<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION STATEMENT NO. 333-28489
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
OUTDOOR COMMUNICATIONS, INC.
(FORMERLY KNOWN AS OCI HOLDINGS CORP.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7312 38-3286430
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
---------------
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>
OCI (N) Corp. Delaware 38-2885263
OCI (S) Corp. Mississippi 64-0520092
OCIH LLC Delaware application pending
</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. [_]
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 AUGUST 8, 1997
PROSPECTUS
$100,000,000 LOGO
OUTDOOR COMMUNICATIONS, INC.
The % Senior Subordinated Notes due 2007 (the "Notes") are being offered (the
"Offering") by Outdoor Communications, Inc., 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), 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, subject to certain
conditions, be required to make an offer to repurchase 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 repurchase. There can be no assurance that the
Company will have the financial resources necessary to repurchase the Notes
following a Change of Control. These provisions would not necessarily afford
protection to holders of the Notes in the event of a highly leveraged
transaction that does not result in a Change of Control. See "Risk Factors--
Change of Control" and "Description of Notes--Redemption at Option of Holders--
Change of Control."
% SENIOR SUBORDINATED NOTES DUE 2007
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
fully and 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, after
giving effect to the Offering and the application of the proceeds therefrom,
the Company would have had outstanding $26.5 million of indebtedness ranking
senior in right of payment to the Notes and the Guarantees and the ability to
borrow up to an additional $123.5 million under the New Credit Facility (as
defined), which additional borrowings would be senior to the Notes. The Company
and the Guarantors do not have any present plans to issue any indebtedness that
would be senior to the Notes and the Guarantees. See "Capitalization" and
"Description of Notes--Ranking."
While the Notes and the Guarantees are senior subordinated obligations, after
giving effect to the Offering, there will be no indebtedness that is
subordinated in right of payment to the Notes, and the Company and the
Guarantors have no present plans to issue any indebtedness that is subordinated
to the Notes and the Guarantees. As such the Notes will be subordinate to all
of the indebtedness of the Company and the Guarantors expected to be
outstanding immediately following the Offering. See "Risk Factors--
Subordination of Notes and Guarantees."
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.
This Prospectus has been prepared for use by the Underwriters (as defined) and
may be used by Chase Securities Inc. ("CSI") in connection with offers and
sales in market-making transactions in the Notes. CSI may act as principal or
agent in such transactions. Such sales will be made at prices relating to
prevailing market prices at the time of sale. See "Underwriting."
----------------------------------------
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(/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 $1,000,000.
----------------------------------------
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 Outdoor
Communications, Inc. (formerly known as 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, OCI (S) Corp; 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. Unless otherwise indicated,
references to financial or operating results of OCI South occurring prior to
June 30, 1997 reflect the consolidated results of the Company's Mass
Communications Corp. ("MCC") subsidiary and OCI (S) Corp. prior to the merger
of MCC with and into the Company, which merger was effective as of June 30,
1997. The information in this Prospectus assumes the exchange (the "Exchange")
of the Company's Series A 10% Subordinated Notes ("Series A Notes") and Series
B 10% Subordinated Notes ("Series B Notes") for shares of Series A Preferred
Stock, $.01 par value per share ("Series A Preferred Stock"), of the Company or
Series A Preferred Membership Interests ("Series A Preferred Interests") of the
Company's subsidiary OCIH LLC ("OCIH"). The pro forma financial information in
this Prospectus reflects only the acquisitions of Georgia Outdoor, Alabama
Outdoor, Skoglund and Outdoor West (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 13,500 advertising displays in 12 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.
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 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.
3
<PAGE>
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
10 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 attractive incremental
margins.
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
3.0% 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.
On April 3, 1996, the Company's current structure emerged with its
acquisitions and consolidation of OCI North and OCI South. OCI South was
founded in 1972 by John C Stanley IV and A.B. Isbell upon their acquisition of
outdoor advertising assets in the region around Memphis, Tennessee. Through
dedication to customer service and product quality and the consummation of
numerous acquisitions, OCI South grew to operate 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. Through
additional acquisitions and new construction, OCI North grew to operate more
than 2,800 display faces in three states by April 1996. 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. See "Certain Relationships and Related Transactions--The Formation
Transactions." The Company is a Delaware corporation whose executive offices
are located at 512 Taylor Street, Corinth, Mississippi, 38834. The Company's
telephone number is (601) 286-3334.
4
<PAGE>
RECENT ACQUISITIONS
Since its formation, the Company has pursued an aggressive acquisition
strategy, completing 15 acquisitions of outdoor advertising companies
(collectively, the "Acquired Companies") over a 15-month period. None of such
acquisitions involved sellers affiliated with the Company. 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.
The following summarizes the Significant Acquisitions, which are included in
the summary pro forma financial information included herein:
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 $21.2 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 $34.1 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 $17.8 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. The Company does not currently have any written or
oral agreement to consummate any other material acquisition.
FINANCING PLAN
To provide greater flexibility in pursuing its growth strategy, concurrently
with the Offering the Company intends to enter into a new $150.0 million senior
credit facility (the "New Credit Facility"). In addition, the holders of the
Company's Series A Notes and Series B Notes will exchange such notes for shares
of Series A Preferred Stock of the Company or Series A Preferred Interests of
OCIH effective upon the closing of the Offering. The Offering is conditioned
upon the closing of the New Credit Facility and the Exchange. The Series A
Preferred Stock and Series A Preferred Interests will not be registered under
the state or federal securities laws. The Offering, the New Credit Facility and
the Exchange are referred to in this Prospectus as the "Financing Plan."
5
<PAGE>
THE OFFERING
Issuer ..................... Outdoor Communications, Inc.
Securities Offered ......... $100,000,000 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 may, at its option, 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 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, subject to certain conditions, 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. There can be no assurance that the
Company will have the financial resources
necessary to repurchase the Notes following a
Change of Control. These provisions would not
necessarily afford protection in the event a
highly leveraged transaction that does not result
in a Change of Control. See "Risk Factors--Change
of Control" and "Description of Notes--Repurchase
at the Option of Holders--Change of Control."
Guarantees ................. The Company's obligations under the Notes will be
fully and 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 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
6
<PAGE>
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. While
the Notes and the Guarantees are senior
subordinated obligations, after giving effect to
the Offering, there will be no indebtedness that
is subordinated in right of payment to the Notes,
and the Company and the Guarantors have no
present plans to issue any indebtedness that is
subordinated to the Notes and the Guarantees. As
such, the Notes and the Guarantees will be
subordinate to all of the indebtedness of the
Company and the Guarantors expected to be
outstanding immediately following the Offering.
See "Risk Factors--Subordination of Notes and
Guarantees." As of March 31, 1997, after giving
effect to the Offering and the application of the
proceeds therefrom, the Company would have had
outstanding $26.5 million of indebtedness ranking
senior in right of payment to the Notes and the
Guarantees and the ability to borrow up to an
additional $123.5 million under the New Credit
Facility, which additional borrowings would be
senior to the Notes. The Company and the
Guarantors do not have any present plans to issue
any indebtedness that would be senior 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 (after deduction
of underwriting discounts and estimated offering
expenses) are expected to be approximately $96.0
million. The net proceeds from the Offering,
together with borrowings under the New Credit
Facility of approximately $20.6 million, will be
used to repay $115.7 million of indebtedness
outstanding under the existing senior credit
facility. 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
including, without limitation, risks associated with the following matters: the
substantial leverage of the Company, the subordination of the Notes and the
Guarantees, fraudulent conveyance concerns; restrictions imposed by the
Company's indebtedness; potential elimination or reduction of tobacco
advertising; general economic conditions; competition; and reliance on key
executives.
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 nine months and twelve months ended March 31, 1997
give effect to (i) the Formation Transactions (as defined in "Certain
Relationships and Related Transactions"); (ii) the Offering and the application
of the estimated net proceeds therefrom; (iii) the Significant Acquisitions as
if each had occurred 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 Offering 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 pro forma periods are not
comparable because the pro forma financial information for the nine and twelve
months ended March 31, 1997 includes partial period results of the individually
insignificant 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 NINE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 1996(1) MARCH 31, 1997(1) MARCH 31, 1997(1)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues (2)........ $44,946 $36,878 $49,407
Direct operating
expenses .............. 15,455 12,575 16,758
Selling, general and
administrative
expenses............... 12,875 9,250 12,770
Depreciation and
amortization........... 10,398 8,626 11,407
------- ------- -------
Operating income...... 6,218 6,427 8,472
Interest expense........ 10,946 8,210 10,946 (3)
Other expenses (income),
net.................... 269 336 10
Income tax expense
(benefit).............. (1,475) (800) (924)
------- ------- -------
Net loss.............. $(3,522) $(1,319) $(1,560)
======= ======= =======
OTHER DATA:
EBITDA (4).............. $16,616 $15,053 $19,879
EBITDA margin (5)....... 37.0% 40.8% 40.2%
Ratio of EBITDA to
interest expense....... -- -- 1.8x(3)
Ratio of total debt to
EBITDA................. -- -- 5.9x(3)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------
ACTUAL PRO FORMA
<S> <C> <C>
BALANCE SHEET DATA:
Adjusted working capital(6).......................... $ 12,071 $ 12,071
Total assets......................................... 138,731 138,526
Long-term debt, including current installments....... 136,002 118,077(3)
Stockholders' equity (deficit)....................... (6,180) 9,094
</TABLE>
- -------------------
(1) Excludes the pre-acquisition results of operations for 11 individually
insignificant acquisitions completed since September 1996. Consequently,
the three pro forma periods are not comparable because the pro forma
financial information for the nine and twelve months ended March 31, 1997
includes partial period results of individually insignificant 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 $53.5 million and $22.0 million,
respectively. The Company's preliminary results of operations for the
fourth quarter of 1997 are discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Preliminary
Fourth Quarter Results of Operations." For the fiscal year ended June 30,
1997, the Company estimates that net revenues and EBITDA would have been
approximately $49.4 million and $19.3 million, respectively, on a pro forma
basis for the Significant Acquisitions and approximately $52.3 million and
$20.8 million, respectively, for all acquisitions, as though such
acquisitions had occurred at the beginning of the period.
(2) Net revenues are gross revenues less agency commissions.
(3) The 11 individually insignificant in-market acquisitions are not reflected
in the pro forma statement of operations data and balance sheet data as of
and for the full twelve months ended March 31, 1997. Had these acquisitions
been fully reflected for such period, long-term debt and interest expense
would have been $125.6 million and $11.6 million, respectively.
(4) "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 to evaluate the financial performance of companies in
the outdoor advertising industry and their ability to service indebtedness.
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.
(5) EBITDA margin is EBITDA stated as a percentage of net revenues.
(6) Adjusted 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, after giving effect to the
Financing Plan, the Company's total long-term debt was approximately $126.5
million (including borrowings of $7.0 million incurred after March 31, 1997).
Also, for the twelve months ended March 31, 1997 the Company's pro forma
operating income was insufficient by $2.5 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. The
Notes will not be entitled to the benefit of any mandatory sinking fund, which
may make more difficult the ability to service the Notes and other
indebtedness of the Company. 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 in full 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 be secured by liens on all of the assets and the
capital stock of the Guarantors and will mature prior to 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. Neither the Company nor any Guarantor may pay principal or
premium, if any, or interest or any other amounts on account of the Notes in
the event of a payment default in respect of Senior Indebtedness, unless 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 Senior Indebtedness and certain other conditions are
satisfied, neither the Company nor any Guarantor may make any payments on
account of the Notes for a designated period of time. The New Credit Facility
will also include a prohibition against the Company making an offer to
purchase any Notes pursuant to a Change in Control prior to the repayment in
full of the indebtedness under the New Credit Facility or a waiver by the
requisite lenders thereunder. See "Description of New Credit Facility" and
"Description of Notes--Subordination of Notes and Guarantees."
While the Notes and the Guarantees are senior subordinated obligations,
after giving effect to the Offering, there will be no indebtedness that is
subordinated in right of payment to the Notes, and the Company and the
Guarantors have no present plans to issue any indebtedness that is
subordinated to the Notes and the Guarantees. As such, the Notes will be
subordinate to all of the indebtedness of the Company and the Guarantors
expected to be outstanding immediately following the Offering.
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.
10
<PAGE>
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 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. 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 that
require the Company to maintain a specified minimum operating cash flow and
interest expense coverage ratio and maintain a leverage ratio below a
specified maximum. 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. These restrictions and
the Company's failure to so comply could have a material adverse effect on the
holders of the Notes. 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," "--Subordination of the Notes and the Guarantees" 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."
Risks of Acquisitions and Growth Strategy. 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
11
<PAGE>
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.
Potential Elimination or Reduction of Tobacco Advertising. 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 (the "FDA") 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. In June 1997, a majority of the major tobacco
companies in the United States and certain state attorneys general reached
agreement on a proposed settlement of litigation between such parties. The
terms of such proposed settlement include a ban on all outdoor advertising of
tobacco products commencing nine months after finalization of the settlement.
The settlement is subject to numerous conditions, including the enactment of
legislation by the federal government. At this time, it is unclear whether a
definitive settlement will be reached or what the terms of any such settlement
would be. A reduction in billboard advertising by the tobacco industry as a
result of either the FDA regulations or the proposed settlement could cause an
immediate reduction in the Company's direct revenues 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. If the tobacco
litigation settlement were finalized in its current form and the Company were
unable to replace revenues from tobacco advertising with revenues from other
advertising sources, the settlement could have a material adverse effect on
the Company by reducing its EBITDA, which could in turn reduce the Company's
ability to meet its financial obligations under the New Credit Facility and
the Notes. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "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. Such regulations limit the
ability of the Company to expand its operations in the affected markets. The
inability to expand its operations in such areas or replace lost structures
could have a negative impact on the Company's growth opportunities and
potential results of operations. In addition, 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 and governmental restrictions on construction or
replacement of structures have not
12
<PAGE>
materially affected operations in the Company's markets. No assurance can be
given as to the effect on the Company of additional laws and regulations that
may be adopted in the future that could have a material adverse effect on the
Company. See "--Potential Elimination or Reduction of Tobacco Advertising,"
"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 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."
Control of the Company by Stockholders. The capital stock of the Company is
privately held. The officers and directors of the Company, or entities
affiliated with such persons, hold all of the issued and outstanding capital
stock of the Company. All of the Company's stockholders are party to a
Shareholders Agreement pursuant
13
<PAGE>
to which the parties to the agreement agree to vote their shares in favor of
persons nominated to the Board of Directors by the Company's management, Media
Communications Partners Limited Partnership and Chase Venture Capital
Associates, L.P. As a result, such stockholders can effectively control the
affairs and policies of the Company. There can be no assurance that the
interests of the Company's controlling stockholders and those of the holders
of the Notes will not conflict. While the Indenture imposes limitations on the
ability of the Company to enter into transactions with its affiliates and
holders of more than ten percent of its Common Stock (as defined), there may
be circumstances in which actions taken by the Company in the interests of
such stockholders will diverge from the interests of holders of the Notes. See
"Description of Notes--Limitation on Transactions with Affiliates."
Repurchase of Notes upon a Change of Control. Upon a Change of Control, the
Company will, subject to certain conditions, be obligated to offer to
repurchase the Notes at a purchase price equal to 101% of the outstanding
principal amount, plus accrued and unpaid interest, thereof. The Change of
Control repurchase feature may make more difficult a sale or takeover of the
Company. In addition, a "change of control" under the New Credit Facility will
constitute an event of default thereunder. In the event that the Company
defaults in its obligation to repay the indebtedness under the New Credit
Facility, the subordination provisions of the Indenture will preclude payments
in respect of the Notes until the event of default is cured or waived under
the New Credit Facility. There can be no assurance that the Company will have
the necessary financial resources to meet its obligations in respect of its
indebtedness, including the Notes, following a Change of Control. Furthermore,
these provisions would not necessarily afford protection to holders of the
Notes in the event of a highly leveraged transaction that does not result in a
Change in Control.
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.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $96.0 million. The Company intends to use the net proceeds of
the Offering, 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"). The holders of the Company's Series A Notes and Series B Notes
will exchange such notes for Series A Preferred Stock of the Company or Series
A Preferred Interests of OCIH upon consummation of the Offering. The Offering
is conditioned upon the effectiveness of the New Credit Facility and the
Exchange.
The estimated sources and uses of funds in connection with the Financing
Plan are set forth below as of an assumed closing date of August 10, 1997:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Sources of Funds:
% Senior Subordinated Notes due 2007............. $100,000
New Credit Facility .............................. 20,575
--------
Total Sources................................... $120,575
========
Uses of Funds:
Repay Existing Credit Facility (1)................ $115,650(2)
Pay accrued interest on Series A Notes and Series
B Notes(3)....................................... 225
Pay fees and expenses............................. 4,700
--------
Total Uses...................................... $120,575
========
</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 $7.0 million of borrowings to fund
acquisitions consummated after March 31, 1997 and approximately $1.0
million in borrowings incurred after March 31, 1997 for working capital
purposes.
(3) In connection with the exchange of all of the outstanding principal and
accrued but unpaid interest as of June 30, 1997 in respect of the Series A
Notes and Series B Notes for shares of Series A Preferred Stock of the
Company or Series A Preferred Interests of OCIH, the Company will pay in
cash $225,095 of the accrued interest as of June 30, 1997 to the holders
of the Series A Notes and Series B Notes. The Series A Notes and Series B
Notes are held by the principal stockholders and executive officers of the
Company.
15
<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; (iii)
as further adjusted to give effect to the Offering and the New Credit
Facility, the application of the net proceeds therefrom and the Exchange. 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
FOR ACQUISITIONS FOR THE
AND ACCRUED FINANCING
ACTUAL INTEREST PLAN
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current
installments:
Existing Credit Facility............. $107,700 114,700(1) $ --
New Credit Facility(2)............... -- -- 20,575
% Senior Subordinated Notes due
2007................................ -- -- 100,000
Series A Notes and Series B Notes,
including accrued interest(3)....... 23,743 24,097(4) --
Notes payable--stockholders(5)....... 5,877 5,877 5,877
-------- -------- --------
Total long-term debt, including
current installments.............. 137,320 144,674 126,452
Preferred interests of a subsidiary.... -- -- 5,484(6)
Stockholders' equity (deficit):
Preferred Stock, $.01 par value.
Authorized 5,000,000 shares; issued
and outstanding 186,130.51 shares... -- -- 18,388(6)
Class A Common Stock, $.01 par value.
Authorized 20,000 shares; issued and
outstanding 8,410.72 shares......... -- -- --
Class B Common Stock, $.01 par value.
Authorized 20,000 shares; issued and
outstanding 3,289.20 shares......... -- -- --
Additional paid-in capital .......... 3,812 3,812 3,812
Retained deficit .................... (9,992) (9,992) (9,992)
-------- -------- --------
Total stockholders' equity
(deficit)......................... (6,180) (6,180) 12,208
-------- -------- --------
Total capitalization................... $131,140 $138,494 $144,144
======== ======== ========
</TABLE>
- ---------------------
(1) Reflects borrowing of $7.0 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 initially provide for
borrowings of up to $110.0 million. See "Description of New Credit
Facility."
(3) 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." The holders of the Company's
Series A Notes and Series B Notes will exchange such notes for Series A
Preferred Stock of the Company or Series A Preferred Interests of OCIH
upon consummation of the Offering.
(4) Increase reflects accrued but unpaid interest through June 30, 1997 on the
Series A and Series B Notes, a portion of which will be exchanged for
shares of Series A Preferred Stock of the Company or Series A Preferred
Interests of OCIH.
(5) 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. The notes will be secured by a letter of credit under the New
Credit Facility, which will reduce the amount available to the Company
under the New Credit Facility.
(6) In connection with the exchange of all of the outstanding principal and
accrued but unpaid interest as of June 30, 1997 in respect of the Series A
Notes and Series B Notes for shares of Series A Preferred Stock of the
Company or Series A Preferred Interests of OCIH, the Company will pay in
cash $225,095 of the accrued interest as of June 30, 1997 to the holders
of the Series A Notes and Series B Notes. The Series A Notes and Series B
Notes are held by the principal stockholders and executive officers of the
Company.
16
<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, the fiscal year ended June 30, 1996 and the nine months ended
March 31, 1996 give effect to the following transactions, as if such
transactions had occurred at the beginning of each period: (i) the Formation
Transactions (as defined in "Certain Relationships and Related Transactions");
(ii) the Significant Acquisitions; (iii) the elimination of duplicative
administrative and other costs; and (iv) the Offering 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 Offering 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, the fiscal year ended June 30, 1996 and the nine months ended March 31,
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 the
Significant Acquisitions 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 at
the beginning of each period presented, nor are they indicative of the results
of future operations. In addition, reference is made to the Company's
preliminary results of operations for the fourth quarter of 1997, which are
discussed under "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Preliminary Fourth Quarter Results of Operations."
Estimated information concerning the pro forma net revenues and EBITDA for the
fiscal year ended June 30, 1997 are also presented there and reflect a decline
as compared with the twelve month period ended March 31, 1997.
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 acquisition of Outdoor West, using
estimated fair 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.
17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL SIGNIFICANT ACQUISITION SUBTOTAL FOR THE PRO FORMA
OCI ACQUISITIONS ADJUSTMENTS OCI OFFERING OCI
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $40,490 $ 8,892 $ 25 (1) $49,407 $ -- $49,407
Direct operating
expenses............... 13,691 3,183 (116)(2) 16,758 -- 16,758
Selling, general and
administrative
expenses............... 10,942 2,911 (1,083)(3) 12,770 -- 12,770
Depreciation and
amortization........... 9,212 544 1,404 (4) 11,160 247 (5) 11,407
------- ------- ------- ------- ------ -------
Operating income
(loss)................. 6,645 2,254 (180) 8,719 (247) 8,472
Other (income) expense:
Interest expense...... 9,445 474 -- 9,919 1,027 (6) 10,946
Loss (gain) on
disposal of assets,
net.................. -- (8,062) 8,072 (7) 10 -- 10
Other non-operating
expenses............. (309) 309 -- -- -- --
------- ------- ------- ------- ------ -------
Total other (income)
expense, net....... 9,136 (7,279) 8,072 9,929 1,027 10,956
------- ------- ------- ------- ------ -------
Income (loss) before
income taxes........... (2,491) 9,533 (8,252) (1,210) (1,274) (2,484)
Income tax expense
(benefit).............. (354) 3,241 (3,301)(8) (414) (510)(9) (924)
------- ------- ------- ------- ------ -------
Net income (loss)....... $(2,137) $ 6,292 $(4,951) $ (796) $ (764)(10) $(1,560)
======= ======= ======= ======= ====== =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL SIGNIFICANT ACQUISITION SUBTOTAL FOR THE PRO FORMA
OCI ACQUISITIONS ADJUSTMENTS OCI OFFERING OCI
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $31,741 $ 5,137 $ -- (1) $36,878 $ -- $36,878
Direct operating
expenses............... 10,817 1,843 (85)(2) 12,575 -- 12,575
Selling, general and
administrative
expenses............... 8,016 1,751 (517)(3) 9,250 -- 9,250
Depreciation and
amortization........... 7,257 281 863 (4) 8,401 225 (5) 8,626
------- ------- ------- ------- ----- -------
Operating income
(loss)................. 5,651 1,262 (261) 6,652 (225) 6,427
Other (income) expense:
Interest expense...... 7,597 242 -- 7,839 371 (6) 8,210
Loss (gain) on
disposal of assets,
net.................. -- (8,072) 8,072 (7) -- -- --
Other non-operating
expenses............. (53) 389 -- 336 -- 336
------- ------- ------- ------- ----- -------
Total other (income)
expense, net....... 7,544 (7,441) 8,072 8,175 371 8,546
------- ------- ------- ------- ----- -------
Income (loss) before
income taxes........... (1,893) 8,703 (8,333) (1,523) (596) (2,119)
Income tax expense
(benefit).............. (440) 3,211 (3,333)(8) (562) (238)(9) (800)
------- ------- ------- ------- ----- -------
Net income (loss)....... $(1,453) $ 5,492 $(5,000) $ (961) $(358)(10) $(1,319)
======= ======= ======= ======= ===== =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
19
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL SIGNIFICANT ACQUISITION SUBTOTAL FOR THE PRO FORMA
OCI ACQUISITIONS ADJUSTMENTS OCI OFFERING OCI
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $22,617 $22,240 $ 89 (1) $44,946 $ -- $44,946
Direct operating
expenses............... 7,543 7,922 (10)(2) 15,455 -- 15,455
Selling, general and
administrative
expenses............... 6,877 6,889 (891)(3) 12,875 -- 12,875
Depreciation and
amortization........... 4,261 2,381 3,469 (4) 10,111 287 (5) 10,398
------- ------- ------- ------- ------- -------
Operating income
(loss)................. 3,936 5,048 (2,479) 6,505 (287) 6,218
Other (income) expense:
Interest expense...... 4,308 1,830 -- 6,138 4,808 (6) 10,946
Loss (gain) on
disposal of assets,
net.................. (1) (93) -- (7) (94) -- (94)
Other non-operating
expenses............. (170) 536 -- 366 -- 366
------- ------- ------- ------- ------- -------
Total other (income)
expense, net....... 4,137 2,273 -- 6,410 4,808 11,218
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... (201) 2,775 (2,479) 95 (5,095) (5,000)
Income tax expense
(benefit).............. 583 972 (992)(8) 563 (2,038)(9) (1,475)
------- ------- ------- ------- ------- -------
Net income (loss)....... $ (784) $ 1,803 $(1,487) $ (468) $(3,057)(10) $(3,525)
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL SIGNIFICANT ACQUISITION SUBTOTAL FOR THE PRO FORMA
OCI ACQUISITIONS ADJUSTMENTS OCI OFFERING OCI
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $14,059 $18,460 $ 114 (1) $32,633 $ -- $32,633
Direct operating
expenses............... 4,810 6,582 (13)(2) 11,379 -- 11,379
Selling, general and
administrative
expenses............... 4,696 5,516 (336)(3) 9,876 -- 9,876
Depreciation and
amortization........... 2,321 2,100 2,221 (4) 6,642 216 (5) 6,858
------- ------- ------- ------- ------ -------
Operating income
(loss)................. 2,232 4,262 (1,758) 4,736 (216) 4,520
Other (income) expense:
Interest expense...... 2,481 806 -- 3,287 4,923 (6) 8,889
Loss (gain) on
disposal of assets,
net.................. -- (2,616) -- (7) (2,616) -- (2,616)
Other non-operating
(income) expenses,
net.................. (480) 4,116 -- 3,636 -- 3,636
------- ------- ------- ------- ------ -------
Total other (income)
expense, net....... 2001 2,306 -- 4,307 4,923 9,230
------- ------- ------- ------- ------ -------
Income (loss) before
income taxes........... 231 1,956 (1,758) 429 (5,139) (4,710)
Income tax expense
(benefit).............. 499 942 (703)(8) 738 (2,056)(9) (1,318)
------- ------- ------- ------- ------ -------
Net income (loss)....... $ (268) $ 1,014 $(1,055) $ (309) (3,083)(10) $(3,392)
======= ======= ======= ======= ====== =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
21
<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, for the fiscal year ended June 30,
1996 and the nine months ended March 31, 1996 as if the Significant
Acquisitions and the Offering had occurred on July 1, 1995.
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS FISCAL YEAR NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, 1997 MARCH 31, 1997 JUNE 30, 1996 MARCH 31, 1996
<C> <S> <C> <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 $ 114
======= ===== ======= =======
(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........... $ (83) $ (62) $ -- $ --
Other operating costs... (33) (23) (10) (13)
------- ----- ------- -------
Total operating costs... $ (116) $ (85) $ (10) (13)
======= ===== ======= =======
(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........... $ (565) $(263) $ (364) $ (22)
Legal costs............. (232) (104) (184) (56)
Other general and
administrative costs.... (286) (150) (343) (258)
------- ----- ------- -------
Total general and
administrative
costs................ $(1,083) $(517) $ (891) $ (336)
======= ===== ======= =======
(4) Entry records the
increase in depreciation
and amortization expense
arising from purchase
accounting adjustments
relating to the
Significant Acquisitions
to property and
equipment, customer
lists and goodwill over
periods of 3-25, 8 and
25 years, respectively.
Property and equipment -
historical.............. $ (515) $(256) $(3,260) $(2,776)
Property and equipment -
pro forma............... 846 489 3,211 2,408
Customer lists - pro
forma................... 765 461 2,531 1,898
Goodwill - historical... (29) (25) (123) (192)
Goodwill - pro forma.... 337 194 1,110 883
------- ----- ------- -------
1,404 863 3,469 2,221
(5) Entry records the net
effect on amortization
of deferred financing
costs related to
extinguishment of
existing debt and
issuance of the Notes... $ 247 $ 225 $ 287 $ 216
======= ===== ======= =======
</TABLE>
(Continued)
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS FISCAL YEAR NINE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, 1997 MARCH 31, 1997 JUNE 30, 1996 MARCH 31, 1996
<C> <S> <C> <C> <C> <C>
(6) Entry eliminates
historical interest
expense on the Existing
Credit Facility and
records interest expense
on the Notes at a rate
of 9.50% (a difference
of 0.125% in the rate of
interest would have
changed net income
(loss) by $75 for the
twelve months ended
March 31, 1997 and the
fiscal year ended June
30, 1996 and $56 for the
nine months ended March
31, 1997 and 1996).
Entry also includes
interest on $20.6
million of the New
Credit Facility at an
interest rate of
8.0%. .................. $ 1,027 $ 371 $ 4,808 $ 4,923
======= ======= ======= ========
(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%..... $(3,301) $(3,333) $ (992) $ (703)
======= ======= ======= ========
(9) Entry records the income
tax effect of pro forma
adjustments using a
blended rate of 40%..... $ (510) $ (238) $(2,038) $ (2,056)
======= ======= ======= ========
(10) The accompanying pro
forma results of
operations do not give
effect to the
extraordinary loss on
the extinguishment of
debt of $2,823, $2,823,
$365 and $663 for the
twelve months ended
March 31, 1997, nine
months ended March 31,
1997, fiscal year ended
June 30, 1996 and nine
months ended March 31,
1996, respectively;
however, such amounts
have been reflected as
adjustments to pro forma
retained earnings
(deficit).
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS PRO
HISTORICAL FOR THE FORMA
OCI OFFERING OCI
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents................. $ 4,566 $ $ 4,566
Accounts receivable, net.................. 6,318 -- 6,318
Other current assets...................... 3,978 -- 3,978
Property and equipment, net............... 63,185 -- 63,185
Intangible assets, net.................... 55,864 (205)(1) 55,659
Other assets.............................. 4,820 -- 4,820
-------- --------- --------
Total assets............................ $138,731 $ (205) $138,526
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities, excluding current
installments of long-term debt........... $ 2,791 $ -- $ 2,791
Deferred federal income tax............... 4,754 (1,882)(1) 2,872
Other long-term liabilities............... 1,364 (1,318)(2) 46
Long-term debt, including current
installments:
Existing Credit Facility................. 107,700 (107,700)(1) --
New Credit Facility...................... -- 12,200 (1) 12,200
% Senior Subordinated Notes............. -- 100,000 (1) 100,000
Series A and Series B Notes.............. 22,425 (22,425)(2) --
Notes payable--stockholders.............. 5,877 -- 5,877
-------- --------- --------
Total long-term debt.................... 136,002 (17,925) 118,077
Preferred interests of a subsidiary....... -- 5,646 (2) 5,646
-------- --------- --------
Series A Preferred Stock.................. -- 18,097 (2) 18,097
Stockholders' equity (deficit)............ (6,180) (2,823)(1) (9,003)
-------- --------- --------
Total stockholders' equity (deficit).... (6,180) 15,274 9,094
-------- --------- --------
Total liabilities and stockholders'
equity (deficit)....................... $138,731 $ (205) $138,526
======== ========= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet
24
<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 Financing Plan had
occurred on March 31, 1997.
(1) 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>
Intangible assets, net........................................... $ (205)
Deferred Federal income tax...................................... (1,882)
Existing Credit Facility......................................... (107,700)
New Credit Facility.............................................. 12,200
% Senior Subordinated Notes..................................... 100,000
Stockholders' equity (deficit)................................... (2,823)
</TABLE>
(2) Entry records the effects of the exchange of the Series A and Series B
Notes for Series A Preferred Stock of the Company and Series A Preferred
Interests in OCIH.
<TABLE>
<S> <C>
Series A and Series B Notes..................................... $(22,425)
Other long-term liabilities..................................... (1,318)
Series A Preferred Stock........................................ 18,097
Preferred interests of a subsidiary............................. 5,646
</TABLE>
25
<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" and "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 pro forma data presented on the following page under the
captions "Statement of Operations Data," "Balance Sheet Data," and "Other
Data" for the nine months ended March 31, 1996, fiscal year ended June 30,
1996 and the twelve months ended March 31, 1997 are derived from the
consolidated pro forma financial statements of the Company included elsewhere
in this Prospectus.
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,
its Predecessors and the Significant Acquisitions, including the notes
thereto, the pro forma consolidated financial statements of the Company and
the notes thereto, and other financial information included elsewhere in this
Prospectus.
26
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSORS (1)
----------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED AUGUST 1, SEPTEMBER 1,
----------------------------------------------------------------------------------- 1995 TO 1995 TO
JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31, APRIL 3, APRIL 3,
1992 1992 1993 1993 1994 1994 1995 1995 1996 1996
OCI NORTH OCI SOUTH 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> <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 $4,957
Operating
expenses:
Direct
operating....... 3,614 2,778 3,603 2,754 3,619 1,616 3,650 1,880 2,510 1,565
Selling, general
and
administrative.. 2,590 2,011 2,942 2,059 2,746 2,913 2,739 2,908 2,160 1,641
Depreciation and
amortization.... 2,154 1,252 2,540 1,200 2,276 930 2,111 1,064 1,430 647
------- ------- ------- ------- ------- ------ ------- ------ ------- ------
Total operating
expenses........ 8,358 6,041 9,085 6,013 8,641 5,459 8,500 5,852 6,100 3,853
Operating
income........... 841 850 70 1,092 859 1,668 1,869 2,301 583 1,104
Interest
expense.......... 2,120 1,040 2,030 845 2,042 853 2,127 1,173 1,461 645
Other expense
(income), net.... 291 -- 327 -- 656 (65) (21) (180) 17 (11)
Income tax
expense
(benefit)........ -- 14 (723) 170 (473) 340 (133) 524 156 201
------- ------- ------- ------- ------- ------ ------- ------ ------- ------
Net income
(loss).......... $(1,570) $ (204) $(1,564) $ 77 $(1,366) $ 540 $ (104) $ 784 $(1,051) $ 269
======= ======= ======= ======= ======= ====== ======= ====== ======= ======
OTHER DATA:
Cash flows from:
Operating
activities...... 1,315 1,469 1,150 1,846 2,384 279 2,882 2,123 948 716
Investing
activities...... (525) (419) (607) (511) 1,017 (556) (345) (1,279) (585) (739)
Financing
activities...... (800) (643) (200) (858) (3,748) (139) (2,300) (1,100) (500) --
EBITDA (6)....... $ 2,995 $ 2,102 $ 2,610 $ 2,292 $ 3,135 $2,598 $ 3,980 $3,365 $ 2,013 $1,751
EBITDA margin
(7).............. 32.6% 30.5% 28.5% 32.3% 33.0% 36.5% 38.4% 41.3% 30.1% 35.3%
Capital
expenditures..... $ 614 $ 426 $ 622 $ 546 $ 610 $ 642 $ 522 $1,313 $ 588 $ 746
Ratio
(deficiency) of
earnings to fixed
charges.......... $(1,570) $ (190) $(2,287) 1.2x $(1,839) 1.8x $ (237) 1.9x $ (895) 1.6x
Number of display
faces--
period end....... 3,469 2,660 3,350 2,598 2,851 2,542 2,859 2,609 2,858 2,644
<CAPTION>
AS OF
----------------------------------------------------------------------------------------------------------
JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31, JULY 31, AUGUST 31, APRIL 3, APRIL 3,
1992 1992 1993 1993 1994 1994 1995 1995 1996 1996
OCI NORTH OCI SOUTH 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> <C> <C>
BALANCE SHEET
DATA:
Working capital.. $ 696 $(1,946) $ 1,015 $(2,093) $ 625 $ 494 $(4,001) $ 42 $ 81 $ (988)
Adjusted working
capital (8)...... 896 590 1,389 889 930 1,494 1,299 1,092 1,326 1,134
Total assets..... 18,180 8,005 19,948 9,069 15,992 8,701 14,715 8,590 14,496 8,854
Long-term
obligations (9).. 19,148 11,148 18,948 10,290 15,200 11,750 12,900 10,750 12,400 10,750
Stockholders'
equity
(deficit)........ (4,023) (4,302) (4,758) (2,622) (6,112) (3,681) (6,217) (2,997) (7,041) (2,728)
<CAPTION>
OCI
--------------------------------------------------
PRO
PRO FORMA FORMA PRO FORMA
NINE NINE FISCAL TWELVE
APRIL 4, MONTHS MONTHS YEAR MONTHS
1996 TO ENDED ENDED ENDED ENDED
JUNE 30, MARCH 31, MARCH 31, JUNE 30, MARCH 31,
1996 1997 1996 1996 1997
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net revenues
(4).............. $ 8,549 $ 31,741 $32,633 $44,946 $49,407
Operating
expenses:
Direct
operating....... 2,754 10,817 11,379 15,455 16,758
Selling, general
and
administrative.. 2,308 8,016 9,876 12,875 12,770
Depreciation and
amortization.... 1,930 7,257 6,858 10,398 11,407
--------- ---------- --------- --------- ---------
Total operating
expenses........ 6,992 26,090 28,113 38,728 40,935
Operating
income........... 1,556 5,651 4,520 6,218 8,472
Interest
expense.......... 1,826 7,597 8,210 10,946 10,946
Other expense
(income), net.... (3) (53) 1,020 269 10
Income tax
expense
(benefit)........ (11) (440) (1,318) (1,475) (924)
--------- ---------- --------- --------- ---------
Net income
(loss).......... $ (262) $ (1,453) $(3,392) $(3,522) $(1,560)
========= ========== ========= ========= =========
OTHER DATA:
Cash flows from:
Operating
activities...... (4,170) 4,674 -- -- --
Investing
activities...... 47,599 (45,239) -- -- --
Financing
activities...... 52,770 43,872 -- -- --
EBITDA (6)....... $ 3,486 $ 12,908 $11,378 $16,616 $19,879
EBITDA margin
(7).............. 40.8% 40.7% 34.8% 37.0% 40.2%
Capital
expenditures..... $ 598 $ 2,294 -- -- --
Ratio
(deficiency) of
earnings to fixed
charges.......... $ (251) $ (1,013) $(4,710) $(4,947) $(2,484)
Number of display
faces--
period end....... 9,346 13,774 -- -- --
<CAPTION>
AS OF AS OF
JUNE 30, MARCH 31,
1996 1997
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Working capital.. $ 151 $ 7,571
Adjusted working
capital (8)...... 5,001 12,071
Total assets..... 94,829 138,731
Long-term
obligations (9).. 90,683 136,048
Stockholders'
equity
(deficit)........ (4,901) (6,180)
</TABLE>
See Notes to Selected Historical Consolidated Financial and Other Information.
27
<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 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 to evaluate the financial performance of companies in
the outdoor advertising industry and their ability to service
indebtedness. 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) Adjusted working capital is defined as current assets less current
liabilities excluding current installments of long-term debt and
obligation under non-compete agreement.
(9) Long-term obligations are long-term debt and obligation under non-compete
agreement.
28
<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 the Significant Acquisitions,
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. The Company is a holding company with no independent
operations or assets other than investments in its operating subsidiaries. The
Company is dependent on the receipt of dividends from its operating
subsidiaries to meet its liquidity needs. After giving effect to the Financing
Plan, there will be no material limitations on the ability of the operating
subsidiaries to make distributions or otherwise make available funds to the
Company.
Since its formation, the Company has completed 15 acquisitions of the assets
of outdoor advertising companies, all of which were accounted for under the
purchase method of accounting. The Company's acquisitions can be classified
into two categories: in-market acquisitions and new market acquisitions. 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, related customer contracts, site leases and related assets,
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.
<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
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.................. 7,851
=====
</TABLE>
29
<PAGE>
The Company has completed 11 in-market acquisitions since September 1996 for
an aggregate purchase price of $17.8 million. The pro forma financial
information throughout this Prospectus 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
calculated the pro forma impact of these acquisitions throughout this
Prospectus for the fiscal year ended June 30, 1997 and the twelve months ended
March 31, 1997 in order to provide a potential investor with the most
meaningful information possible. Pro forma EBITDA of the Company's in-market
acquisitions has been derived from actual revenues and a careful analysis of
actual lease expenses, as well as production, sales, maintenance, illumination
and other expenses typically incurred by the Compay in operating similar
assets.
PRELIMINARY FOURTH QUARTER 1997 RESULTS OF OPERATIONS
The Company expects to report net revenues and EBITDA for the quarter ended
June 30, 1997 of approximately $12.7 million and $4.5 million, respectively.
As adjusted to reflect acquisitions completed during the fourth quarter as
though such acquisitions occurred on April 1, 1997, net revenues and EBITDA
would have been $12.9 million and $4.5 million, respectively. These figures
reflect a decline in net revenues and EBITDA from the quarter ended June 30,
1996 on a pro forma basis as adjusted for the acquisitions of all Acquired
Companies as though such acquisitions had occurred at the beginning of the
period. Such pro forma revenues and EBITDA would have been $13.4 million and
$5.3 million, respectively.
The decline was principally due to a decline in occupancy resulting from two
factors. The fourth quarter of the 1996 period included $298,000 of non-
recurring net revenues derived from advertising placed in the Company's
Atlanta area markets attributable to the 1996 Summer Olympics. In addition,
four large national advertisers that had placed advertising in the same period
in prior years did not place contracts. These contracts represented an
aggregate of $649,000 in net revenues. A significant portion of such net
revenues represents seasonal advertising. In an effort to strengthen its
salesforce generally, the Company is in the process of adding 12 new
salespersons, an increase of approximately 20%. The Company expects that this
will help it replace lost national revenues with local revenues as well as
take advantage of future opportunities. EBITDA also declined due to $125,000
of additional expense associated with failed acquisition transactions in the
1997 period.
