines in good faith that such Records are
confidential and so notifies the Inspectors in writing unless prior to
furnishing any such information with respect to (i) or (ii) such Holder of
Registrable Securities requesting such information agrees to enter into a
confidentiality agreement in customary form and subject to customary exceptions;
and provided, further that each Holder of Registrable Securities agrees that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company at its
expense, to undertake appropriate action and to prevent disclosure of the
Records deemed confidential.
(n) In the case of any underwritten public offering, the Company shall
furnish to each Holder and to each underwriter a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion or opinions of counsel to the
Company, and (ii) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions or comfort letters, as the case may
be, as the managing underwriter therefor reasonably requests.
10
<PAGE>
(o) The Company shall cause the shares of Common Stock included in a
Registration Statement to be listed on a national securities exchange or the
NASDAQ National Market System.
(p) The Company shall provide a CUSIP number for all Registrable Securities
covered by a Registration Statement not later than the effective date of such
Registration Statement.
(q) The Company shall cooperate with each Holder and each underwriter
participating in the disposition of Registrable Securities and their respective
counsel in connection with any filings required to be made with the National
Association of Securities Dealers, Inc. ("NASD").
(r) The Company shall, during the period when the Prospectus is required to
be delivered under the Securities Act, promptly file all documents required to
be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act.
(s) The Company shall appoint a transfer agent and registrar for all the
shares of Common Stock covered by a Registration Statement not later than the
effective date of such Registration Statement.
(t) In connection with an underwritten offering, the Company will
participate, to the extent reasonably requested by the managing underwriter for
the offering or the Holders, in customary efforts to sell the securities under
the offering, including without limitation, participating in "road shows."
SECTION 4. SUSPENSION PERIOD.
-----------------
In the case of a Shelf Registration Statement, each Holder, upon receipt of
any notice (a "Suspension Notice") from the Company of the happening of any
event of the kind described in Section 3(f)(vi) or of any event which, in the
Company's reasonable business judgment, could become such an event, shall
forthwith discontinue disposition of the Registrable Securities pursuant to the
Shelf Registration Statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(f) or until it is advised in writing (the "Advice") by
the Company that the use of the Prospectus may be resumed, and has received
copies of any additional or supplemental filings which are incorporated by
reference in the Prospectus, and, if so directed by the Company, such Holder
will, or will request the managing underwriter or underwriters, if any, to,
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice; provided, however, that (w) the Company shall not give a Suspension
-------- -------
Notice until after the Shelf Registration Statement has been declared effective,
(x) the Company shall not give more than three Suspension Notices during any
period of twelve consecutive months, (y) in no event shall the period from the
date
11
<PAGE>
on which any Holder receives a Suspension Notice to the date on which any Holder
receives either the Advice or copies of the supplemented or amended Prospectus
contemplated by Section 3(f) (the "Suspension Period") exceed 60 days and (z) in
no event shall the aggregate length of all Suspension Periods during any period
of twelve consecutive months exceed 90 days. In the event that the Company shall
give any Suspension Notice, (i) the Company shall use its reasonable business
efforts and take such actions as are reasonably necessary to render the Advice
and end the Suspension Period as promptly as practicable and (ii) the time
period for which a Shelf Registration Statement is required to be kept effective
pursuant to Section 2 hereof shall be extended by the number of days during the
Suspension Period.
SECTION 5. HOLDER INFORMATION.
------------------
If any Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right, to the extent permitted by law, to require (i) the insertion therein of
language, in form and substance reasonably satisfactory to such Holder, to the
effect that the holding by such Holder of such securities is not to be construed
as a recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal or state "blue sky"
statute and the rules and regulations thereunder then in force, the deletion of
the reference to such Holder.
SECTION 6. REGISTRATION EXPENSES.