For the fiscal year ended June 30, 1997, the Company estimates net revenues
and EBITDA would have been approximately $52.3 million and $20.8 million,
respectively, as adjusted to reflect the results of all Acquired Companies as
though the acquisitions occurred at the beginning of the period. These compare
with $53.5 million and $22.0 million of net revenues and EBITDA, respectively,
for the twelve month period ended March 31, 1997 determined on the same basis.
The foregoing information is preliminary and subject to the normal review
process by the Company's auditors in connection with the preparation of the
audited 1997 results.
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 for a number of reasons, including benefits derived from
implementation of its incentive compensation-based sales strategy in newly
acquired operations and general economic conditions in its markets. 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 typically 15% of gross revenues. Agency commissions
amounted to approximately 9.6% of gross revenues for the nine months ended
March 31, 1997. The Company enters into agreements with advertising agencies
on a customer-by-customer basis and does not have long-term arrangements with
any advertising agencies. Because of the Company's reliance on local
advertisers, many of which do not employ
30
<PAGE>
agencies, the Company depends less on placement of advertising 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, lease 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 lease
category consists mainly of rental payments to owners of the land underlying
the display structures. 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.
Selling, general and administrative expenses occur at both the division and
corporate levels. At the division level, these costs consist of 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, which division-level
bonuses are payable to division general managers and are based on the
applicable division's operating results.
THE COMPANY
THE COMPANY'S PRO FORMA TWELVE MONTHS ENDED MARCH 31, 1997 COMPARED TO PRO
FORMA FISCAL YEAR ENDED JUNE 30, 1996.
The following discussion reflects a comparison of the Company's pro forma
results of operations for the twelve months ended March 31, 1997 as if the
Significant Acquisitions had occurred at the beginning of such period and the
Company's pro forma results of operations for the fiscal year ended June 30,
1996 as if the Significant Acquisitions had occurred at the beginning of such
period.
The Company's pro forma net revenues increased $4.5 million, or 9.9%, to
$49.4 million for the twelve months ended March 31, 1997 compared to $45.0
million in pro forma net revenues for the fiscal year ended June 30, 1996.
This increase was primarily due to increased rate and occupancy levels and
revenues from in-market acquisitions completed during the twelve-month period
ended March 31, 1997.
The Company's pro forma direct operating expenses increased $1.3 million, or
8.4%, to $16.8 million for the twelve months ended March 31, 1997 compared to
$15.5 million in pro forma direct operating expenses for the fiscal year ended
June 30, 1996. This increase reflects normal inflationary cost increases and
expenses associated with in-market acquisitions.
The Company's pro forma selling, general and administrative expenses
decreased $0.1 million, or 0.8%, to $12.8 million for the twelve months ended
March 31, 1997 compared to $12.9 million in pro forma selling, general and
administrative expenses for the fiscal year ended June 30, 1996.
The Company's pro forma depreciation and amortization expense increased $1.0
million, or 9.7%, to $11.4 million for the twelve months ended March 31, 1997
compared to $10.4 million in pro forma depreciation and amortization expense
for the fiscal year ended June 30, 1996. This increase was due to higher
levels of depreciation relating to in-market acquisitions.
31
<PAGE>
As a result, the Company's pro forma operating income increased $2.3
million, or 36.2%, to $8.5 million for the twelve months ended March 31, 1997
compared to $6.2 million in pro forma operating income for the fiscal year
ended June 30, 1996. This increase was the result of higher net revenues
combined with stable selling, general and administrative expenses. The
Company's pro forma operating expenses, excluding depreciation and
amortization, as a percentage of net revenues for the twelve months ended
March 31, 1997 decreased to 59.8% compared to pro forma operating expenses,
excluding depreciation and amortization, as a percentage of net revenues of
63.0% for the fiscal year ended June 30, 1996. The Company's pro forma
operating income as a percentage of net revenues for the twelve months ended
March 31, 1997 increased to 17.2% compared to pro forma operating income as a
percentage of net revenues of 13.9% for the fiscal year ended June 30, 1996.
The Company's pro forma interest expense was $11.0 million for the twelve
months ended March 31, 1997 and did not change from pro forma interest expense
for the fiscal year ended June 30, 1996.
As a result of the foregoing factors, the Company's pro forma net loss for
the twelve months ended March 31, 1997 was $1.6 million as compared to a pro
forma net loss of $3.5 million for the fiscal year ended June 30, 1996.
THE COMPANY'S NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE PRO FORMA
NINE MONTHS ENDED MARCH 31, 1996.
The following discussion reflects a comparison of the Company's actual
results of operations for the nine months ended March 31, 1997 and the
Company's pro forma results of operations for the nine months ended March 31,
1996. Although the pro forma operating results for the nine months ended March
31, 1996 include the results of operations of the Significant Acquisitions as
if such acquisitions had occurred at the beginning of such period, the
Company's operating results for the nine months ended March 31, 1997 only
reflect the results of operations of such Significant Acquisitions from the
date of acquisition.
The Company's net revenues decreased $0.9 million, or 2.7%, to $31.7 million
for the nine months ended March 31, 1997 compared to $32.6 million in pro
forma net revenues for the nine months ended March 31, 1996. This decrease was
primarily due to the inclusion of nine months of pro forma operating results
of the Significant Acquisitions in the pro forma information for the nine
months ended March 31, 1996.
The Company's direct operating expenses decreased $0.6 million, or 4.9%, to
$10.8 million for the nine months ended March 31, 1997 compared to $11.4
million in pro forma direct operating expenses for the nine months ended March
31, 1996. This decrease reflects the inclusion of nine months of pro forma
operating results of the Significant Acquisitions in the pro forma information
for the nine months ended March 31, 1996.
The Company's selling, general and administrative expenses decreased $1.9
million, or 18.8%, to $8.0 million for the nine months ended March 31, 1997
compared to $9.9 million in pro forma selling, general and administrative
expenses for the nine months ended March 31, 1996. This decrease was primarily
due to the inclusion of nine months of pro forma operating results of the
Significant Acquisitions in the pro forma information for the nine months
ended March 31, 1996.
The Company's depreciation and amortization expense increased $0.4 million,
or 5.9%, to $7.3 million for the nine months ended March 31, 1997 compared to
$6.9 million in pro forma depreciation and amortization expense for the nine
months ended March 31, 1996.
As a result, the Company's operating income increased $1.1 million, or
24.9%, to $5.7 million for the nine months ended March 31, 1997 compared to
$4.5 million in pro forma operating income for the nine months ended March 31,
1996. This increase is due to the inclusion of nine months of pro forma
operating results of the Significant Acquisitions in the pro forma information
for the nine months ended March 31, 1996. The Company's
32
<PAGE>
operating expenses, excluding depreciation and amortization, as a percentage
of net revenues for the nine months ended March 31, 1997 decreased to 59.3%
compared to pro forma operating expenses, excluding depreciation and
amortization, as a percentage of net revenues of 65.1% for the nine months
ended March 31, 1996. The Company's operating income as a percentage of net
revenues for the nine months ended March 31, 1997 increased to 17.8% compared
to pro forma operating income as a percentage of net revenues 13.9% for the
nine months ended March 31, 1996.
The Company's interest expense decreased $0.6 million, or 7.5%, to $7.6
million for the nine months ended March 31, 1997 compared to $8.2 million in
pro forma interest expense for the nine months ended March 31, 1996. This
decrease was caused by the inclusion of nine months of pro forma operating
results of the Significant Acquisitions in the pro forma information for the
nine months ended March 31, 1996.
As a result of the foregoing factors, the Company's net loss for the nine
months ended March 31, 1997 was $1.5 million as compared to a pro forma net
loss of $3.9 million for the nine months ended March 31, 1996.
OCI NORTH
OCI NORTH'S FISCAL YEAR 1995 COMPARED TO OCI NORTH'S FISCAL YEAR 1994
OCI North's net revenues increased $0.9 million, or 9.2%, to $10.4 million
for the fiscal year 1995 compared to $9.5 million in net revenues for the same
period in 1994. This increase was primarily the result of increased rate and
occupancy levels for OCI North's displays.
OCI North's direct operating expenses were $3.7 million for the fiscal year
1995 and did not materially change from direct operating expenses for the same
period in 1994.
OCI North's selling, general and administrative expenses were $2.7 million
for the fiscal year 1995 and did not materially change from selling, general
and administrative expenses for the same period in 1994.
OCI North's depreciation and amortization expenses decreased $0.2 million,
or 7.2%, to $2.1 million for the fiscal year 1995 compared to $2.3 million in
depreciation and amortization expense for the same period in 1994.
OCI North's operating income increased $1.0 million, or 117.6%, to $1.9
million for the fiscal year 1995 compared to $0.9 million in operating income
for the same period in 1994. Such increase was primarily the result of
increased revenues due to higher rate and occupancy levels without associated
increases in operating expenses. OCI North's operating expenses, excluding
depreciation and amortization, as a percentage of net revenues for the fiscal
year 1995 decreased to 61.6% compared to operating expenses, excluding
depreciation and amortization, as a percentage of net revenues of 67.0% for
the same period in 1994. OCI North's operating income as a percentage of net
revenues for the fiscal year 1995 increased to 18.0% compared to operating
income as a percentage of net revenues of 9.0% for the same period in 1994.
OCI North's interest expense increased $0.1 million, or 4.2%, to $2.1
million for the fiscal year 1995 compared to $2.0 million in interest expense
for the same period in 1994.
As a result of the foregoing factors, OCI North's net loss for the fiscal
year 1995 was $0.1 million compared to a net loss of $1.4 million for the same
period in 1994.
OCI SOUTH
OCI SOUTH'S FISCAL YEAR 1995 COMPARED TO OCI SOUTH'S FISCAL YEAR 1994
OCI South's net revenues increased $1.0 million, or 14.4%, to $8.2 million
for the fiscal year 1995 compared to $7.1 million in net revenues for the same
period in 1994. This increase was primarily due to higher rate and occupancy
levels for the Company's displays generally and revenues associated with a
large national advertising campaign.
33
<PAGE>
OCI South's direct operating expenses increased $0.3 million, or 16.3%, to
$1.9 million for the fiscal year 1995 compared to $1.6 million in direct
operating expenses for the same period in 1994.
OCI South's selling, general and administrative expenses were $2.9 million
for the fiscal year 1995 and did not materially change from selling, general
and administrative expenses 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 compared to $0.9 million in
depreciation and amortization expense 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 compared to $1.7 million in operating income
for the same period in 1994. This increase is the result of OCI South's having
higher net revenues but stable selling, general and administrative expenses.
OCI South's operating expenses, excluding depreciation and amortization, as a
percentage of net revenues for the fiscal year 1995 decreased to 58.7%
compared to operating expenses, excluding depreciation and amortization, as a
percentage of net revenues of 63.6% for the same period in 1994. OCI South's
operating income as a percentage of net revenues for the fiscal year 1995
increased to 28.2% compared to operating income as a percentage of net
revenues of 23.4% for 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 compared to $0.9 million in interest expense
for the same period in 1994. The increase in interest expense was due to the
refinancing of OCI South's long-term debt during fiscal year 1995.
As a result of the foregoing factors, OCI South's net income for the fiscal
year 1995 was $0.8 million compared to a 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 $90.0 million credit facility with Canadian Imperial Bank of Commerce
("CIBC"), as collateral agent, and The Chase Manhattan Bank ("Chase"), as
agent for a syndicate of lenders (the "Old Credit Facility"), and an equity
and subordinated debt investment of approximately $34.0 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 with CIBC, as collateral agent, The First National
Bank of Chicago and First Union Bank of North Carolina, as co-agents, and
Chase, as agent for a syndicate of lenders, in order to increase the available
credit to $140.0 million. The Company financed its acquisitions of Skoglund,
Outdoor West and several smaller outdoor advertising operations through
borrowings under the Existing Credit Facility. As of June 30, 1997, aggregate
principal outstanding under the Existing Credit Facility was $115.7 million at
a weighted average interest rate of 9.1%. As of the same date, availability
under the Existing Credit Facility was approximately $18.4 million, which
reflects the amount outstanding as of June 30, 1997 and approximately $5.9
million of notes payable-stockholders, which are secured by a letter of credit
under the Existing Credit Facility and will be secured by a letter of credit
under the New Credit Facility. The Company intends to use the proceeds of the
Offering, together with borrowings under the New Credit Facility, to repay all
amounts owing under the Existing Credit Facility.
The Company is entering into the New Credit Facility concurrently with the
Offering 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
34
<PAGE>
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 $4.7 million for the nine
months ended March 31, 1997. Net cash used in investing activities was $45.2
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.
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.
35
<PAGE>
BUSINESS
THE COMPANY
OCI is a leading provider of outdoor advertising services, operating
approximately 13,500 advertising displays in 12 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.
On April 3, 1996, the Company's current structure emerged with its
acquisitions and consolidation of OCI North and OCI South. OCI South was
founded in 1972 by John C Stanley IV and A.B. Isbell upon their acquisition of
outdoor advertising assets in the region around Memphis, Tennessee. 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. Through additional acquisitions and new construction, OCI North grew
its operations to more than 2,800 display faces in three states by April 1996.
See "Certain Relationships and Related Transactions--The Formation
Transactions." 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 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
36
<PAGE>
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 10 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.
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
37
<PAGE>
from dependence on any one customer or industry. During the nine months
ended March 31, 1997, no single customer represented more than 3.0% 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 15
outdoor advertising companies over a 15-month period, totaling in excess of
7,800 display faces. None of such acquisitions involved sellers affiliated
with the Company. 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 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.
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 $17.8
million.
38
<PAGE>
<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
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.................. 7,851
======
</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, related customer contracts, site leases and related
assets, 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. The Company does not
currently have any written or oral agreement to consummate any material new
acquisition.
39
<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 10 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.......... $10,532 21.3% 420 101 1,120 308 1,949
Duluth, MN.............. 6,150 12.4 318 390 864 12 1,584
Athens, GA.............. 6,037 12.2 301 415 822 98 1,636
Traverse City, MI....... 4,830 9.8 161 520 746 -- 1,427
Saginaw, MI............. 4,466 9.0 155 217 630 8 1,010
Corinth, MS............. 3,946 8.0 191 111 719 1 1,022
Johnson City, TN........ 3,878 7.9 160 136 651 -- 947
Paducah, KY............. 3,305 6.7 70 281 617 2 970
Huntsville, AL.......... 3,241 6.6 223 126 591 -- 940
Tuscaloosa, AL.......... 3,022 6.1 276 138 384 -- 798
------- ----- ----- ----- ----- --- ------
Total................. $49,407 100.0% 2,275 2,435 7,144 429 12,283(1)
======= ===== ===== ===== ===== === ======
</TABLE>
- ---------------------
(1) 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 10 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.
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.
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.
40
<PAGE>
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.
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
41
<PAGE>
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 10 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 3.0% 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.
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.
42
<PAGE>
As a result, such customers are more likely to renew their contracts.
Historically, the Company's advertising contract rates on renewal have
increased on average at a rate 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 a rebate of a percentage of the amount paid
to the Company under such contract 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 10 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 Company believes that this direct relationship also
gives it an advantage in obtaining advertising contract renewals. 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 3.0% 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.
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 six months ended December 31, 1996
and 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
43
<PAGE>
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
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.
44
<PAGE>
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 10
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 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."
45
<PAGE>
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 FDA 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. In June
1997, a majority of the major tobacco companies in the United States and
certain state attorneys general reached agreement on a proposed settlement of
litigation between such parties. The terms of such proposed settlement include
a ban on all outdoor advertising of tobacco products commencing nine months
after finalization of the settlement. The settlement is subject to numerous
conditions, including the enactment of legislation by the federal government.
At this time, it is unclear whether a definitive settlement will be reached or
what the terms of any such settlement would be. 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. If the tobacco litigation settlement were
finalized in its current form and the Company were unable to replace revenues
from tobacco advertising with revenues from other advertising sources, the
settlement could have a material adverse effect on the Company's results of
operations. However, the Company believes that it would be able to replace a
substantial portion of revenues from tobacco advertising that would be
eliminated due to such a settlement with revenues from other sources. See "--
Customers" and "Risk Factors--Potential Elimination or Reduction of Tobacco
Advertising."
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 of
billboards without compensation have been subject to vigorous litigation in
state and federal courts and cases
46
<PAGE>
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 10 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, and it has experienced no work stoppages that have materially affected
the Company's operations.
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.
In July 1997, the Company and a prospective seller agreed to terminate a
contract to purchase the assets of an outdoor advertising company for which
the Company had tendered a deposit in the form of a letter of credit in the
amount of $1.0 million. The Company and the seller have each made claims to
the deposit and, while the Company believes that it is entitled to have the
deposit returned, there can be no assurance that the Company will be
successful in recovering the deposit. The Company does not believe that any
losses incurred by it in connection with this matter would have a material
impact on the financial condition or results of operations of the Company.
47
<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
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........... 37 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.
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.
48
<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 K. 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.
Directors are elected annually. In connection with the Formation Transactions,
the stockholders of the Company entered into a Shareholders Agreement dated as
of April 3, 1996 (the "Shareholders Agreement") which provides that the
parties thereto, who consist of all of the holders of the Company's Common
Stock, shall vote their shares of Common Stock regarding the nomination or
election of directors of the Company such that the Board of Directors will
consist of three designated representatives of management stockholders, three
designated representatives of Media Communications Partners, and one
designated representative of Chase Venture Capital Associates. See "Certain
Relationships and Related Transactions--Shareholders Agreement." 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.
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 following table sets forth certain information concerning
compensation received by the Chief Executive Officer
49
<PAGE>
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 the 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 $ 143,375 $ -- $75,386(2)
Chairman and Chief
Executive Officer
A.B. Isbell 122,541 -- 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.
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 has $5.1 million in key man life insurance on the life of Mr.
Stanley, consisting of two 10-year level premium term policies and a $100,000
whole life policy. The Company has $3.0 million in key man life insurance on
the life of Mr. A.B. Isbell, consisting of two 10-year level premium term
policies and a $150,000 whole life policy.
50
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company formed its Compensation Committee in June 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.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Class A Common Stock, par value $.01 per
share ("Class A Common Stock") and Class B Common Stock, par value $.01 per
share ("Class B Common Stock" and, together with the Class A Common Stock, the
"Common Stock") as of May 31, 1997 and the Company's Series A Preferred Stock
as if the Series A Notes and Series B Notes had been exchanged for shares of
Series A Preferred Stock on such date (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>
CLASS A VOTING CLASS B NON-VOTING SERIES A
COMMON STOCK COMMON STOCK PREFERRED STOCK
----------------------- ----------------------- -------------------------
NUMBER NUMBER
OF PERCENT OF OF PERCENT OF NUMBER PERCENT OF
NAME AND ADDRESS SHARES CLASS(1) SHARES CLASS(2) OF SHARES CLASS(3)
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with
Media/Communications
Partners(4)............ 3,362.16 40.09% 2,101.34 56.96% 109,311.33 45.36%
75 State Street
Boston, MA 02109
Media/Communications
Partners II Limited
Partnership(4)....... 3,227.67 38.49 2,017.29 54.68 104,938.87 43.55
Media/Communications
Investors Limited
Partnership(4)....... 134.49 1.60 84.05 2.28 4,372.46 1.81
Chase Venture Capital
Associates, L.P(5)...... 2,048.57 24.43 1,587.94 43.04 72,757.62 30.19
c/o Chase Capital
Partners
380 Madison Avenue
12th Floor
New York, NY 10017
John C Stanley IV....... 1,400.54(6) 16.70 -- -- 27,776.02(7) 11.11
512 Taylor Street
Corinth, MS 38834
A.B. Isbell............. 1,050.00 12.52 -- -- 20,823.86(8) 11.53
512 Taylor Street
Corinth, MS 38834
Richard W. Ebersole..... 35.00 * -- -- 694. 13 *
Douglas W. Ferris....... 87.50 1.04 -- -- 1,735.32 *
Stephen F. Gormley(9)... 3,362.16 40.09 2,101.34 56.96 109,311.33 45.36
John G. Hayes(10)....... 3,362.16 40.09 2,101.34 56.96 109,311.33 45.36
Brian J. Richmand(11)... 2,048.57 24.43 1,587.94 43.04 72,757.62 30.19
All directors and
executive officers as a
group
(12 persons)........... 8,158.77(12) 97.29 3,689.28(13) 100.00 236,465.71(14) 98.13
</TABLE>
- ---------------------
*Represents less than 1% of the outstanding shares
(1) Total outstanding Class A Common Stock consists of 8,385.72 shares.
(2) Total outstanding Class B Stock consists of 3,689.28 shares.
(3) Total outstanding Series A Preferred Stock consists of 186,130.51 shares
plus 54,836.15 Series A Preferred Interests of OCIH convertible into
shares of Series A Preferred Stock on a one-for-one basis at the option of
the holder.
52
<PAGE>
(4) Messrs. Gormley and Hayes are general partners of M/CP II Limited
Partnership, the general partner of Media/Communications Partners II
Limited Partnership ("M/C II") and Media/Communications Investors Limited
Partnership ("M/C Investors"). The consent of general partners holding a
majority of the voting percentages of M/CP II Limited Partnership is
required to vote on behalf of M/C II and M/C Investors.
(5) Mr. Richmand, as general partner of Chase Capital Partners, the general
partner of Chase Venture Capital Associates, L.P. ("CVCA"), has the power
to vote such shares.
(6) Includes (i) 1,204.16 shares 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. Mr.
Stanley, as sole trustee of each of the JCS Trust and LWS Trust, has sole
voting authority over the shares held by such trusts.
(7) Includes (i) 23,881.28 Series A Preferred Interests held by Mr. Stanley,
(ii) 1,947.37 Series A Preferred Interests held by the JCS Trust and (iii)
1,947.37 Series A Preferred Interests held by the LWS Trust, which Series
A Preferred Interests of OCIH which are convertible into shares of Series
A Preferred Stock at the option of the holder.
(8) Consists of Series A Preferred Interests of OCIH which are convertible
into shares of Series A Preferred Stock at the option of the holder.
(9) Consists of shares held by M/C II and 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.
(10) Consists of shares held by M/C II and 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.
(11) 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.
(12) Includes (i) 3,362.16 shares of Class A Common Stock held by M/C II and
M/C Investors, (ii) 2,048.57 shares of Class A Common Stock held by CVCA
and (iii) 98.19 shares of Class A Common Stock held by each of the JCS
Trust and the LWS Trust of which Mr. Stanley serves as trustee.
(13) Consists of (i) 2,101.34 shares of Class B Common Stock held by M/C II
and M/C Investors and (ii) 1,587.94 shares of Class B Common Stock held
by CVCA.
(14) Includes (i) 109,311.33 shares of Series A Preferred Stock held by M/C II
and M/C Investors, (ii) 72,757.62 shares of Series A Preferred Stock held
by CVCA and (iii) 1,947.37 shares of Series A Preferred Stock held by
each of the JCS Trust and the LWS Trust of which Mr. Stanley serves as
trustee.
53
<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"). The terms of the
transactions discussed below were on terms as favorable as could have been
received from disinterested third parties.
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 for an aggregate purchase price of $9.5 million.
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. For each share of OCI North common stock, valued at
$75,347 per share, the MCP Investors received 72.07 shares of the Company's
Common Stock and a $3,310 cash payment, and for each share of OCI North
preferred stock, valued at $2,178 per share, the MCP Investors received 2.18
shares of the Company's Common Stock. As a result, M/C II purchased 1,832.45
shares of Common Stock, and M/C Investors purchased 76.36 shares of Common
Stock. 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 for an
aggregate purchase price of $15.0 million, 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 the Company of $5.9 million
aggregate principal amount of notes payable to Messrs. Stanley and A.B. Isbell
(the "South Notes"), which notes bear interest at a rate based on the
Company's interest rate under its Senior Credit Facility and are due and
payable on April 3, 1998, and (ii) the issuance of shares of Common Stock and
Series A 10% Subordinated Notes due December 31, 2003 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. For each share of
OCI South common stock, valued at $1,057 per share, the former stockholders of
OCI South received 1.03 shares of the Company's Common Stock and a $30 cash
payment. As a result Mr. Stanley purchased 1,204.16 shares of Common Stock;
Mr. A.B. Isbell purchased 1,050.00 shares of Common Stock; Mr. Norman Isbell
purchased 51.95 shares of Common Stock; Ms. Denton purchased 87.50 shares of
Common Stock; the JCS Trust purchased 98.19 shares of Common Stock; and the
LWS Trust purchased 98.19 shares of Common Stock. As of June 30, 1997,
interest payments in the following amounts have been paid to Mr. Stanley, Mr.
A.B. Isbell, Mr. Norman Isbell, the JCS Trust and the LWS Trust, respectively,
under the terms of the Series A Notes: $102,306, $89,208, $4,414, $8,342 and
$8,342. As of June 30, 1997 interest payments in the following amounts have
been paid to Mr. Stanley and Mr. A.B. Isbell, respectively, under the terms of
the South Notes: $197,212 and $215,423. The 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"), M/C II purchased for $7.4 million in
cash 1,395.22 shares of Common Stock and $6.0 million aggregate principal
amount of Series B Notes, M/C Investors purchased for $0.3 million in cash
58.13 shares of Common Stock and $0.2 million principal amount of Series B
Notes and CVCA purchased for $6.4
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million cash 2,237.85 shares of Common Stock and $4.2 million principal amount
of Series B Notes. Mr. Richmand is a partner of the general partner of CVCA.
In addition, Mr. Ebersole purchased for $100,000 cash shares of Common Stock
and $65,000 principal amount of Series A Notes. On April 30, 1996, pursuant to
the terms of the OCI Agreement and in connection with the acquisition of
Alabama Outdoor, M/C II purchased for $5.8 million cash 2,017.29 shares of
Common Stock and $3.7 million aggregate principal amount of Series B Notes,
M/C Investors purchased for $0.2 million cash 84.05 shares of Common Stock and
$0.2 million principal amount of Series B Notes and CVCA purchased for $4.0
million cash 1,398.66 shares of Common Stock and $2.6 million principal amount
of Series B Notes. On September 10, 1996, Gerald P. Scott and G. Robert
Joiner, under the same terms as the April 3, 1996 transactions, purchased for
$150,000 cash 52.50 shares of Common Stock and $97,500 principal amount of
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 $100,000 cash 35.00 shares of Common Stock and $65,000 principal amount of
Series A Notes.
SHAREHOLDERS AGREEMENT
All of the Company's stockholders have entered into the Shareholders
Agreement pursuant to which they have agreed to cause the Board of Directors
to consist at all times of seven directors, with the executive officers and
other individual stockholders of the Company (the "Management Investors")
having the ability to nominate three directors, the M/C Investors having the
ability to nominate three directors and CVCA having the ability to nominate
one director. Each party agrees to vote for the other parties' nominees. Under
the Shareholders Agreement, if a party desires to sell any shares of Common
Stock (other than transfers to permitted affiliates of such stockholders or
through underwriters in a public offering), then such party must offer to sell
such shares first to the Company and, if the Company refuses to purchase such
shares, then to the other parties to the Shareholders Agreement. In addition,
such potential selling party to the Shareholders Agreement must offer each of
the other parties to the Shareholders Agreement "go-along" rights to sell a
proportional amount of its shares of Common Stock or other security of the
Company to the same purchaser in the same transaction. Furthermore, under the
terms of the Shareholders Agreement, the approval of a majority of the
shareholders of the Company and, through April 3, 1999, a majority of the
Management Investors is required to approve a sale of the Company. At any time
from and after April 3, 2003, each of the Management Investors, the M/C
Investors and CVCA shall have the right to cause the Company to take such
actions as may be reasonably necessary or appropriate to consummate a sale of
the Company.
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 relating to whether the Company has filed other
registration statements or if the filing of a registration statement on behalf
of a Holder would have a material adverse effect on the Company, 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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DESCRIPTION OF NEW CREDIT FACILITY
The Company and its subsidiaries will enter into the New Credit Facility
with The Chase Manhattan Bank ("Chase"), as lender and agent, and certain
other banks and financial institutions as additional lenders. The Offering is
conditioned upon the closing of the New Credit Facility. A copy of the credit
agreement for the New Credit Facility has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and the following
summary of the material terms of the New Credit Facility is qualified in its
entirety by reference thereto. The material terms and conditions of the New
Credit Facility are set forth below.
Borrowers. The subsidiaries of the Company, OCI (N) Corp. and OCI (S) Corp.,
will be co-borrowers (the "Borrowers") under the New Credit Facility.
Security; Guaranty. The New Credit Facility will be secured by all of the
assets and the capital stock of the Guarantors. The Borrowers' obligations
under the New Credit Facility will be guaranteed by the Company.
Structure. The New Credit Facility will consist of (i) an immediately
available revolving line of credit facility providing for borrowings of up to
$110.0 million, and (ii) a $40.0 million term loan facility that, upon the
request of the Borrowers, will become available subject to the approval of the
lenders under the New Credit Facility. Borrowings under the New Credit
Facility may be utilized by the Borrowers to fund working capital
requirements, including the issuance of stand-by and trade letters of credit,
to fund acquisitions and for other general corporate purposes.
Interest; Maturity. Borrowings under the revolving line of credit and term
loan facilities will bear interest, payable quarterly, at a rate per annum
equal (at the Borrowers' option) to: (i) the London Interbank Offered Rate
("LIBOR") plus an applicable margin, or (ii) Chase's base rate plus an
applicable margin. Initially, the applicable margin is expected to be 2.25%
per annum for LIBOR borrowings and 1.00% per annum for base rate borrowings.
The applicable margins are subject to reduction depending upon the Company's
leverage ratio. The New Credit Facility will provide for annual reductions in
the revolving credit commitments and amortization of the term loan facility.
The revolving line of credit facility matures on December 31, 2004 and the
term loan facility will mature on June 30, 2005.
Fees. The Company will be required to pay the lenders under the New Credit
Facility, on a quarterly basis, a commitment fee equal to 0.375% per annum
(which may be reduced based on the Company's leverage ratio) of the undrawn
portion of the $110.0 million revolving line of credit facility and, once
committed to by the banks, any undrawn portion of the term loan facility.
Covenants. The New Credit Facility will contain the following material
covenants which restrict the Company and its subsidiaries from, among other
things: (i) changes in business; (ii) with certain exceptions, consolidation,
mergers and sales of assets; (iii) with certain exceptions, incurring,
creating, assuming or suffering to exist any liens or encumbrances upon
assets, property or rights to receive income; (iv) with certain exceptions,
creating, incurring, assuming or suffering to exist other indebtedness; (v)
with certain exceptions, making investments or loans in any other person or
entity; (vi) acquiring assets or capital stock of other entities except for
certain permitted acquisitions; (vii) selling, assigning or otherwise
encumbering or disposing of the capital stock or other securities of any
subsidiary; (viii) making any optional or voluntary prepayments on
indebtedness (other than indebtedness under the New Credit Facility); (ix)
redeeming, retiring or purchasing capital stock of the Company or declaring or
paying dividends on the capital stock of the Company; and (x) except as to
certain transactions that comply with the terms of the New Credit Facility,
entering into transactions with affiliates. In addition, the New Credit
Facility also requires the Company to maintain (a) a total leverage ratio,
defined as Total Debt to pro forma EBITDA for the period of four quarters most
recently ended, that does not exceed certain maximum levels ranging from
6.50:1.00 to 5.00:1.00, (b) a senior debt ratio, defined as Total Debt less
the
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outstanding principal amount of the Notes to pro forma Operating Cash Flow for
the period of four quarters most recently ended, that does not exceed certain
maximum levels ranging from 4.00:1.00 to 3.00:1.00, (c) an interest coverage
ratio, defined as pro forma Operating Cash Flow for the period of four quarters
most recently
ended to total accrued interest expense for such period (calculated on a pro
forma basis for the first year), of not less than certain minimum levels
ranging from 1.50:1.00 to 2.00:1.00 and (d) a fixed charge coverage ratio,
defined as pro forma EBITDA for the period of four quarters most recently ended
to the sum of total accrued interest expense, mandatory repayments of debt,
capital expenditures and cash taxes paid or payable during such period, of not
less than 1.05:1.00.
Events of Default. The New Credit Facility will contain customary events of
default, including nonpayment of principal, interest or fees, material
inaccuracy of representations and warranties, violation of covenants, cross-
default and cross-acceleration to certain other indebtedness, certain events of
bankruptcy and insolvency, certain events under the Employee Retirement Income
Security Act of 1974, as amended, material judgments, actual or asserted
invalidity of any guarantee or security interest and a change of control in
certain circumstances as set forth therein.
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 New Credit Facility.
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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 First Union National
Bank, 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 fully and 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 $100,000,000 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; 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
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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.
Notice of a redemption in connection with a Public Equity Offering shall be
mailed within 60 days of their particular Public Equity Offering. 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 fully and unconditionally
and jointly and severally 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. See "--Subordination of Notes and Guarantees."
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 and the Guarantees 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 and Guarantor Senior
Indebtedness, as the case may be, including obligations under the New Credit
Facility. While the Notes and the Guarantees are senior subordinated
obligations, after giving effect to the Offering, there will be no
indebtedness that is subordinated in right of payment to the Notes, and the
Company and the Guarantors have no present plans to issue any indebtedness
that is subordinated to the Notes and the Guarantees. As such the Notes will
be subordinate to all of the indebtedness of the Company and the Guarantors
expected to be outstanding immediately following the Offering. As of March 31,
1997, after giving pro forma effect to the application of the net proceeds of
the Offering, the Company's total long-term debt (including borrowings of $6.7
million incurred after March 31, 1997) would have been approximately $126.5
million and the Company and the Guarantors would have had the ability to
borrow an additional $123.6 million, which borrowings would be senior to the
Notes. The Company and the Guarantors do not have any present plans to issue
any indebtedness that would be senior to the Notes and the Guarantees.
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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 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 (the "Defeasance 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 payments made out of the Defeasance
Trust) 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,
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, 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
payments made out of the Defeasance Trust) 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
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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 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 New Credit Facility, and will
be subject to the rights of holders of Designated Senior Indebtedness of such
Guarantor to initiate blockage periods with respect to the Guarantees at the
same times as a Payment Blockage Period is in effect with respect to the
Notes.
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 repurchase
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 repurchase (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
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Notes delivered for purchase, and a statement that such holder is withdrawing
his election to have such Notes 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. In addition, the Company will not be required to make a
Change of Control Offer in the event at a highly leveraged transaction that
does not constitute a Change of Control.
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 and Guarantor 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 75% 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
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Subsidiary are applied (a) first, to the extent the Company elects, or is
required, to prepay, repay or purchase debt under any then existing Senior
Indebtedness of the Company or any Guarantor Senior Indebtedness of any
Guarantor that is a Subsidiary of the Company 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 270 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 any commitment in respect thereof 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. Notwithstanding the foregoing, a Guarantor will be
permitted to guarantee any 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 make, directly or indirectly, 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) 1.4 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, 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 (other than Disqualified Capital Stock) of the
Company (including any related guarantees) 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 (including any related guarantees)
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 $1,000,000, (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" or (vi) other Investments
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constituting Restricted Payments made after the Issue Date in an aggregate
amount not in excess of $10,000,000; provided, however, that in the case of
clauses (iii), (iv), (v) and (vi), no Default shall have occurred or be
continuing at the time of such payment or as a result thereof. In determining
the amount of Restricted Payments made subsequent to the Issue Date for
purposes of clause (c) of the first paragraph above, amounts expended pursuant
to clauses (i), (ii), (iv), (v) and (vi) shall be included in such
calculation.
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 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
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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.
Limitation on 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, the other Guarantors 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, (ii) 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,
(iii) customary provisions restricting the assignment of any contract or
interest of the Company or any of its Subsidiaries, (iv) restrictions under
the New Credit Facility no more restrictive than those in effect on the Issue
Date and (v) restrictions contained in the Indenture or any other indenture
governing debt securities that is no more restrictive than those contained in
the Indenture.
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
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(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 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
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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; provided that, solely for purposes of computing Cumulative EBITDA
for purposes of the covenant "Limitation on Restricted Payments," the
Cumulative EBITDA of any persons other than the Company and its Subsidiaries
shall only be included for periods subsequent to the effective time of such
merger, consolidation, combination or transfer of assets.
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.
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
"Repurchase 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 $10,000,000 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 $10,000,000
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 Significant Subsidiary of the Company shall
have occurred.
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
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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 so long as the New Credit Facility shall be in effect, if an
Event of Default shall have occurred and be continuing (other than an Event of
Default specified in clause (viii) above with respect to the Company), any
such acceleration shall not be effective until the earlier of (x) five
business days following delivery of a notice of acceleration specifying the
respective Event of Default and stating that it is a "notice of acceleration"
to the agent bank under the New Credit Facility (but only if such Event of
Default is then continuing) and (y) the acceleration of any indebtedness under
the New Credit Facility. 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 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.
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 (but without being subject to the subordination provisions of the
Indenture), (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").
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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 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.
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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, supplement or waive any provision of the
Indenture or the Notes, except that no such modification, supplement or waiver
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
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 an 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
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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 or (iii) the acquisition by the
Company or any Subsidiary of the Company of Advertising Displays of any Person
with a Fair Market Value in excess of $100,000.
"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, (iii) any other property or asset of the Company
or any Subsidiary of the Company outside of the ordinary course of business or
(iv) Advertising Displays of the Company or any Subsidiary of the Company with
a Fair Market Value in excess of $100,000. For the purposes of this
definition, the term "Asset Sale" shall not include (i) any 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, (iii) dispositions of property pursuant to any
condemnation or other taking by any governmental authority; provided that any
net cash proceeds of such taking are applied in accordance with clause (iii)
of the covenant "Asset Sales" and (iv) for purposes of the covenant
"Repurchase at Option of Holders--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 $500,000
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 Sale that has 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 "Repurchase 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
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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.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act),
other than one or more Permitted Holders, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event
or otherwise), directly or indirectly, of more than 50% of the total voting
power of the then outstanding Voting Stock of the Company; (ii) the Company
consolidates with, or merges with or into, another Person (other than the
Company or a Wholly Owned Subsidiary) or the Company or any of its
Subsidiaries sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of the assets of the Company and its Subsidiaries
(determined on a consolidated basis) to any Person (other than the Company or
any Wholly Owned Subsidiary), other than any such transaction where
immediately after such transaction the Person or Persons that "beneficially
owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a Person shall be deemed to have "beneficial ownership" of all securities
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) immediately prior to such
transaction, directly or indirectly, a majority of the total voting power of
the then outstanding Voting Stock of the Company, as the case may be,
"beneficially own" (as so determined), directly or indirectly, a majority of
the total voting power of the then outstanding Voting Stock of the surviving
or transferee Person; (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders
of the Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (iv) the Company is liquidated or
dissolved or adopts a plan of liquidation or dissolution other than in a
transaction which complies with the provisions described under "--
Consolidation, Merger, Sale of Assets, etc."
"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.
"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
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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); provided, however that deferred financing fees
shall be excluded from the definition of Consolidated Interest Expense.
"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 to
such Person or one of its other Subsidiaries 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, (iv) extraordinary gains and losses shall be excluded from
Consolidated Net Income, and (v) 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.
"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 New Credit Facility and (ii) any other Senior Indebtedness
in an aggregate principal amount of not less than $25,000,000 (or commitment
thereof) 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 final maturity date of the Notes, for cash and/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 "--Repurchase at Option of Holders--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 such Consolidated Net Income, (i) the
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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 such 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 "Repurchase 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.
"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," and "incurring" shall have
meanings correlative to the foregoing); provided that a change in GAAP that by
itself 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,
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(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, (ii) that Indebtedness shall not include
any liability for federal, state, local or other taxes and (iii) the principal
amount of any Indebtedness shall be reduced by the aggregate amount of Cash
Equivalents of the Company and its Subsidiaries that are pledged to secure,
and are required to be applied, solely to the repayment of the principal of
such Indebtedness. 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
acquisition, by purchase or otherwise of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities or other evidence
of beneficial interest 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.
"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 and including any pro forma
expense and cost reductions determined in accordance with Article 11 of
Regulation S-X) 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
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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).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"New Credit Facility" means that certain Credit Agreement, dated as of ,
1997 by and among the Company, the Guarantors, Chase Manhattan Bank, as agent
and as a lender, and certain banks, financial institutions and other entities,
as lenders, 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.
"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 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 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 or (ii) if the aggregate Fair Market Value of the Advertising
Display or Displays being transferred by the Company or such Subsidiary is
greater than the aggregate Fair Market Value of the Advertising Display or
Displays received by the Company or such Subsidiary in such exchange, so long
as the Company or such Subsidiary receives cash or other property with a Fair
Market Value equal to the difference between the Fair Market Value of the
Advertising Display or Displays being transferred by the Company or such
Subsidiary and
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the Fair Market Value of the Advertising Display or Displays received by the
Company or such Subsidiary in such exchange, the transaction shall be
bifurcated and treated as a "Permitted Asset Swap" to the extent of the Fair
Market Value of the Advertising Display or Displays received by the Company or
such Subsidiary in such exchange, and as an "Asset Sale," subject to the
provisions of the covenant "Repurchase at the Option of Holders--Asset Sales,"
to the extent of the difference between the Fair Market Value of the
Advertising Display or Displays being transferred by the Company or such
Subsidiary and the Fair Market Value of the Advertising Display or Displays
received by the Company or such Subsidiary in such exchange.
"Permitted Holders" means Media/Communications Partners II Limited
Partnership, John C Stanley IV and A.B. Isbell and their controlled
Affiliates.
"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
$200,000,000, 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 owed 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 of the
Company and/or any Subsidiary of the Company 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 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
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(vii) in addition to the items referred to above, Indebtedness of the
Company and/or any Subsidiary of the Company having an aggregate principal
amount not to exceed $25,000,000 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 "--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 unsecured equity securities or unsecured
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 and that has no shorter a maturity
than the Notes.
"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 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 or
dividends or distributions made on a pro rata basis to all holders of Capital
Stock of a Restricted 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.
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"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 Indebtedness designated as subordinated or
junior in right of payment to any other Indebtedness of the Company or (iv)
any trade payable arising from the purchase of goods or materials or for
services obtained in the ordinary course of business any obligation that is by
operation of law or judicial decision subordinate to any general unsecured
obligations of the Company or (vi) Indebtedness of the Company to the extent
that such Indebtedness is owed to and held by any Federal, State, local or
other governmental authority.
"Significant Subsidiary" means any Subsidiary of the Company that would be a
"significant subsidiary" as defined in Article I, Rule 1.02 of Regulation S-X,
promulgated pursuant to the Securities Act as such act may be amended from
time to time.
"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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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000 shares of Class A
Common Stock, $.01 par value per share, 20,000 shares of Class B Common Stock,
$.01 par value per share, and will consist of 5,000,000 shares of Preferred
Stock, $.01 par value per share, of which 300,000 shares will be designated
Series A Preferred Stock, $.01 par value per share. The following summary of
the Company's capital stock is qualified in its entirety by reference to the
Company's Amended and Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and By-Laws (the "By-Laws"), each of which
has been filed as an exhibit to the registration statement of which this
Prospectus is a part. For ownership of the outstanding shares of the Company's
capital stock, see "Principal Stockholders."
COMMON STOCK
Except for voting rights, the rights of the holders of the Class A Common
Stock and the Class B Common Stock are substantially identical. The holders of
the Class A Common Stock are entitled to one vote per share on all matters on
which the holders of Common Stock are entitled to vote. Except as otherwise
required by law, holders of Class B Common Stock shall not be entitled to vote
on any matter on which the stockholders of the Corporation shall be entitled
to vote, and shares of Class B Common Stock shall not be included in
determining the number of shares voting or entitled to vote on any such
matters; provided that the holders of Class B Common Stock shall have the
right to vote as a separate class on any merger or consolidation of the
Corporation with or into another entity or entities, or any recapitalization
or reorganization, in which shares of Class B Common Stock would receive or be
exchanged for consideration different on a per share basis from consideration
received with respect to or in exchange for the shares of Class A Common Stock
or would otherwise be treated differently from shares of Class A Common Stock
in connection with such transaction, except that shares of Class B Common
Stock may, without such a separate class vote, receive or be exchanged for
non-voting securities which are otherwise identical on a per share basis in
amount and form to the voting securities received with respect to or exchanged
for the Class A Common Stock so long as (i) such non-voting securities are
convertible into such voting securities on the same terms as the Class B
Common Stock is convertible into Class A Common Stock and (ii) all other
consideration is equal on a per share basis. Notwithstanding the foregoing,
holders of shares of the Class B Common Stock shall be entitled to vote as a
separate class on any amendment to the Certificate of Incorporation relating
to such voting rights and on any amendment, repeal or modification of any
provision of this Certificate of Incorporation that adversely affects the
powers, preferences or special rights of holders of the Class B Common Stock.
Each share of Class B Common Stock is convertible at the option of its holder
into one share of Class A Common Stock at any time.
All of the outstanding shares of Common Stock are fully paid and
nonassessable. In the event of the liquidation or dissolution of the Company,
following any required distribution to the holders of outstanding shares of
Preferred Stock, the holders of Common Stock are entitled to share pro rata in
any balance of the corporate assets available for distribution to them. The
Company may pay dividends if, when and as declared by the Board of Directors
from funds legally available therefor, subject to the restrictions set forth
in the Company's existing and future debt instruments. Subject to the
preferential rights of the holders of any class of preferred stock, holders of
shares of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors out of funds legally available
for such purpose. No dividend may be declared or paid in cash or property on
any share of either class of Common Stock unless simultaneously the same
dividend is declared or paid on each share of the other class of Common Stock,
provided that, in the event of stock dividends, holders of a specific class of
Common Stock shall be entitled to receive only additional shares of such
class. Holders of Common Stock have no preemptive rights.
Subject to compliance with applicable provisions of the Certificate of
Incorporation, shares of Class A Common Stock held by a stockholder that is,
or is an Affiliate of any entity that is, subject to the provisions of Section
23A or Section 23B of the Federal Reserve Act, as amended (or any successor to
either such Section), that holds shares of Common Stock of the Corporation and
that has provided written notice to the Corporation of its status as a
"Regulated Stockholder" shall be entitled to convert, at any time and from
time to time, any or all of the shares of Class A Common Stock held by such
stockholder into the same number of shares of Class B
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Common Stock; provided, however, that no shares of Class A Common Stock may be
converted into Class B Common Stock by a Regulated Holder if, immediately
after such conversion, any other Person (as defined in the Certificate of
Incorporation), together with all Affiliates (as defined in the Certificate of
Incorporation) of such Person, would hold fifty percent (50%) or more of the
outstanding Class A Common Stock.
Subject to compliance with applicable provisions of the Certificate of
Incorporation, holders of Class B Common Stock shall be entitled at any time
and from time to time in such holder's sole discretion and at such holder's
option, to convert any or all of the shares of such holder's Class B Common
Stock into the same number of shares of Class A Common Stock; provided,
however, that (i) no holder of Class B Common Stock may convert shares of
Class B Common Stock into shares of Class A Common Stock if, immediately after
such conversion, any Person, together with all Affiliates of such Person,
would hold fifty percent (50%) or more of the outstanding Class A Common Stock
and (ii) Class B Common Stock held by a particular Regulated Stockholder may
only be converted into Class A Common Stock to the extent that such Regulated
Stockholder certifies in writing to the Corporation that, based on advice of
counsel such conversion will not cause such Regulated Stockholder to be in
violation of Section 23A or Section 23B of the Federal Reserve Act, as
amended.
SERIES A PREFERRED STOCK
All outstanding shares of the Company's Series A Preferred Stock will be
fully paid and nonassessable.
Rank. The Series A Preferred Stock, with respect to dividends and upon
liquidation, will rank senior to Class A and Class B Common Stock.
Dividends. Holders of shares of Series A Preferred Stock will be entitled to
receive, when and if declared by the Board of Directors out of funds legally
available therefor, cash dividends at a rate of 10% per annum of the
Liquidation Preference (as defined) per share. Dividends will accrue and will
be cumulative from July 1, 1997.
Dissolution or Liquidation. In the case of voluntary or involuntary
dissolution or liquidation of the Company, the holders of the Series A
Preferred Stock will be entitled to receive out of the assets of the Company a
liquidation preference of Series A Preferred Stock of $100 per share plus any
accrued and unpaid dividends thereon (the "Liquidation Preference") before any
payment may be made or any assets distributed to the holders of Common Stock.
Upon any distribution or liquidation, whether voluntary or involuntary, if the
assets distributed among the holders of the Series A Preferred Stock are
insufficient to permit the payment to a stockholder of the full preferential
amounts, the entire assets of the Company to be distributed will be
distributed ratably among the holders of the Series A Preferred Stock and the
holders of Common Stock will be entitled to receive ratably all the remaining
assets. A merger or consolidation of the Company with or into any other
corporation or corporations, will be deemed to be a dissolution or
liquidation.
Voting Rights. Holders of Series A Preferred Stock will have no voting
rights with respect to general corporate matters except as provided by law.
Under Delaware law, holders of the Series A Preferred Stock are entitled to
vote as a class upon any proposed amendment, whether or not entitled to vote
thereon by the Certificate of Incorporation, if such amendment would increase
or decrease the par value of the shares of such class, or alter or change the
powers, preferences, or special rights of the shares of such class so as to
affect them adversely.
The Series A Preferred Interests of OCIH will have the same terms as the
Series A Preferred Stock except that the Series A Preferred Interests will be
convertible into shares of Series A Preferred Stock on a one-for-one basis at
the option of the holder.
UNDESIGNATED PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
of the stockholders, to issue up to 4,700,000 shares of Preferred Stock in one
or more series and to fix the designations, powers, preferences and the
relative, participating, optional or other special rights of the shares of
each series and any qualifications, limitations and restrictions thereon as
set forth in the Certificate. Any such Preferred Stock issued by the Company
may rank senior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock.
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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................................................. $100,000,000
============
</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 Offering. Chase Venture Capital Associates, L.P. ("CVCA"), an
affiliate of CSI, owns approximately 30.1% of the Company's outstanding Common
Stock and 30.1% of the Company's Series A Preferred Stock. 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.
In connection with the Offering, CSI, on behalf of the Underwriters, may
engage in overallotment, stabilizing transactions and syndicate covering
transactions in accordance with Regulation M under the Securities
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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.
This Prospectus has been prepared for use by the Underwriters and may be
used by CSI in connection with offers and sales related to market-making
transactions in the Notes. CSI may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing market
prices at the time of sale. The foregoing shall not imply that CSI is an
affiliate of the Company for any purpose.
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 then ended, 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 report, appearing
elsewhere herein, of McGladrey & Pullen, LLP, independent certified public
accountants, and upon the authority of said firm as experts in giving said
reports.
84
<PAGE>
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.
85
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
THE COMPANY
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF OCI HOLDINGS CORP. (NOW KNOWN AS
OUTDOOR COMMUNICATIONS, INC.) 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
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
ACQUIRED COMPANIES
GEORGIA OUTDOOR
<S> <C>
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
ALABAMA OUTDOOR
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
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
OCI Holdings Corp. and Subsidiary:
We have audited the accompanying consolidated balance sheets of OCI Holdings
Corp. and subsidiaries as of June 30, 1996, and the related consolidated
statements of operations, retained 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 OCI
Holdings Corp. as of June 30, 1996, and the results of their operations and
their cash flows for the period April 4, 1996 to June 30, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
East Lansing, MI
September 5, 1996
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)......................................... 55,864,480 45,155,192
Deferred financing costs.......................... 4,704,888 3,169,224
Other assets...................................... 114,250 116,638
------------ -----------
Total assets................................ $138,731,058 $94,828,981
============ ===========
</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)..................... 4,753,699 5,163,547
------------ -----------
Total liabilities............................ 144,911,336 99,730,461
------------ -----------
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.............................. (9,991,874) (8,538,076)
------------ -----------
Total stockholders' deficit.................. (6,180,278) (4,901,480)
------------ -----------
Commitments and contingencies (notes 10, 11, 12,
and 13)
Total liabilities and stockholders' deficit.. $138,731,058 $94,828,981
============ ===========
</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.................... 10,816,971 2,753,970
Selling, general, and administrative (notes
11 and 12).................................. 8,016,415 2,308,313
Depreciation and amortization................ 7,256,820 1,929,748
----------- ----------
Total operating expenses................... 26,090,206 6,992,031
----------- ----------
Operating income........................... 5,651,068 1,556,479
Interest expense............................. (7,597,020) (1,826,137)
Loss on disposal of equipment................ (94,816) (67,328)
Other income, net............................ 147,365 64,494
----------- ----------
Loss before income tax expense............. (1,893,403) (272,492)
Income tax expense (benefit) (note 9).......... (439,605) (10,814)
----------- ----------
Net loss................................... $(1,453,798) $ (261,678)
=========== ==========
</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
PREFERRED COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL DEFICIT DEFICIT
<S> <C> <C> <C> <C> <C> <C>
Balances at April 3,
1996................... $ 90 10 -- 1,235,326 (8,276,398) (7,040,972)
Class A shares issued
for cash............... -- 35 -- 3,536,895 -- 3,536,930
Class B shares issued
for cash -- -- 2 189,270 -- 189,272
Merger with OCI of Mich-
igan................... -- 19 -- (19) -- --
Redemption of OCI Michi-
gan stock.............. (90) (10) -- (7,589,932) -- (7,590,032)
Class A shares issued
for MCC stock.......... -- 28 -- 2,764,972 -- 2,765,000
Class B shares issued
for cash............... -- -- 35 3,499,965 -- 3,500,000
Net loss................ -- -- -- -- (261,678) (261,678)
---- --- --- ---------- ---------- ----------
Balances at June 30,
1996................... -- 82 37 3,636,477 (8,538,076) (4,901,480)
Issuance of common stock
(unaudited)............ -- 2 -- 174,998 -- 175,000
Net loss (unaudited).... -- -- -- -- (1,453,798) (1,453,798)
---- --- --- ---------- ---------- ----------
Balances at March 31,
1997
(unaudited)............ $-- 84 37 3,811,475 (9,991,874) (6,180,278)
==== === === ========== ========== ==========
</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...................................................... $ (261,678)
Adjustments to reconcile net loss to net cash used in operat-
ing activities:
Allowance for doubtful accounts............................. 48,265
Depreciation of equipment................................... 903,191
Amortization of intangible assets........................... 1,026,557
Loss on disposal of equipment............................... 67,328
Deferred income taxes....................................... (112,776)
Changes in assets and liabilities, net of effects from pur-
chase of company, which increase (decrease) cash flows:
Trade accounts receivable................................. (1,084,980)
Refundable income taxes................................... (81,182)
Inventories............................................... 158,197
Prepaid rent expense...................................... (116,876)
Other assets.............................................. 236,484
Trade accounts payable.................................... 79,701
Income taxes payable...................................... 179,822
Accrued expenses.......................................... (5,069,984)
Deferred advertising revenues and non-compete income...... (142,665)
------------
Net cash used in operating activities................... (4,170,596)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AOA Holding, L.L.C. .............................. (34,132,908)
Purchase of Georgia Outdoor Advertising, Inc. ................ (11,650,000)
Purchase of Mass Communications Corp. warrants, common and
preferred stock.............................................. (767,850)
Capital expenditures.......................................... (597,849)
Proceeds from sale of property and equipment.................. 2,625
Other......................................................... (452,814)
------------
Net cash used in investing activities................... (47,598,796)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt...................... 80,465,000
Repayment of long-term debt................................... (23,950,000)
Deferred financing costs...................................... (3,281,537)
Proceeds from issuance of common stock........................ 7,226,202
Redemption of OCI Corp. of Michigan common and preferred stock
............................................................. (7,590,032)
Payments on obligation under non-compete agreement............ (100,000)
------------
Net cash provided by financing activities............... 52,769,633
------------
Net increase in cash and cash equivalents..................... 1,000,241
Cash and cash equivalents at beginning of the period.......... 259,200
------------
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.......................... $ 4,674,010
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of companies.............................................. (41,467,008)
Deferred acquisition costs......................................... (1,478,222)
Capital expenditures............................................... (2,293,566)
-----------
Net cash used in investing activities............................ (45,238,796)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on long-term debt................................... 45,100,000
Deferred financing 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
After 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 Holdings Corp. ("Holdings") was incorporated for the purpose of effecting
the reorganization and merger.
Under the Reorganization Plan, a series of planned transactions were
executed in the following order: (1) 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 shareholders of OCIM for $1,908,798;
(2) the Investors then exchanged these same shares, together with $14,191,202
in cash, for 5,410.73 and 3,869.28 shares of Holdings' Class A and Class B
common stock, respectively, and $10,465,000 of subordinated debt (see note 6);
and (3) 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 in OCIM's common and
preferred stock.
As a result of the above transactions, OCIM became a wholly-owned subsidiary
of Holdings. As such, the closing balance sheet of OCIM at April 3, 1996,
adjusted to reflect the above transactions, became the opening balance sheet
of Holdings.
Immediately following the execution of the Reorganization Plan transactions
listed above, the stockholders of MCC exchanged 7,731.01 shares of common
stock and 308.78 shares of preferred stock and sold 5,128.99 shares of common
stock and 691.22 shares of preferred stock for an aggregate value of
$25,747,927. This transaction resulted in MCC being a wholly owned subsidiary
of Holdings. 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 liabilities assumed based upon the fair value at the date
of acquisition as follows:
<TABLE>
<S> <C>
Adjusted working capital........................................ $ 1,450,063
Goodwill........................................................ 8,741,590
Property and equipment.......................................... 11,529,274
Customer list................................................... 4,027,000
-----------
$25,747,927
===========
</TABLE>
The details of the acquisition for the fair value of assets acquired and
liabilities assumed are as follows: liabilities assumed of $10,750,000;
subordinated debt issued to the MCC shareholders in the amount of $11,011,875;
2,764.99 shares of OCI Holdings Inc. common stock issued to MCC shareholders
with a value of $2,765,000; and cash paid in the amount of $1,221,052 equaling
the purchase price of $25,747,927.
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
Simultaneously, Outdoor Communications, Inc., a subsidiary of MCC, completed
the purchase of the business operations and 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
F-10
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
-----------
Cash purchase price............................................. $11,650,000
===========
</TABLE>
Alabama Acquisition
On April 30, 1996, OCI Holdings Corp. 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 $10,084,666 and has been recorded as goodwill. The
net purchase price was allocated as follows:
<TABLE>
<S> <C>
Adjusted working capital........................................ $ 1,959,432
Goodwill........................................................ 10,084,666
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 over 8
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 cost for the uninsured portion of unpaid
claims at year end. The liability is based on estimates for claims reported
prior to year end, using reported claim information, and estimates for
incurred but not reported, based on historical results of the Company's plan,
as well as certain industry ratios.
(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, which range from 1 to 12 months,
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) EARNINGS PER SHARE
An earnings per share calculation has not been presented because the Company
is closely held by a private investor group and accordingly, earnings per
share is not required or meaningful.
(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................................... 4,923,198
-----------
$45,155,192
===========
</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")
after 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. Interest rate swaps, 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 (72,889) 9,073
State and local.................................. 20,000 (39,887) (19,887)
-------- -------- -------
Total.......................................... $101,962 (112,776) (10,814)
======== ======== =======
</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 (benefit)......................... $(91,677)
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal income tax ex-
pense.......................................................... (15,891)
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)
--------
$(10,814)
========
</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...................................... (1,508,489)
-----------
Total gross deferred tax liabilities....................... (5,461,144)
-----------
Net deferred tax liabilities............................... $(4,886,844)
===========
</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) EMPLOYEE HEALTH CARE PLAN
Under the Company's self insurance plan for employee health care, eligible
participants receive payment or reimbursement of all or a portion of eligible
participants medical expenses, after deductibles and co-payments, up to a
lifetime aggregate benefit of $1 million. Eligible participants (and their
dependents) include active full-time employees. The plan is primarily funded
by the Company, with contributions from participants for a portion of
dependent's coverage, as required under the health care plan.
The plan has obtained aggregate excess of loss coverage of $955,000 in
excess of $45,000 per eligible participant. The Company incurred approximately
$11,600 for such coverage for the period April 4, 1996 to June 30, 1996.
Additionally, the Company incurred approximately $180,000 in expense for self
insured health care claims for the period April 4, 1996 to June 30, 1996.
(14) 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.
(15) SUPPLEMENTAL CASH FLOW INFORMATION
Non cash investing and financing activities:
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.
The company issued 2,764.99 shares of its common stock valued at $2,765,000
and series A subordinated notes in the amount of $5,135,000 for the purchase
of 7,371.01 common shares and 308.78 preferred shares of MCC. Also, the
Company issued subordinated notes in the amount $5,876,875 for the purchase of
5,128.99 common shares and 562.5 preferred shares of Mass Communications Corp.
<TABLE>
<S> <C>
Details of acquisition:
Fair value of assets acquired............................... $25,747,927
Liabilities assumed......................................... (10,750,000)
Subordinated debt issued.................................... (11,011,875)
Stock issued................................................ (2,765,000)
-----------
Cash paid................................................... 1,221,052
-----------
Less cash acquired........................................... 453,202
-----------
Net cash paid for acquisition................................ $ 767,850
===========
</TABLE>
F-18
<PAGE>
OCI HOLDINGS, CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) 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>
(17) 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
$3,832,000. 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
$549,167. 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"), for a cash purchase price 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.
(18) 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.
F-19
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Acquisitions
The Company entered into an asset purchase agreement with Skoglund for a
cash purchase price 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
-----------
Cash purchase price............................................. $21,246,850
===========
</TABLE>
On March 31, 1997, the Company acquired substantially all of the assets and
business operations of Outdoor West for a cash payment of $11,750,000. 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 addition to the acquisition described above, the Company has recently
consummated numerous smaller acquisitions for aggregate cash payments of
approximately $9,300,000.
Offering
On June 25, 1997, the Board of Directors of the Company authorized a Note
Offering of $100 million aggregate principle amount of subordinated notes (the
Notes). The Notes will be fully and unconditionally guaranteed, on a senior
subordinated basis, as to payment of principal, premium, if any, and interest,
jointly and severally by all of the Company's subsidiaries. Separate financial
statements of the Company's subsidiaries have not been presented because
management believes that such information is not material to investors.
Subsequent Events
In June, 1997, the Board of Directors of the Company authorized a change,
effective June 30, 1997 in the name of the Company to Outdoor Communications,
Inc. Simultaneously, the Board of Directors approved the merger of New South
Holdings Corp. and Mass Communications Corp. into the Company effective June
30, 1997. Additionally, the Company's subsidiary, Outdoor Communications, Inc.
changed its name to OCI (S) Corp. As a result of these transactions, the
Company now has two wholly owned subsidiaries, OCI (N) Corp. and OCI (S) Corp.
In August 1997, the Company entered into an agreement, effective June 30,
1997, with certain Series A subordinated debt holders to exchange their notes
and accrued interest through June 30, 1997 for Series A preferred membership
interests of OCIH LLC, a Delaware limited liability corporation, a newly
formed affiliate of the Company. Such interests have the same terms as the
Company's Series A preferred stock and are convertible to Series A preferred
stock of the Company. Simultaneously, an agreement was entered into with the
other Series A and all Series B subordinated debt holders to exchange their
notes and accrued interest through June 30, 1997 for Series A preferred stock
of the Company.
The Board of Directors has authorized 5,000,000 shares of preferred stock,
par value $.01 per share, of which 300,000 shares shall be designated Series A
("Series A Preferred Stock") and 4,700,000 shares shall be undesignated
("Undesignated Preferred Stock"). Upon the closing of the Offering,
approximately 186,131
F-20
<PAGE>
OCI HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
shares of Series A Preferred Stock will be issued in exchange for subordinated
debt and the related unpaid and accrued interest through June 30, 1997
totaling $17,290,000 and $1,098,050 respectively, resulting in a corresponding
increase in stockholders' equity of $18,388,050.
As discussed in Note 10, all general voting power is vested in holders of
Class A common stock. Shares of Series A Preferred Stock shall not be included
in determining the number of shares entitled to vote.
No dividends will be declared or paid on the common stock during any year
unless the full amount of accrued dividends on the Series A Preferred Stock
has been paid. Upon declaration, the holders of the Series A Preferred Stock
are entitled to cumulative cash dividends of $10 per annum, per share.
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
$100 per share of the issued and outstanding preferred stock 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 the common stock.
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)
<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
MARCH 31, 1996 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(UNAUDITED)
ASSETS (NOTE 2) (NOTE 6)
Current assets:
Cash and cash equivalents............. $ 221,075 468,168 298,197
Receivables:
Trade accounts....................... 281,706 317,068 294,512
Other................................ 1,452 1,106 175
Prepaid rent expense.................. 155,985 131,986 133,294
Other prepaid expenses................ 14,432 3,995 15,511
----------- ----------- ----------
Total current assets................ 674,650 922,323 741,689
----------- ----------- ----------
Property and equipment:
Land.................................. 8,108 8,108 39,123
Buildings and improvements............ 359,001 359,001 359,001
Advertising structures................ 5,565,421 5,556,489 5,613,786
Equipment............................. 370,837 370,702 337,617
----------- ----------- ----------
6,303,367 6,294,300 6,349,527
Less accumulated depreciation......... 5,470,291 5,407,871 4,980,816
----------- ----------- ----------
Net property and equipment.......... 833,076 886,429 1,368,711
----------- ----------- ----------
Goodwill, net of accumulated amortiza-
tion of $99,167, $96,667 and $86,667 in
1996, 1995 and 1994, respectively...... 150,833 153,333 163,333
Other assets............................ 37,533 20,876 18,745
----------- ----------- ----------
$ 1,696,092 1,982,961 2,292,478
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt
(note 2)............................. $ 375,686 376,971 767,347
Trade accounts payable................ 51,062 63,104 53,444
Accrued expenses:
Salaries and wages................... 39,080 83,242 63,783
Interest payable to related parties.. -- -- 25,820
Other................................ 11,880 1,264 1,394
----------- ----------- ----------
Total accrued expenses.............. 50,960 84,506 90,997
----------- ----------- ----------
Deferred advertising revenues......... 21,000 16,631 20,171
----------- ----------- ----------
Total current liabilities........... 498,708 541,212 931,959
Long-term debt, excluding current in-
stallments (note 2).................... 518,577 555,081 588,078
Long-term debt to related parties (notes
2 and 3)............................... 3,500,000 3,500,000 3,335,732
Interest payable to related parties..... -- -- 62,843
----------- ----------- ----------
Total liabilities................... 4,517,285 4,596,293 4,918,612
----------- ----------- ----------
Stockholders' deficit:
Common stock, no par value. Authorized
100,000 shares; issued and outstand-
ing 1,320 shares..................... 330,000 -- --
Additional paid-in capital............ 100,000 430,000 430,000
Accumulated deficit................... (3,251,193) (3,043,332) (3,056,134)
----------- ----------- ----------
Total stockholders' deficit......... (2,821,193) (2,613,332) (2,626,134)
----------- ----------- ----------
Commitments and contingencies (note 4).. $ 1,696,092 1,982,961 2,292,478
=========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1995 AND
1994
<TABLE>
<CAPTION>
1996 1995 1994
(UNAUDITED)
(NOTE 6)
<S> <C> <C> <C>
Revenues:
Poster and paint............................ $925,399 3,512,944 3,209,740
Other....................................... 16,343 210,096 202,239
-------- --------- ---------
Gross revenues............................ 941,742 3,723,040 3,411,979
Less commissions and discounts.............. 138,829 575,648 496,479
-------- --------- ---------
Net operating revenues.................... 802,913 3,147,392 2,915,500
-------- --------- ---------
Operating expenses:
Operations.................................. 204,550 858,728 805,578
Selling, general, and administrative........ 353,826 976,137 976,513
Depreciation................................ 58,826 529,652 546,283
Amortization................................ 2,500 20,750 13,583
-------- --------- ---------
Total operating expenses.................. 619,702 2,385,267 2,341,957
-------- --------- ---------
Operating income.......................... 183,211 762,125 573,543
Other income (expense):
(Loss) gain on disposal of equipment........ -- (15,480) 8,577
Interest expense............................ (106,084) (129,832) (115,558)
Interest expense to related parties......... -- (303,433) (297,844)
Other income................................ 2,012 11,360 7,330
-------- --------- ---------
Net income................................ $ 79,139 324,740 176,048
======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED MARCH 31, 1996 AND THE 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)
======== ======= ========== ==========
Net income (unaudited) (note
6)............................ -- -- 79,139 79,139
Distributions (unaudited) (note
6)............................ -- -- (287,000) (287,000)
-------- ------- ---------- ----------
Balances at March 31, 1996
(unaudited) (note 6).......... $330,000 100,000 (3,251,193) (2,821,193)
======== ======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND THE YEARS ENDED DECEMBER 31, 1995 AND
1994
<TABLE>
<CAPTION>
1996 1995 1994
(UNAUDITED)
(NOTE 6)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................. $ 79,139 324,740 176,048
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 64,920 554,643 570,580
Loss (gain) on disposal of equipment...... -- 15,488 (8,578)
(Increase) decrease in:
Receivables.............................. 35,016 (23,487) (80,500)
Prepaid rent expense..................... (23,999) 1,308 (18,493)
Other prepaid expenses and other assets.. (27,094) 9,385 39,250
(Increase) decrease in:
Trade accounts payable................... (12,042) 9,660 (23,879)
Accrued expenses--salaries............... (44,162) 19,459 9,790
Accrued expenses--interest payable to re-
lated parties........................... -- (88,663) 26,307
Accrued expenses--other.................. 10,616 (130) (1,764)
Deferred advertising revenues............ 4,369 (3,540) 11,657
-------- ---------- --------
Net cash provided by operating activi-
ties................................... 86,763 818,863 700,418
-------- ---------- --------
Cash flows from investing activities:
Purchases of property and equipment........ (9,067) (130,889) (364,120)
Proceeds from sale of property and equip-
ment...................................... -- 53,040 31,278
-------- ---------- --------
Net cash used in investing activities... (9,067) (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................ (37,789) (3,813,591) (887,386)
Distributions to stockholders.............. (287,000) (311,938) (215,794)
-------- ---------- --------
Net cash used in financing activities... (324,789) (571,043) (748,889)
-------- ---------- --------
Net (decrease) increase in cash and cash
equivalents............................ (247,093) 169,971 (381,313)
Cash and cash equivalents at beginning of pe-
riod........................................ 468,168 298,197 679,510
-------- ---------- --------
Cash and cash equivalents at end of period... $221,075 468,168 298,197
======== ========== ========
Supplemental disclosure of cash flow
information--cash paid during the period for
interest.................................... $106,084 521,930 389,687
======== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE>
GEORGIA OUTDOOR ADVERTISING COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 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.
(6) UNAUDITED NOTES TO INTERIM FINANCIAL STATEMENTS
(a) 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 three months ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
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>
THREE MONTHS TWO MONTHS
ENDED YEAR ENDED ENDED
MARCH 31 DECEMBER 31 DECEMBER 31
1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C>
Advertising revenues....................... $3,258,117 $13,372,651 $2,185,119
Less commissions and discounts............. 318,329 1,313,514 232,130
---------- ----------- ----------
2,939,788 12,059,137 1,952,989
Expenses:
Operating................................ 692,453 2,562,678 377,085
Real estate.............................. 524,010 2,122,395 360,907
Selling.................................. 402,123 1,501,219 214,492
General and administrative............... 485,030 1,854,792 340,366
Depreciation and amortization............ 380,822 1,829,947 153,344
Deferred compensation.................... 85,201 368,858 --
---------- ----------- ----------
2,569,639 10,239,889 1,446,194
---------- ----------- ----------
Income from operations..................... 370,149 1,819,248 506,795
Other expense:
Interest expense......................... -- 1,317,555 258,060
Other expenses, net...................... 21,261 27,016 5,960
---------- ----------- ----------
21,261 1,344,571 264,020
---------- ----------- ----------
Net income................................. $ 348,888 $ 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.
(11) UNAUDITED NOTE 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 three months ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
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
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ------------------------
1996 1995 1994
ASSETS (Note 3) (UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............ $ 164,620 $ 239,629 $ 406,553
Trade receivables, less allowance for
doubtful accounts of September 30,
1996 $177,000, $141,000 in 1995 and
$116,000 in 1994.................... 780,532 728,900 740,530
Note receivable from shareholder
(Note 6)............................ -- -- 300,000
Note receivable, current maturities
(Note 8)............................ 3,185 3,185 --
Inventories, at cost................. 67,666 63,882 74,671
Prepaid rent expense................. 247,552 202,103 217,091
Other prepaid expenses............... 128,520 109,889 176,432
----------- ----------- -----------
Total current assets............. 1,392,075 1,347,588 1,915,277
----------- ----------- -----------
Property and Equipment, at cost:
Land................................. 548,807 529,380 529,163
Advertising display structures....... 6,677,930 6,336,340 6,078,081
Buildings............................ 1,128,432 1,122,984 1,112,349
Equipment............................ 1,259,644 1,215,987 1,190,230
----------- ----------- -----------
9,614,813 9,204,691 8,909,823
Accumulated depreciation............. (4,916,351) (4,574,251) (4,218,413)
----------- ----------- -----------
Net property and equipment....... 4,698,462 4,630,440 4,691,410
----------- ----------- -----------
Other Assets:
Investment in partnership............ 167,367 166,127 163,197
Note receivable, less current
maturities (Note 8)................. 142,505 144,598 --
Property held for resale............. 167,228 -- 140,888
Other................................ 296,549 131,660 158,510
----------- ----------- -----------
Total other assets............... 773,649 442,385 462,595
----------- ----------- -----------
$ 6,864,186 $ 6,420,413 $ 7,069,282
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Note Payable ........................ $ 367,228 $ -- $ --
Current maturities of long-term debt
(Note 3)............................ 592,443 527,443 467,253
Accounts payable..................... 69,071 52,509 88,230
Accrued expenses:
Salaries and wages................. 92,204 162,680 139,492
Payroll and other taxes............ 49,946 74,021 63,861
Employee benefits.................. 106,651 90,661 113,496
Other.............................. 66,831 64,966 50,984
Distributions payable (Note 6)....... -- 200,000 300,000
----------- ----------- -----------
Total current liabilities........ 1,344,374 1,172,280 1,223,316
Long-Term Debt, less current
maturities (Note 3)................. 2,943,992 3,211,591 3,839,385
Subordinated Note Payable to
Stockholder (Note 6)................ 1,100,000 1,100,000 1,100,000
----------- ----------- -----------
Total liabilities................ 5,388,366 5,483,871 6,162,701
----------- ----------- -----------
Stockholder's Equity (Note 6):
Common stock....................... 130,000 130,000 130,000
Additional paid-in capital......... 2,800,000 2,800,000 2,800,000
Retained earnings (deficit)........ (1,454,180) (1,993,458) (2,023,419)
----------- ----------- -----------
Total stockholder's equity....... 1,475,820 936,542 906,581
----------- ----------- -----------
$ 6,864,186 $ 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
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------
1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Poster.................................. $2,147,909 $2,558,572 $2,439,560
Painted................................. 2,700,266 3,363,323 3,126,131
Other................................... 158,772 192,865 225,786
---------- ---------- ----------
Gross revenues........................ 5,006,947 6,114,760 5,791,477
Less commissions and discounts.......... 493,924 623,542 638,890
---------- ---------- ----------
Net operating revenues................ 4,513,023 5,491,218 5,152,587
---------- ---------- ----------
OPERATING EXPENSES:
Operations.............................. 1,605,663 1,926,350 1,885,250
Selling, general, and administrative.... 1,327,288 1,833,347 1,779,297
Depreciation............................ 326,023 435,240 433,337
Amortization............................ 28,967 50,835 106,117
---------- ---------- ----------
Total operating expenses.............. 3,287,941 4,245,772 4,204,001
---------- ---------- ----------
Operating income...................... 1,225,082 1,245,446 948,586
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense........................ (347,937) (509,483) (453,357)
Interest income......................... 8,323 33,578 25,942
Miscellaneous, net...................... (110,718) 9,614 31,721
---------- ---------- ----------
(450,332) (466,291) (395,694)
---------- ---------- ----------
Net income............................ $ 774,750 $ 779,155 $ 552,892
========== ========== ==========
PRO FORMA DATA (UNAUDITED):
Net income, as reported................. $ 774,750 $ 779,155 $ 552,892
Pro forma provision for income taxes.... 313,500 315,300 223,738
---------- ---------- ----------
Pro forma net income.................. $ 461,250 $ 463,855 $ 329,154
========== ========== ==========
Pro forma net income per common share... $ 576.56 $ 579.82 $ 411.44
========== ========== ==========
Weighted average shares outstanding..... 800 800 800
========== ========== ==========
</TABLE>
COMBINED STATEMENTS OF RETAINED EARNINGS (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER ------------------------
30, 1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C>
(Deficit), beginning of year............ $(1,993,458) $(2,023,419) $(2,276,311)
Distributions to stockholder.......... (235,472) (749,194) (300,000)
Net income............................ 774,750 779,155 552,892
----------- ----------- -----------
(Deficit), end of year (Note 6)......... $(1,454,180) $(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
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 774,750 $ 779,155 $552,892
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 354,990 486,075 539,454
Gain on sale of property and equipment... (7,817) (10,816) --
Equity in earnings of partnership........ (1,239) (2,930) (18,137)
Change in working capital components
(Increase) decrease in:
Trade receivables...................... (25,579) (33,965) (74,089)
Inventories............................ (3,784) 10,789 (27,818)
Prepaid rent expense and other prepaid
expenses.............................. (64,076) 81,531 (99,676)
Increase (decrease) in:
Accounts payable....................... 16,562 (35,721) (125,561)
Accrued expenses....................... (102,748) 20,896 97,194
--------- ---------- --------
Net cash provided by operating activi-
ties................................. 941,059 1,295,014 844,259
--------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....... (346,954) (399,614) (301,458)
Proceeds from sale of property and equip-
ment..................................... 28,649 23,426 --
Payments received on notes receivable..... 2,094 2,217 --
Increase in other assets.................. 2,141 (33,097) --
Condemnation proceeds..................... 16,075 12,734 22,647
Payment for asset acquisitions............ (447,228) -- (154,773)
--------- ---------- --------
Net cash used for investing activi-
ties................................. (745,223) (394,334) (433,584)
--------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on term note........... (359,493) (516,796) (381,737)
Principal payments on other long-term
debt..................................... (38,106) (50,808) (378,317)
Proceeds from long-term debt.............. 195,000 -- 300,000
Net payments on revolving credit note..... 367,228 -- (48,482)
Distributions paid to stockholder......... (435,474) (500,000) --
--------- ---------- --------
Net cash used for financing activi-
ties................................. (270,845) (1,067,604) (508,536)
--------- ---------- --------
Net decrease in cash and cash equiva-
lents................................ (75,009) (166,924) (97,861)
CASH AND CASH EQUIVALENTS:
Beginning of year ........................ 239,629 406,553 504,414
--------- ---------- --------
End of year............................... $ 164,620 $ 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.
Unaudited financial information: The unaudited information reflects all
adjustments, consisting of normal recurring accruals, which are, in the
opinion of management, necessary to a fair presentation of the financial
position as of September 30, 1996 and the results of operations and cash flows
for the ten months then ended. The results of the ten month period is not
necessarily indicative of the results of the Company which may be expected for
the entire year.
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>
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>
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>
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.
----------------------
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.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................................... 3
Risk Factors................................................................ 10
Use of Proceeds............................................................. 15
Capitalization.............................................................. 16
Unaudited Pro Forma Consolidated Financial Statements....................... 17
Selected Historical Consolidated Financial and Other Information............ 26
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 29
Business.................................................................... 36
Management.................................................................. 48
Principal Stockholders..................................................... 52
Certain Relationships and Related Transactions.............................. 54
Description of New Credit Facility.......................................... 56
Description of Notes........................................................ 58
Description of Capital Stock................................................ 81
Underwriting................................................................ 83
Certain Legal Matters....................................................... 84
Experts..................................................................... 84
Additional Information..................................................... 85
Index to Financial Statements............................................... F-1
</TABLE>
PROSPECTUS
$100,000,000
OUTDOOR COMMUNICATIONS, INC.
% SENIOR SUBORDINATED NOTES DUE 2007
LOGO
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 the
Notes:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 37,879
NASD filing fees................................................. 13,000
Blue Sky fees and expenses....................................... 6,000
Printing expenses................................................ 250,000
Legal fees and expenses.......................................... 350,000
Accounting fees and expenses..................................... 320,000
Indenture Trustee fees........................................... 12,000
Miscellaneous.................................................... 11,121
----------
Total.......................................................... $1,000,000
==========
</TABLE>
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, the
Guarantors named therein and the Company
**3.1 Amended and Restated Certificate of Incorporation of the Company
**3.2 By-laws of the Company
**3.3 Form of Certificate of Amendment to Amended and Restated
Certificate of Incorporation of the Company
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
**4.1 Form of Indenture among the Company, the Guarantors named therein
and the Trustee
** 4.2 Form of Note
5 Opinion of Goodwin, Procter & Hoar LLP
**10.1 Registration Rights Agreement dated as of April 3, 1996 among the
Registrant, certain management investors and certain venture
investors
**10.3 Shareholders Agreement dated as of April 3, 1997, as amended
10.4 Form of Senior Credit Facility of the Company
**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
**24 Power of Attorney (included on signature page of Registration
Statement as filed)
**25.1 Form T-1
**27 Financial Data Schedule
- ---------------------
** Previously filed.
(b) Financial Statement Schedules.
<CAPTION>
SCHEDULE NO. DESCRIPTION
<C> <S>
99.1 Schedule I--Condensed Financial Information of Registrant
</TABLE>
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.
II-3
<PAGE>
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 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 AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CORINTH,
STATE OF MISSISSIPPI ON THE 8TH DAY OF AUGUST, 1997.
Outdoor Communications, Inc.
/s/ John C Stanley IV
By: _________________________________
JOHN C STANLEY IV
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 3 TO
REGISTRATION STATEMENT 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
- ------------------------------------- Executive Officer August 8, 1997
JOHN C STANLEY IV and Chairman
(Principal
Executive Officer)
* Director, Chief
- ------------------------------------- Operating Officer August 8, 1997
A.B. ISBELL and President
* Treasurer and Chief
- ------------------------------------- Financial Officer August 8, 1997
RICHARD W. EBERSOLE (Principal
Financial Officer
and Principal
Accounting Officer)
* Director
- ------------------------------------- August 8, 1997
DOUGLAS W. FERRIS, JR.
II-5
<PAGE>
SIGNATURE TITLE DATE
* Director
- ------------------------------------- August 8, 1997
STEPHEN F. GORMLEY
* Director
- ------------------------------------- August 8, 1997
JOHN G. HAYES
* Director
- ------------------------------------- August 8, 1997
BRIAN J. RICHMAND
/s/ John C Stanley IV
*By: ________________________________
(JOHN C STANLEY IV, AS ATTORNEY-IN-
FACT FOR THE PERSONS INDICATED)
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CORINTH,
STATE OF MISSISSIPPI ON THE 8TH DAY OF AUGUST, 1997.
OCI (N) Corp.
/s/ John C Stanley IV
By: _________________________________
JOHN C. STANLEY IV
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
SIGNATURE TITLE DATE
/s/ John C. Stanley IV Director, Chief
- ------------------------------------- Executive Officer August 8, 1997
JOHN C. STANLEY IV and Chairman
(Principal
Executive Officer
* Director, Treasurer
- ------------------------------------- and Chief Financial August 8, 1997
RICHARD W. EBERSOLE Officer (Principal
Financial Officer
and Principal
Accounting Officer)
/s/ John C. Stanley IV
*By: ________________________________
(JOHN C. STANLEY IV, AS ATTORNEY-IN-
FACT)
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CORINTH,
STATE OF MISSISSIPPI ON THE 8TH DAY OF AUGUST, 1997.