---------------------
Any and all expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all Commission and securities
exchange, NASDAQ or NASD registration and filing fees, all fees and expenses
incurred in connection with compliance with state securities or "blue sky" laws
(including reasonable fees and disbursements of counsel for any underwriters in
connection with "blue sky" qualifications of the Registrable Securities),
printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), all expenses for
word processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements,
securities sales agreements and other documents relating to the performance of
and compliance with this Agreement, the fees and expenses incurred in connection
with the listing of the Registrable Securities, the fees and disbursements of
counsel for the Company and of the independent certified public accountants of
the Company (including the expenses of any comfort letters or costs associated
with the delivery by independent certified public accountants of a comfort
letter or comfort letter requested pursuant to Section 3(n)) Securities Act
liability insurance (if the Company elects to obtain such insurance), the
reasonable fees and expenses of any special experts or other Persons retained by
the Company in connection with any registration, the reasonable fees and
disbursements of one counsel to the Holders and any reasonable out-of-pocket
expenses of the
12
<PAGE>
Holders and their agents (other than their counsel) including any reasonable
travel costs (all such expenses being herein called "Registration Expenses"),
will be borne by the Company whether or not the Registration Statement to which
such expenses relate becomes effective; provided, however, that Registration
-------- -------
Expenses shall not include (i) underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of Registrable
Securities or (ii) any fees or expenses of any counsel, accountants or other
persons retained or employed by the Holders other than as provided above.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless, to the full extent permitted by law, each Holder, its partners,
officers, directors, trustees, stockholders, employees, agents and investment
advisers, and each Person who controls such Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under
common control with, or is controlled by, such Holder, together with the
partners, officers, directors, trustees, stockholders, employees and agents of
such controlling Person (collectively, the "Controlling Persons"), from and
against all losses, claims, damages, liabilities and expenses (including without
limitation any legal or other fees and expenses reasonably incurred by any
Holder or any such Controlling Person in connection with defending or
investigating any action or claim in respect thereof) (collectively, the
"Damages") to which such indemnified person may become subject under the
Securities Act or otherwise, insofar as such Damages (or proceedings in respect
thereof) arise out of or are based upon any untrue or alleged untrue statement
of material fact contained in any Registration Statement (or any amendment
thereto) pursuant to which Registrable Securities were registered under the
Securities Act, including all documents incorporated therein by reference, or
caused by any omission or alleged omission to state therein a material fact
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, or caused by any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
Damages arise out of or are based upon any such untrue statement or omission
based upon information relating to such Holder furnished in writing to the
Company by such Holder expressly for use therein, in which case such Holder and
its partners, officers, directors, trustees, stockholders, employees, agents and
Controlling Persons shall not be entitled to indemnification from the Company.
In connection with an underwritten offering, the Company will indemnify the
underwriters thereof, their officers and directors and each Person who controls
such underwriters (within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities except
with respect to information provided by the underwriter specifically for
inclusion therein.
13
<PAGE>
(b) Indemnification by the Holders. Each Holder agrees, severally and not
------------------------------
jointly, to indemnify and hold harmless the Company, its directors, officers and
each Person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to such Holder, but only with
reference to information relating to such Holder furnished to the Company in
writing by such selling Holder expressly for use in any Registration Statement
(or any amendment thereto) or any Prospectus (or any amendment or supplement
thereto); provided, however, that such selling Holder shall not be obligated to
-------- -------
provide such indemnity to the extent that such Damages result from the failure
of the Company to promptly amend or take action to correct or supplement any
such Registration Statement or Prospectus on the basis of corrected or
supplemental information provided in writing by such selling Holder to the
Company expressly for such purpose. In no event shall the liability of any
Holder of Registrable Securities hereunder be greater in amount than the amount
of the proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Indemnification Procedures. In case any proceeding (including any
--------------------------
governmental investigation) shall be instituted involving any Person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing (but the
failure to so promptly notify the indemnifying party shall not relieve the
indemnifying party from any liability except to the extent that the indemnifying
party is prejudiced by the failure or delay by the indemnified party to give
such notice) and the indemnifying party shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceedings and shall pay
the fees and disbursements of such counsel relating to such proceeding. In any
such proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, or (ii) the
indemnifying party fails promptly to assume the defense of such proceeding or
fails to employ counsel reasonably satisfactory to such indemnified party or
parties, or (iii) (A) the named parties to any such proceeding (including any
impleaded parties) include both such indemnified party or parties and any
indemnifying party or an Affiliate of such indemnified party or parties or of
any indemnifying party, (B) there may be one or more defenses available to such
indemnified party or parties or such Affiliate of such indemnified party or
parties that are different from or additional to those available to any
indemnifying party or such Affiliate of any indemnifying party and (C) such
indemnified party or parties shall have been advised by such counsel that there
may exist a conflict of interest between or among such indemnified party or
parties or such Affiliate of such indemnified party or parties and any
indemnifying party or such Affiliate of any indemnifying party, in which case,
if such indemnified party or parties notifies the indemnifying party or parties
in writing that it elects to employ separate counsel of its choice at the
expense of the indemnifying parties, the indemnifying parties shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the indemnifying
14
<PAGE>
parties, it being understood, however, that unless there exists a conflict among
indemnified parties, the indemnifying parties shall not, in connection with any
one such proceeding or separate but substantially similar or related proceedings
in the same jurisdiction, arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at any time for such
indemnified party or parties. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent (not to 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 or parties from and against any loss or liability by reason of
such settlement or judgment. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which such indemnified party is a party,
and indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
(d) Contribution. To the extent that the indemnification provided for in
------------
paragraph (a) or (b) of this Section 7 is unavailable to an indemnified party or
insufficient in respect of any Damages, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such Damages in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and such Holder on the other hand in
connection with the statements or omissions that resulted in such Damages, as
well as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of such Holder on the other hand shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by such Holder
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
In connection with any underwritten offering, if requested by the Requisite
Holders, the Company shall execute customary underwriting agreements
indemnifying such underwriters and their Affiliates to the same extent as
provided herein with respect to the indemnification of the Holders of
Registrable Securities (including provisions regarding contribution).