OCI (S) Corp.
/s/ John C. Stanley IV
By: _________________________________
JOHN C. STANLEY IV CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
SIGNATURE TITLE DATE
/s/ John C. Stanley IV Director, Chief
- ------------------------------------- Executive Officer August 8, 1997
JOHN C. STANLEY IV and Chairman
(Principal
Executive Officer)
* Director, Treasurer
- ------------------------------------- and Chief Financial August 8, 1997
RICHARD W. EBERSOLE Officer (Principal
Financial Officer
and Principal
Accounting Officer)
/s/ John C. Stanley IV
*By _________________________________
(JOHN C. STANLEY IV, AS ATTORNEY-IN-
FACT)
II-8
<PAGE>
OCI HOLDINGS CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and cash equivalents................................ $ 135 $ 40
Accounts receivable, net................................. --
Accounts receivable, affiliates.......................... 11,705 11,527
Other current assets..................................... 337 99
Investment in subsidiaries............................... 19,794 19,794
Property and equipment, net.............................. -- --
Intangible assets, net................................... 143 590
Other assets.............................................
------- -------
Total assets........................................... $32,114 $32,050
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities, excluding current portion of long-
term debt............................................... $ -- $ 227
Deferred federal income tax.............................. --
Other long-term liabilities.............................. 1,318 263
Accounts payable, affiliates............................. 666 --
Series A and Series B notes, including current portion
(Note 1)................................................ 22,425 22,100
------- -------
Total liabilities...................................... 24,409 22,590
Additional paid in capital............................. 10,166 9,991
Retained deficit......................................... (2,461) (531)
------- -------
Total stockholders' equity............................. 7,705 9,460
Total liabilities and stockholders' equity............. $32,114 $32,050
======= =======
</TABLE>
Note (1) The Company's Series A and Series B Notes mature on December 31,
2003.
These financial statements should be read in conjunction with the consolidated
financial statements and the accompanying notes thereto.
S-1
<PAGE>
OCI HOLDINGS CORP.
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE PERIOD
MONTHS ENDED APRIL 4, 1996 TO
MARCH 31, 1997 JUNE 30, 1996
(UNAUDITED)
<S> <C> <C>
Net revenues................................... $ -- $ --
------- -----
Operating expenses............................. -- --
Sales, general and administrative expenses..... -- --
Depreciation and amortization.................. 446 141
------- -----
Operating income (loss)........................ (446) (141)
Other expense:
Interest expense............................. 1,672 489
------- -----
Total other expense........................ 1,672 489
Loss before income taxes....................... (2,118) (630)
Income tax benefit............................. (188) (99)
------- -----
Net loss................................... $(1,930) $(531)
======= =====
</TABLE>
These financial statements should be read in conjunction with theconsolidated
financial statements and the accompanying notes thereto.
S-2
<PAGE>
OCI HOLDINGS CORP.
SCHEDULE 1--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE PERIOD
MONTHS ENDED APRIL 4, 1996
MARCH 31, 1997 TO JUNE 30, 1996
(UNAUDITED)
<S> <C> <C>
Net cash used in operating activities......... $(405) $(9,226)
----- -------
Cash flows from investing activities:
Capital contribution to New South Holdings.. -- (3,898)
Deferred acquisition costs.................. -- (3,031)
----- -------
Net cash used in investing activities..... -- (6,929)
----- -------
Cash flows from financing activities:
Issuance of subordinated notes.............. 325 16,965
Issuance of common stock.................... 175 7,226
Stock redemption............................ (7,259)
Distribution to shareholders................ (737)
----- -------
Net cash used in investing activities..... 500 16,195
----- -------
Net increase in cash and cash equivalents..... 95 40
Cash and cash equivalents at beginning of the
period....................................... 40 --
----- -------
Cash and cash equivalents at end of period.... $ 135 $ 40
===== =======
</TABLE>
These financial statements should be read in conjunction with the consolidated
financial statements and the accompanying notes thereto.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
**1 Form of Underwriting Agreement among the Underwriters, the
Guarantors named therein and the Company
**3.1 Amended and Restated Certificate of Incorporation of the Company
**3.2 By-laws of the Company
**3.3 Form of Certificate of Amendment to Amended and Restated
Certificate of Incorporation of the Company
**4.1 Form of Indenture among the Company, the Guarantors named therein
and the Trustee
**4.2 Form of Note
5 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
Notes
**10.1 Registration Rights Agreement dated as of April 3, 1996 among the
Registrant, certain management investors and certain venture
investors
**10.3 Shareholders Agreement dated as of April 3, 1996, as amended
10.4 Form of Senior Credit Facility of the Company
**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
**24 Power of Attorney (included on signature page of Registration
Statement as filed)
**25.1 Form T-1
**27 Financial Data Schedule
</TABLE>
- ---------------------
** Previously filed.
<PAGE>
[Goodwin, Procter & Hoar LLP Letterhead]
August 8, 1997
Outdoor Communications, Inc.
512 Taylor Street
Corinth, MS 38834
Ladies and Gentlemen:
We are furnishing this opinion in connection with the Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act") filed on June 4, 1997 by Outdoor
Communications, Inc. (the "Company") and each of the subsidiaries of the Company
listed as Additional Registrants in the Registration Statement (the "Subsidiary
Guarantors") relating to $100,000,000 aggregate principal amount of Senior
Subordinated Notes (the "Notes") to be issued and sold by the Company and
guaranteed (the "Guarantees") by the Subsidiary Guarantors. The Notes are to be
issued pursuant to an Indenture (the "Indenture") between the Company and First
Union National Bank, as trustee (the "Trustee"), the proposed form of which is
filed as an exhibit to the Registration Statement.
We have acted as your counsel in connection with the Registration Statement
and are familiar with the proceedings taken by the Company in connection with
the authorization, issuance and sale of the Notes. We have made such
examination as we consider necessary to render this opinion.
We are attorneys admitted to practice in The Commonwealth of
Massachusetts. We express no opinion concerning the laws of any jurisdictions
other than the laws of the United States of America, the Commonwealth of
Massachusetts and the General Corporation Law of the State of Delaware.
Based upon the foregoing, we are of the opinion that:
1. Upon the due execution and delivery of the Indenture by the Company
and the Trustee and the due execution, authentication and delivery of the Notes
in accordance with the Indenture against payment therefor as contemplated by the
Registration Statement, the Notes will be valid and legally binding obligations
of the Company.
<PAGE>
Outdoor Communications, Inc.
August , 1997
Page 2
2. When the Notes are duly issued and delivered by the Company and at the
time any subsidiary of the Company becomes a Subsidiary Guarantor, the Guarantee
of such Subsidiary Guarantor will be the valid and legally binding obligations
of such Subsidiary Guarantor.
The opinions set forth above are qualified to the extent that the validity
or enforceability of any provisions of any instrument or document or any rights
granted thereunder may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect relating
to or affecting the rights of creditors generally (including such as may limit
the effect of waivers or debtors' or guarantors' rights) and by equitable
limitations (whether raised at a proceeding in law or in equity) on the
availability of certain rights and remedies including specific enforcement.
Furthermore, in rendering the foregoing opinions, we express no opinion as to
federal or state laws relating to fraudulent transfers.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption
"Certain Legal Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
EXHIBIT 10.4
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
among
OUTDOOR COMMUNICATIONS, INC.,
OCI (N) CORP.,
OCI (S) CORP.,
VARIOUS LENDING INSTITUTIONS,
and
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
--------------------------------
Dated as of August [___], 1997
--------------------------------
$150,000,000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amount and Terms of Credit............................................................... 1
1.01 Commitments........................................................................... 1
1.02 Minimum Borrowing Amounts, etc........................................................ 2
1.03 Notice of Borrowing................................................................... 2
1.04 Disbursement of Funds................................................................. 3
1.05 Notes................................................................................. 3
1.06 Conversions........................................................................... 4
1.07 Pro Rata Borrowings................................................................... 5
1.08 Interest.............................................................................. 5
1.09 Interest Periods...................................................................... 6
1.10 Increased Costs, Illegality, etc...................................................... 8
1.11 Compensation.......................................................................... 10
1.12 Change of Lending Office.............................................................. 10
1.13 B Term Loan Commitments............................................................... 11
SECTION 2. Letters of Credit........................................................................ 11
2.01 Letters of Credit..................................................................... 11
2.02 Letter of Credit Requests............................................................. 13
2.03 Letter of Credit Participations....................................................... 13
2.04 Agreement to Repay Letter of Credit Drawings.......................................... 16
2.05 Increased Costs....................................................................... 17
2.06 Minimum Stated Amount................................................................. 18
SECTION 3. Fees; Commitments........................................................................ 18
3.01 Fees.................................................................................. 18
3.02 Voluntary Reduction of Commitments.................................................... 19
3.03 Mandatory Reduction of Commitments.................................................... 20
SECTION 4. Payments................................................................................. 21
4.01 Voluntary Prepayments................................................................. 21
4.02 Mandatory Prepayments................................................................. 22
4.03 Method and Place of Payment........................................................... 24
4.04 Net Payments.......................................................................... 25
SECTION 5. Conditions Precedent..................................................................... 26
5.01 Conditions Precedent to Loans on the Initial Borrowing Date........................... 26
(a) Execution of Agreement; Notes......................................................... 27
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(b) Officer's Certificate.............................................................. 27
(c) Opinion of Counsel................................................................. 27
(d) Corporate Proceedings.............................................................. 27
(e) Plans; Collective Bargaining Agreements; Shareholders' Agreements; Management
Agreements; Employment Agreements.................................................. 28
(f) Senior Subordinated Debt........................................................... 29
(g) Conversion of Subordinated Notes. ................................................ 29
(h) Refinancing........................................................................ 29
(i) Adverse Change, etc................................................................ 30
(j) Approvals.......................................................................... 30
(k) Litigation......................................................................... 30
(l) Solvency Certificate; Insurance.................................................... 31
(m) Projections; Balance Sheet; Financial Statements; Total Leverage Ratio Certificate. 31
(n) Payment of Fees.................................................................... 31
(o) Security Documents................................................................. 31
5.02 Conditions Precedent to All Credit Events............................................. 32
(a) No Default; Representations and Warranties......................................... 32
(b) Notice of Borrowing; Letter of Credit Request...................................... 32
SECTION 6. Representations, Warranties and Agreements............................................... 33
6.01 Corporate Status...................................................................... 33
6.02 Corporate Power and Authority......................................................... 33
6.03 No Violation.......................................................................... 34
6.04 Litigation............................................................................ 34
6.05 Use of Proceeds; Margin Regulations................................................... 34
6.06 Governmental Approvals................................................................ 34
6.07 Investment Company Act................................................................ 35
6.08 Public Utility Holding Company Act.................................................... 35
6.09 True and Complete Disclosure.......................................................... 35
6.10 Financial Condition; Financial Statements............................................. 35
6.11 Representations and Warranties in Transaction Documents............................... 37
6.12 Consummation of Transaction........................................................... 37
6.13 Tax Returns and Payments.............................................................. 37
6.14 Compliance with ERISA................................................................. 37
6.15 Ownership; Subsidiaries............................................................... 38
6.16 Intellectual Property................................................................. 38
6.17 Compliance with Statutes, etc......................................................... 38
6.18 Environmental Matters................................................................. 39
6.19 Labor Relations....................................................................... 39
6.20 Senior Subordinated Notes............................................................. 39
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.21 Special Purpose Entity................................................................ 40
6.22 Security Interests.................................................................... 40
6.23 Real Properties....................................................................... 40
6.24 Insurance............................................................................. 40
SECTION 7. Affirmative Covenants.................................................................... 40
7.01 Information Covenants................................................................. 40
7.02 Books, Records and Inspections........................................................ 43
7.03 Insurance............................................................................. 43
7.04 Payment of Taxes...................................................................... 44
7.05 Corporate Franchises.................................................................. 44
7.06 Compliance with Statutes, etc......................................................... 44
7.07 Compliance with Environmental Laws.................................................... 44
7.08 ERISA................................................................................. 45
7.09 Good Repair........................................................................... 46
7.10 End of Fiscal Years; Fiscal Quarters.................................................. 46
7.11 Use of Proceeds....................................................................... 46
7.12 UCC Searches.......................................................................... 46
7.13 Additional Security; Further Assurances............................................... 47
SECTION 8. Negative Covenants....................................................................... 48
8.01 Changes in Business................................................................... 48
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc................................ 48
8.03 Liens................................................................................. 52
8.04 Indebtedness.......................................................................... 54
8.05 Designated Senior Debt................................................................ 56
8.06 Advances, Investments and Loans....................................................... 56
8.07 Distributions, etc.................................................................... 57
8.08 Transactions with Affiliates.......................................................... 58
8.09 Maximum Total Leverage Ratio.......................................................... 58
8.10 Maximum Senior Leverage Ratio......................................................... 58
8.11 Interest Coverage Ratio............................................................... 58
8.12 Fixed Charge Ratio.................................................................... 59
8.13 Issuance of Stock..................................................................... 59
8.14 Limitation on Voluntary Payments and Modifications of Certain Agreements, etc......... 59
8.15 Limitation on the Creation of Subsidiaries............................................ 60
8.16 Limitations on Restrictions Affecting Subsidiaries.................................... 60
SECTION 9. Events of Default........................................................................ 60
9.01 Payments.............................................................................. 60
</TABLE>
(iii)
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<TABLE>
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9.02 Representations, etc.................................................................. 60
9.03 Covenants............................................................................. 61
9.04 Default Under Other Agreements........................................................ 61
9.05 Bankruptcy, etc....................................................................... 61
9.06 ERISA................................................................................. 62
9.07 Guaranties............................................................................ 62
9.08 Judgments............................................................................. 62
9.09 Ownership............................................................................. 62
9.10 Security Documents.................................................................... 62
SECTION 10. Definitions............................................................................. 63
SECTION 11. The Administrative Agent................................................................ 85
11.01 Appointment.......................................................................... 86
11.02 Delegation of Duties................................................................. 86
11.03 Exculpatory Provisions............................................................... 87
11.04 Reliance by Administrative Agent..................................................... 87
11.05 Notice of Default.................................................................... 88
11.06 Non-Reliance on Administrative Agent and Other Banks................................. 88
11.07 Indemnification...................................................................... 89
11.08 Administrative Agent and Collateral Agent in their Individual Capacities............. 89
11.09 Holders.............................................................................. 90
11.10 Resignation of the Administrative Agent; Successor Administrative Agent.............. 90
SECTION 12. Miscellaneous........................................................................... 90
12.01 Payment of Expenses, etc............................................................. 90
12.02 Right of Setoff...................................................................... 91
12.03 Notices.............................................................................. 92
12.04 Benefit of Agreement................................................................. 92
12.05 No Waiver; Remedies Cumulative....................................................... 94
12.06 Payments Pro Rata.................................................................... 94
12.07 Calculations; Computations........................................................... 95
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE..................................... 95
12.09 Counterparts......................................................................... 96
12.10 Effectiveness........................................................................ 96
12.11 Headings Descriptive................................................................. 97
12.12 Amendment or Waiver.................................................................. 97
12.13 Survival............................................................................. 98
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
12.14 Domicile of Loans.................................................................... 98
12.15 WAIVER OF JURY TRIAL................................................................. 98
12.16 Credit Agreement..................................................................... 98
SECTION 13. Guaranty................................................................................ 98
13.01 The Guaranty......................................................................... 98
13.02 Bankruptcy........................................................................... 99
13.03 Nature of Liability.................................................................. 99
13.04 Independent Obligation...............................................................100
13.05 Authorization........................................................................100
13.06 Reliance.............................................................................101
13.07 Subordination........................................................................101
13.08 Waiver...............................................................................102
</TABLE>
ANNEX I Banks and Commitments
ANNEX II Bank Addresses
ANNEX III Existing Letters of Credit
ANNEX IV Projections
ANNEX V Real Property
ANNEX VI Insurance
EXHIBIT A-1 -- Form of Notice of Borrowing
EXHIBIT A-2 -- Form of Letter of Credit Request
EXHIBIT B-1 -- Form of B Term Note
EXHIBIT B-2 -- Form of Revolving Note
EXHIBIT C -- Form of B Term Assumption Agreement
EXHIBIT D -- Form of Opinion of Goodwin, Procter & Hoar
EXHIBIT E -- Form of Officer's Certificate
EXHIBIT F -- Form of Solvency Certificate
EXHIBIT G -- Form of Pledge Agreement
EXHIBIT H -- Form of Security Agreement
EXHIBIT I -- Form of Subsidiary Guaranty
EXHIBIT J -- Form of Assumption Agreement
EXHIBIT K -- Form of Intercompany Note
EXHIBIT L -- Form of Bank Assignment and Assumption Agreement
(v)
<PAGE>
CREDIT AGREEMENT, dated as of August [__], 1997, among OUTDOOR
COMMUNICATIONS, INC. (f/k/a OCI Holdings Corp.), a Delaware corporation
("Holdings"), OCI (N) CORP. (f/k/a OCI Corp. of Michigan), a Delaware
corporation ("OCIN"), OCI (S) CORP. (f/k/a Outdoor Communications, Inc.), a
Mississippi corporation ("OCIS"), the lenders listed from time to time on Annex
I (each a "Bank" and, collectively, the "Banks") and THE CHASE MANHATTAN BANK,
as Administrative Agent (the "Administrative Agent"). Unless otherwise defined
herein, all capitalized terms used herein and defined in Section 10 are used
herein as so defined.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Banks are willing to make available the credit facilities provided for
herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
--------------------------
1.01 Commitments. (a) Subject to and upon the terms and
-----------
conditions herein set forth, each Bank with a B Term Loan Commitment severally
agrees to make to either Borrower loans under the B Term Loan Facility (each a
"B Term Loan" and, collectively, the "B Term Loans"), which (i) shall be made
pursuant to up to two drawings at any time on and after the Initial B Term
Assumption Date and on or prior to June 30, 1999, (ii) except as hereinafter
provided, may, at the option of the respective Borrower, be incurred and
maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans,
provided that all B Term Loans made as part of the same Borrowing shall, unless
- --------
otherwise specifically provided herein, consist of B Term Loans of the same
Type, and (iii) shall not exceed for any Bank at the time of incurrence thereof
that aggregate principal amount which equals the B Term Loan Commitment, if any,
of such Bank at such time. Once repaid, B Term Loans borrowed hereunder may not
be reborrowed (except as provided in Section 1.13). B Term Loans may be incurred
by either Borrower, but each Borrower shall be jointly and severally obligated
in respect of all B Term Loans regardless of which Borrower incurs such B Term
Loans.
(b) Subject to and upon the terms and conditions herein set
forth, each Bank with a Revolving Loan Commitment severally agrees to make to
either Borrower loans under the Revolving Loan Facility (each a "Revolving Loan"
and, collectively, the
<PAGE>
"Revolving Loans"), which (i) shall be made at any time and from time to
time on and after the Initial Borrowing Date and prior to the Revolving Maturity
Date, (ii) except as hereinafter provided, may, at the option of the respective
--------
Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans
or Eurodollar Loans, provided that (x) all Revolving Loans made as part of the
same Borrowing shall, unless otherwise specifically provided herein, consist of
Revolving Loans of the same Type and (y) unless the Syndication Date has
occurred (at which time this clause (y) shall no longer be applicable), no more
than one Borrowing of Revolving Loans to be maintained as Eurodollar Loans may
be incurred prior to the 30th day after the Initial Borrowing Date (which
Borrowing of Eurodollar Loans may only have an Interest Period of one month),
(iii) may be repaid and reborrowed in accordance with the provisions hereof and
(iv) shall not exceed for any Bank at any time outstanding that aggregate
principal amount which, when combined with all Letter of Credit Outstandings at
such time, equals the Revolving Loan Commitment of such Bank at such time.
Revolving Loans may be incurred by either Borrower, but each Borrower shall be
jointly and severally obligated in respect of all Revolving Loans regardless of
which Borrower incurs such Revolving Loans.
1.02 Minimum Borrowing Amounts, etc. The aggregate principal
------------------------------
amount of each Borrowing under a Facility shall not be less than the Minimum
Borrowing Amount for such Facility. More than one Borrowing may be incurred on
any day; provided, that at no time shall there be outstanding more than eight
--------
Borrowings of Eurodollar Loans.
1.03 Notice of Borrowing. (a) Whenever a Borrower desires to
-------------------
incur Loans under any Facility, it shall give the Administrative Agent at its
Notice Office, prior to 12:00 Noon (New York time), at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of each Borrowing of Eurodollar Loans and at least one Business Day's prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Base Rate Loans to be made hereunder. Each such notice (each, a
"Notice of Borrowing") shall, except as provided in Section 1.10(b), be
irrevocable, and, in the case of each written notice and each confirmation of
telephonic notice, shall be in the form of Exhibit A-1, appropriately completed
to specify (i) the Facility pursuant to which such Borrowing is to be made, (ii)
the aggregate principal amount of the Loans to be made pursuant to such
Borrowing, (iii) the date of such Borrowing (which shall be a Business Day) and
(iv) whether the respective Borrowing shall consist of Base Rate Loans or
Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall promptly give each Bank
written notice (or telephonic notice promptly confirmed in writing) of each
proposed Borrowing, of such Bank's proportionate share thereof, if any, and of
the other matters covered by the Notice of Borrowing.
(b) Without in any way limiting the obligation of the
Borrowers to confirm in writing any telephonic notice permitted to be given
hereunder, the Administrative Agent
-2-
<PAGE>
may prior to receipt of written confirmation act without liability upon the
basis of such tele phonic notice, believed by the Administrative Agent in good
faith to be from an authorized officer of a Borrower. In such case, each
Borrower hereby waives the right to dispute the Administrative Agent's record of
the terms of such telephonic notice.
1.04 Disbursement of Funds. (a) No later than 1:00 P.M. (New
---------------------
York time) on the date specified in each Notice of Borrowing, each Bank with a
Commitment under the respective Facility will make available its pro rata
--- ----
portion of each Borrowing requested to be made on such date in the manner
provided below in this Section 1.04(a). All amounts shall be made available to
the Administrative Agent in U.S. dollars and immediately available funds at the
Payment Office and the Administrative Agent promptly will make available to the
appropriate Borrower by depositing to its account at the Payment Office the
aggregate of the amounts so made available in the type of funds received. Unless
the Administrative Agent shall have been notified by any Bank prior to the date
of Borrowing that such Bank does not intend to make available to the
Administrative Agent its portion of the Borrowing or Borrowings to be made on
such date, the Administrative Agent may assume that such Bank has made such
amount available to the Administrative Agent on such date of Borrowing, and the
Administrative Agent, in reliance upon such assumption, may (in its sole
discretion and without any obligation to do so) make available to the
appropriate Borrower a corresponding amount. If such corresponding amount is not
in fact made available to the Administrative Agent by such Bank and the
Administrative Agent has made available same to a Borrower, the Administrative
Agent shall be entitled to recover such corresponding amount from such Bank. If
such Bank does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall promptly
notify such Borrower, and such Borrower shall immediately pay such corresponding
amount to the Administrative Agent. The Administrative Agent shall also be
entitled to recover from the Bank or such Borrower, as the case may be, interest
on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to such
Borrower to the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (x) if paid by such Bank, the
overnight Federal Funds Effective Rate or (y) if paid by such Borrower, the then
applicable rate of interest, calculated in accordance with Section 1.08, for
the Loans.
(b) Nothing herein shall be deemed to relieve any Bank from
its obligation to fulfill its commitments hereunder or to prejudice any rights
which any Borrower may have against any Bank as a result of any default by such
Bank hereunder.
1.05 Notes. (a) Each Borrower's obligation to pay the
-----
principal of, and interest on, all the Loans made to it by each Bank shall be
evidenced (i) if B Term Loans, by a promissory note, substantially in the form
of Exhibit B-1 with blanks appropriately completed in conformity herewith (each
a "B Term Note" and, collectively, the "B Term
-3-
<PAGE>
Notes"), (ii) if Revolving Loans, by a promissory note substantially in the
form of Exhibit B-2 with blanks appropriately completed in conformity herewith
(each a "Revolving Note" and, collectively, the "Revolving Notes").
(b) The B Term Note issued to each Bank with a B Term Loan
Commitment shall (i) be executed by each Borrower, (ii) be payable to the order
of such Bank and be dated the latest B Term Assumption Date with respect to such
Bank, (iii) be in a stated principal amount equal to the sum of the B Term Loan
Commitment and B Term Loans made by such Bank on the latest B Term Assumption
Date with respect to such Bank (after giving effect to the making of any B Term
Loans and any reductions of B Term Loan Commitments on such date) and be payable
in the principal amount of the B Term Loans evidenced thereby, (iv) mature on
the B Term Maturity Date, (v) bear interest as provided in the appropriate
clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans,
as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment
as provided in Section 4.01 and mandatory repayment as provided in Section 4.02
and (vii) be entitled to the benefits of this Agreement and the other Credit
Documents.
(c) The Revolving Notes issued to each Bank with a Revolving
Loan Commitment shall (i) be executed by each Borrower, (ii) be payable to the
order of such Bank and be dated the Initial Borrowing Date, (iii) be in a stated
principal amount equal to the Revolving Loan Commitment of such Bank and be
payable in the principal amount of the Revolving Loans incurred by such Borrower
and evidenced thereby, (iv) mature on the Revolving Maturity Date, (v) bear
interest as provided in the appropriate clause of Section 1.08 in respect of the
Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby,
(vi) be subject to voluntary repayment as provided in Section 4.01 and mandatory
repayment and reduction as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(d) Each Bank will note on its internal records the amount of
each Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
shall not affect the Borrowers' obligations in respect of such Loans.
1.06 Conversions. Each Borrower shall have the option to
-----------
convert, on any Business Day occurring on or after the Initial Borrowing Date,
all or a portion at least equal to the applicable Minimum Borrowing Amount of
the outstanding principal amount of the Loans owing by such Borrower pursuant to
a single Facility into a Borrowing or Borrowings pursuant to such Facility of
another Type of Loan; provided, that (i) except as otherwise provided in Section
--------
1.10(b), Eurodollar Loans may be converted into Base Rate Loans only on the last
day of an Interest Period applicable thereto and no partial conversion
of a Borrowing of Eurodollar Loans shall reduce the outstanding principal amount
of the
-4-
<PAGE>
Eurodollar Loans made pursuant to such Borrowing to less than the Minimum
Borrowing Amount applicable thereto, (ii) Base Rate Loans may only be converted
into Eurodollar Loans if no Default or Event of Default is in existence on the
date of the conversion, (iii) unless the Syndication Date has occurred (at which
time this clause (iii) shall no longer be applicable), prior to the 30th day
after the Initial Borrowing Date, conversions of Base Rate Loans into Eurodollar
Loans may only be made if all such conversions are effective on a single date on
or before the sixth Business Day after the Initial Borrowing Date and each such
Interest Period shall be one month) and (iv) Borrowings of Eurodollar Loans
resulting from this Section 1.06 shall be limited in number as provided in
Section 1.02. Each such conversion shall be effected by a Borrower by giving the
Administrative Agent at its Notice Office, prior to 12:00 Noon (New York time),
at least three Business Days' (or one Business Day's in the case of a conversion
into Base Rate Loans) prior written notice (or telephonic notice promptly
confirmed in writing) (each a "Notice of Conversion") specifying the Loans to
be so converted, the Type of Loans to be converted into and, if to be converted
into a Borrowing of Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall give each Bank prompt notice
of any such proposed conversion affecting its Loans.
1.07 Pro Rata Borrowings. All Borrowings of Loans under this
-------------------
Agreement shall be made by the Banks pro rata on the basis of their B Term Loan
--- ----
Commitments or Revolving Loan Commitments, as the case may be. It is understood
that no Bank shall be responsible for any default by any other Bank of its
obligation to make Loans hereunder and that each Bank shall be obligated to make
the Loans to be made by it hereunder, regardless of the failure of any other
Bank to fulfill its commitments hereunder.
1.08 Interest. (a) The unpaid principal amount of each Base
--------
Rate Loan shall bear interest from the date of the Borrowing thereof until
maturity (whether by acceleration or otherwise) at a rate per annum which shall
at all times be the Applicable Base Rate Margin plus the Base Rate in effect
from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall
bear interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
Applicable Eurodollar Margin plus the relevant Eurodollar Rate.
(c) Upon the occurrence and during the continuance of a
Default of the type described in Section 9.01 or any Event of Default, all
principal and, to the extent permitted by law, overdue interest in respect of
each Loan and any other overdue amount payable hereunder shall bear interest at
a rate per annum equal to the Base Rate in effect from time to time plus the sum
of (i) 2% and (ii) the Applicable Base Rate Margin; provided, that principal in
--------
respect of Eurodollar Loans shall bear interest until the end of the Interest
Period applicable to such Eurodollar Loans at a per annum rate equal to 2% in
excess of
-5-
<PAGE>
the rate of interest applicable to such Eurodollar Loans during such Interest
Period, provided further that if any such Eurodollar Loan has been converted to
-------- -------
a Base Rate Loan, then from and after such date the interest rate shall be as
otherwise set forth in this clause (c) without giving effect to the preceding
proviso.
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last
Business Day of each March, June, September and December, (ii) in respect of
each Eurodollar Loan, in arrears on the last day of each Interest Period
applicable thereto and, in the case of an Interest Period in excess of three
months, on each date occurring at three month intervals after the first day of
such Interest Period and (iii) in respect of each Loan, on any prepayment or
conversion (on the amount prepaid or converted), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with Section 12.07(b).
(f) The Administrative Agent, upon determining the interest
rate for any Borrowing of Eurodollar Loans for any Interest Period, shall
promptly notify the respective Borrower and the Banks thereof.
1.09 Interest Periods. (a) At the time a Borrower gives a
----------------
Notice of Borrowing or Notice of Conversion in respect of the making of, or
conversion into, a Borrowing of Eurodollar Loans (in the case of the initial
Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on
the third Business Day prior to the expiration of an Interest Period applicable
to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving
the Administrative Agent written notice (or telephonic notice promptly confirmed
in writing) of the Interest Period applicable to such Borrowing, which Interest
Period shall, at the option of such Borrower, be a one, two, three or six month
period or, to the extent available to all Banks with Loans under the respective
Facility, a nine or twelve month period. Notwithstanding anything to the
contrary contained above:
(i) the initial Interest Period for any Borrowing of
Eurodollar Loans shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing of Base Rate
Loans) and each Interest Period occurring thereafter in respect of such
Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(ii) if any Interest Period begins on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest
-6-
<PAGE>
Period, such Interest Period shall end on the last Business Day of such
calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, provided, that if any Interest Period
--------
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day;
(iv) no Interest Period for any Borrowing of Loans under
any Facility may be elected if it would extend beyond the Maturity Date
for such Facility;
(v) no Interest Period with respect to any Borrowing of B
Term Loans shall extend beyond any date upon which a mandatory
prepayment is required to be made under Section 4.02(A)(b) if, after
giving effect to the election of such Interest Period, the aggregate
principal amount of such B Term Loans maintained as Eurodollar Loans
which have Interest Periods expiring after such date of mandatory
prepayment would exceed the aggregate principal amount of such B Term
Loans permitted to be outstanding after such mandatory prepayment date;
(vi) no Interest Period with respect to any Borrowing of
Revolving Loans shall extend beyond any date upon which a reduction of
the Total Revolving Loan Commitment is to occur under Section 3.03(c)
if, after giving effect to the election of such Interest Period, the
aggregate principal amount of Revolving Loans maintained as Eurodollar
Loans which have Interest Periods expiring after such date of scheduled
reduction to the Total Revolving Loan Commitment would exceed the Total
Revolving Loan Commitment after giving effect to such reduction;
(vii) no Interest Period may be elected at any time when a
Default or an Event of Default is then in existence;
(viii) all Eurodollar Loans comprising a Borrowing shall at
all times have the same Interest Period; and
(ix) unless the Syndication Date has occurred, prior to the
30th day following the Initial Borrowing Date Interest Periods in
excess of one month shall not be permitted and such one month Interest
Periods shall be subject to the applicable provisions of Sections 1.01
and 1.06.
(b) If upon the expiration of any Interest Period, the
respective Borrower has failed to, or is not permitted to, elect a new Interest
Period to be applicable to the
-7-
<PAGE>
respective Borrowing of Eurodollar Loans as provided above, such Borrower shall
be deemed to have elected to convert such Borrowing into a Borrowing of Base
Rate Loans effective as of the expiration date of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that
--------------------------------
(x) in the case of clause (i) below, the Administrative Agent or (y) in the case
of clauses (ii) and (iii) below, any Bank, shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for
any Interest Period, that, by reason of any changes arising after the
Effective Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased
costs or reductions in the amounts received or receivable hereunder
with respect to any Eurodollar Loans (other than any increased cost or
reduction in the amount received or receivable resulting from the
imposition of or a change in the rate of income taxes or similar
charges) because of (x) any change since the Effective Date in any
applicable law, governmental rule, regulation, guideline, order or
request (whether or not having the force of law), or in the
interpretation or administration thereof and including the introduction
of any new law or governmental rule, regulation, guide line, order or
request (such as, for example, but not limited to, a change in official
reserve requirements, but, in all events, excluding reserves required
under Regulation D to the extent included in the computation of the
Eurodollar Rate) and/or (y) other circumstances affecting such Bank,
the interbank Eurodollar market or the position of such Bank in such
market; or
(iii) at any time since the Effective Date, that the making
or continuance of any Eurodollar Loan has become unlawful by compliance
by such Bank in good faith with any law, governmental rule, regulation,
guideline or order (or would conflict with any such governmental rule,
regulation, guideline or order not having the force of law but with
which such Bank customarily complies even though the failure to comply
therewith would not be unlawful), or has become impracticable as a
result of a contingency occurring after the Effective Date which
materially and adversely affects the interbank Eurodollar market;
then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) above) shall on such date give notice (by telephone promptly
confirmed in writing) to the Borrowers and (except in the case of clause (i)) to
the Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the
-8-
<PAGE>
other Banks). Thereafter (x) in the case of clause (i) above, Eurodollar Loans
shall no longer be available until such time as the Administrative Agent
notifies the Borrowers and the Banks that the circumstances giving rise to such
notice by the Administrative Agent no longer exist, and any Notice of Borrowing
or Notice of Conversion given by a Borrower with respect to Eurodollar Loans
which have not yet been incurred shall be deemed rescinded by such Borrower,
(y) in the case of clause (ii) above, each Borrower agrees to pay to such Bank,
upon written demand therefor (accompanied by the written notice referred to
below), such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Bank in its sole
discretion shall determine) as shall be required to compensate such Bank for
such increased costs or reductions in amounts received or receivable hereunder
(a written notice as to the additional amounts owed to such Bank, showing in
reasonable detail the basis for the calculation thereof, submitted to the
Borrowers by such Bank shall, absent manifest error, be final and conclusive
and binding upon all parties hereto) and (z) in the case of clause (iii) above,
each Borrower shall take one of the actions specified in Section 1.10(b) as
promptly as possible and, in any event, within the time period required by law.
On determining such additional amounts pursuant to clause (y) of the immediately
preceding sentence, each Bank will act reasonably and in good faith.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the respective Borrower
may (and in the case of a Eurodollar Loan affected pursuant to Section
1.10(a)(iii) the respective Borrower shall) either (i) if the affected
Eurodollar Loan is then being made pursuant to a Borrowing, cancel said
Borrowing by giving the Administrative Agent telephonic notice (confirmed
promptly in writing) thereof on the same date that such Borrower was notified by
a Bank pursuant to Section 1.10(a)(ii) or (iii)), or (ii) if the affected
Eurodollar Loan is then outstanding, upon at least three Business Days' notice
to the Administrative Agent, require the affected Bank to convert each such
Eurodollar Loan into a Base Rate Loan (which conversion, in the case of the
circumstances described in Section 1.10(a)(iii), shall occur no later than the
last day of the Interest Period then applicable to such Eurodollar Loan (or such
earlier date as shall be required by applicable law)); provided, that if more
--------
than one Bank is affected at any time, then all affected Banks must be treated
the same pursuant to this Section 1.10(b).
(c) If any Bank shall have determined that after the Effective
Date, the adoption or effectiveness of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by such Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Bank's capital or assets as a consequence of its
Commitments or
-9-
<PAGE>
obligations hereunder to a level below that which such Bank could have achieved
but for such adoption, effectiveness, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy), then from
time to time, upon written demand by such Bank (with a copy to the
Administrative Agent), accompanied by the notice referred to in the last
sentence of this clause (c), the Borrowers jointly and severally agree to pay to
such Bank such additional amount or amounts as will compensate such Bank for
such reduction. Each Bank, upon determining in good faith that any additional
amounts will be payable pursuant to this Section 1.10(c), will give prompt
written notice thereof to the Borrowers, which notice shall set forth the basis
of the calculation of such additional amounts, although the failure to give any
such notice shall not release or diminish the Borrowers' obligations to pay
additional amounts pursuant to this Section 1.10(c) upon the subsequent receipt
of such notice.
1.11 Compensation. Each Borrower shall compensate each Bank,
------------
upon its written request (which request shall set forth the basis for requesting
such compensation), for all reasonable losses, expenses and liabilities
(including, without limitation, any loss, expense or liability incurred by
reason of the liquidation or reemployment of deposits or other funds required by
such Bank to fund its Eurodollar Loans to such Borrower) which such Bank may
sustain:
(i) if for any reason (other than a default by such Bank or
the Administrative Agent) a Borrowing of Eurodollar Loans does not
occur on a date specified therefor in a Notice of Borrowing or Notice
of Conversion (whether or not withdrawn by such Borrower or deemed
withdrawn pursuant to Section 1.10(a));
(ii) if any repayment or conversion of any Eurodollar Loans
occurs on a date which is not the last day of an Interest Period
applicable thereto;
(iii) if any prepayment of any Eurodollar Loans is not made on
any date specified in a notice of prepayment given by such Borrower; or
(iv) as a consequence of (x) any other default by such
Borrower to repay its Loans when required by the terms of this
Agreement or (y) an election made pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Bank agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), 1.10(c), 2.05 or 4.04 with respect to such Bank, it will, if requested by
the applicable Borrower, use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office for any Loans
or Letters of Credit affected by such event; provided, that such designation is
--------
made on such terms that, in the sole judgment of such Bank, such
-10-
<PAGE>
Bank and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequences of the event giving
rise to the operation of any such Section. Nothing in this Section 1.12 shall
affect or postpone any of the obligations of the Borrowers or the right of any
Bank provided in Section 1.10, 2.05 or 4.04.
1.13 B Term Loan Commitments. At any time and from time to
-----------------------
time after the Initial Borrowing Date and prior to June 30, 1999, the Borrowers
may request one or more Banks or other lending institutions to assume a B Term
Loan Commitment and to make B Term Loans to a Borrower as provided in Section
--------
1.01(a) and, in the sole discretion of each such Bank or other institution, any
such Bank or other institution may agree to so commit; provided that (i) no
Default or Event of Default then exists, (ii) the increase in the B Term Loan
Commitment pursuant to any such request shall be in integral multiples of
$20,000,000 and (iii) after giving effect to each such increase, the aggregate
amount by which the Total B Term Loan Commitment shall have been increased as a
result of all such requests shall not exceed $40,000,000. The Borrowers and each
such Bank or other lending institution (each an "Assuming Bank") which agrees to
commit to make B Term Loans shall execute and deliver to the Administrative
Agent a B Term Assumption Agreement substantially in the form of Exhibit C (with
the increase in, or in the case of a new Assuming Bank, assumption of, such
Bank's B Term Loan Commitment to be effective upon delivery of such B Term
Assumption Agreement to the Administrative Agent). The Administrative Agent
shall promptly notify each Bank as to the occurrence of the Initial B Term
Assumption Date and as to each Additional B Term Assumption Date occurring
thereafter. On each B Term Assumption Date, (x) Annex I shall be deemed modified
to reflect the revised B Term Loan Commitments of such Banks, and (y) the
Borrowers shall pay to each such Assuming Bank such up front fee (if any) as may
have been agreed between the Borrowers and such Assuming Bank. Notwithstanding
anything to the contrary contained in this Agreement, in connection with any
Borrowing of any portion of the Total B Term Loan Commitment, the Borrowers
shall, in coordination with the Administrative Agent and the Banks with
outstanding B Term Loans, repay all outstanding B Term Loans and reborrow such B
Term Loans so that all Banks participate in each Borrowing of B Term Loans pro
---
rata on the basis of the sum of their outstanding B Term Loans (after giving
- ----
effect to any Borrowings thereof on such date). It is hereby agreed that any
breakage costs of the type described in Section 1.11 incurred by the Banks in
connection with the repayment and reborrowing of B Term Loans contemplated by
this Section 1.13 shall be for the joint and several account of the Borrowers;
provided that the Banks with B Term Loans and B Loan Commitments shall attempt
- --------
(but shall not be obligated) to minimize any such breakage costs.
SECTION 2. Letters of Credit.
-----------------
2.01 Letters of Credit. (a) Subject to and upon the terms and
-----------------
conditions set forth herein, either Borrower may request the Issuing Bank at any
time and from time
-11-
<PAGE>
to time on or after the Initial Borrowing Date and prior to the 30th day prior
to the Revolving Maturity Date, to issue, and subject to the terms and
conditions set forth herein, the Issuing Bank shall issue, (x) for the account
of such Borrower and for the benefit of any holder (or any trustee, agent or
other similar representative for any such holders) of L/C Supportable
Obligations of such Borrower or any of its Subsidiaries, an irrevocable standby
letter of credit, in a form customarily used by the Issuing Bank or in such
other form as has been approved by the Issuing Bank (each such standby letter of
credit, a "Standby Letter of Credit") in support of such L/C Supportable
Obligations and (y) for the account of such Borrower and for the benefit of
sellers of goods to such Borrower or any of its Subsidiaries, an irrevocable
documentary letter of credit in a form customarily used by the Issuing Bank or
in such other form as has been approved by the Issuing Bank (each such
documentary letter of credit, a "Trade Letter of Credit", and each such Trade
Letter of Credit and Standby Letter of Credit, a "Letter of Credit") in support
of commercial transactions of such Borrower or any such Subsidiary. Each Letter
of Credit shall be denominated in U.S. dollars. Annex III contains a description
of all letters of credit issued by the Issuing Bank pursuant to the Existing
Credit Agreement and which remain outstanding on the Initial Borrowing Date.