Notwithstanding the provisions of this Section 7(d), no Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Holder were sold to the public
(less any underwriting discounts and commissions) exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue statement or omission. Each Holder's obligation to contribute pursuant
to this Section 7(d) is several in the proportion that the proceeds of the
offering received by such Holder bears to the total proceeds of the offering
received by all the Holders and not joint.
15
<PAGE>
If indemnification is available under paragraph (a) or (b) of this Section
7, the indemnifying parties shall indemnify each indemnified party to the full
extent provided in such paragraphs without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 7(d).
The Company and each Holder agrees that it would not be just or equitable
if contribution pursuant to this Section 7(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the Damages referred to in this Section 7
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred (and not otherwise reimbursed) by
such indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
SECTION 8. RULE 144 AND RULE 144A REQUIREMENTS.
-----------------------------------
(a) Rule 144. The Company covenants that it will file any reports required
---------
to be filed by it under the Securities Act and the Exchange Act (or, if the
Company is not required to file such reports, it will, upon the request of any
Holder, make publicly available other information so long as necessary to permit
sales under Rule 144 under the Securities Act), and it will take such further
action as any Holder may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rules may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any Holder, the Company will deliver to
such Holder a written statement as to whether it has complied with such
requirements.
(b) Rule 144A. Upon the request of any Holder, the Company shall deliver
---------
to such holder within 10 days following receipt by the Company of such request,
the information required by Section (d)(4) of Rule 144A under the Securities
Act, as such rule may be amended from time to time or any similar rule or
regulation hereafter adopted by the Commission ("Rule 144A"), and will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitations or the exemptions
provided by Rule 144A. All information shall be "reasonably current" as defined
in Rule 144A.
SECTION 9. RESTRICTIONS ON SALE BY THE COMPANY AND OTHERS.
----------------------------------------------
In the event of an underwritten public offering for the account of the
Company with
16
<PAGE>
respect to which the Holders have the right to exercise their rights to Piggy-
Back Registration pursuant to Section 2(a) hereof or their rights to
registration pursuant to Section 2(b) hereof, upon the written request (the
"Lock-up Request") of the managing underwriter (or underwriters) of such
offering, which request shall be made at least 20 days prior to the anticipated
effective date of the Registration Statement for such offering, each Holder
agrees not to effect any public sale or distribution of any securities similar
to those being registered in such offering (other than pursuant to such
offering), including without limitation, through sales of Registrable Securities
pursuant to the Shelf Registration Statement, during the 10 days prior to, and
during the 180-day period beginning on, the effective date of the Registration
Statement relating to such offering. The Company agrees, and agrees to cause all
other Persons that hold five percent (5%) or more (on a fully-diluted basis) of
the Company's equity securities, or any securities convertible into or
exchangeable or exercisable for the Company's equity securities, acquired from
the Company at any time after the date of this Agreement (other than in a Public
Sale), and each other Person that has been granted registration rights with
respect to securities of the Company, to agree that in connection with any Lock-
up Request the Company and such Person shall not effect any public sale or
distribution of any such securities during the 10 days prior to, and during the
180-day period beginning on, the effective date of any Registration Statement
(except as part of such underwritten registration, if otherwise permitted),
unless the underwriters managing the registered public offering otherwise agree.
SECTION 10. MISCELLANEOUS.
-------------
(a) Amendments and Waivers. Unless otherwise expressly set forth herein,
----------------------
any amendment, modification, supplement, consent or waiver of, or with respect
to, any provisions of this Agreement (collectively, a "Modification") shall be
effective with, but only with, the written consent of the Requisite Holders;
provided that if some Holders are affected by such Modification in a manner
different from and not in proportion to other Holders, then the written consent
of the holders of a majority of the shares of Common Stock held by such affected
Holders shall be required to effect such Modification.
(b) No Inconsistent Agreements. The Company shall not hereafter enter into
--------------------------
any agreement with respect to its securities that is inconsistent with or
violates the rights granted to the Holders in this Agreement.
(c) Notices. All necessary notices, demands and requests permitted or
-------
required under this Agreement shall be in writing and shall be deemed received
and effective, unless earlier received, (i) if given by facsimile, when such
facsimile is transmitted to the applicable party at the facsimile number
specified below, the appropriate answer back is received and a copy is sent by a
nationally recognized overnight courier service to such party at the address
indicated below, (ii) three (3) days after being mailed by certified mail,
return receipt requested, postage prepaid to the applicable party at the address
indicated below, (iii) one (1) business day after being sent by a nationally
recognized overnight courier service to the applicable party at the address
indicated below, or (iv) when delivered either by hand or by messenger to the
applicable party at the address indicated below:
17
<PAGE>
(A) If to Media/Communications Partners II Limited Partnership or
Media/Communications Investors Limited Partnership, at:
c/o Media/Communications Partners
75 State Street
Boston, Massachusetts 02109
Facsimile: (617) 345-7201
Attention: Stephen F. Gormley
(B) If to Chase Venture Capital Associates, L.P., at:
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, New York 10017
Facsimile: (212) 622-3101
Attention: Brian Richmand
With a copy to:
O'Sullivan, Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Facsimile: (212) 408-2420
Attention: Harvey M. Eisenberg, Esq.
(C) If to any other Purchaser, to:
John C. Stanley, IV
119 West Linden Street
Corinth, MS 38834
Facsimile: (601) 286-5523
(D) If to the Company:
OCI Holdings Corp.
3639 Cass Road
P.O. Box 152
Traverse City, MI 49685-0152
Facsimile: (616) 941-9113
Attention: Richard W. Ebersole
With a copy to:
18
<PAGE>
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, Massachusetts 02109
Facsimile: (617) 523-1231
Attention: David F. Dietz, P.C.
(d) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any transferee of any Holder shall acquire
Registrable Securities in any manner, whether by operation of law or otherwise,
such Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such person shall be entitled to
receive the benefits hereof.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts without regard to
principles of conflicts of law.
(h) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
(i) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and is intended to be the complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(j) Attorneys' Fees. In any action or proceeding brought to enforce any
---------------
provision of this Agreement or where any provision hereof is validly asserted as
a defense, the successful
19
<PAGE>
party shall, to the extent permitted by applicable law, be entitled to recover
reasonable attorneys' fees and expenses in addition to any other available
remedy.
(k) Further Assurances. Each party shall cooperate and take such action as
------------------
may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
(l) Remedies. In the event of a breach or a threatened breach by any party
--------
to this Agreement of its obligations under this Agreement, any party injured or
to be injured by such breach will be entitled to specific performance of its
rights under this Agreement or to injunctive relief, in addition to being
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that the remedy at law, including
monetary damages, is inadequate and that any objection in any action for
specific performance or injunctive relief that a remedy at law would be adequate
is waived.
[Remainder of Page Intentionally Left Blank]
20
<PAGE>
ADDENDUM
TO THE
REGISTRATION RIGHTS AGREEMENT
OF
OCI HOLDINGS CORP.
ADDENDUM (the "Addendum") dated as of September 10, 1996, by and among OCI
Holdings Corp. (the "Company"), the Venture Investors (as such term is defined
in the Securities Purchase Agreement referenced below), the Management Investors
(as such term is defined in the Securities Purchase Agreement referenced below)
and the new management investors listed on the signature pages hereto (the "New
Management Investors").