Each such letter of credit, including any extension thereof (each an "Existing
Letter of Credit") shall constitute a "Letter of Credit" for all purposes of
this Agreement and shall be deemed issued for purposes of Sections 2.03(a),
3.01(b) and 3.01(c) on the Initial Borrowing Date.
(b) Notwithstanding the foregoing, (i) no Letter of Credit
shall be issued the Stated Amount of which, when added to all Letter of Credit
Outstandings at such time, would exceed the sum of (1) $10,000,000 plus, (2) so
long as the New South Holdings Notes are outstanding, the aggregate principal
amount of such outstanding New South Holdings Notes, (ii) no Letter of Credit
shall be issued the Stated Amount of which, when added to the sum of (I) all
Letter of Credit Outstandings at such time and (II) the aggregate outstanding
principal amount of all Revolving Loans at such time, would exceed the Total
Revolving Loan Commitment then in effect, (iii) each Standby Letter of Credit
shall by its terms terminate on or before the earlier of (x) the date which
occurs 12 months after the date of issuance thereof (although any such Standby
Letter of Credit may be extendable for successive periods of up to 12 months
(but not beyond the third Business Day prior to the Revolving Maturity Date) on
terms acceptable to the Issuing Bank) and (y) the third Business Day prior to
the Revolving Maturity Date and (iv) each Trade Letter of Credit shall by its
terms terminate on or before the earlier of (x) the date which occurs 180 days
after the date of issuance thereof and (y) the date which occurs 30 days prior
to the Revolving Maturity Date.
(c) Notwithstanding the foregoing, the Issuing Bank shall not
be under any obligation to issue any Letter of Credit if any of the applicable
conditions contained in Section 5 shall not be met at the time of such issuance
or if at the time of such issuance:
-12-
<PAGE>
(i) any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or
restrain the Issuing Bank from issuing such Letter of Credit or any
requirement of law applicable to the Issuing Bank or any request or
directive (whether or not having the force of law) from any
governmental authority with jurisdiction over the Issuing Bank shall
prohibit, or request that the Issuing Bank refrain from, the issuance
of letters of credit generally or such Letter of Credit in particular
or shall impose upon the Issuing Bank with respect to such Letter of
Credit any restriction or reserve or capital requirement (for which the
Issuing Bank is not otherwise compensated) not in effect on the date
hereof, or any unreimbursable loss, cost or expense which was not
applicable, in effect or known to the Issuing Bank as of such date and
which the Issuing Bank in good faith deems material to it; or
(ii) the Issuing Bank shall have received notice from the
Required Banks of the type described in Section 2.02(b).
2.02 Letter of Credit Requests. (a) Whenever a Borrower
-------------------------
desires that a Letter of Credit be issued for its account such Borrower shall
have executed and delivered to the Issuing Bank (with copies having been sent to
the Administrative Agent) at least five Business Days prior to the issuance
thereof (or such shorter period of time as is acceptable to the Issuing Bank), a
Letter of Credit Request in the form of Exhibit A-2 (each a "Letter of Credit
Request").
(b) The making of each Letter of Credit Request shall be
deemed to be a representation and warranty by the respective Borrower that (i)
such Letter of Credit may be issued in accordance with, and will not violate the
requirements of, Section 2.01(b) and (ii) all of the applicable conditions set
forth in Section 5 shall be met at the time of such issuance. The Issuing Bank
shall not issue any Letter of Credit after it has received written notice from
either Borrower or the Required Banks stating that a Default or an Event of
Default exists until such time as the Issuing Bank shall have received written
notice of (i) rescission of such notice from the party or parties originally
delivering the same or (ii) a waiver of such Default or Event of Default from
the Required Banks. Upon its issuance of any Letter of Credit, the Issuing Bank
shall promptly notify the Administrative Agent and each Bank of such issuance
and deliver a copy thereof to the Administrative Agent.
2.03 Letter of Credit Participations. (a) Immediately upon the
-------------------------------
issuance by the Issuing Bank of any Letter of Credit, the Issuing Bank shall be
deemed to have sold to each other RL Bank (each such other RL Bank, in its
capacity under this Section 2.03, a "Participant"), and each such Participant
shall be deemed irrevocably and unconditionally to have purchased and received
from the Issuing Bank, without recourse or warranty, an undivided interest and
participation (each a "Participation"), to the extent of such
Participant's RL Percentage in such Letter of Credit, each substitute letter of
credit, each
-13-
<PAGE>
drawing made thereunder and the obligations of the Borrowers under this
Agreement with respect thereto, and any security therefor or guaranty pertaining
thereto (although Letter of Credit Fees will be paid directly to the
Administrative Agent for the ratable account of the Participants as provided in
Section 3.01(b) and the Participants shall have no right to receive any portion
of any Facing Fees). Upon any change in the Revolving Loan Commitments of the
Banks pursuant to Section 12.04 or otherwise, it is hereby agreed that, with
respect to all outstanding Letters of Credit, and Unpaid Drawings, there shall
be an automatic adjustment to the Participations pursuant to this Section 2.03
to reflect the new RL Percentages of the assignor and assignee Bank.
(b) In determining whether to pay under any Letter of Credit,
the Issuing Bank shall have no obligation relative to the Participants other
than to confirm that any documents required to be delivered under such Letter of
Credit have been delivered and that they appear to substantially comply on their
face with the requirements of such Letter of Credit. Any action taken or omitted
to be taken by the Issuing Bank under or in connection with any Letter of Credit
if taken or omitted in the absence of gross negligence or willful misconduct,
shall not create for the Issuing Bank any resulting liability.
(c) In the event that the Issuing Bank makes any payment under
any Letter of Credit and the appropriate Borrower shall not have reimbursed such
amount in full to the Issuing Bank pursuant to Section 2.04(a), the Issuing Bank
shall promptly notify the Administrative Agent and after receipt of such notice,
the Administrative Agent will notify each Participant of such failure, and each
Participant shall promptly and unconditionally pay to the Administrative Agent
for the account of the Issuing Bank, the amount of such Participant's RL
Percentage of such unreimbursed payment in Dollars and in same day funds. If the
Administrative Agent so notifies, prior to 11:00 A.M. (New York time) on any
Business Day, any Participant required to fund a payment under a Letter of
Credit, such Participant shall make available to the Administrative Agent for
the account of the Issuing Bank such Participant's RL Percentage of the amount
of such payment on such Business Day in U.S. dollars and in same day funds. If
and to the extent such Participant shall not have so made its RL Percentage of
the amount of such payment available to the Administrative Agent for the account
of the Issuing Bank, such Participant agrees to pay to the Administrative Agent
for the account of the Issuing Bank, forthwith on demand such amount, together
with interest thereon, for each day from such date until the date such amount is
paid to the Administrative Agent for the account of the Issuing Bank at the
overnight Federal Funds Effective Rate. The failure of any Participant to make
available to the Administrative Agent for the account of the Issuing Bank its RL
Percentage of any payment under any Letter of Credit shall not relieve any other
Participant of its obligation hereunder to make available to the Administrative
Agent for the account of the Issuing Bank its RL Percentage of any payment under
any Letter of Credit on the date required, as specified above, but no
Participant shall be responsible for the failure of any other
-14-
<PAGE>
Participant to make available to the Administrative Agent, such other
Participant's RL Percentage of any such payment.
(d) Whenever the Issuing Bank receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
the account of the Issuing Bank any payments from the Participants pursuant to
clause (c) above, the Issuing Bank shall pay to the Administrative Agent and the
Administrative Agent shall promptly pay to each Participant which has paid its
RL Percentage thereof, in U.S. dollars and in same day funds, an amount equal to
such Participant's RL Percentage of the principal amount of such reimbursement
and of interest reimbursed thereon accruing from and after the date of the
purchase of the respective Participations.
(e) As between each Borrower and the Issuing Bank, such
Borrower assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit by, the respective beneficiaries of Letters of Credit issued
for the account of such Borrower. Further, and not in limitation of the
foregoing, absent gross negligence or willful misconduct on its part, the
Issuing Bank shall not be responsible for the following:
(i) the form, validity, sufficiency, accuracy, genuineness
or legal effect of any documents submitted by any party in connection
with the application for and issuance of or any drawing under such
Letters of Credit, even if it should in fact prove to be in any and all
respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such
Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason;
(iii) errors, omissions, interruptions or delays in the
transmission or delivery of any messages by mail, cable, telegraph,
telecopier, telex or otherwise, whether or not they be in cipher;
(iv) errors in interpretation of technical terms;
(v) any loss or delay in the transmission or otherwise of
any document required in order to make a drawing under any such Letter
of Credit or the proceeds thereof;
(vi) the misapplication by the beneficiary of any such
Letter of Credit or the proceeds of any drawing of any such Letter of
Credit; and
-15-
<PAGE>
(vii) any consequences arising from causes beyond the control
of the Issuing Bank, including, without limitation, any acts of
governments.
(f) The obligations of the Participants to make payments to
the Administrative Agent for the account of the Issuing Bank with respect to
Letters of Credit shall be irrevocable and not subject to counterclaim, set-off
or any other defense or any other qualification or exception whatsoever (except
as otherwise provided in the final sentence of Section 2.03(b)) and shall be
made in accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this
Agreement or any of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other
right which any Borrower or any of its Subsidiaries may have at any
time against a beneficiary named in a Letter of Credit, any transferee
of any Letter of Credit (or any Person for whom any such transferee may
be acting), the Administrative Agent, the Issuing Bank, any Bank, or
any other Person, whether in connection with this Agreement, any Letter
of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between a Borrower
or a Subsidiary thereof and the beneficiary named in any such Letter of
Credit);
(iii) any draft, certificate or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
2.04 Agreement to Repay Letter of Credit Drawings. (a) Each
--------------------------------------------
Borrower hereby agrees to reimburse the Issuing Bank, by making payment to the
Administrative Agent for the account of the Issuing Bank, in U.S. dollars and in
immediately available funds at the appropriate Payment Office of the
Administrative Agent, for any payment or disbursement made by the Issuing Bank
under any Letter of Credit issued for the account of such Borrower (each such
amount, an "Unpaid Drawing") on the date of such payment or disbursement, with
interest on the amount so paid or disbursed by the Issuing Bank, to the extent
not reimbursed prior to 2:00 P.M. (New York time) on the date of such payment,
from and including the date paid to but excluding the date reimbursement is
made, at a rate per annum which shall be the Applicable Base Rate Margin (plus
2% if not
-16-
<PAGE>
reimbursed by 2:00 P.M. (New York time) on the second Business Day following
receipt by such Borrower of notice of any such payment or disbursement) plus the
Base Rate in effect from time to time, such interest to be payable on demand.
The Issuing Bank shall notify the respective Borrower and the Administrative
Agent of its paying any drawing under a Letter of Credit created hereunder as
soon as practical after such payment, provided, that the failure to give any
--------
such notice shall in no way affect, impair or diminish such Borrower's
obligations hereunder.
(b) Each Borrower's obligation under this Section 2.04 to
reimburse the Issuing Bank with respect to Unpaid Drawings (including, in each
case, interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which such Borrower may have or have had against any Participant, the Issuing
Bank, the Administrative Agent, any Bank or any other Person, including, without
limitation, any defense based upon the failure of any drawing under a Letter of
Credit (each a "Drawing") to conform to the terms of the Letter of Credit or any
non-application or misapplication by the beneficiary of the proceeds of such
Drawing; provided, however, that no Borrower shall be obligated to reimburse
-------- -------
the Issuing Bank for any wrongful payment made by the Issuing Bank under a
Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Issuing Bank.
2.05 Increased Costs. If the Issuing Bank or any Participant
---------------
determines that after the Effective Date the adoption or effectiveness of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Issuing Bank or any Participant with any request
or directive (whether or not having the force of law) by any such authority,
central bank or comparable agency shall either (i) impose, modify or make
applicable any reserve, deposit, capital adequacy or similar requirement against
Letters of Credit issued by such Issuing Bank or such Participant's
participation therein, or (ii) impose on the Issuing Bank or any Participant any
other conditions affecting this Agreement, any Letter of Credit, or such
Participant's participation therein, and the result of any of the foregoing is
to increase the cost to the Issuing Bank or such Participant of issuing,
maintaining or participating in any Letter of Credit, or to reduce the amount of
any sum received or receivable by the Issuing Bank or any Participant hereunder
with respect to Letters of Credit (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of the Issuing Bank or
such Participant pursuant to the laws of the United States of America, the
jurisdiction in which it is organized or in which its principal office or
applicable lending office is located or any subdivision thereof or therein),
then, upon demand to the Borrowers by the Issuing Bank or such Participant (a
copy of which notice shall be sent by the Issuing Bank or such Participant to
the Administrative Agent), the Borrowers jointly and severally agree to pay to
the Issuing Bank or such Participant,
-17-
<PAGE>
as the case may be, such additional amount or amounts as will compensate the
Issuing Bank or such Participant, as the case may be, for such increased cost or
reduction. In determining such additional amounts, the Issuing Bank and each
Participant will act reasonably and in good faith and will use averaging and
attribution methods which are reasonable, provided that the Issuing Bank's or
--------
such Participant's, as the case may be, determination of compensation owing
under this Section 2.05 shall, absent manifest error, be final and conclusive
and binding on all the parties hereto. The Issuing Bank or any Participant, upon
determining that any additional amounts are payable to it pursuant to this
Section 2.05, will give prompt written notice thereof, setting forth the basis
of the calculation of such amounts, although the failure to give any such notice
shall not release or diminish the Borrowers' obligations to pay additional
amounts pursuant to this Section 2.05 upon receipt of such certificate. The
certificate submitted to the Borrowers by the Issuing Bank or such Participant,
as the case may be (a copy of which certificate shall be sent by the Issuing
Bank or such Participant to the Administrative Agent), shall set forth the basis
for the determination of such additional amount or amounts necessary to
compensate the Issuing Bank or such Participant as provided above in this
Section 2.05.
2.06 Minimum Stated Amount. The initial Stated Amount of each
---------------------
Letter of Credit shall be not less than $100,000 or such lesser amount as is
acceptable to the Issuing Bank.
SECTION 3. Fees; Commitments.
-----------------
3.01 Fees. (a) The Borrowers jointly and severally agree to
----
pay to the Administrative Agent for distribution to each Bank a commitment fee
(the "Commitment Fee") for the period from the Effective Date to but not
including the date on which the Total Commitment has been terminated, computed
at the rate of 0.375% per annum on the daily average Aggregate Unutilized
Commitment of such Bank. Accrued Commitment Fees shall be due and payable in
arrears on the Effective Date and, thereafter, quarterly in arrears on the last
Business Day of each March, June, September and December, and on the date upon
which the Total Commitment is terminated.
(b) Each Borrower agrees to pay to the Administrative Agent
for distribution to each RL Bank (based on such RL Bank's RL Percentage) a fee
in respect of each Letter of Credit issued for the account of such Borrower
hereunder (the "Letter of Credit Fee"), for the period from and including the
date of issuance of such Letter of Credit to and including the termination of
such Letter of Credit (it being understood, however, that if such Letter of
Credit is drawn on in full or canceled by the beneficiary thereof prior to the
time at which such Letter of Credit expires in accordance with its terms, the
calculation of such fee shall not include the date of such drawing or
cancellation), computed at a rate per annum equal to the Applicable Eurodollar
Margin as in effect from time to time on the daily average Stated Amount of such
Letter of Credit. Accrued Letter of Credit Fees shall
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<PAGE>
be due and payable quarterly in arrears on the last Business Day of each March,
June, September and December and upon the first day on or after the termination
of the Total Revolving Loan Commitment upon which no Letters of Credit remain
outstanding.
(c) Each Borrower agrees to pay to the Issuing Bank, for its
own account, a facing fee in respect of each Letter of Credit issued by it for
the account of such Borrower hereunder (the "Facing Fee") for the period from
and including the date of issuance of such Letter of Credit to and including the
termination of such Letter of Credit (it being understood, however, that if such
Letter of Credit is drawn on in full or canceled by the beneficiary thereof
prior to the time at which such Letter of Credit expires in accordance with its
terms, the calculation of such fee shall not include the date of such drawing or
cancellation), computed at a rate equal to 0.250% per annum of the daily average
Stated Amount of such Letter of Credit. Accrued Facing Fees shall be due and
payable quarterly in arrears on the last Business Day of each March, June,
September and December and upon the first day on or after the termination of the
Total Revolving Loan Commitment upon which no Letters of Credit remain
outstanding.
(d) Each Borrower agrees to pay to the Issuing Bank, upon each
drawing under, issuance of, or amendment to, any Letter of Credit issued by it
to such Borrower, such amount as shall at the time of such event be the
administrative charge which the Issuing Bank is generally imposing in connection
with such occurrence with respect to letters of credit.
(e) The Borrowers shall pay to the Administrative Agent, for
its own account, such fees as may be agreed to from time to time between the
Borrowers and the Administrative Agent, when and as due.
(f) All computations of Fees shall be made in accordance with
Section 12.07(b).
3.02 Voluntary Reduction of Commitments. Upon at least three
-----------------------------------
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks), the
Borrowers shall have the right, without premium or penalty, to terminate or
partially reduce the Total Unutilized Revolving Loan Commitment and/or the Total
B Term Loan Commitment, provided, that (x) any such termination or partial
--------
reduction shall apply to proportionately and permanently reduce the Revolving
Loan Commitment or the Total B Term Loan Commitment, as the case may be, of each
Bank with a Revolving Loan Commitment or B Term Loan Commitment, as the case may
be, (y) any partial reduction to the Total Revolving Loan Commitment or the
Total B Term Loan Commitment, as the case may be, pursuant to this Section 3.02
shall be in the amount of at least $1,000,000 and (z) each reduction to the
Total Revolving Loan
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<PAGE>
Commitment or the Total B Term Loan Commitment, as the case the case may be,
pursuant to this Section 3.02 shall reduce the then remaining Scheduled RLC
Reductions or Scheduled B Repayments, as the case may be, in direct order.
3.03 Mandatory Reduction of Commitments. (a) The Total
----------------------------------
Commitment (and the B Term Loan Commitment and the Revolving Loan Commitment of
each Bank) shall terminate on the Commitment Expiration Date unless the Initial
Borrowing Date has occurred on or before such date.
(b) The Total B Term Loan Commitment (and the B Term Loan
Commitment of each Bank with such a Commitment) shall terminate (x) on each date
on which B Term Loans are incurred in an amount equal to the aggregate principal
amount of B Term Loans so incurred and (y) in its entirety on the earlier of (i)
June 30, 1999 (after giving effect to the making of any B Term Loans on such
date) and (ii) the date on which any Change of Ownership Event occurs.
(c) Subject to Sections 3.02 and 3.03(d), the Total Revolving
Loan Commitment shall be permanently reduced on each date set forth below
(provided that if any date set forth below is not a Business Day then the
permanent reduction shall occur on the first Business Day immediately succeeding
such date set forth below) (each a "Scheduled RLC Reduction Date"), in the
amount set forth below opposite such date (each such reduction, as such
reduction may have been reduced pursuant to Sections 3.02 and/or 3.03(d), a
"Scheduled RLC Reduction"):
<TABLE>
<CAPTION>
Scheduled RLC
Reduction Date Amount
-------------- ------
<S> <C>
June 30, 1999 $ 5,500,000
June 30, 2000 $11,000,000
June 30, 2001 $11,000,000
June 30, 2002 $16,500,000
June 30, 2003 $16,500,000
June 30, 2004 $22,000,000
Revolving Maturity Date $27,500,000
</TABLE>
(d) The Total B Term Loan Commitment and the Total Revolving
Loan Commitment shall be reduced on the dates and in the amounts specified in
Section 4.02(B)(a). Each reduction to the Total Revolving Loan Commitment
pursuant to this Section 3.03(d) shall reduce each of the remaining Scheduled
RLC Reductions on a pro rata basis (based upon the then remaining amount of each
--- ----
such Scheduled RLC Reduction).
-20-
<PAGE>
(e) The Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each RL Bank) shall terminate on the earlier of (i) the date
on which any Change of Ownership Event occurs and (ii) the Revolving Maturity
Date.
(f) Each reduction of the Total Revolving Loan Commitment
and/or Total B Term Loan Commitment pursuant to this Section 3.03 shall apply
proportionately to the Revolving Loan Commitment and/or B Term Loan Commitment,
as applicable, of each Bank with Commitments under the applicable Facility.
SECTION 4. Payments.
--------
4.01 Voluntary Prepayments. Each Borrower shall have the right
---------------------
to prepay the Loans incurred by it, in each case in whole or in part, without
premium or penalty except as otherwise provided in this Agreement, from time to
time on the following terms and conditions:
(i) such Borrower shall give the Administrative Agent at the
Notice Office written notice (or telephonic notice promptly confirmed
in writing) of its intent to prepay the Loans, whether such Loans are B
Term Loans or Revolving Loans, the amount of such prepayment and (in
the case of Eurodollar Loans) the specific Borrowing(s) pursuant to
which made, which notice shall be given by such Borrower prior to 12:00
Noon (New York time) at least one Business Day prior to the date of
such prepayment, which notice shall promptly be transmitted by the
Administrative Agent to each of the Banks;
(ii) each partial prepayment of any Borrowing shall be in an
aggregate principal amount of at least $250,000 and, if greater, in an
integral multiple of $100,000; provided, that no partial prepayment of
--------
Eurodollar Loans made pursuant to a Borrowing shall reduce the
aggregate principal amount of the Loans outstanding pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount
applicable thereto;
(iii) Eurodollar Loans may only be prepaid pursuant to this
Section 4.01 on the last day of an Interest Period applicable thereto;
(iv) each prepayment in respect of any Loans made pursuant to
a Borrowing shall be applied pro rata among such Loans; and
--- ----
(v) each prepayment of B Term Loans pursuant to this Section
4.01 shall reduce the then remaining Scheduled B Repayments on a pro
---
rata basis (based upon the then remaining principal amount of each such
----
Scheduled B Repayment).
-21-
<PAGE>
4.02 Mandatory Prepayments.
---------------------
(A) Requirements:
------------
(a) If on any date the sum of (i) the aggregate outstanding
principal amount of Revolving Loans (after giving effect to all other repayments
thereof on such date) plus (ii) the Letter of Credit Outstandings on such date,
exceeds the Total Revolving Loan Commitment as then in effect, the Borrowers
jointly and severally agree to repay on such date the principal of Revolving
Loans in an aggregate amount equal to such excess. If, after giving effect to
the prepayment of all outstanding Revolving Loans, the aggregate amount of
Letter of Credit Outstandings exceeds the Total Revolving Loan Commitment as
then in effect, the Borrowers jointly and severally agree to pay to the
Administrative Agent on such date an amount in cash and/or Cash Equivalents
equal to such excess (up to the aggregate amount of Letter of Credit
Outstandings at such time) and the Administrative Agent shall hold such payment
as security for the obligations of the Borrowers hereunder pursuant to a cash
collateral agreement to be entered into in form and substance reasonably
satisfactory to the Administrative Agent (which shall permit certain investments
in Cash Equivalents reasonably satisfactory to the Administrative Agent until
the proceeds are applied to the secured obligations).
(b) On each date set forth below, the Borrowers shall, on a
joint and several basis, be required to repay the principal amount of B Term
Loans (each such repayment, as the same may be reduced as provided in Sections
4.01 and 4.02(B)(a), a "Scheduled B Repayment" and each such date, a "Scheduled
B Repayment Date"), in an amount equal to the product of (x) the sum of all
outstanding B Term Loans as of June 30, 1999 (after giving effect to all
Borrowings of B Term Loans on such date) multiplied by (y) the percentage set
forth below opposite such date:
Scheduled B
Repayment Date Percentage
-------------- ----------
[To Be Determined]
(c) On the date of receipt thereof by Holdings and/or any of
its Subsidiaries of the Cash Proceeds from any Asset Sale, an amount equal to
100% of the Net Cash Proceeds from such Asset Sale shall be applied in
accordance with Section 4.02(B)(a), provided that with respect to no more than
$1,000,000 in the aggregate of such Net Cash Proceeds in any fiscal year of
Holdings, such Net Cash Proceeds shall not be required to be so applied on such
date to the extent that no Default or Event of Default then exists and Holdings
delivers a certificate to the Administrative Agent on or prior to such date
stating that such Net Cash Proceeds shall be used to purchase replacement assets
within 180 days following the date of such Asset Sale (which certificate shall
set forth the estimates of the
-22-
<PAGE>
proceeds to be so expended), and provided further, that if all or any portion of
such Net Cash Proceeds not so applied pursuant to this Section 4.02(A)(c) are
not so used within such 180 day period, such remaining portion shall be applied
on the last day of such period as provided above in this Section 4.02(A)(c).
(d) On the date of receipt thereof by Holdings and/or any of
its Subsidiaries of any Recovery Event Proceeds from any Recovery Event, an
amount equal to 100% of the Net Recovery Event Proceeds from such Recovery Event
shall be applied in accordance with Section 4.02(B)(a), provided that so long as
no Default or Event of Default then exists, such Recovery Event Proceeds shall
not be required to be so applied on such date to the extent that (i) such
Recovery Event Proceeds do not exceed $1,000,000 and (ii) Holdings delivers a
certificate to the Administrative Agent on or prior to such date stating that
such Recovery Event Proceeds shall be used to replace or restore any properties
or assets in respect of which such Recovery Event Proceeds were paid within 180
days following the date of such Recovery Event (which certificate shall set
forth the estimates of the Recovery Event Proceeds to be so expended), and
provided further, that (i) if the amount of such Recovery Event Proceeds exceeds
- -------- -------
$1,000,000, then the entire amount and not just the portion in excess of
$1,000,000 shall be applied as provided above in this Section 4.02(A)(d) without
regard to the preceding proviso and (ii) if all or any portion of such Recovery
Event Proceeds not so applied pursuant to this Section 4.02(A)(c) as permitted
by the first proviso of this Section 4.02(A)(d) are not so reinvested within
such 180 day period, such remaining portion shall be applied on the last day of
such period as provided above in this Section 4.02(A)(d).
(e) On the date of the receipt thereof by Holdings and/or any
of its Subsidiaries of the proceeds of any incurrence of Indebtedness after the
Effective Date by Holdings and/or any of its Subsidiaries (other than
Indebtedness permitted by Section 8.04 as such Section is in effect on the
Effective Date), an amount equal to 50% of the Net Debt Issuance Proceeds of
such incurrence shall be applied in accordance with Section 4.02(B)(a).
(f) On the date of any Change of Ownership Event, the
outstanding principal amount of all Loans shall be due and payable in full.
(g) Notwithstanding anything to the contrary contained in this
Agreement, the outstanding principal amount of (x) all B Term Loans shall be due
and payable in full on the B Term Maturity Date and (y) all Revolving Loans
shall be due and payable in full on the Revolving Maturity Date.
-23-
<PAGE>
(B) Application:
-----------
(a) Amounts required to be applied pursuant to Sections
4.02(A)(c), (d) and (e) shall be applied as follows: (i) the B Term Percentage
of such amounts shall be applied to repay B Term Loans (or, if no such B Term
Loans are outstanding or if B Term Loans have been repaid in full, to reduce the
Total B Term Loan Commitment), and (ii) the Revolving Loan Percentage of such
amounts shall be applied to reduce the Total Revolving Loan Commitment; provided
--------
that (x) if the B Term Percentage of any such amounts exceeds the sum of the
outstanding B Term Loans and the Total B Term Loan Commitment, such excess shall
be applied to reduce the Total Revolving Loan Commitment and (y) if the
Revolving Loan Percentage of any such amount exceeds the Total Revolving Loan
Commitment, such excess shall be applied to prepay the B Term Loans (or, if no B
Term Loans are outstanding or if B Term Loans have been repaid in full, to
reduce the Total B Term Loan Commitment). All mandatory repayments of B Term
Loans pursuant to this Section 4.02(B)(a) shall be applied to reduce the then
remaining Scheduled B Repayments on a pro rata basis (based upon the then
remaining principal amount of each such Scheduled B Repayment).
(b) With respect to each prepayment of Loans required by this
Section 4.02, the respective Borrower may designate the Types of Loans which are
to be prepaid and the specific Borrowing(s) under the affected Facility pursuant
to which made; provided, that (i) Eurodollar Loans made pursuant to a specific
--------
Facility may be designated for prepayment pursuant to this Section 4.02 only on
the last day of an Interest Period applicable thereto unless all Eurodollar
Loans made pursuant to such Facility with Interest Periods ending on such date
of required prepayment and all Base Rate Loans made pursuant to such Facility
have been paid in full; (ii) if any prepayment of Eurodollar Loans made pursuant
to a single Borrowing shall reduce the outstanding Loans made pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount for such
Eurodollar Loans, such Borrowing shall be immediately converted into Base Rate
Loans; and (iii) each prepayment of any Loans made pursuant to a Borrowing shall
be applied pro rata among such Loans. In the absence of a designation by the
--- ----
respective Borrower as described in the preceding sentence, the Administrative
Agent shall, subject to the above, make such designation in its sole discretion
with a view, but no obligation, to minimize breakage costs owing under Section
1.11.
4.03 Method and Place of Payment. Except as otherwise
---------------------------
specifically provided herein, all payments under this Agreement shall be made to
the Administrative Agent for the ratable account of the Banks entitled thereto,
not later than 1:00 P.M. (New York time) on the date when due and shall be made
in immediately available funds and in lawful money of the United States of
America at the Payment Office. Any payments under this Agreement which are made
later than 1:00 P.M. (New York time) shall be deemed to have been made on the
next succeeding Business Day. Whenever any payment to be made
-24-
<PAGE>
hereunder shall be stated to be due on a day which is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest shall be payable during such
extension at the applicable rate in effect immediately prior to such extension.
4.04 Net Payments. (a) All payments made by each Borrower
------------
hereunder, under any Note or any other Credit Document, will be made without
setoff, counterclaim or other defense. Except as provided for in Section
4.04(b), all such payments will be made free and clear of, and without deduction
or withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein (but excluding, except as provided in the second succeeding sentence,
any tax imposed on or measured by the net income (or any franchise tax based on
net income) of a Bank pursuant to the laws of the jurisdiction in which the
principal office or applicable lending office of such Bank is located or under
the laws of any political subdivision or taxing authority of any such
jurisdiction in which the principal office or applicable lending office of such
Bank is located) and all interest, penalties or similar liabilities with respect
thereto (collectively, "Taxes"). If any Taxes are so levied or imposed, the
respective Borrower agrees to pay the full amount of such Taxes and such
additional amounts as may be necessary so that every payment of all amounts due
hereunder, under any Note or under any other Credit Document, after withholding
or deduction for or on account of any Taxes, will not be less than the amount
provided for herein or in such Note or in such other Credit Document. If any
amounts are payable in respect of Taxes pursuant to the preceding sentence,
then the respective Borrower shall also reimburse each Bank, upon the written
request of such Bank, for taxes imposed on or measured by the net income of such
Bank pursuant to the laws of the jurisdiction in which the principal office or
applicable lending office of such Bank is located or of any political
subdivision or taxing authority of any such jurisdiction and for any withholding
of income or similar taxes imposed by the United States of America as such Bank
shall determine are payable by, or withheld from, such Bank in respect of Taxes
paid to or on behalf of such Bank pursuant to this or the preceding sentence.
Each Borrower will furnish to the Administrative Agent within 45 days after the
date the payment of any Taxes, or any withholding or deduction on account
thereof, is due pursuant to applicable law certified copies of tax receipts
evidencing such payment by such Borrower. Each Borrower will indemnify and hold
harmless the Administrative Agent and each Bank, and reimburse the
Administrative Agent or such Bank upon its written request, for the amount of
any Taxes so levied or imposed and paid or withheld by such Bank.
(b) Each Bank which is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) for Federal income tax
purposes agrees (i) to provide to the Borrower on or prior to the Effective Date
two original signed copies of Internal Revenue Service Form 4224 or Form 1001
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments to be
-25-
<PAGE>
made under this Agreement, under any Note and under any other Credit Document
and (ii) that, to the extent legally entitled to do so, (x) with respect to a
Bank that is an assignee or transferee of an interest under this Agreement
pursuant to Section 12.04 hereof (unless the respective Bank was already a Bank
hereunder immediately prior to such assignment or transfer), upon the date of
such assignment or transfer to such Bank, and (y) with respect to any Bank which
is not a United States person (as such term is defined in Section 7701(a)(30) of
the Code) for U.S. Federal income tax purposes (including, without limitation,
any assignee or transferee), from time to time, upon the reasonable request by
either Borrower or the Administrative Agent after the Effective Date, such Bank
will provide to each Borrower and the Administrative Agent two original signed
copies of Internal Revenue Service Form 4224 or Form 1001 (or any successor
forms) certifying to such Bank's entitlement to a complete exemption from, or
reduction in, United States withholding tax with respect to payments to be made
under this Agreement, under any Note and under any other Credit Document.
Notwithstanding anything to the contrary contained in Section 4.04(a), each
Borrower shall be entitled, to the extent it is required to do so by law, to
deduct or withhold income or other similar taxes imposed by the United States
(or any political subdivision or taxing authority thereof or therein) from
interest, fees or other amounts payable hereunder (without any obligation under
Section 4.04(a) to pay the respective Bank such taxes or any additional amounts
with respect thereto) for the account of any Bank which is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code) for United
States federal income tax purposes and which has not provided to such Borrower
such forms required to be provided to such Borrower by a Bank pursuant to the
first sentence of this Section 4.04(b); provided, that if any such Borrower
shall so deduct or withhold any such taxes, it shall provide a statement to the
Administrative Agent and such Bank, setting forth the amount of such taxes so
deducted or withheld, the applicable rate and any other information or
documentation which such Bank may reasonably request for assisting such Bank in
obtaining any allowable credits or deductions for the taxes so deducted or
withheld in the jurisdiction or jurisdictions in which such Bank is subject to
tax. Notwithstanding anything to the contrary contained in the preceding
sentence, the Borrowers agree to indemnify each Bank in the manner set forth in
Section 4.04(a) in respect of any amounts deducted or withheld by it as
described in the previous sentence as a result of any changes after the
Effective Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of income or similar Taxes.
SECTION 5. Conditions Precedent.
--------------------
5.01 Conditions Precedent to Loans on the Initial Borrowing
------------------------------------------------------
Date. The obligation of each Bank to make Loans to the Borrowers hereunder, and
- ----
the obligation of the Issuing Bank to issue Letters of Credit hereunder, in each
case on the Initial Borrowing Date, is subject, at the time of such Credit
Event, to the satisfaction of the following conditions:
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<PAGE>
(a) Execution of Agreement; Notes. On or prior to the Initial
-----------------------------
Borrowing Date, (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Administrative Agent for the account of each Bank the
appropriate Revolving Notes, if any, executed by the respective Borrower, and in
the amount, maturity and as otherwise provided herein.
(b) Officer's Certificate. On the Initial Borrowing Date, the
---------------------
Administrative Agent shall have received a certificate from each Borrower dated
such date signed by an appropriate officer of each Borrower stating that all of
the applicable conditions set forth in Sections 5.01(f), 5.01(g), 5.01(h),
5.01(i), 5.01(j), (k) and 5.02(a) exist as of such date.
(c) Opinion of Counsel. On the Initial Borrowing Date, the
------------------
Administrative Agent shall have received an opinion, addressed to the
Administrative Agent and each of the Banks and dated the Initial Borrowing Date,
from Goodwin, Procter & Hoar, counsel to the Credit Parties, which opinion shall
cover the matters contained in Exhibit D and such other matters incident to the
transactions contemplated herein as the Administrative Agent may reasonably
request.
(d) Corporate Proceedings. (i) On the Initial Borrowing Date,
---------------------
the Administrative Agent shall have received from each Credit Party a
certificate, dated the Initial Borrowing Date, signed by the chairman, a vice
chairman, the president, any vice-president or chief financial officer of such
Credit Party, in the form of Exhibit E with appropriate insertions and
deletions, together with copies of the certificate of incorporation and by-laws
of such Credit Party and the resolutions of such Credit Party referred to in
such certificate and all of the foregoing (including each such certificate of
incorporation and by-laws) shall be satisfactory to the Administrative Agent.
(ii) On the Initial Borrowing Date, all corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Transaction Documents
shall be satisfactory in form and substance to the Administrative Agent, and the
Administrative Agent shall have received all information and copies of all
certificates, documents and papers, including good standing certificates or
corporate proceedings and governmental approvals, if any, which the
Administrative Agent may have requested in connection therewith, such documents
and papers, where appropriate, to be certified by corporate or governmental
authorities.
(iii) On the Initial Borrowing Date, the ownership and capital
structure (including, without limitation, the terms of any capital stock,
options, warrants or other securities issued by Holdings or its Subsidiaries) of
Holdings and its Subsidiaries, shall be in form and substance satisfactory to
Administrative Agent.
-27-
<PAGE>
(e) Plans; Collective Bargaining Agreements; Shareholders'
------------------------------------------------------
Agreements; Management Agreements; Employment Agreements. On or prior to the
- --------------------------------------------------------
Initial Borrowing Date, there shall have been delivered to the Banks copies,
certified as true and correct by an appropriate officer of Holdings, of:
(i) any Plans, and for each Plan (x) that is a
"single-employer plan" (as defined in Section 4001(a)(15) of ERISA) the
most recently completed actuarial valuation prepared therefor by such
Plan's regular enrolled actuary and the Schedule B, "Actuarial
Information" to the IRS Form 5500 (Annual Report) most recently filed
with the Internal Revenue Service and (y) that is a "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA), each of the
documents referred to in clause (x) either in the possession of
Holdings or any of its Subsidiaries or any ERISA Affiliate or
reasonably available thereto from the sponsor or trustees of such Plan;
(ii) any collective bargaining agreements or any other similar
agreement or arrangements covering the employees of Holdings or any of
its Subsidiaries (collectively , the "Collective Bargaining
Agreements");
(iii) all agreements entered into by Holdings or any of its
Subsidiaries governing the terms and relative rights of its capital
stock, and any agreements entered into by shareholders relating to any
such entity with respect to their capital stock (collectively, the
"Shareholders' Agreements");
(iv) any agreement with members of, or with respect to, the
management of Holdings or any of its Subsidiaries (collectively, the
"Management Agreements"); and
(v) any employment agreements entered into by Holdings or any
of its Subsidiaries which, in the reasonable judgment of Holdings, are
material to the business of Holdings or any of its Subsidiaries
(collectively, the "Employment Agreements");
all of which Plans, Collective Bargaining Agreements, Shareholders' Agreements,
Management Agreements and Employment Agreements shall be in form and substance
satisfactory to the Administrative Agent, provided, however, that only those
-------- -------
Plans, Collective Bargaining Agreements, Shareholders' Agreements, Management
Agreements and Employment Agreements which were not in existence on the Existing
Credit Agreement Effective Date or, if in existence on the Existing Credit
Agreement Effective Date have been modified since such date, shall be required
to be delivered pursuant to this Section 5.01(e).
-28-
<PAGE>
(f) Senior Subordinated Debt. On or prior to the Initial
------------------------
Borrowing Date, (i) Holdings shall have received gross cash proceeds of
$100,000,000 from the issuance of the Senior Subordinated Notes and (ii) the
Administrative Agent shall have received copies of the Senior Subordinated Note
Documents certified as true and complete by an authorized officer of Holdings,
and all the terms and conditions of such Senior Subordinated Note Documents
(including, without limitation, interest rates, maturities, amortization
schedules, covenants, redemption provisions, defaults, subordination provisions
and remedies with respect thereto) shall be in form and substance satisfactory
to the Administrative Agent; it being understood and agreed that such Senior
Subordinated Notes shall be unsecured. Prior to or concurrently with the initial
Borrowing of Loans on the Initial Borrowing Date, Holdings shall utilize all
proceeds received by it as described in the preceding sentence to effect the
Transaction, including the payment of fees and expenses relating thereto.
(g) Conversion of Subordinated Notes. On or prior to the
--------------------------------
Initial Borrowing Date, (i) Holdings shall have converted all of the
Subordinated Notes into preferred stock of Holdings (the "Conversion Preferred
Stock") with an aggregate liquidation preference not to exceed $25,000,000 on
the Initial Borrowing Date and (ii) the Administrative Agent and the Banks shall
have received copies of the Subordinated Note Conversion Documents certified as
true and complete by an authorized officer of Holdings, and all the terms and
conditions of such Subordinated Note Conversion Documents (including, without
limitation, dividend rates, limitations on cash dividends payable, maturities,
covenants, redemption provisions and voting rights of the Conversion Preferred
Stock) shall be in form and substance satisfactory to the Administrative Agent
and the Required Banks.
(h) Refinancing. (i) On or prior to the Initial Borrowing Date
-----------
and prior to or concurrently with the incurrence of the Loans on such date, the
Refinancing shall have been consummated in accordance with the terms of the
Refinancing Documents and all applicable laws, and each of the conditions
precedent to the consummation of the Refinancing shall have been satisfied and
not waived, except with the consent of the Administrative Agent and the Required
Banks, to the satisfaction of the Administrative Agent, and the Administrative
Agent shall have received evidence in form, scope and substance satisfactory to
it that the matters set forth in this clause (h)(i) have been satisfied at such
time.