WHEREAS the Company, the Venture Investors and the Management Investors are
parties to a Securities Purchase Agreement dated as of April 3, 1996 (the
"Securities Purchase Agreement") and a Registration Rights Agreement dated as of
April 3, 1996 (the "Registration Rights Agreement"); and
WHEREAS the Company, the Venture Investors, the Management Investors and
the New Management Investors are parties to a First Amendment to the Securities
Purchase Agreement dated as of September 10, 1996 pursuant to which the New
Management Investors acquired certain shares of Class A Common Stock and certain
Series A Notes of the Company (the "Company Securities"); and
WHEREAS the Company, the Venture Investors, the Management Investors and
the New Management Investors desire that each of the New Management Investors
become party to the Registration Rights Agreement.
NOW, THEREFORE, for good and valuable consideration, the undersigned hereby
agree as follows:
1. Each of the Company, the Venture Investors and the Management
Investors hereby consents to each New Management Investor becoming a party to
the Registration Rights Agreement.
2. Each New Management Investor hereby acknowledges that he has received
and fully reviewed a complete coy of the Registration Rights Agreement and
agrees that, from and after the date of this Addendum, such New Management
Investor shall become a party to the Registration Rights Agreement and to be
bound by all provisions of the Registration Rights Agreement.
21
<PAGE>
ADDENDUM
TO THE
REGISTRATION RIGHTS AGREEMENT
OF
OCI HOLDINGS CORP.
ADDENDUM (the "Addendum") dated as of January 27, 1997, by and among OCI
Holdings Corp. (the "Company"), the Venture Investors (as such term is defined
in the Securities Purchase Agreement referenced below), the Management Investors
(as such term is defined in the Securities Purchase Agreement referenced below)
and the additional management investors listed on the signature pages hereto
(the "Additional Management Investors").
WHEREAS, the Company, the Venture Investors and the Management Investors
are parties to a Securities Purchase Agreement dated as of April 3, 1996, as
amended by the First Amendment to Securities Purchase Agreement dated as of
September 10, 1996 (the "Securities Purchase Agreement") and a Registration
Rights Agreement dated as of April 3, 1996, together with an Addendum to
Registration Rights Agreement dated as of September 10, 1996 (the "Registration
Rights Agreement"); and
WHEREAS, the Company, the Venture Investors, the Management Investors and
the Additional Management Investors are parties to a Second Amendment to the
Securities Purchase Agreement dated as of January 27, 1997 pursuant to which the
Additional Management Investors acquired certain shares of Class A Common Stock
and certain Series A Notes of the Company (the "Company Securities"); and
WHEREAS, the Company, the Venture Investors, the Management Investors and
the Additional Management Investors desire that each of the Additional
Management Investors become party to the Registration Rights Agreement.
NOW, THEREFORE, for good and valuable consideration, the undersigned hereby
agree as follows:
1. Each of the Company, the Venture Investors and the Management
Investors hereby consents to each Additional Management Investor becoming a
party to the Registration Rights Agreement.
2. Each Additional Management Investor hereby acknowledges that he has
received and fully reviewed a complete copy of the Registration Rights Agreement
and agrees that, from and after the date of this Addendum, such Additional
Management Investor shall become a party to the Registration Rights Agreement
and be bound by all provisions of the Registration Rights Agreement.
22
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
OCI HOLDINGS CORP.
By: /s/ John C Stanley IV
-----------------------------
Name John C Stanley IV
Title Chairman
JOHN C. STANLEY, IV
By: /s/ John C Stanley IV
----------------------------
A.B. ISBELL
By: /s/ A.B. Isbell
----------------------------
NORMAN ISBELL
By: /s/ Norman Isbell
----------------------------
WILLIAM HULL DAVIS
By: /s/ William Hull Davis
----------------------------
THE JCS TRUST
By: /s/ John C Stanley IV
----------------------------
John C. Stanley, IV, Trustee
<PAGE>
THE LWS TRUST
By: /s/ John C Stanley IV
--------------------------
John C. Stanley, IV, Trustee
PRISCILLA S. DENTON
By: /s/ Priscilla S. Denton
----------------------------
DOUGLAS W. FERRIS, JR.
By: /s/ Douglas W. Ferris, Jr.