(ii) On or prior to the Initial Borrowing Date and prior to or
concurrently with the incurrence of the Loans on such date, the creditors in
respect of the Indebtedness to be repaid pursuant to the Refinancing shall have
terminated and released any and all security interests in and liens on the
capital stock of, and assets owned by, Holdings and its Subsidiaries, and shall
have released Holdings and each of its Subsidiaries from any guarantees entered
in connection with any such Indebtedness, and the Administrative Agent
-29-
<PAGE>
shall have received all such releases as may have been reasonably requested by
the Administrative Agent, which releases shall be in form and substance
satisfactory to the Administrative Agent.
(iii) On or prior to the Initial Borrowing Date, there shall
have been delivered to the Administrative Agent true and correct copies of all
Refinancing Documents, and all of the terms and conditions of such Refinancing
Documents shall be in form and substance satisfactory to the Administrative
Agent.
(iv) On the Initial Borrowing Date and after giving effect to
the Transaction and the other transactions contemplated hereby, neither Holdings
nor any of its Subsidiaries shall have any Indebtedness or preferred stock
outstanding except for (i) the Loans, (ii) the Senior Subordinated Notes, (iii)
the New South Holdings Notes and (iv) Conversion Preferred Stock.
(i) Adverse Change, etc. From June 30, 1996 to the Initial
-------------------
Borrowing Date, nothing shall have occurred (and neither the Banks nor the
Administrative Agent shall have become aware of any facts or conditions not
previously known) which the Banks or the Administrative Agent shall determine
(a) has, or could reasonably be expected to have, a material adverse effect on
the rights or remedies of the Banks or the Administrative Agent, or on the
ability of any Credit Party to perform its obligations to them, or (b) has, or
could reasonably be expected to have, a Material Adverse Effect.
(j) Approvals. (x) On the Initial Borrowing Date, all
---------
necessary material governmental (domestic and foreign) and third party approvals
in connection with the Transaction shall have been obtained and remain in effect
and evidence thereof shall have been provided to the Administrative Agent, and
all applicable waiting periods shall have expired without any action being taken
by any competent authority which restrains, prevents or imposes, in the judgment
of the Administrative Agent, materially adverse conditions upon the consummation
of the Transaction or the transactions contemplated by the Transaction
Documents.
(y) On the Initial Borrowing Date, there shall not exist any
judgment, order, injunction or other restraint issued or filed with respect to
the making of the Loans hereunder or the consummation of the Transactions or the
transactions contemplated by the Transaction Documents.
(k) Litigation. On the Initial Borrowing Date, there shall be
----------
no actions, suits or proceedings pending or threatened (a) with respect to this
Agreement or any other Transaction Document or the transactions contemplated
hereby or thereby (including the Transaction) or (b) which the Administrative
Agent shall determine could (i) have a Material Adverse Effect or (ii) have a
material adverse effect on the rights or remedies of
-30-
<PAGE>
the Banks hereunder or under any other Credit Document or on the ability of any
Credit Party to perform its respective obligations to the Banks hereunder or
under any other Credit Document.
(l) Solvency Certificate; Insurance. On the Initial Borrowing
-------------------------------
Date, Holdings shall cause to be delivered to the Administrative Agent:
(i) a certificate, in the form of Exhibit F, from the chief
financial officer of Holdings expressing opinions of value and other
appropriate factual information regarding the solvency of Holdings and
each Borrower on a stand-alone basis and of Holdings and its
Subsidiaries taken as a whole and each Borrower and its Subsidiaries
taken as a whole; and
(ii) evidence (including, without limitation, certificates
with respect to each insurance policy listed in Annex VI) of insurance
complying with the requirements of Section 7.03 for the business and
properties of Holdings and its Subsidiaries, in scope, form and
substance satisfactory to the Administrative Agent.
(m) Projections; Balance Sheet; Financial Statements; Total
-------------------------------------------------------
Leverage Ratio Certificate. On the Initial Borrowing Date, Holdings shall have
- --------------------------
delivered, or shall have caused to be delivered, to the Administrative Agent,
(i) projected financial statements for Holdings and its Subsidiaries, in each
case for the period from the Initial Borrowing Date to and including the Final
Maturity Date (as set forth on Annex IV, the "Projections"), (ii) a pro forma
--- -----
consolidated balance sheet of Holdings and its Subsidiaries, in each case after
giving effect to the Transaction and the related financing thereof, (iii) the
financial statements referred to in Section 6.10(b) and (iv) a certificate from
the chief financial officer of Holdings certifying that the Total Leverage Ratio
for the Test Period ending on June 30, 1997, on a pro forma basis after giving
--- -----
effect to the Transaction, does not exceed 6.25:1.00; which Projections, pro
---
forma balance sheet, financial statements and officer's certificate shall be
- -----
satisfactory in form and substance to the Administrative Agent.
(n) Payment of Fees. On the Initial Borrowing Date, all costs,
---------------
fees and expenses, and all other compensation contemplated by this Agreement,
due to the Administrative Agent or the Banks (including, without limitation,
legal fees and expenses) shall have been paid to the extent due.
(o) Security Documents. (a) On the Initial Borrowing Date,
------------------
each Credit Party shall have duly authorized, executed and delivered a Pledge
Agreement in the form of Exhibit G (as modified, amended or supplemented from
time to time in accordance with the terms thereof and hereof, the "Pledge
Agreement") and shall have delivered to the Collateral Agent, as pledgee
thereunder, all of the certificates representing the Pledged
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<PAGE>
Securities referred to therein, endorsed in blank or accompanied by
executed and undated stock powers, and the Pledge Agreement shall be in full
force and effect.
(b) On the Initial Borrowing Date, each Credit Party shall
have duly authorized, executed and delivered a Security Agreement substantially
in the form of Exhibit H (as modified, supplemented or amended from time to time
in accordance with the terms thereof and hereof, the "Security Agreement")
covering all of such Credit Party's present and future Security Agreement
Collateral, in each case together with:
(i) executed copies of Financing Statements (Form UCC-1) in
appropriate form for filing under the UCC of each jurisdiction as may
be necessary to perfect the security interests purported to be created
by the Security Agreement;
(ii) evidence of the completion of all other recordings and
filings of, or with respect to, the Security Agreement as may be
necessary or, in the opinion of the Collateral Agent, desirable to
perfect the security interests intended to be created by the Security
Agreement; and
(iii) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the Security
Agreement have been taken.
5.02 Conditions Precedent to All Credit Events. The obligation
-----------------------------------------
of each Bank to make any Loans and the obligation of the Issuing Bank to issue
Letters of Credit (including, without limitation, Loans made and Letters of
Credit issued on the Initial Borrowing Date) is subject, at the time of each
such Credit Event, to the satisfaction of the following conditions at such time:
(a) No Default; Representations and Warranties. At the time
------------------------------------------
of each Credit Event and also after giving effect thereto (i) there shall exist
no Default or Event of Default and (ii) all representations and warranties
contained herein or in the other Credit Documents in effect at such time shall
be true and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Credit Event, unless stated to relate to a specific earlier date, in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date.
(b) Notice of Borrowing; Letter of Credit Request. (i) Prior
---------------------------------------------
to the making of each Loan, the Administrative Agent shall have received a
Notice of Borrowing satisfying the requirements of Section 1.03 with respect to
such incurrence of Loans.
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(ii) Prior to the issuance of each Letter of Credit, the
Administrative Agent and the Issuing Bank shall have received a Letter of Credit
Request satisfying the requirements of Section 2.02(a) with respect to such
Letter of Credit.
The occurrence of the Initial Borrowing Date and the
acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by each Borrower to each of the Banks that all of
the applicable conditions specified in Section 5.01 (with respect to the Initial
Borrowing Date only) and Section 5.02 exist as of such date. All of the
certificates, legal opinions and other documents and papers referred to Section
5.01 and this Section 5.02, unless otherwise specified, shall be delivered to
the Administrative Agent at its Notice Office for the account of each of the
Banks and, except for the Notes, in sufficient counterparts for each of the
Banks and shall be satisfactory in form and substance to the Administrative
Agent.
SECTION 6. Representations, Warranties and Agreements. In
------------------------------------------
order to in duce the Banks to enter into this Agreement and to make the Loans
provided for herein and issue and/or participate in the Letters of Credit
provided for herein, each Credit Party makes the following representations,
warranties and agreements with the Banks, in each case after giving effect to
the Transaction, all of which shall survive the execution and delivery of this
Agreement and the making of the Loans and the issuance of each Letter of Credit
(with the occurrence of each Credit Event being deemed to constitute a
representation and warranty that the matters specified in this Section 6 are
true and correct in all material respects on and as of the date of the making of
such Loan, unless stated to relate to a specific earlier date, in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date):
6.01 Corporate Status. Each Credit Party (i) is a duly
----------------
organized and validly existing corporation and is in good standing under the
laws of the jurisdiction of its organization, and has the corporate power and
authority to own its property and assets and to transact the business in which
it is engaged and presently proposes to engage and (ii) is duly qualified and is
authorized to do business and is in good standing in all jurisdictions where it
is required to be so qualified except where the failure to be so qualified would
have a Material Adverse Effect.
6.02 Corporate Power and Authority. Each Credit Party has the
-----------------------------
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Transaction Documents to which it is a party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Transaction Documents to which it is a party. Each Credit Party has duly
executed and delivered each Transaction Document to which it is a party and each
such Transaction Document constitutes the legal, valid and binding obligation of
such Credit Party enforceable in accordance with its terms.
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6.03 No Violation. Neither the execution, delivery or
------------
performance by any Credit Party of the Transaction Documents to which it is a
party nor compliance by them with the terms and provisions thereof, nor the
consummation of the transactions contemplated therein, (i) will contravene any
applicable provision of any law, statute, rule or regulation, or any order,
writ, injunction or decree of any court or governmental instrumentality, (ii)
will conflict or be inconsistent with or result in any breach of, any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
(other than pursuant to the Security Documents) result in the creation or
imposition of (or the obligation to create or impose) any Lien upon any of the
property or assets of such Credit Party pursuant to the terms of any indenture,
mortgage, deed of trust, agreement or other instrument to which such Credit
Party is a party or by which it or any of its property or assets are bound or to
which it may be subject or (iii) will violate any provision of the certificate
of incorporation or by-laws of such Credit Party.
6.04 Litigation. There are no actions, suits or proceedings
----------
pending or threatened (i) with respect to the Transaction, (ii) that are likely
to have a Material Adverse Effect or (iii) that could reasonably be expected to
have a material adverse effect on the rights or remedies of the Banks or on the
ability of any Credit Party to perform its respective obligations to the Banks
hereunder or under the other Credit Documents to which it is, or will be, a
party.
6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of
-----------------------------------
all B Term Loans incurred by the Borrowers shall be utilized (i) to finance
Permitted Acquisitions and other acquisitions consented to by the Required
Banks, (ii) to pay fees and expenses relating thereto or (iii) to refinance
Revolving Loans the proceeds of which were used for the purposes specified in
immediately preceding clauses (i) or (ii).
(b) The proceeds of all Revolving Loans incurred by the
Borrowers shall be utilized (i) for the purposes specified in the immediately
preceding clause (a)(i) or (ii), (ii) to finance, in part, the Refinancing and
to pay certain fees and expenses relating thereto or (iii) for the general
corporate and working capital purposes of the Borrowers and their respective
Subsidiaries.
(c) Neither the making of any Loan hereunder, nor the use of
the proceeds thereof, will violate the provisions of Regulation G, T, U or X of
the Board of Governors of the Federal Reserve System and no part of the proceeds
of any Loan will be used to purchase or carry any Margin Stock or to extend
credit for the purpose of purchasing or carrying any Margin Stock.
6.06 Governmental Approvals. Except for filings required to
----------------------
perfect the security interests granted pursuant to the Security Documents, which
filings have been made to the extent that this representation and warranty is
made on or after the tenth day
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<PAGE>
following the Initial Borrowing Date, no order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize or is required in
connection with (a) the execution, delivery and performance of any Credit
Document or (b) the legality, validity, binding effect or enforceability of any
Credit Document.
6.07 Investment Company Act. Neither Holdings nor any of its
----------------------
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
6.08 Public Utility Holding Company Act. Neither Holdings nor
----------------------------------
any of its Subsidiaries is a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
6.09 True and Complete Disclosure. All factual information
----------------------------
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of
any Credit Party in writing to the Administrative Agent or any Bank (including,
without limitation, all information contained in the Transaction Documents) for
purposes of or in connection with this Agreement or any transaction contemplated
herein is, and all other such factual information (taken as a whole) hereafter
furnished by or on behalf of any such Persons in writing to any Bank will be,
true and accurate in all material respects on the date as of which such infor-
mation is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information (taken as a whole) not
misleading at such time in light of the circumstances under which such
information was provided. The Projections and the pro forma financial
information contained in the materials referred to in the immediately preceding
sentence are based on good faith estimates and assumptions believed by Holdings
and each Borrower to be reasonable at the time made, it being recognized by the
Banks that such Projections as to future events are not to be viewed as facts
and that actual results during the period or periods covered by any such
Projections may differ from the projected results. There is no fact known to any
Credit Party which would have a Material Adverse Effect, which has not been
disclosed herein or in such other documents, certificates and statements
furnished to the Banks for use in connection with the transactions contemplated
hereby.
6.10 Financial Condition; Financial Statements. (a) On and as
-----------------------------------------
of the Initial Borrowing Date, on a pro forma basis after giving effect to the
--- -----
Transaction and to all Indebtedness incurred, and to be incurred, and Liens
created, and to be created, by each Credit Party in connection therewith, and
with respect to Holdings, Holdings and its Subsidiaries taken as a whole, each
Borrower and each Borrower and its respective Subsidiaries
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<PAGE>
taken as a whole (x) the sum of the assets, at a fair valuation, of Holdings (on
a stand-alone basis), Holdings and its respective Subsidiaries (on a
consolidated basis) and each Borrower (on a stand-alone basis) will exceed its
debts, (y) Holdings (on a stand-alone basis), Holdings and its Subsidiaries (on
a consolidated basis) and each Borrower (on a stand-alone basis) has not
incurred nor intended to, nor believes that it will, incur debts beyond its
ability to pay such debts as such debts mature and (z) Holdings (on a stand-
alone basis), Holdings and its Subsidiaries (on a consolidated basis) and each
Borrower (on a stand-alone basis) will have sufficient capital with which to
conduct its business. For purposes of this Section 6.10(a), "debt" means any
liability on a claim, and "claim" means (i) right to payment whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured; or (ii) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(b) The consolidated statements of financial condition of
Holdings and its Subsidiaries at June 30, 1996 and at March 31, 1997 and the
related consolidated statements of income and cash flows and changes in
shareholders' equity of Holdings and its Subsidiaries for the fiscal year or
nine-month period ended as of said dates, copies of which have heretofore been
furnished to each Bank, present fairly the consolidated financial position of
Holdings and its Subsidiaries at the dates of said statements and the results of
operations for the periods covered thereby. All of the foregoing financial
statements have been prepared in accordance with GAAP consistently applied
except to the extent provided in the notes to said financial statements.
(c) The pro forma (after giving effect to the Transaction and
--- -----
the related financing thereof) consolidated balance sheet of Holdings and its
Subsidiaries as of the Initial Borrowing Date, a copy of which has heretofore
been furnished to each Bank, presents a good faith estimate of the consolidated
pro forma financial condition of Holdings and its Subsidiaries (in each case
- --- -----
after giving effect to the Transaction) at the date thereof.
(d) Nothing has occurred since June 30, 1996 that has had or
could reasonably be expected to have a Material Adverse Effect.
(e) Except as fully reflected in the financial statements
described in Section 6.10(b), there were as of the Initial Borrowing Date (and
after giving effect to the occurrence of all Credit Events on such date), no
liabilities or obligations (excluding current obligations incurred in the
ordinary course of business) with respect to Holdings or any of its Subsidiaries
of any nature whatsoever (whether absolute, accrued, contingent or otherwise and
whether or not due), and Holdings does not know of any basis for the
assertion against Holdings or any of its Subsidiaries of any such liability or
obligation
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<PAGE>
which, either individually or in the aggregate, are or would be reasonably
likely to have, a Material Adverse Effect.
6.11 Representations and Warranties in Transaction Documents.
-------------------------------------------------------
All representations and warranties set forth in the Transaction Documents were
true and correct in all material respects as of the time such representations
and warranties were made and shall be true and correct in all material respects
as of a date as if such representations and warranties were made on and as of
such date, unless stated to relate to a specific earlier date, in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date.
6.12 Consummation of Transaction. As of the Initial Borrowing
---------------------------
Date, the Transaction shall have been consummated in accordance with the terms
and conditions of the respective Transaction Documents and all applicable laws.
All consents and approvals of, and filings and registrations with, and all other
actions in respect of, all governmental agencies, authorities or
instrumentalities required in order to consummate the Transaction in accordance
with the terms and conditions of the Transaction Documents and all applicable
laws have been, or prior to the time required, will have been, obtained, given,
filed or taken and are or will be in full force and effect. All applicable
waiting periods with respect thereto have or, prior to the time when required,
will have, expired without, in all such cases, any action being taken by any
competent authority which restrains, prevents, or imposes material adverse
conditions upon the consummation of the Transaction. As of the Initial Borrowing
Date, there does not exist any judgment, order, or injunction prohibiting or
imposing material adverse conditions upon the Transaction or the making of Loans
or the performance by any Credit Party of their respective obligations under the
Transaction Documents.
6.13 Tax Returns and Payments. Each Credit Party has (i) filed
------------------------
all federal, state and local income tax returns and all other tax returns
required to be filed by it and has paid all taxes and assessments shown to be
due on such returns and (ii) paid all federal, state and local income taxes and
all other taxes and assessments in each case payable by it which have become
due, and except for those contested in good faith and for which adequate
reserves have been established in accordance with GAAP. Each Credit Party has
paid, or has provided adequate reserves in accordance with GAAP for the payment
of, all federal, state and local income taxes applicable for all prior fiscal
years and for the current fiscal year to the date hereof. There is no action,
suit, proceeding, investigation, audit or claim pending or, to the best
knowledge of any Credit Party, threatened by any governmental or taxing
authority regarding any taxes relating to any Credit Party.
6.14 Compliance with ERISA. Each Plan is in substantial
---------------------
compliance with ERISA and the Code; no Reportable Event has occurred with
respect to a Plan; no Plan is insolvent or in reorganization; no Plan has an
Unfunded Current Liability; no Plan has an
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<PAGE>
accumulated or waived funding deficiency, has permitted decreases in its funding
standard account or has applied for an extension of any amortization period
within the meaning of Section 412 of the Code; all contributions required to be
made with respect to a Plan have been timely made; neither Holdings nor any
Subsidiary of Holdings nor any ERISA Affiliate has incurred any material
liability to or on account of a Plan pursuant to Section 409, 502(i), 502(l),
515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29),
4971, 4975 or 4980 of the Code or expects to incur any liability (including any
indirect, contingent, or secondary liability) under any of the foregoing
Sections with respect to any Plan; no proceedings have been instituted to
terminate or appoint a trustee to administer any Plan; no condition exists which
presents a material risk to either Holdings, its Subsidiaries or any ERISA
Affiliate of incurring a liability to or on account of a Plan pursuant to the
foregoing provisions of ERISA and the Code; using actuarial assumptions and
computation methods consistent with Part 1 of subtitle E of Title IV of ERISA,
the aggregate liabilities of Holdings, its Subsidiaries and ERISA Affiliates to
all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of
ERISA) in the event of a complete withdrawal therefrom, as of the close of the
most recent fiscal year of each such Plan ended prior to the date of the most
recent Loan, would not exceed $100,000; no lien imposed under the Code or ERISA
on the assets of Holdings, any of its Subsidiaries or any ERISA Affiliate exists
or is likely to arise on account of any Plan; and Holdings and any of its
Subsidiaries may cease contributions to or terminate any employee benefit plan
maintained by any of them without incurring any material liability.
6.15 Ownership; Subsidiaries. On the Effective Date, the
-----------------------
Borrowers are the only Subsidiaries of Holdings. Holdings owns directly all of
each class of capital stock of each Borrower.
6.16 Intellectual Property. Each Credit Party owns or holds a
---------------------
valid license to use all the patents, trademarks, permits, service marks, trade
names, technology, know-how and formulas or other rights with respect to the
foregoing, free from burdensome restrictions, that are necessary for the
operation of the business of each such Credit Party as presently conducted and
as proposed to be conducted.
6.17 Compliance with Statutes, etc. Each Credit Party is in
------------------------------
compliance with all applicable statutes, regulations and orders of, and all
applicable restrictions imposed by, all governmental bodies, domestic or
foreign, in respect of the conduct of its business, and the ownership of its
property (including compliance with all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws with respect to
any Real Property or the operations of each Credit Party other than those the
non-compliance with which would not have a Material Adverse Effect or a material
adverse effect on the ability of any Credit Party to perform its obligations
under any Credit Document to which it is a party).
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<PAGE>
6.18 Environmental Matters. (a) There are no pending or
---------------------
threatened Environmental Claims against any Credit Party or any Real Property
owned or operated by any Credit Party. There are no facts, circumstances,
conditions or occurrences on any Real Property owned or operated by any Credit
Party or on any property adjoining or in the vicinity of any such Real Property
that could reasonably be expected (i) to form the basis of an Environmental
Claim against any Credit Party or any such Real Property or (ii) to cause any
such Real Property to be subject to any restrictions on the ownership,
occupancy, use or transferability of such Real Property by any Credit Party
under any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated,
used, treated or stored on, or transported to or from, any Real Property owned
or operated by any Credit Party where such generation, use, treatment or storage
has violated or could reasonably be expected to violate any Environmental Law.
Hazardous Materials have not at any time been released on or from any Real
Property owned or operated by any Credit Party where such release has violated
or could reasonably be expected to violate any applicable Environmental Law.
(c) Notwithstanding anything to the contrary contained in this
Section 6.18, (i) the representations and warranties made in this Section 6.18
with respect to any Real Property that is leased by any Credit Party and on
which such Credit Party's only activities is the operation of a billboard shall
be to the best knowledge of each Credit Party and (ii) the representations and
warranties made in this Section 6.18 shall only be untrue if the effect of any
or all failures and noncompliances of the types described above in this Section
6.18 could reasonably be expected to have a Material Adverse Effect.
6.19 Labor Relations. No Credit Party is engaged in any unfair
---------------
labor practice that could reasonably be expected to have a Material Adverse
Effect. There is (i) no unfair labor practice complaint pending against any
Credit Party or threatened against any of them, before the National Labor
Relations Board, and no grievance or arbitration proceeding arising out of or
under any Collective Bargaining Agreement is so pending against any Credit Party
or threatened against any of them, (ii) no strike, labor dispute, slowdown or
stoppage pending against any Credit Party or threatened against any Credit Party
and (iii) no union representation question existing with respect to the
employees of any Credit Party and no union organizing activities are taking
place, except (with respect to any matter specified in clause (i), (ii) or (iii)
above, either individually or in the aggregate) such as is not reasonably likely
to have a Material Adverse Effect.
6.20 Senior Subordinated Notes. The subordination provisions
-------------------------
of the Senior Subordinated Notes are enforceable against Holdings and all
Obligations hereunder and under the other Credit Documents are within the
definition of "Senior Indebtedness" included in such subordination provisions.
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6.21 Special Purpose Entity. Holdings was formed for the
----------------------
purpose of acquiring and holding, directly or indirectly, a 100% interest in
each of OCIS and OCIN and except in connection with the foregoing (or as
otherwise permitted by this Agreement), Holdings has not engaged in any business
activities and has no other significant assets or liabilities.
6.22 Security Interests. On and after the Initial Borrowing
------------------
Date, each of the Security Documents creates, as security for the Obligations, a
valid and enforceable perfected security interest in and Lien on all of the
Collateral subject thereto, superior to and prior to the rights of all third
Persons and subject to no other Liens (except (x) that the Security Agreement
Collateral may be subject to Liens permitted pursuant to Section 8.03 and (y)
the Mortgaged Properties may be subject to Permitted Encumbrances relating
thereto), in favor of the Collateral Agent. No filings or recordings are
required in order to perfect the security interests created under any Security
Document except for filings or recordings required in connection with any such
Security Document which shall have been made, or provided for as contemplated by
Section 5.01(o), on or prior to the Initial Borrowing Date.
6.23 Real Properties. All Real Property owned or leased by
---------------
each Credit Party as of the Initial Borrowing Date, and the nature of the
interest therein, is correctly set forth in Annex V. Each Credit Party has good
and marketable title to, or a validly subsisting leasehold interest in, all
properties owned or leased by it, including all Real Property reflected in Annex
V or in the financial statements referred to in Section 6.10(b), free and clear
of all Liens, other than Liens permitted by Section 8.03.
6.24 Insurance. Set forth on Annex VI hereto is a true,
---------
correct and complete summary of all insurance carried by each Credit Party on
and as of the Initial Borrowing Date.
SECTION 7. Affirmative Covenants. Holdings and the Borrowers
---------------------
hereby covenant and agree that on the Effective Date and thereafter, for so long
as this Agreement is in effect and until the Commitments have terminated, no
Notes are outstanding and the Loans, together with interest, Fees and all other
Obligations incurred hereunder, are paid in full:
7.01 Information Covenants. Holdings will furnish to each
---------------------
Bank:
(a) Quarterly Financial Statements. Within 45 days after the
------------------------------
close of each of the first three quarterly accounting periods in each fiscal
year of Holdings, the consolidated and consolidating balance sheet of Holdings
and its Subsidiaries as at the end of such quarterly period and the related
consolidated and consolidating statements of income and retained earnings and of
cash flows for such quarterly period and for the elapsed por-
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<PAGE>
tion of the fiscal year ended with the last day of such quarterly period and, in
each case setting forth comparative figures for the corresponding quarterly
period in the prior fiscal year; all of which shall be in reasonable detail and
certified by an authorized officer of Holdings that they fairly present the
financial condition of Holdings and its Subsidiaries as of the dates indicated
and the results of their operations and changes in their cash flows for the
periods indicated, subject to normal year-end audit adjustments.
(b) Annual Financial Statements. Within 120 days after the
---------------------------
close of each fiscal year of Holdings, the consolidated and consolidating
balance sheets of Holdings and its Subsidiaries as at the end of such fiscal
year and the related consolidated and consolidating statements of income and
retained earnings and of cash flows for such fiscal year and, commencing with
the fiscal year ending on June 30, 1997, setting forth comparative figures for
the preceding fiscal year and certified by an authorized officer of Holdings
that such statements fairly present the financial condition of Holdings and its
Subsidiaries, as of the dates indicated and the results of their operations and
changes in their cash flows for the periods indicated and examined by KPMG Peat
Marwick or such other independent certified public accountants of recognized
national standing as shall be acceptable to the Administrative Agent, whose
opinion shall not be qualified as to the scope of audit or as to the status of
Holdings and its Subsidiaries as a going concern, together with a certificate of
such accounting firm stating that in the course of its regular audit of the
business of Holdings and its Subsidiaries, which audit was conducted in
accordance with generally accepted auditing standards, no Default or Event of
Default which has occurred and is continuing has come to their attention or, if
such a Default or Event of Default has come to their attention a statement as to
the nature thereof.
(c) Budgets, etc. Not more than 30 days after the commencement
-------------
of each fiscal year of Holdings, budgets of Holdings and its Subsidiaries in
reasonable detail for each of the four fiscal quarters of such fiscal year as
customarily prepared by management for its internal use setting forth, with
appropriate discussion, the principal assumptions upon which such budgets are
based. Together with each delivery of financial statements pursuant to Section
7.01(a) and (b), a comparison of the current year to date financial results
(other than in respect of the balance sheets included therein) against the
budgets required to be submitted pursuant to this clause (c) shall be presented.
(d) Officer's Certificate. At the time of the delivery of the
---------------------
financial statements provided for in Section 7.01(a) and (b), a certificate of
an authorized officer of Holdings to the effect that no Default or Event of
Default exists or, if any Default or Event of Default does exist, specifying the
nature and extent thereof, which certificate shall set forth the Total Leverage
Ratio together with the calculations required to establish such ratio and the
calculations required to establish whether Holdings and its Subsidiaries were in
compliance with the provisions of Sections 8.09 through and including 8.12, as
at the end of such fiscal quarter or year, as the case may be.
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<PAGE>
(e) Notice of Default or Litigation, etc. Promptly, and in any
------------------------------------
event within three Business Days after any officer of Holdings or any of its
Subsidiaries obtains knowledge thereof, notice of (x) the occurrence of any
event which constitutes a Default or Event of Default, which notice shall
specify the nature thereof, the period of existence thereof and what action
Holdings or either Borrower proposes to take with respect thereto or (y) the
commencement of, or threat of, or any significant development in, any litigation
or governmental proceeding pending against Holdings or any of its Subsidiaries
which is likely to have a Material Adverse Effect, or a material adverse effect
on the ability of any Credit Party to perform its respective obligations
hereunder or under any other Credit Document.
(f) Auditors' Reports. Promptly upon receipt thereof, a copy
-----------------
of each report or "management letter" submitted to Holdings or any of its
Subsidiaries by its independent accountants in connection with any annual,
interim or special audit made by them of the books of Holdings or any of its
Subsidiaries.
(g) Environmental Matters. Promptly after obtaining knowledge
---------------------
of any of the following, written notice of:
(i) Any pending or threatened material Environmental Claim
against Holdings or any of its Subsidiaries or any Real Property;
(ii) Any condition or occurrence on any Real Property that (x)
results in material noncompliance by Holdings or any of its
Subsidiaries with any applicable Environmental Law, or (y) could
reasonably be anticipated to form the basis of an Environmental Claim
against Holdings or any of its Subsidiaries or any Real Property;
(iii) Any condition or occurrence on any Real Property that
could reason ably be anticipated to cause such Real Property to be
subject to any restrictions on the ownership, occupancy, use or
transferability by Holdings or any of its Subsidiaries, as the case
may be, of its interest in such Real Property under any Environmental
Law; and
(iv) The taking of any material removal or remedial action in
response to the actual or alleged presence of any Hazardous Material on
any Real Property.
All such notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and Holdings'
or either Borrower's response thereto. In addition, Holdings agrees to provide
the Banks with copies of all communications with any government or governmental
agency relating to Environmental Laws, all communications with any person
relating to Environmental Claims, and such detailed
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<PAGE>
reports of any Environmental Claim as may reasonably be requested by the
Administrative Agent or the Required Banks.
(h) ERISA. At the request of any Bank, Holdings will deliver
-----
to each Bank a complete copy of the annual report (Form 5500) of each Plan
required to be filed with the Internal Revenue Service. In addition to any
certificates or notices delivered to the Banks pursuant to Section 7.08, copies
of any notices received by Holdings or any of its Subsidiaries or any ERISA
Affiliate with respect to any Plan shall be delivered to the Banks no later than
10 days after the date such notice has been filed with the Internal Revenue
Service or the PBGC or such notice has been received by Holdings or such
Subsidiary or such ERISA Affiliate, as applicable.
(i) Other Information. Promptly upon transmission thereof,
-----------------
copies of any filings and registrations with, and reports to, the SEC by
Holdings or any of its Subsidiaries and copies of all financial statements,
proxy statements, notices and reports as Holdings or any of its Subsidiaries
shall send to analysts or holders (or any trustee, agent or other representative
therefor) of its Indebtedness (including, without limitation, the Senior
Subordinated Notes) in their capacity as such (in each case to the extent not
theretofore delivered to the Banks pursuant to this Agreement) and, with
reasonable promptness, such other information or documents (financial or
otherwise) as the Administrative Agent on its own behalf or on behalf of the
Required Banks may reasonably request from time to time.
7.02 Books, Records and Inspections. Holdings will, and will
------------------------------
cause each of its Subsidiaries to, permit, upon reasonable prior notice to
Holdings, officers and designated representatives of the Administrative Agent
or the Banks to visit and inspect any of the properties or assets of Holdings
and any of its Subsidiaries in whomsoever's possession, and to examine the books
of account of Holdings and any of its Subsidiaries and discuss the affairs,
finances and accounts of Holdings and of any of its Subsidiaries with, and be
advised as to the same by, their officers and independent accountants, all at
such reasonable times and intervals during normal business hours and to such
reasonable extent as the Administrative Agent or the Banks may desire.
7.03 Insurance. Holdings will, and will cause each of its
---------
Subsidiaries to, at all times maintain in full force and effect insurance in
such amounts, covering such risks and liabilities and with such deductibles or
self-insured retentions as are in accordance with normal industry practice. At
any time that insurance at the levels described in Annex VI is not being
maintained by Holdings or any of its Subsidiaries, Holdings will notify the
Banks in writing thereof and, if thereafter notified by the Administrative Agent
to do so, Holdings will cause its Subsidiaries to, obtain insurance at such
levels at least equal to those set forth in Annex VI to the extent then
generally available (but in any event within the deductible or self-insured
retention limitations set forth in Annex VI) or otherwise as are
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acceptable to the Administrative Agent. Holdings will, and will cause its
Subsidiaries to, furnish on the Initial Borrowing Date and annually thereafter
to the Administrative Agent a summary of the insurance carried in respect of
Holdings and its Subsidiaries and the assets of Holdings and its Subsidiaries
together with certificates of insurance and other evidence of such insurance, if
any, naming the Collateral Agent as a mortgagee/secured party and/or loss payee
in respect of any casualty loss policies and naming the Collateral Agent, the
Administrative Agent and each of the Banks as an additional insured with respect
to any liability policy and stating that such insurance shall not be cancelled
or materially revised without at least 30 days' prior written notice by the
insurer to the Collateral Agent.
7.04 Payment of Taxes. Holdings will pay and discharge, and
----------------
will cause each of its Subsidiaries to pay and discharge, all income and other
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and all lawful claims for sums that have
become due and payable which, if unpaid, might become a Lien not otherwise
permitted under Section 8.03(a) or charge upon any properties of Holdings or any
of its Subsidiaries; provided, that neither Holdings nor any of its Subsidiaries
--------
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested in good faith and by proper proceedings if it has established
adequate reserves with respect thereto in accordance with GAAP.
7.05 Corporate Franchises. Holdings will do, and will cause
--------------------
each of its Subsidiaries to do, or cause to be done, all things necessary to
preserve and keep in full force and effect its existence and its material
rights, franchises and authority to do business; provided, however, that any
-------- -------
transaction permitted by Section 8.02 will not constitute a breach of this
Section 7.05.
7.06 Compliance with Statutes, etc. Holdings will, and will
-----------------------------
cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (including applicable statutes,
regulations, orders and restrictions relating to environmental standards and
controls) other than those the non-compliance with which would not have a
Material Adverse Effect or a material adverse effect on the ability of any
Credit Party to perform its obligations under any Credit Document to which it is
a party.
7.07 Compliance with Environmental Laws. (a) Holdings will
----------------------------------
pay, and will cause each of its Subsidiaries to pay, all costs and expenses
required to maintain compliance with all Environmental Laws, and will keep or
cause to be kept all Real Properties free and clear of any Liens imposed
pursuant to such Environmental Laws; and (b) neither Holdings nor any of its
Subsidiaries will generate, use, treat, store, release or dispose of,
or permit the generation, use, treatment, storage, release or disposal of,
Hazardous
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<PAGE>
Materials on any Real Property, or transport or permit the transportation of
Hazardous Materials to or from any such Real Property, unless the failure to
comply with the requirements specified in clause (a) or (b) above, either
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. If Holdings or any of its Subsidiaries, or any tenant
or occupant of any Real Property, cause or permit any intentional or
unintentional act or omission resulting in the presence or release of any
Hazardous Material (except in compliance with applicable Environmental Laws),
Holdings agrees to undertake, and/or to cause any of its Subsidiaries, tenants
or occupants to undertake, at their sole expense, any clean up, removal,
remedial or other action necessary to remove and clean up any Hazardous
Materials from any Real Property in accordance with the requirements of all
such applicable Environmental Laws and in accordance with orders and directives
of all governmental authorities.
7.08 ERISA. As soon as possible and, in any event, within 10
-----
days after Holdings, any Subsidiary of Holdings or any ERISA Affiliate knows or
has reason to know of the occurrence of any of the following, Holdings will
deliver to each of the Banks a certificate of an authorized officer of Holdings
setting forth details as to such occurrence and the action, if any, which
Holdings, such Subsidiary or such ERISA Affiliate is required or proposes to
take, together with any notices required or proposed to be given to or filed
with or by Holdings, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan
participant or the Plan administrator with respect thereto:
(i) that a Reportable Event has occurred;
(ii) that an accumulated funding deficiency has been incurred
or an application may be or has been made to the Secretary of the
Treasury for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code with respect to a
Plan;
(iii) that a contribution required to be made to a Plan has
not been timely made;
(iv) that a Plan has been or may be terminated, reorganized,
partitioned or declared insolvent under Title IV of ERISA;
(v) that a Plan has an Unfunded Current Liability giving
rise to a lien under ERISA or the Code;
(vi) that proceedings may be or have been instituted to
terminate or appoint a trustee to administer a Plan;
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<PAGE>
(vii) that a proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution to a Plan;
(viii) that Holdings, any Subsidiary of Holdings or any ERISA
Affiliate will or may incur any liability (including any indirect,
contingent or secondary liability) to or on account of the termination
of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or with respect to a Plan under Section
401(a)(29), 4971, 4975 or 4980 of the Code or Sections 409 or 502(i) or
502(1) of ERISA; or
(ix) that Holdings or any Subsidiary of Holdings may incur
any material liability pursuant to any employee welfare benefit plan
(as defined in Section 3(1) of ERISA) that provides benefits to retired
employees or other former employees (other than as required by Section
601 of ERISA) or any employee pension benefit plan (as defined in
Section 3(2) of ERISA).
7.09 Good Repair. Holdings will, and will cause each of its
-----------
Subsidiaries to, ensure that its properties and equipment material to its
business are kept in good repair, working order and condition, normal wear and
tear excepted, and, subject to Section 8.05, that from time to time there are
made in such properties and equipment all needful and proper repairs, renewals,
replacements, extensions, additions, betterments and improvements thereto, to
the extent and in the manner useful or customary for companies in similar
businesses.
7.10 End of Fiscal Years; Fiscal Quarters. Holdings will, for
------------------------------------
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on June 30 of each year and (ii) each of its,
and each of its Subsidiaries', fiscal quarters to end on March 31, June 30,
September 30 and December 31 of each year.
7.11 Use of Proceeds. All proceeds of Loans shall be used as
---------------
provided in Section 6.05.
7.12 UCC Searches. On or prior to the 60th day following the
------------
Initial Borrowing Date, Holdings shall, or shall cause its Subsidiaries to,
deliver to the Administrative Agent and the Collateral Agent (at Holdings' own
cost) copies of UCC-11's, or equivalent reports, listing all effective financing
statements that name each Credit Party as debtor and that are filed in the
jurisdictions referred to in Section 5.01(i) and any other jurisdiction then
necessary to perfect the security interests purported to be created by the
Security Agreement, together with copies of such financing statements, (x) none
of which shall cover the Collateral except to the extent evidencing liens
permitted pursuant to Section 8.03 or created by the Security Documents and (y)
which shall verify that all financing statements necessary or, in the opinion of
the Collateral Agent desirable, to perfect the
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<PAGE>
security interest purported to be created by the Security Documents shall have
been properly recorded and filed.
7.13 Additional Security; Further Assurances. (a) Each Credit
---------------------------------------
Party shall grant to the Collateral Agent, for the benefit of the Secured
Creditors, at the request of the Administrative Agent or the Required Banks
(which request may be made at any time and from time to time in the sole
discretion of the Administrative Agent or the Required Banks), a security
interest in any Real Property owned or leased by any such Credit Party (each, a
"Mortgaged Property" and collectively, the "Mortgaged Properties"), and shall
take all actions requested by the Administrative Agent or the Required Banks
(including, without limitation, the obtaining of mortgagee title insurance
policies, title surveys and real estate appraisals satisfying the requirements
of all applicable laws, rules and regulations) in connection with the granting
of such security interest.
(b) The security interests required to be granted pursuant to
clause (a) above shall be granted pursuant to mortgages, leasehold mortgages,
deeds of trust and leasehold deeds of trust, in each case satisfactory in form
and substance to the Administrative Agent and the Required Banks (each a
"Mortgage" and, collectively, the "Mortgages"), which Mortgages shall constitute
valid and enforceable perfected Liens superior to and prior to the rights of all
third Persons and subject to no other Liens except as are permitted by Section
8.03 at the time of perfection thereof. The Mortgages or instruments related
thereto shall be duly recorded or filed in such manner and in such places as are
required by law to establish, perfect, preserve and protect the Liens in favor
of the Collateral Agent required to be granted pursuant to the Mortgages and all
taxes, fees and other charges payable in connection therewith shall have been
paid in full by the respective Credit Party.
(c) Holdings will, and will cause its Subsidiaries to, at the
expense of Holdings, make, execute, endorse, acknowledge, file and/or deliver to
the Collateral Agent from time to time such vouchers, invoices, schedules,
confirmatory assignments, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, reports and other assurances or
instruments and take such further actions in furtherance of the intent of the
Security Documents as the Collateral Agent may reasonably require. Furthermore,
at the time of the execution and delivery of any Mortgage, Holdings shall cause
to be delivered to the Collateral Agent such opinions of counsel, title
insurance, real property surveys and other related documents as may be
reasonably requested by the Administrative Agent, the Collateral Agent or the
Required Banks, in form and substance satisfactory to the Administrative Agent
and the Collateral Agent, to assure themselves that this Section 7.13 has been
complied with.
(d) At the request of the Administrative Agent or the
Required Banks, in the event that any Mortgages are required to be executed and
delivered pursuant to this Section 7.13, Holdings shall provide to the
Administrative Agent appraisals satisfying
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<PAGE>
applicable requirements of the Real Estate Appraisal Reform Amendments of the
Financial Institution Reform, Recovery and Enforcement Act of 1989 in respect of
the owned Real Property of Holdings and its Subsidiaries constituting
Collateral, in form and substance satisfactory to the Administrative Agent and
the Required Banks.
(e) Holdings and each of the Borrowers agree that each action
required above by this Section 7.13 shall be completed as soon as possible, but
in no event later than 30 days (60 days in the case of clause (d) above) after
such action is requested to be taken by the Administrative Agent or the Banks.
SECTION 8. Negative Covenants. Holdings and each of the
------------------
Borrowers hereby covenant and agree that as of the Effective Date, and
thereafter for so long as this Agreement is in effect and until the Commitments
have terminated, no Letters of Credit or Notes are outstanding and the Loans,
together with interest, Fees and all other Obligations incurred hereunder, are
paid in full:
8.01 Changes in Business. (a) Holdings will not engage in any
-------------------
business other than the ownership of the Borrowers and Subsidiaries of the
Borrowers.
(b) No Subsidiary of Holdings will engage in any business
other than outdoor advertising and related activities.
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc.
-------------------------------------------------------
Holdings will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets (other than sales or other dispositions of inventory, materials and
equipment in the ordinary course of business), or enter into any partnerships,
joint ventures or sale-leaseback transactions, or purchase or otherwise acquire
(in one or a series of related transactions) any part of the property or assets
of any Person or agree to do any of the foregoing at any future time, except
that the following shall be permitted:
(a) each Borrower and/or its respective Subsidiaries may
lease as lessee real or personal property in the
ordinary course of business and otherwise in compliance
with this Agreement;
(b) each Borrower and/or its respective Subsidiaries may
make expenditures of the type described in the
definition of Capital Expenditures to the extent
permitted by Section 8.05;
(c) advances, investments and loans may be made to the
extent permitted pursuant to Section 8.06;
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<PAGE>
(d) Holdings and its respective Subsidiaries may acquire
assets or the capital stock of any Person (any such
acquisition permitted by this clause (d), a "Permitted
Acquisition"); provided, that:
--------
(i) no Default or Event of Default exists at the time
of, or immediately after giving effect to, such
acquisition;
(ii) such acquired assets, or the assets of the Person so
acquired, consist solely of one or more outdoor
advertising companies;
(iii) the consideration paid by Holdings and its
respective Subsidiaries in respect of any such
acquisition shall consist solely of cash on hand of
Holdings or its Subsidiaries, the proceeds of Loans,
and/or equity interests in Holdings and/or cash
proceeds of equity issuances by Holdings;
(iv) to the extent that such acquisition is of the
capital stock of a Person, such acquisition must be
of 100% of the issued and outstanding capital stock
of such Person;
(v) in the event that such acquisition involves the
creation or acquisition of a Subsidiary, no issued
and outstanding capital stock thereof created or
acquired by Holdings or any of its Subsidiaries in
connection with such acquisition shall be pledged
for the benefit of any creditor;
(vi) Holdings shall cause each Subsidiary which is formed
to effect, or is acquired pursuant to, such
acquisition to (w) in the case of any direct
Subsidiary of Holdings, enter into an assumption
agreement in form and substance satisfactory to the
Administrative Agent pursuant to which such Person
shall become a party to this Agreement as a Borrower
and become party to the Pledge Agreement and the
Security Agreement, no later than concurrently with
the consummation of such acquisition, (x) (i) in the
case of the first such Subsidiary of a Borrower,
enter into a Guaranty in the form of Exhibit I
hereto (as modified, amended or supplemented from
time to time in accordance with the terms hereof and
thereof, the "Subsidiary Guaranty") and enter into
an assumption agreement in form and substance
satisfactory to the Administrative Agent pursuant to
which such Person shall become party to the Pledge
Agreement and the Security Agreement no later than
concurrently with the consummation of such
acquisition and (ii) in the case of
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<PAGE>
all subsequent such Subsidiaries of a Borrower,
enter into an Assumption Agreement substantially in
the form of Exhibit J (the "Assumption Agreement")
pursuant to which such Person shall become party to,
in each case no later than concurrently with the
consummation of such acquisition, the Subsidiary
Guaranty, the Pledge Agreement and the Security
Agreement, (y) deliver to the Administrative Agent
such certificates and documents as such Subsidiary
would have been required to deliver on the Initial
Borrowing Date pursuant to Sections 5.01(a)(ii),
(d)(i) and (d)(ii) if such Person had been a
Subsidiary at such time and (z) take all actions
reasonably requested by the Administrative Agent or
the Collateral Agent (including, without limitation,
the obtaining of UCC-11's, or equivalent reports and
the filing of UCC-1's) in connection with the
granting of security interests pursuant to the
Security Documents);
(vii) Holdings shall have caused to be delivered to the
Administrative Agent and/or the Collateral Agent
such opinions of counsel and other related documents
as may be reasonably requested by the Administrative
Agent, the Collateral Agent or the Required Banks,
satisfactory in form and substance to the
Administrative Agent and the Collateral Agent, to
assure themselves that this Section 8.02(d) has been
complied with;
(viii) all necessary governmental (domestic and foreign)
and third party approvals in connection with such
acquisition shall have been obtained and remain in
effect and evidence thereof shall have been provided
to the Administrative Agent, and all applicable
waiting periods shall have expired without any
action being taken by any competent authority which
restrains, prevents or imposes, in the judgment of
the Administrative Agent, materially adverse
conditions upon the consummation of such
acquisition;
(ix) if the total consideration for such Permitted
Acquisition exceeds $2,000,000, at least five
Business Days prior to the date of such proposed
acquisition Holdings shall have delivered to the
Administrative Agent an officer's certificate
executed by an authorized officer of Holdings, which
certificate shall (I) contain the date such
Permitted Acquisition is scheduled to be con
summated, (II) contain the estimated purchase price
of such Permitted Acquisition, (III) contain a
description of the assets, stock and/or other equity
interests to be acquired in connection
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<PAGE>
with such Permitted Acquisition, (IV) contain a
description of the equity to be issued in connection
with the consummation of the Permitted Acquisition
and/or the amount of Loans and/or cash on hand to be
used in connection therewith, (V) demonstrate that
(A) on a pro forma basis (the pro forma adjustments
--- ----- --- -----
made by Holdings pursuant to this clause (ix)(V)(A)
shall be subject to the reasonable satisfaction of
the Administrative Agent) determined as if such
acquisition had been consummated, and any
Indebtedness incurred to finance such acquisition
had been incurred, on the date occurring twelve
months prior to the last day of the most recently
ended fiscal quarter of Holdings, with respect to
any Permitted Acquisition, Holdings and its
Subsidiaries would have been in compliance with
Sections 8.09, 8.10, 8.11 and 8.12 of this Agreement
as of, or for the relevant period ended on, the last
day of such fiscal quarter and (B) on a pro forma
--- -----
basis (the pro forma adjustments made by Holdings
--- -----
pursuant to this clause (ix)(V)(B) shall be subject
to the reasonable satisfaction of the Administrative
Agent) determined as if such acquisition had been
consummated, that the covenants contained in
Sections 8.09, 8.10, 8.11 and 8.12 will continue to
be met for the twelve-month period following the
last day of the fiscal quarter ended after the date
of the consummation of such acquisition, and (VI)
attach thereto a true and correct copy of (A) the
purchase agreement or similar agreement executed by
such acquiror and the seller in connection with such
Permitted Acquisition and (B) each contract and
licensing agreement which is material to the
acquired business, all of which documents referred
to in the preceding clauses (VI)(A) and (B) shall be
in form and substance satisfactory to the
Administrative Agent;
(x) in the event that such acquisition involves the
creation or acquisition of a Subsidiary, all issued
and outstanding capital stock thereof created or
acquired by such acquiror or any of its respective
Subsidiaries in connection with such acquisition
shall be pledged for the benefit of the Secured
Creditors pursuant to the Pledge Agreement;
(xi) all security interests created by each such
Subsidiary becoming party to the Security Documents
shall (except as otherwise consented to by the
Administrative Agent and the Required Banks)
constitute valid and enforceable perfected security
interests prior to
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<PAGE>
the rights of all third Persons and subject to no
other Liens except such Liens as are permitted by
Section 8.03;
(xii) the Security Documents and other instruments related
thereto shall be duly recorded or filed in such
manner and in such places as are required by law to
establish, perfect, preserve and protect the Liens,
in favor of the Collateral Agent for the benefit of
the Secured Creditors, required to be granted
pursuant to the respective Security Documents and
all taxes, fees and other charges payable in
connection therewith shall be paid in full by such
Borrower or such Subsidiary; and
(xiii) the Senior Leverage Ratio, both before and after
giving effect to such acquisition, does not exceed
3.00:1.00.
(e) Distributions may be made to the extent permitted by
Section 8.07;
(f) Each Borrower may transfer assets to another
Borrower; and
(g) Each Borrower may sell assets, provided that (1) the
--------
aggregate Net Cash Proceeds therefrom does not exceed
$1,000,000 in any fiscal year of Holdings, (2) each
such sale of assets shall be in an amount at least
equal to the fair market value of such assets (as
determined by the Board of Directors of such
Borrower) and (3) the Net Cash Proceeds therefrom are
applied as required by Section 4.02(A)(c).
To the extent the Required Banks or all the Banks (as shall be required by
Section 12.12) waive the provisions of this Section 8.02 with respect to the
sale of any Collateral, or any Collateral is sold as permitted by this Section
8.02, (i) such Collateral in each case shall be sold free and clear of the Liens
created by the Security Documents and (ii) if such Collateral includes all of
the capital stock of a Subsidiary Guarantor, such capital stock shall be
released from the Pledge Agreement and such Subsidiary Guarantor shall be
released from the Subsidiary Guaranty; and the Administrative Agent shall take
such actions (including, without limitation, directing the Collateral Agent to
take such actions) as the Administrative Agent deems appropriate in connection
with the foregoing.
8.03 Liens. Holdings will not, and will not permit any of its
-----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of Holdings or its Subsidiaries, whether now owned or hereafter
acquired, or sell any such property or assets subject to an understanding or
agreement, contingent or otherwise, to repurchase such prop-
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<PAGE>
erty or assets (including sales of accounts receivable or notes) or assign any
right to receive income, except:
(a) inchoate Liens for taxes not yet due or Liens for taxes
being contested in good faith and by appropriate
proceedings for which adequate reserves (in the good
faith judgment of the management of Holdings) have been
established in accordance with GAAP;
(b) Liens (other than any Lien imposed by ERISA) in respect
of property or assets of Holdings and its Subsidiaries
imposed by law which were incurred in the ordinary
course of business and which have not arisen to secure
Indebtedness for borrowed money, such as carriers',
warehousemen's and mechanics' Liens, statutory
landlord's Liens, and other similar Liens and
governmental charges arising in the ordinary course of
business, and which either (x) do not in the aggregate
materially detract from the value of such property or
assets or materially impair the use thereof in the
operation of the business of Holdings or any of its
Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the
property or asset subject to such Lien;
(c) Liens created by or pursuant to this Agreement;
(d) Liens incurred in the ordinary course of business in
connection with (x) workers' compensation, unemployment
insurance and other types of social security, or (y) to
secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, government
contracts, performance and return-of-money bonds and
other similar obligations incurred in the ordinary
course of business (exclusive of obligations in respect
of the payment for borrowed money, provided that the
aggregate amount of cash and the fair market value of
the property encumbered by Liens described in this
clause (y) shall not exceed $500,000);
(e) easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or
encumbrances not interfering in any material respect
with the ordinary conduct of the business of Holdings or
any of its Subsidiaries;
(f) Liens arising from precautionary UCC financing
statements regarding operating leases;
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<PAGE>
(g) leases or subleases granted to third Persons not
interfering in any material respect with the business of
Holdings or any of its Subsidiaries;
(h) Liens created pursuant to Capital Leases permitted
pursuant to Section 8.04(b); provided, that such Liens
--------
only secure the payment of Indebtedness arising under
such related Capitalized Lease Obligation and the Lien
encumbering the asset giving rise to the Capitalized
Lease Obligation and the proceeds thereof does not
encumber any other asset of Holdings or any of its
Subsidiaries;
(i) Liens on assets acquired pursuant to a Permitted
Acquisition, other than Liens on the capital stock of
any Subsidiary created or acquired in connection with
any such acquisition, provided, that (x) no such Lien
--------
shall encumber any assets or properties of Holdings or
any of its Subsidiaries other than the assets or
properties of such Subsidiary acquired pursuant to a
Permitted Acquisition, (y) such Lien shall have existed
prior to such acquisition and shall not have been
created in contemplation of such acquisition and (z) no
such Lien shall secure Indebtedness for borrowed money,
purchase money Indebtedness or Capital Leases (it being
understood that Liens securing purchase money
Indebtedness and/or Capital Leases acquired in
connection with a Permitted Acquisition shall be
permitted to the extent permitted by Section 8.03(h) or
(j), as the case may be);
(j) Liens securing Indebtedness representing the purchase
price of assets acquired after the Effective Date (other
than Permitted Acquisitions) provided, that (i) any such
--------
Liens attach only to the assets so purchased, (ii) the
Indebtedness secured by any such Lien does not exceed
100%, nor is less than 80%, of the lesser of the fair
market value or the purchase price of the property being
purchased at the time of the incurrence of such
Indebtedness, and (iii) the Indebtedness secured thereby
is permitted to be incurred pursuant to Section 8.04(b);
and
(k) Permitted Encumbrances.
8.04 Indebtedness. Holdings will not, and will not permit any
------------
of its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
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<PAGE>
(b) Indebtedness evidenced by Capitalized Lease Obligations
of Holdings and/or any Subsidiary and Indebtedness
incurred pursuant to Liens permitted by Section 8.03(j),
provided, that (x) all such Capitalized Lease
--------
Obligations are permitted under Section 8.05 and (y) the
sum of the aggregate Capitalized Lease Obligations under
all Capital Leases entered into pursuant to this clause
(b) outstanding at any time plus the aggregate principal
amount of such Indebtedness outstanding at such time
shall not exceed $2,000,000;
(c) the Borrowers may become and remain liable with respect
to Interest Rate Protection Agreements entered into in
respect of the Obligations;
(d) Indebtedness of Holdings incurred under the Senior
Subordinated Notes in an aggregate principal amount not
to exceed $100,000,000 (as reduced by any repayments of
principal thereof);
(e) Indebtedness of the Borrowers and the Subsidiary
Guarantors in the form of guarantees of the Indebtedness
permitted by Section 8.04(d), so long as such guarantees
are subordinated to the Obligations on the terms set
forth in the Senior Subordinated Notes Documents;
(f) Indebtedness evidenced by Intercompany Loans to the
extent permitted by Section 8.06(h);
(g) Indebtedness of Holdings under the New South Holdings
Notes in an aggregate principal amount not to exceed
$6,200,000 (as reduced by any repayments of principal
thereof); and
(h) additional Indebtedness of the Borrowers not otherwise
permitted pursuant to this Section 8.04 (and guaranties
thereof by Holdings and the other Guarantors) not
exceeding $15,000,000 in aggregate principal amount at
any one time outstanding; provided, that (w) such
--------
Indebtedness may only be incurred from a Bank, (x) such
Indebtedness may be designated by the respective
Borrower as "Additional Senior Debt" under the Security
Documents and the Guaranties, (y) any such Indebtedness
must have a final maturity no earlier than the Final
Maturity Date, and an average life no shorter than the
then remaining average life of the Loans, and (z) the
documentation evidencing any such Indebtedness shall not
contain covenants, defaults or other restrictions which,
in the judgment of the Administrative Agent, are more
restrictive than those contained in this Agreement.
-55-
<PAGE>
8.05 Designated Senior Debt. Holdings will not, and will not
----------------------
permit any of its Subsidiaries to (i) designate any Indebtedness (other than the
Obligations) as "Designated Senior Debt" for purposes of, and as defined in, the
Senior Subordinated Note Documents or (ii) designate any documents with respect
to any Indebtedness (other than this Agreement) as the ["Credit Agreement"] as
defined in the Senior Subordinated Note Documents for purposes of the receipt of
notices by the Administrative Agent, and delivery of blockage notices pursuant
to the subordination provisions of the Senior Subordinated Note Documents.
8.06 Advances, Investments and Loans. Holdings will not, and
-------------------------------
will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person, except:
(a) each Borrower and its respective Subsidiaries may invest
in cash and Cash Equivalents;
(b) each Borrower and its respective Subsidiaries may
acquire and hold receivables owing to it, if created or
acquired in the ordinary course of business and payable
or dischargeable in accordance with customary trade
terms of such Borrower;
(c) each Borrower and its respective Subsidiaries may
acquire and own investments (including debt obligations)
received in connection with the bankruptcy or
reorganization of customers and in settlement of
delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course
of business;
(d) Interest Rate Protection Agreements entered into in
compliance with Section 8.04(c) shall be permitted;
(e) loans and advances by each Borrower or any of its
respective Subsidiaries made to employees for moving and
travel expenses and other similar expenses, in each case
incurred in the ordinary course of business, in an
aggregate outstanding principal amount not to exceed
$500,000 at any time outstanding, shall be permitted;
(f) the Transaction shall be permitted;
(g) each Borrower and its respective Subsidiaries may effect
Permitted Acquisitions in accordance with the
requirements of Section 8.02(d); and
-56-
<PAGE>
(h) each Borrower may make intercompany loans and advances
to one another and to Subsidiaries of each Borrower, and
any Subsidiary of each such Borrower may make
intercompany loans and advances to any Borrower or to
any other Subsidiary of any such Borrower (collectively,
"Intercompany Loans"), provided that (i) each such
Intercompany Loan shall be evidenced by an Intercompany
Note and (ii) each such Intercompany Note shall be
pledged to the Collateral Agent pursuant to the Pledge
Agreement.
8.07 Distributions, etc. Holdings will not, and will not
------------------
permit any of its Subsidiaries to, declare or pay any dividends or return any
capital to its stockholders or authorize or make any other distribution, payment
or delivery of property or cash to its stockholders, or redeem, retire, purchase
or otherwise acquire, directly or indirectly, for a consideration, any shares of
any class of its capital stock (or any warrants for or options or stock
appreciation rights in respect of any of such shares), now or hereafter
outstanding, or set aside any funds for any of the foregoing purposes, and
Holdings will not permit any of its Subsidiaries to purchase or otherwise
acquire for consideration any shares of any class of the capital stock of
Holdings or any such Subsidiary, as the case may be (or any options or warrants
or stock appreciation rights issued by such Person with respect to its capital
stock), now or hereafter outstanding (all of the foregoing "Distributions"),
except that:
(i) any Subsidiary of a Borrower may make Distributions
to such Borrower or to a wholly-owned Subsidiary of such Borrower;
(ii) on the date on which any interest payment is due and
payable under the Senior Subordinated Notes, the Credit Parties (other
than Holdings) may pay cash dividends up to Holdings in an aggregate
amount (for all such Credit Parties taken together) not to exceed such
interest payment;
(iii) the Credit Parties (other than Holdings) may pay cash
dividends up to Holdings in the aggregate amount of (for all such
Credit Parties taken together), and at the times of any payment by
Holdings in respect of, taxes, provided that (x) the aggregate amount
of cash dividends paid pursuant to this clause (iii) to enable Holdings
to pay federal income taxes at any time shall not exceed the lesser of
(A) the amount of such federal income taxes owing by Holdings at such
time for the respective period and (B) the amount of such federal
income taxes that would be owing by the Borrowers and their
Subsidiaries on a consolidated basis for such period if determined
without regard to Holdings' ownership of the Borrowers and (y) any
refunds shall promptly be returned by Holdings to the Borrowers; and
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<PAGE>
(iv) Holdings may pay regularly scheduled dividends on the
Conversion Preferred Stock pursuant to the terms thereof solely through
the issuance of additional preferred shares of such Conversion
Preferred Stock.
8.08 Transactions with Affiliates. Holdings will not, and will
----------------------------
not permit any of its Subsidiaries to, enter into any transaction or series of
transactions with any Affiliate other than in the ordinary course of business
and on terms and conditions substantially as favorable to Holdings or such
Subsidiary as would be obtainable by Holdings or such Subsidiary at the time in
a comparable arm's-length transaction with a Person other than an Affiliate;
provided, that the following shall in any event be permitted: (a) the
- --------
Transaction, (b) Distributions permitted by Section 8.07, (c) Intercompany Loans
permitted by Section 8.06(h) and (d) the transactions permitted by Sections
8.02(f) and (g). No management or similar fees shall be paid or payable by
Holdings or any of its Subsidiaries to any Person.
8.09 Maximum Total Leverage Ratio. Holdings will not permit
----------------------------
the Total Leverage Ratio at any time during a period set forth below to exceed
the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date to and including December 31, 1998 6.50:1.00
January 1, 1999 to and including June 30, 1999 6.25:1.00
July 1, 1999 to and including December 31, 1999 6.00:1.00
January 1, 2000 to and including December 31, 2000 5.50:1.00
Thereafter 5.00:1.00
</TABLE>
8.10 Maximum Senior Leverage Ratio. Holdings will not permit
-----------------------------
the Senior Leverage Ratio at any time during a period set forth below to exceed
the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date to and including December 31, 1999 4.00:1.00
January 1, 2000 to and including December 31, 2000 3.50:1.00
Thereafter 3.00:1.00
</TABLE>
8.11 Interest Coverage Ratio. Holdings will not permit the
-----------------------
ratio of (i) Consolidated EBITDA for any Test Period ending during a period set
forth below to (ii) Consolidated Interest Expense for such Test Period to be
less than the ratio set forth opposite such period below:
-58-
<PAGE>
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date to and including December 31, 1999 1.50:1.00
January 1, 2000 to and including December 31, 2000 1.75:1.00
Thereafter 2.00:1.00
</TABLE>
8.12 Fixed Charge Ratio. Holdings will not permit the ratio
------------------
of (i) Consolidated EBITDA for any Test Period to (ii) Fixed Charges for such
Test Period to be less than 1.05:1.0.
8.13 Issuance of Stock. Holdings will not, and will not permit
-----------------
any of its Subsidiaries to, issue or sell, any shares of its capital stock or
other equity interests (or warrants, rights or options to acquire shares or
other equity securities) except:
(a) Subsidiaries of Holdings may issue shares of their
capital stock to Holdings or any wholly-owned Subsidiary
of Holdings so long as all such capital stock is pledged
to the Collateral Agent pursuant to the Pledge
Agreement;
(b) Holdings may issue shares of its non-redeemable stock so
long as no Event of Default would result under Section
9.09; and
(c) the Transaction shall be permitted.
8.14 Limitation on Voluntary Payments and Modifications of
-----------------------------------------------------
Certain Agreements, etc. Holdings will not, and will not permit any of its
- -----------------------
Subsidiaries to:
(a) amend, modify or change in any manner that the
Administrative Agent shall have determined, in its
reasonable judgment, is adverse to the interests of the
Banks, any certificate of incorporation (including,
without limitation, by the filing or amendment,
modification or change of any certificate of
designation) or by-laws of Holdings or any of its
Subsidiaries, as the case may be, or any other agreement
entered into by Holdings or any of its Subsidiaries with
respect to its capital stock, or enter into any new
agreement with respect to the capital stock, of Holdings
or any of its Subsidiaries (to the extent adverse to the
interests of the Banks as determined by the
Administrative Agent in its reasonable judgment);
(b) amend or modify (or permit the amendment or modification
of) any of the terms or provisions of any Subordinated
Note Conversion Document, any Senior Subordinated Note,
any other Senior
-59-
<PAGE>
Subordinated Note Document, any New South Holdings Note,
any Plan, any Shareholders' Agreement or, except for
amendments to cure ambiguities, defects or
inconsistencies; or
(c) make (or give any notice in respect of) any voluntary or
optional payment or prepayment on or redemption or
acquisition for value (including, without limitation, by
way of depositing with the holder thereof or trustee
with respect thereto monies or securities before due for
the purpose of paying when due) or exchange of, or
set-off any amounts against, any Senior Subordinated
Note.
8.15 Limitation on the Creation of Subsidiaries. Holdings will
------------------------------------------
not, and will not permit any of its Subsidiaries to, establish, create or
acquire after the Effective Date any Subsidiary; provided, that Holdings and its
--------
Subsidiaries shall be permitted to create and or acquire Subsidiaries in
connection with the transactions permitted by Section 8.02(d) in accordance with
the terms thereof.
8.16 Limitations on Restrictions Affecting Subsidiaries.
--------------------------------------------------
Holdings will not, and will not permit any of its Subsidiaries to, enter into,
or suffer to exist any agreement with any Person other than the Administrative
Agent, the Collateral Agent and the Banks pursuant hereto and other than the
Security Documents and the Senior Subordinated Note Documents, which prohibits
or limits the ability of any Subsidiary of Holdings to (a) pay dividends or make
other distributions on its capital stock or any other interest or participation
in profits owned by Holdings or any of its Subsidiaries or pay any Indebtedness
owed to Holdings or any of its Subsidiaries, (b) make loans or advances to
Holdings or any of its Subsidiaries, (c) transfer any of its properties or
assets to Holdings or any of its Subsidiaries or (d) create, incur, assume or
suffer to exist any lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired.
SECTION 9. Events of Default. Upon the occurrence of any of
-----------------
the following specified events (each an "Event of Default"):
9.01 Payments. Any Borrower shall (i) default in the payment
--------
when due of any principal of the Loans or (ii) default, and such default shall
continue for three or more Business Days, in the payment when due of any
interest on the Loans or any Fees or any other amounts owing hereunder or under
any other Credit Document; or
9.02 Representations, etc. Any representation, warranty or
--------------------
statement made by Holdings or any Credit Party herein or in any other Credit
Document or in any statement or certificate delivered pursuant hereto or thereto
shall prove to be untrue in any material respect on the date as of which made or
deemed made; or
-60-
<PAGE>
9.03 Covenants. Any Credit Party shall (a) default in the due
---------
performance or observance by it of any term, covenant or agreement contained in
Section 7.01(e)(x), 7.10, 7.11, 7.13, or 8, or (b) default in the due
performance or observance by it of any term, covenant or agreement (other than
those referred to in Section 9.01, 9.02 or this Section 9.03) contained in this
Agreement and such default shall continue unremedied for a period of at least 30
days after notice to the defaulting party by the Administrative Agent or the
Required Banks; or
9.04 Default Under Other Agreements. (a) Holdings or any of
------------------------------
its Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations) beyond the period of grace, if any,
provided in the instrument or agreement under which Indebtedness was created or
(ii) default in the observance or performance of any agreement or condition
relating to any such Indebtedness or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to per mit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause any such Indebtedness to
become due prior to its stated maturity; or (b) any Indebtedness (other than
the Obligations) of Holdings or any of its Subsidiaries shall be declared to be
due and payable, or shall be required to be prepaid prior to the stated maturity
thereof; provided, that it shall not constitute an Event of Default pursuant to
--------
clause (a) or (b) of this Section 9.04 unless the principal amount of any one
issue of such Indebtedness, or the aggregate amount of all such Indebtedness
referred to in clauses (a) and (b) above, exceeds $1,000,000 at any one time; or
9.05 Bankruptcy, etc. Holdings or any of its Subsidiaries
---------------
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy", as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against Holdings or any of its Subsidiaries and the petition is not controverted
within 10 days, or is not dismissed within 30 days, after commencement of the
case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or
takes charge of, all or substantially all of the property of Holdings or any of
its Subsidiaries; or Holdings or any of its Subsidiaries commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to Holdings or any of
its Subsidiaries; or there is commenced against Holdings or any of its
Subsidiaries any such proceeding which remains undismissed for a period of 30
days; or Holdings or any of its Subsidiaries is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or Holdings or any of its Subsidiaries suffers any
appointment of any custodian or the like for it or any substantial part of its
property to continue undischarged or unstayed for a period of 30
days; or Holdings or any of its Subsidiaries makes a general assignment for the
benefit of
-61-
<PAGE>
creditors; or any corporate or partnership action is taken by Holdings or any of
its Subsidiaries for the purpose of effecting any of the foregoing; or
9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum
-----
funding standard required for any plan year or part thereof or a waiver of such
standard or extension of any amortization period is sought or granted under
Section 412 of the Code, any Plan shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan is, shall have been or is likely to
be terminated or to be the subject of termination proceedings under ERISA, any
Plan shall have an Unfunded Current Liability, a contribution required to be
made to a Plan has not been timely made, or Holdings, any Subsidiary of Holdings
or any ERISA Affiliate has incurred or is likely to incur a liability to or on
account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of
the Code, or Holdings or any Subsidiary of Holdings has incurred or is likely
to incur liabilities pursuant to one or more employee welfare benefit plans (as
defined in Section 3(1) of ERISA) that provide benefits to retired employees or
other former employees (other than as required by Section 601 of ERISA) or
employee pension benefit plans (as defined in Section 3(2) of ERISA); (b) there
shall result from any such event or events the imposition of a lien, the
granting of a security interest, or a liability or a material risk of incurring
a liability; and (c) which lien, security interest or liability, in the opinion
of the Required Banks, is reasonably likely to have a Material Adverse Effect;
or
9.07 Guaranties. The Guaranties or any provision thereof shall
----------
cease to be in full force and effect, or any Guarantor or any Person acting by
or on behalf of such Guarantor shall deny or disaffirm such Guarantor's
obligations under any Guaranty or any Guarantor shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to any Guaranty; or
9.08 Judgments. One or more judgments or decrees shall be
---------
entered against either Holdings or any of its Subsidiaries involving a liability
(not paid or fully covered by a reputable and solvent insurance company) in
excess of $1,000,000 for all such judgments and decrees and any such judgments
or decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 60 days from the entry thereof; or
9.09 Ownership. A Change of Ownership Event shall have
---------
occurred; or
9.10 Security Documents. At any time after the execution and
------------------
delivery thereof any of the Security Documents shall cease to be in full force
and effect, or shall cease to give the Collateral Agent the Liens, rights,
powers and privileges purported to be created thereby (including, without
limitation, a perfected security interest in, and Lien on, all of the
Collateral), in favor of the Collateral Agent, superior to and prior to the
rights of all third Persons (except as permitted by Section 8.03), and subject
to no other Liens
-62-
<PAGE>
(except as permitted by Section 8.03), or any Credit Party shall default in the
due performance or observance of any term, covenant or agreement on its part to
be performed or observed pursuant to any such Security Document (beyond the
applicable period of grace, if any, provided therein);
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Banks, by written notice to the Borrowers, take any or
all of the following actions, without prejudice to the rights of the
Administrative Agent or any Bank to enforce its claims against any Credit Party
(provided, that if an Event of Default specified in Section 9.05 shall occur
--------
with respect to any Borrower, the result which would occur upon the giving of
written notice by the Administrative Agent as specified in clauses (i) and (ii)
below shall occur automatically without the giving of any such notice): (i)
declare the Total Commitment (or the unutilized portion thereof) terminated,
whereupon the Commitment of each Bank (or each Bank's unutilized portion
thereof) shall forthwith terminate immediately and any Commitment Fees shall
forthwith become due and payable without any other notice of any kind; (ii)
declare the principal of and any accrued interest in respect of all Loans and
all obligations owing hereunder (including Unpaid Drawings) and thereunder to
be, whereupon the same shall become, forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each Credit Party; (iii) terminate any Letter of Credit which
may be terminated in accordance with its terms; (iv) direct the Borrowers to pay
(and each Borrower agrees that upon receipt of such notice, or upon the
occurrence of an Event of Default specified in Section 9.05 with respect to any
Borrower, it will pay) to the Administrative Agent at the Payment Office such
additional amount of cash, to be held as security by the Administrative Agent
for the Borrowers' reimbursement obligations in respect of Letters of Credit
then outstanding equal to the aggregate Stated Amount of all Letters of Credit
issued for the account of the Borrowers and then outstanding; and (v) enforce,
as Administrative Agent (or direct the Collateral Agent to enforce), any or all
of the Liens and security interests created pursuant to the Security Documents.
SECTION 10. Definitions. As used herein, the following terms
-----------
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Acquired Entity or Business" shall have the meaning provided
in the definition of Consolidated Net Income.
"Additional B Term Assumption Date" shall mean the date on
which each B Term Assumption Agreement is delivered to the Administrative Agent
after the Initial B Term Assumption Date pursuant to Section 1.13 of this
Agreement.
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<PAGE>
"Additional Senior Debt" shall have the meaning provided in
the definition of Guaranteed Obligations contained in this Section 10.
"Additional Senior Debt Agreements" shall have the meaning
provided in the definition of Guaranteed Obligations contained in this Section
10.
"Additional Senior Debt Creditor" shall have the meaning
provided in the Security Documents and in the Subsidiary Guaranty.
"Administrative Agent" shall have the meaning provided in the
first paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 11.10.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power (i) to
vote 5% or more of the securities having ordinary voting power for the election
of directors of such corporation or (ii) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Aggregate Unutilized Commitment" with respect to any Bank at
any time shall mean such Bank's Commitment at such time less the sum of (i) the
aggregate outstanding principal amount of all Revolving Loans made by such Bank
and (ii) such Bank's RL Percentage of all Letter of Credit Outstandings at such
time.
"Agreement" shall mean this Credit Agreement, as the same may
be from time to time modified, amended and/or supplemented.
"Applicable Base Rate Margin" shall mean 1.00% less the then
applicable Interest Reduction Discount, if any.
"Applicable Eurodollar Margin" shall mean 2.25% less the then
applicable Interest Reduction Discount, if any.
"Asset Sale" shall mean any sale, transfer or other
disposition by Holdings or any of its Subsidiaries to any Person other than
Holdings or any wholly-owned Subsidiary of Holdings of any asset (including,
without limitation, any capital stock, limited liability company interests,
partnership interests or other securities of another Person but excluding any
sale, transfer or other disposition by Holdings or any of its Subsidiaries of
its capital stock, limited liability interests, partnership interests or other
securities issued by
-64-
<PAGE>
it) of Holdings or any such Subsidiary (other than (x) any sale, transfer or
other disposition of Cash Equivalents and (y) any sale, transfer or other
disposition of inventory or excess or obsolete equipment in the ordinary course
of business of either Borrower or any of their respective Subsidiaries).
"Assuming Bank" shall have the meaning provided in Section
1.13.
"Assumption Agreement" shall have the meaning provided in
Section 8.02(d).
"B Term Assumption Agreement" shall mean and include each B
Term Assumption Agreement in the form of Exhibit C attached hereto executed in
accordance with Section 1.13 hereof.
"B Term Assumption Date" shall mean and include the Initial B
Term Assumption Date and each Additional B Term Assumption Date.
"B Term Loan" shall have the meaning provided in Section
1.01(a).
"B Term Loan Commitment" shall mean, with respect to each
Bank, initially zero, as the same may be (x) increased from time to time
pursuant to Section 1.13, (y) reduced from time to time pursuant to Section
3.02, 3.03 and/or 9 or (z) adjusted from time to time as a result of assignments
to or from such Bank pursuant to Section 12.04.
"B Term Loan Facility" shall mean the Facility evidenced by
the Total B Term Loan Commitment and B Term Loans, if any.
"B Term Maturity Date" shall mean June 30, 2005.
"B Term Note" shall have the meaning provided in Section
1.05(a).
"B Term Percentage" shall mean, at any time, a fraction the
numerator of which is the sum of the outstanding B Term Loans and the Total B
Term Loan Commitment at such time (the "B Exposure") and the denominator of
which is the sum of the B Exposure and the Total Revolving Loan Commitment at
such time.
"Bank" shall have the meaning provided in the first paragraph
of this Agreement.
"Bank Affiliate" shall mean, with respect to any Bank, such
Bank's parent company and/or any affiliate of such Bank which is at least 50%
owned by such Bank or its parent company.
-65-
<PAGE>
"Bankruptcy Code" shall have the meaning provided in Section
9.05.
"Base Rate" at any time shall mean the higher of (x) the rate
which is 1/2 of 1% in excess of the Federal Funds Effective Rate and (y) the
Prime Lending Rate.
"Base Rate Loan" shall mean each Loan bearing interest at the
rates provided in Section 1.08(a).
"Borrower" shall mean OCIS, OCIN and any additional Borrowers
established, created or acquired in accordance with Section 8.15.
"Borrowing" shall mean the incurrence of one Type of Loan
pursuant to a single Facility by a Borrower from all of the Banks having
Commitments with respect to such Facility on a pro rata basis on a given date
--- ----
(or resulting from conversions on a given date), having in the case of
Eurodollar Loans the same Interest Period; provided, that Base Rate Loans
--------
incurred pursuant to Section 1.10(b) shall be considered part of any related
Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in the city of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) and which is also a day for trading by and
between banks in U.S. dollar deposits in the interbank Eurodollar market.
"Capital Expenditures" shall mean, for any period, (i) any
expenditures (whether paid in cash or accrued as liabilities and including in
all events all amounts expended or capitalized under Capital Leases and any
expenditures financed with the incurrence of Indebtedness) by any Person during
that period that, in conformity with GAAP, are or are required to be included in
the property, plant or equipment (including, without limitation, expenditures
for renewals, improvements and replacement but excluding expenditures for
repairs) reflected in the balance sheet of such Person and (ii) to the extent
not covered by clause (i) above, expenditures by such Person to acquire
(including without limitation pursuant to a Permitted Acquisition) by purchase
or otherwise the stock, business, property or fixed assets of any other Person
(other than the portion of such expenditures allocable in accordance with GAAP
to net current assets).
"Capital Lease", as applied to any Person, shall mean any
lease of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of that Person.
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<PAGE>
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of Holdings or any of its Subsidiaries in each case taken
at the amount thereof accounted for as liabilities in accordance with GAAP.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided, that the full faith and credit of
--------
the United States of America is pledged in support thereof) having maturities of
not more than six months from the date of acquisition, (ii) U.S. dollar
denominated time deposits, certificates of deposit and bankers acceptances of
(x) any Bank or (y) any bank whose short-term commercial paper rating from
Standard & Poor's Ratings Services ("S&P") is at least A-1 or the equivalent
thereof or from Moody's Investors Service, Inc. ("Moody's") is at least P-1 or
the equivalent thereof or carrying an equivalent rating by a nationally
recognized rating agency if both S&P and Moody's cease publishing ratings of
investments (any such bank or Bank, an "Approved Bank"), in each case with
maturities of not more than six months from the date of acquisition, (iii)
commercial paper issued by any Approved Bank or by the parent company of any
Approved Bank and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long term unsecured
debt rating of at least A or A2, or the equivalent of each thereof, from S&P or
Moody's, as the case may be, and in each case maturing within six months after
the date of acquisition, (iv) marketable direct obligations issued by any state
of the United States of America or any political subdivision of any such state
or any public instrumentality thereof maturing within six months from the date
of acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's or carrying an equivalent
rating by a nationally recognized rating agency if both S&P and Moody's cease
publishing ratings of investments and (v) investments in money market funds
substantially all the assets of which are comprised of securities of the types
described in clauses (i) through (iv) above.
"Cash Proceeds" shall mean, with respect to any Asset Sale,
the aggregate cash payments (including any cash received by way of deferred
payment pursuant to a note receivable issued in connection with such Asset Sale,
other than the portion of such deferred payment constituting interest, and
including any amounts received under any noncompete or similar agreement or as
disbursement or withdrawals from any escrow or similar account established in
connection with any such Asset Sale, but, in each such case, only as and when so
received) received by Holdings and/or any of its Subsidiaries from such Asset
Sale.
"Change of Ownership Event" shall mean (a) Holdings shall
cease to own, directly or indirectly, 100% on a fully diluted basis of the
economic and voting interest in OCIS or OCIN, (b) each of John C. Stanley IV and
A.B. Isbell or their spouses or
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descendants, or any trust of which either is the sole trustee with sole power
and authority to direct the disposition of voting with respect to the assets
thereof, shall cease to own, on a fully diluted basis, that percentage equity
interest in Holdings capital stock that each such individual owns on the
Effective Date except to the extent that such interest is diluted through
additional issuances of Holdings Common Stock after the Effective Date, (c) the
Venture Investors and their Affiliates shall cease to collectively own directly
51% on a fully diluted basis of the economic and voting interest in Holdings
capital stock or (d) any "Change of Control" as such term is defined in the
Senior Subordinated Note Documents, or any successor or similar provision, shall
occur.
"Chase" shall mean The Chase Manhattan Bank and any successor
corporation thereto by merger, consolidation or otherwise.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect at the
Effective Date and any subsequent provisions of the Code amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in
each of the Security Documents.
"Collateral Agent" shall mean The Chase Manhattan Bank acting
as collateral agent for the Secured Creditors.
"Collective Bargaining Agreements" shall have the meaning
provided in Section 5.01(e).
"Commitment" shall mean, with respect to each Bank, such
Bank's B Term Loan Commitment (if any) plus its Revolving Loan Commitment.
"Commitment Expiration Date" shall mean August 31, 1997.
"Commitment Fee" shall have the meaning provided in Section
3.01(a).
"Consolidated Capital Expenditures" shall mean, for any
period, the aggregate of all Capital Expenditures by Holdings and its
Subsidiaries during such period determined on a consolidated basis.
"Consolidated EBITDA" shall mean, for any period, the sum of
(a) Consolidated Net Income for such period determined before Consolidated
Interest Expense, taxes and extraordinary items plus (b) depreciation,
amortization and other non-cash charges to the extent deducted in determining
Consolidated Net Income, and without giving effect
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to any reduction in Consolidated EBITDA as a result of the amount of Fees paid
to the Administrative Agent and the Banks pursuant to this Agreement.
"Consolidated Interest Expense" shall mean, for any period,
total interest expense (including that attributable to Capital Leases in
accordance with GAAP) of Holdings and its Subsidiaries determined on a
consolidated basis with respect to all outstanding Indebtedness of Holdings and
its Subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs (i.e., costs minus benefits) under Interest
----
Rate Protection Agreements (whether or not such costs have been paid or such
benefits have been received) and cash dividends paid in respect of any preferred
stock, but excluding, however, (i) amortization of deferred financing costs to
the extent included in total interest expense, (ii) all fees and expenses paid
by Holdings or any of its Subsidiaries on or prior to the Effective Date in
connection with this Agreement and the other Credit Documents and (iii) all
costs incurred in connection with the entering into of any Interest Rate
Protection Agreement.