-------------------------------
RICHARD W. EBERSOLE
By: /s/ Richard W. Ebersole
-------------------------
MEDIA/COMMUNICATIONS PARTNERS II LIMITED
PARTNERSHIP
By: M/CP II L.P., General Partner
By: M/CP II General Partner-S, Inc.,
a General Partner
By: /s/ Stephen F. Gormley
------------------------
Name Stephen F. Gormley
Title Partner
<PAGE>
MEDIA/COMMUNICATIONS INVESTORS LIMITED
PARTNERSHIP
By: M/C Investors General Partner - S, Inc.,
a General Partner
By: /s/ Stephen F. Gormley
----------------------------------------
Name Stephen F. Gormley
Title Partner
CHASE VENTURE CAPITAL
ASSOCIATES, L.P.
By: Chase Capital Partners,
its General Partner
By: /s/ Brian J. Richmand
----------------------------------------
Name Brian J. Richmand
Title Partner
NEW MANAGEMENT INVESTORS:
------------------------
/s/ George R. Joiner
---------------------------------------------
George R. Joiner
/s/ Gerald P. Scott
---------------------------------------------
Gerald P. Scott
ADDITIONAL MANAGEMENT INVESTORS:
-------------------------------
/s/ John Andrews
----------------------------------------
John Andrews
/s/ Mark Sherwood
----------------------------------------
Mark Sherwood
<PAGE>
EXHIBIT 12.1
OCI HOLDINGS CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR END
------------------------------------------------------------------------------------
JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31, AUGUST 1, 1995
1992 1992 1993 1993 1994 1994 1995 1995 TO APRIL 3, 1996
OCI NORTH OCI SOUTH OCI NORTH OCI SOUTH OCI NORTH OCI SOUTH OCI NORTH OCI SOUTH OCI NORTH
--------- ----------- --------- ---------- --------- ---------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income
(loss).......... $(1,570) $ (204) $(1,564) $ 77 $(1,366) $ 540 $ (104) $ 784 $(1,051)
Income tax
expense
(benefit)....... -- 14 (723) 170 (473) 340 (133) 524 156
------- ------ ------- ------ ------- ------ ------ ------ -------
Income (loss)
before income
taxes........... (1,570) (190) (2,287) 247 (1,839) 880 (237) 1,308 (895)
Plus fixed
charges......... 2,479 1,273 2,407 1,080 2,395 1,102 2,483 1,523 1,719
------- ------ ------- ------ ------- ------ ------ ------ -------
Earnings........ $ 909 $1,083 $ 120 $1,327 $ 556 $1,982 $2,246 $2,831 $ 824
======= ====== ======= ====== ======= ====== ====== ====== =======
<CAPTION>
SEPTEMBER 1, 1995
TO APRIL 3, 1996
OCI SOUTH
-----------------
<S> <C>
Net income
(loss).......... $ 269
Income tax
expense
(benefit)....... 201
-----------------
Income (loss)
before income
taxes........... 470
Plus fixed
charges......... 845
-----------------
Earnings........ $1,315
=================
Interest
expense......... $ 2,120 $1,040 $ 2,030 $ 845 $ 2,042 $ 853 $2,127 $1,173 $ 1,461
Amortization of
deferred
financing
costs........... -- -- -- -- -- 11 -- 96 --
Interest factor
of rent
expense......... 359 233 377 235 353 238 356 254 258
------- ------ ------- ------ ------- ------ ------ ------ -------
Fixed charges .. $ 2,479 $1,273 $ 2,407 $1,080 $ 2,395 $1,102 $2,483 $1,523 $ 1,719
======= ====== ======= ====== ======= ====== ====== ====== =======
Ratio of
earnings to
fixed charges... -- -- -- 1.2x -- 1.8x -- 1.9x --
Fixed charges
exceed earnings
by (3).......... $ 1,570 $ 190 $ 2,287 $ -- $ 1,839 $ -- $ 237 $ -- $ 895
======= ====== ======= ====== ======= ====== ====== ====== =======
Interest
expense......... $ 645
Amortization of
deferred
financing
costs........... 55
Interest factor
of rent
expense......... 145
-----------------
Fixed charges .. $ 845
=================
Ratio of
earnings to
fixed charges... 1.6x
Fixed charges
exceed earnings
by (3).......... $ --
=================
</TABLE>
<TABLE>
<CAPTION>
OCI
---------------------------------------------------------------
UNADJUSTED UNADJUSTED
APRIL 4, 1996 COMBINED PERIOD COMBINED PERIOD NINE MONTHS
TO JUNE 30, ENDED ENDED ENDED
1996 JUNE 30, 1996(1) MARCH 31, 1996(2) MARCH 31, 1997
------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Net income
(loss).......... $ (84) $ (866) $ (782) $ (762)
Income tax
expense
(benefit)....... 106 463 357 22
------ ------ ------ ------
Income (loss)
before income
taxes........... 22 (403) 425 (740)
Plus fixed
charges......... 2,255 4,819 2,564 9,430
------ ------ ------ ------
Earnings........ $2,277 $4,416 $2,989 $8,690
====== ====== ====== ======
Interest
expense......... 1,826 3,932 2,106 7,597
Amortization of
deferred
financing
costs........... 123 178 403 485
Interest factor
of rent
expense......... 306 709 55 1,348
------ ------ ------ ------
Fixed charges .. $2,255 $4,819 $2,564 $9,430
====== ====== ====== ======
Ratio of
earnings to
fixed charges... 1.0x -- 1.2x --
Fixed charges
exceed earnings
by (3).......... $ -- $ 403 $ -- $ 740
====== ====== ====== ======
</TABLE>
NOTES TO THE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(1) The historical statement of operations data for OCI for the period April
4, 1996 through June 30, 1996 has been added to the historical statement
of operations data of OCI North and OCI South for the period August 1,
1995 through April 3, 1996 and September 1, 1995 through April 3, 1996,
respectively, to arrive at the unadjusted combined information for the
period ended June 30, 1996.
(2) The historical statement of operations data of OCI North and OCI South for
the period August 1, 1995 through April 3, 1996 and September 1, 1995
through April 3, 1996, respectively, have been combined to arrive at the
unadjusted combined information for the period ended March 31, 1996.
(3) Earnings were not adequate to cover fixed changes.
<PAGE>
EXHIBIT 21.1
------------
OCI HOLDINGS CORP.
List of Subsidiaries
--------------------
OCI (N) Corp., a Delaware corporation
New South Holdings Corp., a Delaware corporation
Mass Communications Corp., a Delaware corporation
. OCI Holdings Corp. owns 59% of the outstanding Common Stock and 31% of
the outstanding Preferred Stock of Mass Communications Corp.
. New South Holdings Corp. owns 41% of the outstanding Common Stock and
69% of the outstanding Preferred Stock of Mass Communications Corp.
Outdoor Communications, Inc., a Mississippi corporation
. Outdoor Communications, Inc. is a wholly-owned subsidiary of Mass
Communications Corp.
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors OCI Holdings Corp. and Subsidiaries:
We consent to the use of our report dated September 5, 1996, related to the
consolidated financial statements of OCI Holdings Corp. and Subsidiaries
included herein, and to the references to our firm under the headings
"Selected Historical Consolidated Financial and Other Information" and
"Experts" in this Registration Statement (No. 333- ) and related
Prospectus.
KPMG Peat Marwick LLP
East Lansing, Michigan
June 2, 1997
<PAGE>
EXHIBIT 23.3
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
OCI Holdings Corp. and Subsidiaries:
We consent to the use of our report dated June 4, 1996, related to the
consolidated financial statements of OCI Corp. of Michigan (now known as OCI
(N) Corp.) and Subsidiaries included herein, and to the references to our firm
under the headings "Selected Historical Consolidated Financial and Other
Information" and "Experts" in this Registration Statement (No. 333- ) and
related Prospectus.
KPMG Peat Marwick LLP
East Lansing, Michigan
June 2, 1997
<PAGE>
EXHIBIT 23.4
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
OCI Holdings Corp. and Subsidiaries:
We consent to the use of our report dated June 4, 1996, related to the
consolidated financial statements of Mass Communications Corp and Subsidiaries
included herein, and to the references to our firm under the headings
"Selected Historical Consolidated Financial and Other Information" and
"Experts" in this Registration Statement (No. 333- ) and related Prospectus.
KPMG Peat Marwick LLP
East Lansing, Michigan
June 2, 1997
<PAGE>
EXHIBIT 23.5
ACCOUNTANT'S CONSENT
The Shareholders and Board of Directors
OCI Holdings Corp. and Subsidiaries:
We consent to use of our report dated October 18, 1995, related to the
consolidated financial statements of Mass Communications Corp. and Subsidiary
included herein, and to the references to our firm under the headings
"Selected Historical Consolidated Financial and Other Information" and
"Experts" in this Registration Statement (No. 333- ) and related Prospectus.
Moore & Gray
Corinth, Mississippi
June 2, 1997
<PAGE>
EXHIBIT 23.6
INDEPENDENT ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Georgia Outdoor Advertising Company, Inc.:
We consent to the use of our report dated May 16, 1997, related to the
financial statements of Georgia Outdoor Advertising Company, Inc. included
herein, and to the reference to our firm under the heading "Experts" in this
Registration Statement and related Prospectus.
KPMG Peat Marwick LLP
Atlanta, Georgia
June 2, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF ERNST & YOUNG LLP
We consent to reference to our firm under the caption "Experts" and to the use
of our reports dated February 20, 1996, with respect to the consolidated
financial statements of AOA Holding, L.L.C. including in the Registration
Statement (Form S-1 No. 333- ) and related Prospectus of OCI Holdings Corp.
for the registration of its Common Stock and Senior Subordinated Notes.
/s/ Ernst & Young LLP
June 2, 1997
Birmingham, Alabama
<PAGE>
EXHIBIT 23.8
ACCOUNTANT'S CONSENT
The Shareholders and Board of Directors
Skoglund Communications of St. Cloud, Inc. and Skoglund Communications, Inc.:
We consent to use of our report dated February 2, 1996, related to the
combined financial statements of Skoglund Communications, Inc. and Skoglund
Communications of St. Cloud, Inc. included herein, and to the reference to our
firm under the heading "Experts" in this Registration Statement (No. 333- )
and related Prospectus.
McGladrey & Pullen, LLP
Duluth, Minnesota
June 2, 1997
<PAGE>
EXHIBIT 23.9
ACCOUNTANTS' CONSENT
As independent public accountants, we hereby consent to the use of our report
and to the reference to our firm under the heading "Experts" in this
registration statement.
Arthur Andersen LLP
Minneapolis, Minnesota
June 2, 1997
<PAGE>
EXHIBIT 23.10
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Outdoor West, Inc. of Tennessee:
We consent to the use of our report dated August 22, 996, related to the
financial statements of Outdoor West, Inc. of Tennessee included herein, and
to the reference to our firm under the heading "Experts" in this Registration
Statement (No. 333- ) and related Prospectus.
Morrison and Smith
Tuscaloosa, Alabama
June 2, 1997
<PAGE>
EXHIBIT 23.11
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
The Ragan Outdoor Advertising Company of Rockford:
We consent to the use of our report dated February 27, 1997, related to the
financial statements of the Ragan Outdoor Advertising Company of Rockford
d/b/a Robbinswood Outdoor Advertising (a Partnership) included herein, and to
the reference to our firm under the heading "Experts" in this Registration
Statement (No. 333- ) and related Prospectus.
McGladrey & Pullen, LLP
Rockford, Illinois
June 2, 1997
<PAGE>
EXHIBIT 23.12
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
The Ragan Outdoor Advertising Company:
We consent to the use of our report dated January 10, 1997, related to the
financial statements of The Ragan Outdoor Advertising Company included herein,
and to the reference to our firm under the heading "Experts" in this
Registration Statement (No. 333- ) and related Prospectus.
McGladrey & Pullen, LLP
Moline, Illinois
June 2, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS OF OCI HOLDINGS CORP. AND SUBSIDIARIES AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001040332
<NAME> OCI HOLDINGS CORP
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 APR-04-1996
<PERIOD-END> MAR-31-1997 JUN-30-1996
<CASH> 4,566,387 1,259,441
<SECURITIES> 0 0
<RECEIVABLES> 6,854,912 5,323,600
<ALLOWANCES> 536,763 273,110
<INVENTORY> 1,075,228 389,458
<CURRENT-ASSETS> 14,862,256 8,622,336
<PP&E> 75,735,464 43,688,367
<DEPRECIATION> 12,550,280 5,922,776
<TOTAL-ASSETS> 140,175,730 95,120,312
<CURRENT-LIABILITIES> 7,290,924 8,470,884
<BONDS> 0 0
0 0
0 0
<COMMON> 8,411 8,211
<OTHER-SE> (5,313,595) (4,726,800)
<TOTAL-LIABILITY-AND-EQUITY> 140,175,730 95,120,312
<SALES> 35,105,189 9,535,542
<TOTAL-REVENUES> 31,741,274 8,548,510
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 24,936,865 6,700,700
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,597,020 1,826,137
<INCOME-PRETAX> (740,062) 21,692
<INCOME-TAX> 21,731 105,718
<INCOME-CONTINUING> (761,793) (84,026)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (761,793) (84,026)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