"Consolidated Net Income" shall mean, for any period, the net
income (or loss), after provision for taxes, of Holdings and its Subsidiaries on
a consolidated basis for such period taken as a single accounting period
determined in accordance with GAAP; provided that for purposes of Sections 8.09
--------
and 8.10 and the definition of Interest Reduction Discount, there shall be
included in determining Consolidated Net Income for any period (x) the net
income (or loss) of any Person, business, property or asset acquired during such
period pursuant to Section 8.02(d) and not subsequently sold or otherwise
disposed of (but not including the net income (or loss) of any related Person,
business, property or assets to the extent not so acquired) by any Borrower or
one of its Subsidiaries during such period (each such Person, business, property
or asset acquired and not subsequently disposed of during such period, an
"Acquired Entity or Business"), in each case based on the actual net income (or
loss) of such Acquired Entity or Business for the entire period (including the
portion thereof occurring prior to such acquisition) and (y) an increase in
respect of each Acquired Entity or Business acquired during such period equal to
the cost adjustment amount specified as to such Acquired Entity or Business in
the certificate of Holdings delivered pursuant to Section 8.02(d)(ix) in respect
of the relevant period (it being understood and agreed, however, that for each
month following any acquisition of an Acquired Equity or Business, the actual
net income (or loss) of such Acquired Entity or Business shall be included and
the cost adjustment amount in respect of such Acquired Business or Entity shall
be reduced by 1/12).
"Contingent Obligations" shall mean as to any Person any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such
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Person, whether or not contingent, (a) to purchase any such primary obligation
or any property constituting direct or indirect security therefor, (b) to
advance or supply funds (x) for the purchase or payment of any such primary
obligation or (y) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (d) otherwise
to assure or hold harmless the owner of such primary obligation against loss in
respect thereof; provided, however, that the term Contingent Obligation shall
-------- -------
not include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as determined
by such Person in good faith.
"Conversion Preferred Stock" shall have the meaning provided
in Section 5.01(g).
"Credit Documents" shall mean this Agreement, the Notes, the
Guaranties, each Assumption Agreement and each Security Document.
"Credit Event" shall mean the making of a Loan or the issuance
of a Letter of Credit.
"Credit Party" shall mean Holdings, each Borrower and each
Subsidiary Guarantor.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Distributions" shall have the meaning provided in Section
8.07.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Drawing" shall have the meaning provided in Section 2.04(b).
"Effective Date" shall have the meaning provided in Section
12.10.
"Employment Agreements" shall have the meaning provided in
Section 5.01(e).
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"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any Environmental Law (hereafter "Claims") or any permit issued
under any such law, including without limitation (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any applicable federal, state
or local statute, law, rule, regulation, ordinance, code, policy or rule of
common law now or hereafter in effect and in each case as amended, and any
judicial or administrative interpretation thereof, including any applicable
judicial or administrative order, consent, decree or judgment, relating to the
environment, health, safety or Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder. Section references to ERISA are to ERISA, as in
effect at the Effective Date and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with Holdings or any Subsidiary of
Holdings would be deemed to be a "single employer" within the meaning of
Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" shall mean each Loan bearing interest at
the rates provided in Section 1.08(b).
"Eurodollar Rate" shall mean, with respect to each Interest
Period for a Eurodollar Loan, (i) the arithmetic average (rounded to the nearest
1/100 of 1%) of the offered quotation to first-class banks in the interbank
Eurodollar market by the Administrative Agent for U.S. dollar deposits of
amounts in same day funds comparable to the outstanding principal amount of the
Eurodollar Loan of the Administrative Agent for which an interest rate is then
being determined with maturities comparable to the Interest Period to be
applicable to such Eurodollar Loan, determined as of 10:00 A.M. (New York time)
on the date which is two Business Days prior to the commencement of such
Interest Period divided (and rounded upward to the next whole multiple of 1/16
of 1%) by (ii) a percentage equal to 100% minus the then stated maximum rate of
all reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves) applicable to any member
bank of the Federal Reserve System in respect of
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Eurocurrency liabilities as defined in Regulation D (or any successor category
of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in
Section 9.
"Existing Credit Agreement" shall mean the Amended and
Restated Credit Agreement, dated as of April 3, 1996 and amended and restated as
of October 31, 1996, among Holdings, OCIN, OCIS, the lenders from time to time
party thereto, Canadian Imperial Bank of Commerce, as Collateral Agent, The
First National Bank of Chicago and First Union National Bank of North Carolina,
as Co-Agents, and The Chase Manhattan Bank, as Agent (as amended and modified
through the Effective Date).
"Existing Credit Agreement Effective Date" shall mean the
"Restatement Effective Date" under, and as defined in, the Existing Credit
Agreement.
"Existing Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Facility" shall mean any of the credit facilities established
under this Agreement, i.e., the B Term Loan Facility or the Revolving Loan
----
Facility.
"Facing Fee" shall have the meaning provided in Section
3.01(c).
"Federal Funds Effective Rate" shall mean, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to, or referred
to in, Section 3.01.
"Final Maturity Date" shall mean (x) at any time when (1) the
Total B Term Loan Commitment is greater than zero or (2) any B Term Loans are
outstanding, the B Term Maturity Date and (y) at all other times, the Revolving
Maturity Date.
"Fixed Charges" shall mean, for any period, the sum of (i) all
payments of principal of Indebtedness scheduled to be made and all Scheduled RLC
Reductions during such period, (ii) the amount of Consolidated Interest Expense
for such period (including,
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without limitation, the amount of all regularly accruing Fees owing pursuant to
this Agreement for such period), (iii) the amount of Consolidated Capital
Expenditures made during such period (other than Consolidated Capital
Expenditures made pursuant to Section 8.05(d) during such period) and (iv) the
aggregate amount of all income taxes paid or payable in cash by Holdings and its
Subsidiaries during such period.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time; it being understood
and agreed that determinations in accordance with GAAP for purposes of Section
8, including defined terms as used therein, are subject (to the extent provided
therein) to Section 12.07(a).
"Guaranteed Creditors" shall mean and include (i) each of the
Administrative Agent, the Collateral Agent and each of the Banks, (ii) each
Interest Rate Protection Creditor, and (iii) each Additional Senior Debt
Creditor.
"Guaranteed Obligations" shall mean (i) the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of all obligations (including obligations which but for any automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) and liabilities
(including, without limitation, indemnities, fees and interest thereon) of each
Borrower owing to the Administrative Agent, the Collateral Agent and each of the
Banks, now existing or hereafter incurred under, arising out of or in connection
with this Agreement and any other Credit Document to which any Borrower is a
party to and the due performance and compliance by each Borrower with the terms
of each such Credit Document; (ii) the full and prompt payment when due (whether
at the stated maturity, by acceleration or otherwise) of all obligations
(including obligations which but for any automatic stay under Section 362(a) of
the Bankruptcy Code, would become due) and liabilities (including, without
limitation, indemnities, fees and interest thereon) of each Borrower owing to
each Interest Rate Protection Creditor, now existing or hereafter incurred
under, arising out of or in connection with any Interest Rate Protection
Agreement; and (iii) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations (including
obligations which but for any automatic stay under Section 362(a) of the
Bankruptcy Code, would become due) and liabilities (including, without
limitation, indemnities, fees and interest thereon) of each Borrower which have
been designated by the respective Borrower to be guaranteed by the Guaranties,
but only to the extent (A) that such obligations (x) are by their terms not
expressly subordinated to any Obligations then outstanding, and (y) are, at the
time of the incurrence or issuance thereof, permitted to be incurred or issued,
and are expressly permitted to be guaranteed by the Guaranties, pursuant to this
Agreement and (B) the respective Borrower shall have delivered to the
Administrative Agent at the time of the incurrence or issuance thereof a
certificate signed by a senior officer of such Borrower certifying that such
obligations constitute Additional Senior Debt entitled to the benefits of the
Guaranties and that the conditions set forth in
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clause (A) above have been satisfied, such certificate to constitute conclusive
evidence, binding for all purposes, that such obligations are guaranteed as
provided in this clause (iii) (any such obligations satisfying the foregoing
criteria, "Additional Senior Debt") and the due performance and compliance by
each such Borrower with the terms of any and all agreements, documents or
instruments evidencing any Additional Senior Debt (any such agreements,
documents or instruments, an "Additional Senior Debt Agreement").
"Guaranties" shall mean the guaranty provided by Holdings and
each Borrower pursuant to Section 13 of this Agreement and, once entered into,
the Subsidiary Guaranty.
"Guarantor" shall mean Holdings, each Borrower and each
Subsidiary Guarantor; provided that for purposes of Section 13 only, the term
--------
"Guarantor" shall mean Holdings and each Borrower.
"Hazardous Materials" shall mean (a) any petrochemical or
petroleum products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, transformers or other
equipment that contain dielectric fluid containing regulated levels of
polychlorinated biphenyls, and radon gas; and (b) any chemicals, materials or
substances defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "restricted hazardous materials",
"extremely hazardous wastes", "restrictive hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants" or "pollutants", or words of
similar meaning and regulatory effect under any applicable Environmental Law.
"Holdings" shall have the meaning provided in the first
paragraph of this Agreement.
"Holdings Common Stock" shall mean (a) the Class A common
stock of Holdings, par value $.01 per share, and (b) the Class B common stock of
Holdings, par value $.01 per share.
"Indebtedness" of any Person shall mean without duplication
(i) all indebtedness of such Person for borrowed money, (ii) the deferred
purchase price of assets or services payable to the sellers thereof or any of
such seller's assignees which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person but excluding deferred rent
as determined in accordance with GAAP, (iii) the face amount of all letters of
credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder, (iv) all Indebtedness of a second Person secured by any
Lien on any property owned by such first Person, whether or not such
Indebtedness has been assumed, (v) all Capitalized Lease Obligations of such
Person, (vi) all obligations of such Person to pay a specified purchase price
for goods or services whether or not delivered or accepted,
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i.e., take-or-pay and similar obligations, (vii) all obligations of such Person
- ----
in respect of Interest Rate Protection Agreements and (viii) all Contingent
Obligations of such Person, provided, that Indebtedness shall not include trade
--------
payables and accrued expenses, in each case arising in the ordinary course of
business.
"Initial B Term Assumption Date" shall mean the date on which
the first B Term Assumption Agreement is delivered to the Administrative Agent
pursuant to Section 1.13 of this Agreement.
"Initial Borrowing Date" shall mean the date upon which the
initial Borrowing of Loans occurs.
"Intercompany Loans" shall have the meaning set forth in
Section 8.06(h).
"Intercompany Note" shall mean promissory notes, in the form
of Exhibit K, evidencing Intercompany Loans.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the interest period applicable thereto, as determined pursuant to Section
1.09.
"Interest Rate Protection Agreement" shall mean any interest
rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedging agreement or other similar agreement or
arrangement.
"Interest Rate Protection Creditor" shall have the meaning
provided in the Security Documents and in the Subsidiary Guaranty.
"Interest Reduction Discount" shall mean zero; provided, that
--------
the Interest Reduction Discount shall be increased to 0.25%, 0.50%, 0.75% or
1.00%, as the case may be, as specified in clauses (i), (ii), (iii) and (iv)
below, at any time on or after the Initial Borrowing Date, when, and for so long
as, the ratio set forth in such clauses below has been satisfied for the then
Relevant Test Period:
(i) the Interest Reduction Discount shall be 0.25% in the
event that the Total Leverage Ratio for the Relevant
Test Period is less than or equal to 6.00:1.00 but
greater than 5.00:1.00;
(ii) the Interest Reduction Discount shall be 0.50% in the
event that the Total Leverage Ratio for the Relevant
Test Period is less than or equal to 5.00:1.00 but
greater than 4.00:1.00;
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(iii) the Interest Reduction Discount shall be 0.75% in the
event that the Total Leverage Ratio for the Relevant
Test Period is less than or equal to 4.00:1.00 but
greater than 3:00:1.00; and
(iv) the Interest Reduction Discount shall be 1.00% in the
event that the Total Leverage Ratio for the Relevant
Test Period is less than or equal to 3.00:1.00.
The Total Leverage Ratio shall be determined for the Relevant Test Period, in
each case taken as one accounting period, by delivery of an officer's
certificate of Holdings to the Banks pursuant to Section 7.01(d), which
certificate shall set forth the calculation of the Total Leverage Ratio. The
Interest Reduction Discount so determined shall apply, except as set forth
below, from the date on which such officer's certificate is delivered to the
Administrative Agent to the earlier of (x) the date on which the next
certificate is delivered to the Administrative Agent pursuant to Section 7.01(d)
and (y) the 45th day following the first day of the fiscal quarter immediately
following the delivery of such certificate to the Administrative Agent.
Notwithstanding anything to the contrary contained above, the Interest Reduction
Discount shall be zero if no officer's certificate has been delivered to the
Banks pursuant to Section 7.01(d) which sets forth the Total Leverage Ratio for
the Relevant Test Period or the financial statements upon which any such
calculations are based have not been delivered, until such a certificate and/or
financial statements are delivered. Notwithstanding anything to the contrary
above in this definition, the Interest Reduction Discount shall be zero at all
times when there shall exist an Event of Default. It is understood and agreed
that the Interest Reduction Discount as provided above shall in no event be
cumulative and only the Interest Reduction Discount available pursuant to either
clause (i), (ii), (iii) or (iv), if any, contained in this definition shall be
applicable.
"Issuing Bank" shall mean Chase.
"L/C Supportable Obligations" shall mean (i) obligations of
Holdings or any of its Subsidiaries incurred in the ordinary course of business
with respect to insurance obligations and workers' compensation, surety bonds
and other similar obligations and (ii) such other obligations of Holdings or any
of its Subsidiaries as are reasonably acceptable to the Issuing Bank and
otherwise permitted to exist pursuant to the terms of this Agreement.
"Leasehold" of any Person shall mean all of the right, title
and interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
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"Letter of Credit Fee" shall have the meaning provided in
Section 3.01(b).
"Letter of Credit Outstandings" shall mean, at any time, the
sum of (i) the aggregate Stated Amount of all outstanding Letters of Credit and
(ii) the aggregate amount of all Unpaid Drawings.
"Letter of Credit Participation" shall have the meaning
provided in Section 2.03.
"Letter of Credit Request" shall have the meaning provided in
Section 2.02(a).
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any similar
recording or notice statute, and any lease having substantially the same effect
as the foregoing).
"Loan" shall mean each and every loan made by any Bank
hereunder, including B Term Loans and Revolving Loans.
"Management Agreements" shall have the meaning provided in
Section 5.01(e).
"Margin Stock" shall have the meaning provided in
Regulation U.
"Material Adverse Effect" shall mean a material adverse effect
on the business, properties, assets, liabilities, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole, or of
either Borrower or of either Borrower and its respective Subsidiaries taken as a
whole.
"Material Contracts" shall have the meaning provided in
Section 5.01(p).
"Maturity Date" shall mean the B Term Maturity Date or the
Revolving Maturity Date, as applicable.
"Maximum Amount" shall have the meaning provided in Section
13.01.
"Minimum Borrowing Amount" shall mean (i) for Loans maintained
as Base Rate Loans, $500,000 and, if greater, in incremental multiples of
$100,000, and (ii) for Loans maintained as Eurodollar Loans, $1,000,000 and, if
greater, in incremental multiples of $500,000.
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"Mortgage" shall have the meaning provided in Section 7.13(b).
"Mortgaged Properties" shall have the meaning provided in
Section 7.13(a).
"Net Cash Proceeds" shall mean, with respect to any Asset
Sale, the Cash Proceeds resulting therefrom net of (a) reasonable cash expenses
of sale (including, without limitation, payment of principal, premium and
interest on Indebtedness and other liabilities other than the Loans required to
be repaid as a result of such Asset Sale) and (b) incremental income taxes paid
or payable as a result thereof.
"Net Debt Issuance Proceeds" shall mean the cash proceeds (net
of underwriting discounts and commissions, if any and other reasonable costs
associated therewith) received from the incurrence of Indebtedness.
"Net Recovery Event Proceeds" shall mean the Recovery Event
Proceeds received by Holdings and/or any of its Subsidiaries with respect to any
Recovery Event net of reasonable costs and expenses associated therewith
(including payment of principal, premium and interest of Indebtedness other than
Loans, required to be, and which is, repaid under the terms thereof as a result
of such Recovery Event), and incremental taxes paid or payable as a result
thereof.
"New South Holdings" shall mean New South Holdings Corp., a
Delaware corporation.
"New South Holdings Notes" shall mean the Promissory Notes due
April 3, 1998, of Holdings (as successor by merger to New South Holdings), as in
effect on the Effective Date and as the same may be modified, supplemented or
amended from time to time pursuant to the terms hereof and thereof.
"Note" shall mean each B Term Note and each Revolving Note.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03.
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
"Notice Office" shall mean the office of the Administrative
Agent at 270 Park Avenue, New York, New York 10017, or such other office as the
Administrative Agent may designate to the Borrowers and the Banks from time to
time.
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Administrative
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Agent, the Collateral Agent or any Bank pursuant to the terms of this Agreement
or any other Credit Document.
"OCIN" shall have the meaning provided in the first paragraph
of this Agreement.
"OCIS" shall have the meaning provided in the first paragraph
of this Agreement.
"Participant" shall have the meaning provided in Section 2.03.
"Participation" shall have the meaning provided in Section
2.03.
"Payment Office" shall mean the office of the Administrative
Agent at 270 Park Avenue, New York, New York 10017 or such other office as the
Administrative Agent may designate to the Borrowers and the Banks from time to
time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquisition" shall have the meaning provided in
Section 8.02(d).
"Permitted Encumbrances" shall mean, with respect to any
Mortgaged Property, such exceptions to title as are set forth in the title
insurance policy or title commitment delivered with respect thereto, all of
which exceptions must be acceptable to the Administrative Agent in its
reasonable discretion.
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, limited liability company, association, trust or
other enterprise or any government or political subdivision or any agency,
department or instrumentality thereof.
"Plan" shall mean any multiemployer or single-employer plan
(as defined in Section 4001 of ERISA) which is maintained or contributed to by
(or to which there is an obligation to contribute of), Holdings, any of its
Subsidiaries or any ERISA Affiliate, and each such plan for the five year period
immediately following the latest date on which Holdings, any of its Subsidiaries
or any ERISA Affiliate maintained, contributed to, or had an obligation to
contribute to such plan.
"Pledge Agreement" shall have the meaning provided in Section
5.01(o)(a).
"Pledged Securities" shall mean all the Pledged Securities as
defined in the Pledge Agreement.
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"Prime Lending Rate" shall mean the rate which Chase announces
from time to time as its prime lending rate, the Prime Lending Rate to change
when and as such prime lending rate changes. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Chase may make commercial loans or other
loans at rates of interest at, above or below the Prime Lending Rate.
"Projections" shall have the meaning provided in Section
5.01(m).
"Real Property" of any Person shall mean all of the right,
title and interest of such Person in and to land, improvements and fixtures,
including Leaseholds.
"Recovery Event" shall mean the receipt by Holdings or any of
its Subsidiaries of any Recovery Event Proceeds payable by reason of theft,
physical destruction or damage or any other similar event (including as a result
of any condemnation proceeding or the exercise of the power of eminent domain)
with respect to any properties or assets of Holdings or any of its Subsidiaries.
"Recovery Event Proceeds" shall mean, with respect to any
Recovery Event, the aggregate cash payments received by Holdings or any of its
Subsidiaries from such Recovery Event (including any cash payments received in
respect of any condemnation award or the exercise of any power of eminent
domain).
"Refinancing" shall mean the prepayment of all principal of,
interest on and all other amounts owing in respect of, the Existing Credit
Agreement, and the termination of all commitments, if any, in respect of such
Existing Credit Agreement.
"Refinancing Documents" shall mean all agreements and
documents entered into in connection with the Refinancing and the release of all
guarantees and security in connection with the Refinancing and any consents
required in connection therewith.
"Regulation A" shall mean Regulation A of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor thereto.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or portion thereof.
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"Regulation T" shall mean Regulation T of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or portion thereof.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.
"Regulation X" shall mean Regulation X of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof.
"Relevant Test Period" shall mean, at any time, the Test
Period ending on the last day of the then most recently ended fiscal quarter of
Holdings with respect to which an officer's certificate has been delivered to
the Banks pursuant to Section 7.01(d).
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan as to which the 30-day notice
requirement has not been waived by the PBGC.
"Required Banks" shall mean Banks whose outstanding B Term
Loans, B Term Loan Commitments, and Revolving Loan Commitments (or, after the
Total Revolving Loan Commitment has been terminated, outstanding Revolving
Loans) constitute greater than 51% of the sum of (i) the total outstanding B
Term Loans, (ii) the Total B Term Loan Commitment as then in effect and (iii)
the Total Revolving Loan Commitment as then in effect (or, after the Total
Revolving Loan Commitment has been terminated, the total outstanding Revolving
Loans).
"Revolving Loan" shall have the meaning provided in Section
1.01(b).
"Revolving Loan Commitment" shall mean, with respect to each
Bank, the amount set forth opposite such Bank's name in Annex I directly below
the column entitled "Revolving Loan Commitment", as the same may be reduced from
time to time pursuant to Section 3.02, 3.03 and/or 9 or (y) adjusted from time
to time as a result of assignments to or from such Bank pursuant to Section
12.04.
"Revolving Loan Facility" shall mean the Facility evidenced by
the Total Revolving Loan Commitment.
"Revolving Maturity Date" shall mean December 31, 2004.
"Revolving Note" shall have the meaning provided in Section
1.05(a).
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"Revolving Loan Percentage" shall mean, at any time, a
fraction the numerator of which is the Total Revolving Loan Commitment at such
time and the denominator of which is the sum of the Total Revolving Loan
Commitment, the Total B Term Loan Commitment and the outstanding B Term Loans at
such time.
"RL Bank" shall mean at any time each Bank with a Revolving
Loan Commitment (or after the termination of the Total Revolving Loan
Commitment, each Bank which had a Revolving Loan Commitment immediately prior to
such termination).
"RL Percentage" shall mean at any time for each Bank with a
Revolving Loan Commitment, the percentage obtained by dividing such Bank's
Revolving Loan Commitment by the Total Revolving Loan Commitment; provided, that
--------
if the Total Revolving Loan Commitment has been terminated, the RL Percentage of
each such Bank shall be determined by dividing such Bank's Revolving Loan
Commitment immediately prior to such termination by the Total Revolving Loan
Commitment immediately prior to such termination.
"Scheduled B Repayment" shall have the meaning provided in
Section 4.02(A)(b).
"Scheduled B Repayment Date" shall have the meaning provided
in Section 4.02(A)(b).
"Scheduled RLC Reduction" shall have the meaning provided in
Section 3.03(c).
"Scheduled RLC Reduction Date" shall have the meaning provided
in Section 3.03(c).
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Secured Creditors" shall mean the Banks and certain
counterparties to Interest Rate Protection Agreements as set forth in the
Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Security Agreement" shall have the meaning provided in
Section 5.01(o)(b).
"Security Agreement Collateral" shall mean all "Collateral"
under and as defined in the Security Agreement.
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"Security Documents" shall mean and include the Pledge
Agreement, the Security Agreement and each Mortgage, if any.
"Senior Leverage Ratio" shall mean, at any time for the
determination thereof, the ratio of (i) Total Indebtedness less the aggregate
principal amount of Senior Subordinated Notes included in Total Indebtedness at
such time to (ii) Consolidated EBITDA for the Test Period last ended.
"Senior Subordinated Note Documents" shall mean and include
the Senior Subordinated Notes and each of the other documents, instruments and
other agreements entered into and relating to the issuance by Holdings of the
Senior Subordinated Notes, as in effect on the Initial Borrowing Date and as the
same may be modified, supplemented or amended from time to time pursuant to the
terms hereof and thereof.
"Senior Subordinated Notes" shall mean the [___]% Senior
Subordinated Notes due 2007 of Holdings as in effect on the Initial Borrowing
Date and as the same may be modified, supplemented or amended from time to time
in accordance with the terms hereof and thereof.
"Shareholders' Agreements" shall have the meaning provided in
Section 5.01(e).
"Standby Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Stated Amount" shall mean, for each Letter of Credit, the
maximum amount available to be drawn thereunder (determined without regard to
whether any conditions to drawing could then be met).
"Subordinated Note Conversion Documents" shall mean and
include each document, instrument and other agreement entered into and relating
to the conversion by Holdings of the Subordinated Notes into preferred stock of
Holdings, as in effect on the Initial Borrowing Date and as the same may be
modified, supplemented or amended from time to time pursuant to the terms hereof
and thereof.
"Subordinated Notes" shall mean the 10% Subordinated Notes due
December 31, 2003, of Holdings, as in effect on the Effective Date.
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time stock of any class
or classes of such corporation shall have or might have
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voting power by reason of the happening of any contingency) is at the time owned
by such Person directly or indirectly through Subsidiaries and (ii) any
partnership, association (including business trusts), joint venture or other
entity in which such Person directly or indirectly through Subsidiaries, has
more than a 50% voting or equity interest at the time; provided that in any
--------
event each Borrower shall constitute a Subsidiary of Holdings.
"Subsidiary Guarantor" shall mean each Subsidiary of Holdings
(other than the Borrowers).
"Subsidiary Guaranty" shall have the meaning provided in
Section 8.02(d)(vi).
"Syndication Date" shall mean the earlier of (i) the date
which is 30 days after the Initial Borrowing Date and (y) the date upon which
Chase, as Administrative Agent, determines in its sole discretion (and notifies
the Borrower) that the primary syndication (and the resulting addition of
institutions pursuant to Section 12.04) has been completed.
"Taxes" shall have the meaning provided in Section 4.04.
"Test Period" shall mean, at any time, the four consecutive
fiscal quarters of Holdings then last ended.
"Total B Term Loan Commitment" shall mean the sum of the B
Term Loan Commitments of each Bank.
"Total Commitment" shall mean the sum of the Total B Term Loan
Commitment and the Total Revolving Loan Commitment.
"Total Indebtedness" shall mean, at any time, all Indebtedness
of Holdings and its Subsidiaries at such time determined on a consolidated
basis, provided that there shall be excluded from the calculation of Total
Indebtedness the Stated Amount of the Existing Letters of Credit supporting the
New South Holdings Notes.
"Total Leverage Ratio" shall mean, at any time for the
determination thereof, the ratio of (i) Total Indebtedness at such time to (ii)
Consolidated EBITDA for the Test Period last ended.
"Total Revolving Loan Commitment" shall mean the sum of the
Revolving Loan Commitments of each of the Banks.
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"Total Unutilized Revolving Loan Commitment" shall mean, at
any time, (i) the Total Revolving Loan Commitment at such time less (ii) the sum
of (x) the aggregate principal amount of all Revolving Loans at such time and
(y) the Letter of Credit Outstandings at such time.
"Trade Letter of Credit" shall have the meaning provided in
Section 2.01(a).
"Transaction" shall mean, collectively, (i) the issuance of
the Senior Subordinated Notes, (ii) the conversion of the Subordinated Notes
into preferred stock of Holdings, (iii) the incurrence of the Loans hereunder on
the Initial Borrowing Date and (iv) the consummation of the Refinancing.
"Transaction Documents" shall mean, collectively, (i) the
Senior Subordinated Note Documents, (ii) the Subordinated Note Conversion
Documents, (iii) the Refinancing Documents and (iv) the Credit Documents.
"Type" shall mean any type of Loan determined with respect to
the interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar
----
Loan.
"UCC" shall mean the Uniform Commercial Code as in effect in
the State of New York.
"Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year, determined
in accordance with Statement of Financial Accounting Standards No. 87, based
upon the actuarial assumptions used by the Plan's actuary in the most recent
annual valuation of the Plan, exceeds the fair market value of the assets
allocable thereto, determined in accordance with Section 412 of the Code.
"United States" and "U.S." shall each mean the United States
of America.
"Unpaid Drawing" shall have the meaning provided in Section
2.04(a).
"Venture Investors" shall mean Media/Communication Partners II
Limited Partnership, Media/Communications Investors Limited Partnership and
Chase Venture Capital Associates, L.P., a California limited partnership.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile device, telegraph
or cable.
SECTION 11. The Administrative Agent.
------------------------
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11.01 Appointment. Each Bank hereby (x) irrevocably designates
-----------
and appoints Chase as Administrative Agent of such Bank to act as specified
herein and in the other Credit Documents, and each such Bank hereby irrevocably
authorizes Chase as the Administrative Agent of such Bank to take such action on
its behalf under the provisions of this Agreement and the other Credit Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto
and (y) irrevocably designates and appoints The Chase Manhattan Bank as
Collateral Agent of such Bank to act as specified herein and in the Security
Documents, and each such Bank hereby irrevocably authorizes The Chase Manhattan
Bank as the Collateral Agent of such Bank to take such action on its behalf
under the provisions of this Agreement and the Security Documents and to
exercise such powers and perform such duties as are expressly delegated to the
Collateral Agent by the terms of this Agreement and the Security Documents,
together with such other powers as are reasonably incidental thereto. The
Administrative Agent agrees to act as such upon the express conditions contained
in this Section 11. The Collateral Agent agrees to act as such upon the express
conditions contained in this Section 11 and in Article X of the Security
Agreement. Notwithstanding any provision to the contrary elsewhere in this
Agreement or in any other Credit Document, neither the Administrative Agent nor
the Collateral Agent shall have any duties or responsibilities, except those
expressly set forth herein or in the other Credit Documents, or any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement, any other Credit Document or shall otherwise exist against the
Administrative Agent or the Collateral Agent. The provisions of this Section 11
are solely for the benefit of the Administrative Agent, the Collateral Agent and
the Banks, and neither Holdings nor any of its Subsidiaries shall have any
rights as a third party beneficiary of any of the provisions hereof. In
performing their respective functions and duties under this Agreement and the
other Credit Documents, the Administrative Agent and the Collateral Agent shall
act solely as agent of the Banks and, to the extent provided in the Security
Documents, the other Secured Creditors, and neither the Administrative Agent nor
the Collateral Agent assumes and shall not be deemed to have assumed any
obligation or relationship of agency or trust with or for Holdings or any of its
Subsidiaries.
11.02 Delegation of Duties. The Administrative Agent and the
--------------------
Collateral Agent may execute any of their respective duties under this Agreement
or any other Credit Document by or through agents or attorneys-in-fact and shall
be entitled to advice of counsel concerning all matters pertaining to such
duties. Neither the Administrative Agent nor the Collateral Agent shall be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care except to the extent otherwise required by
Section 11.03.
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11.03 Exculpatory Provisions. Neither the Administrative Agent
----------------------
nor the Collateral Agent nor any of their respective officers, directors,
employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any
action lawfully taken or omitted to be taken by it or such Person under or in
connection with this Agreement or the other Credit Documents (except for its or
such Person's own gross negligence or willful misconduct) or (ii) responsible in
any manner to any of the Banks for any recitals, statements, representations or
warranties made by Holdings, any of its Subsidiaries or any of their respective
officers contained in this Agreement or the other Credit Documents, any other
Transaction Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Administrative Agent or the
Collateral Agent under or in connection with, this Agreement, any other Credit
Document or any other Transaction Document or for any failure of Holdings or any
of its Subsidiaries or any of their respective officers to perform its
obligations hereunder or thereunder. Neither the Administrative Agent nor the
Collateral Agent shall be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement, any other Credit Document or the other
Transaction Documents, or to inspect the properties, books or records of
Holdings or any of its Subsidiaries. Neither the Administrative Agent nor the
Collateral Agent shall be responsible to any Bank for the effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement, any other Credit Document or any other Transaction Document or for
any representations, warranties, recitals or statements made herein or therein
or made in any written or oral statement or in any financial or other
statements, instruments, reports, certificates or any other documents in
connection herewith or therewith furnished or made by the Administrative Agent
or the Collateral Agent to the Banks or by or on behalf of Holdings or any of
its Subsidiaries to the Administrative Agent or the Collateral Agent or any Bank
or be required to ascertain or inquire as to the performance or observance of
any of the terms, conditions, provisions, covenants or agreements contained
herein or therein, or as to the use of the proceeds of the Loans or of the
existence or possible existence of any Default or Event of Default.
11.04 Reliance by Administrative Agent. The Administrative
--------------------------------
Agent and the Collateral Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, facsimile transmission,
telex or teletype message, statement, order or other document or conversation
reasonably believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Credit Parties),
independent accountants and other experts selected by the Administrative Agent
or the Collateral Agent. The Administrative Agent and the Collateral Agent shall
be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such advice
or concurrence of the Required Banks as it deems appropriate or it shall first
be indemnified to its satisfaction by the Banks against any and all liability
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and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent and the Collateral Agent shall in
all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Credit Documents in accordance with a request of
the Required Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Banks.
11.05 Notice of Default. Neither the Administrative Agent nor
-----------------
the Collateral Agent shall be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default hereunder unless the
Administrative Agent or the Collateral Agent has actually received notice from a
Bank or a Borrower or any other Credit Party referring to this Agreement or any
other Credit Document, describing such Default or Event of Default and stating
that such notice is a "notice of default". In the event that the Administrative
Agent or the Collateral Agent receives such a notice, the Administrative Agent
or the Collateral Agent, as the case may be, shall give prompt notice thereof to
the Banks. The Administrative Agent or the Collateral Agent, as the case may be,
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Banks; provided, that, unless and until
--------
the Administrative Agent or the Collateral Agent shall have received such
directions, the Administrative Agent or the Collateral Agent, as the case may
be, may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Banks.
11.06 Non-Reliance on Administrative Agent and Other Banks.
----------------------------------------------------
Each Bank expressly acknowledges that neither the Administrative Agent nor the
Collateral Agent nor any of their respective officers, directors, employees,
agents, attorneys-in-fact or affiliates have made any representations or
warranties to it and that no act by the Administrative Agent or the Collateral
Agent hereinafter taken, including any review of the affairs of Holdings or any
of its Subsidiaries, shall be deemed to constitute any representation or war-
ranty by the Administrative Agent or the Collateral Agent, as the case may be,
to any Bank. Each Bank represents to the Administrative Agent and the Collateral
Agent that it has, independently and without reliance upon the Administrative
Agent, the Collateral Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other condition, prospects and creditworthiness of Holdings and its Subsidiaries
and made its own decision to make its Loans hereunder and enter into this
Agreement. Each Bank also represents that it will, independently and without
reliance upon the Administrative Agent, the Collateral Agent or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement, and to make such investigation
as it deems necessary to inform itself as to the business, assets, operations,
property, financial and other condition, prospects and creditworthiness of
Holdings and its Subsidiaries. Neither the Administrative Agent nor the
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Collateral Agent shall have any duty or responsibility to provide any
Bank with any credit or other information concerning the business, operations,
assets, property, financial and other condition, prospects or creditworthiness
of Holdings or its Subsidiaries which may come into the possession of the
Administrative Agent or the Collateral Agent or any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates.
11.07 Indemnification. The Banks agree to indemnify the
---------------
Administrative Agent and the Collateral Agent in their respective capacities as
such ratably according to the respective "percentages" of the Banks as used in
determining the Required Banks at such time, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, reasonable expenses or disbursements of any kind whatsoever which may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, incurred by or asserted against the
Administrative Agent or the Collateral Agent in their respective capacities as
such in any way relating to or arising out of this Agreement or any other Credit
Document, or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted to be taken by
the Administrative Agent or the Collateral Agent under or in connection with any
of the foregoing, but only to the extent that any of the foregoing is not paid
by Holdings or its Subsidiaries; provided, that no Bank shall be liable to the
--------
Administrative Agent or the Collateral Agent for the payment of any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting solely from the gross
negligence or willful misconduct of the Administrative Agent or the Collateral
Agent, as the case may be. If any indemnity furnished to the Administrative
Agent or the Collateral Agent for any purpose shall, in the opinion of the
Administrative Agent or the Collateral Agent be insufficient or become impaired,
the Administrative Agent or the Collateral Agent, as the case may be, may call
for additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished. The agreements in this
Section 11.07 shall survive the payment of all Obligations.
11.08 Administrative Agent and Collateral Agent in their
--------------------------------------------------
Individual Capacities. The Administrative Agent and the Collateral Agent and
- ---------------------
their respective affiliates may make loans to, accept deposits from and
generally engage in any kind of business with Holdings and its Subsidiaries as
though the Administrative Agent was not the Administrative Agent and the
Collateral Agent was not the Collateral Agent hereunder. With respect to any
Loans made by it and all Obligations owing to it, the Administrative Agent and
the Collateral Agent shall have the same rights and powers under this Agreement
as any Bank and may exercise the same as though it were not the Administrative
Agent or the Collateral Agent, as the case may be, and the terms "Bank" and
"Banks" shall include the Administrative Agent and the Collateral Agent, each in
its individual capacity.
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11.09 Holders. The Administrative Agent and the Collateral
-------
Agent may deem and treat the payee of any Note as the owner thereof for all
purposes hereof unless and until a written notice of the assignment, transfer or
endorsement thereof, as the case may be, shall have been filed with the
Administrative Agent and the Collateral Agent. Any request, authority or consent
of any Person or entity who, at the time of making such request or giving such
authority or consent, is the holder of any Note shall be conclusive and binding
on any subsequent holder, transferee, assignee or indorsee, as the case may be,
of such Note or of any Note or Notes issued in exchange therefor.
11.10 Resignation of the Administrative Agent; Successor
--------------------------------------------------
Administrative Agent. (a) The Administrative Agent may resign as the
- --------------------
Administrative Agent upon 20 days' notice to the Banks. Upon the resignation of
the Administrative Agent, the Required Banks shall appoint from among the Banks
a successor Administrative Agent which is a bank or a trust company for the
Banks subject to prior approval by each Borrower (such approval not to be
unreasonably withheld), whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall include such successor agent effective upon its
appointment, and the resigning Administrative Agent's rights, powers and duties
as the Administrative Agent shall be terminated, without any other or further
act or deed on the part of such former Administrative Agent or any of the
parties to this Agreement. After the resignation of the Administrative Agent
hereunder, the provisions of this Section 11 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Administrative Agent
under this Agreement. In the event no successor Administrative Agent has been
appointed by the end of such 20 day period, the resignation of the
Administrative Agent shall become effective and the Required Banks shall perform
the duties of the Administrative Agent until a successor Administrative Agent is
appointed.
(b) The Collateral Agent may resign as Collateral Agent in the
manner set forth in Article X of the Security Agreement.
SECTION 12. Miscellaneous.
-------------
12.01 Payment of Expenses, etc. Each Borrower jointly and
-------------------
severally agrees to: (i) whether or not the transactions herein contemplated are
consummated, pay all reasonable out-of-pocket costs and expenses of the
Administrative Agent (including, without limitation, the reasonable fees and
disbursements of White & Case and any other counsel retained by the
Administrative Agent) in connection with the negotiation, preparation, execution
and delivery of the Credit Documents and the documents and instruments referred
to therein and any amendment, waiver or consent relating thereto and in
connection with the Administrative Agent's syndication efforts with respect to
this Agreement; (ii) pay all reasonable out-of-pocket costs and expenses of the
Administrative Agent and each of the Banks in connection with the enforcement of
the Credit Documents
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and the documents and instruments referred to therein and, after an
Event of Default shall have occurred and be continuing, the protection of the
rights of the Administrative Agent and each of the Banks thereunder (including,
without limitation, the reasonable fees and disbursements of counsel for the
Administrative Agent and for each of the Banks); (iii) pay and hold each of the
Banks harmless from and against any and all present and future stamp and other
similar taxes with respect to the foregoing matters and save each of the Banks
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission (other than to the extent attributable to such Bank)
to pay such taxes; and (iv) indemnify the Administrative Agent, the Collateral
Agent and each Bank, its officers, directors, employees, representatives and
agents from and hold each of them harmless against any and all losses,
liabilities, claims, damages or expenses incurred by any of them as a result of,
or arising out of, or in any way related to, or by reason of, (a) any
investigation, litigation or other proceeding (whether or not the Administrative
Agent, the Collateral Agent or any Bank is a party thereto) related to the
entering into and/or performance of this Agreement or any other Transaction
Document or the use of the proceeds of any Loans hereunder or the Transaction or
the consummation of any other transactions contemplated in any Credit Document
(but excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified), (b) any settlement entered into in connection with
the foregoing to the extent such settlement has been consented to by Holdings or
any of its Subsidiaries, or (c) the actual or alleged presence, generation or
release of Hazardous Materials on or from, or the transportation of Hazardous
Materials to or from, any Real Property owned or operated at any time by
Holdings or its Subsidiaries, the non-compliance of any such Real Property with
foreign, federal, state and local laws, regulations, and ordinances (including
applicable permits thereunder) applicable to any such Real Property, or any
Environmental Claim with respect to Holdings or its Subsidiaries or any such
Real Property, in each case including, without limitation, the reasonable fees
and disbursements of counsel and other consultants incurred in connection with
any such investigation, litigation, Environmental Claim or any of such Credit
Party's acts, omissions, business, operations or Real Property, or other
proceeding (but excluding any such losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the indemnified person). To the extent that the undertaking to
indemnify and hold harmless set forth in this Section 12.01 may be unenforceable
because it is violative of any law or public policy as determined by a final
judgment of a court of competent jurisdiction, each Borrower jointly and
severally agrees to make the maximum contribution to the payment and
satisfaction of each of the liabilities giving rise to claims under the
indemnification provisions of this Section 12.01 which is permissible under
applicable law.
12.02 Right of Setoff. In addition to any rights now or
---------------
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
an Event of Default, each Bank is hereby
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authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to Holdings or its Subsidiaries or to any
other Person, any such notice being hereby expressly waived, to set off and to
appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by such Bank (including, without
limitation, by branches and agencies of such Bank wherever located) to or for
the credit or the account of Holdings or its Subsidiaries against and on account
of the Obligations and liabilities of Holdings or its Subsidiaries to such Bank
under this Agreement or under any of the other Credit Documents, including,
without limitation, all interests in Obligations of Holdings or its Subsidiaries
purchased by such Bank pursuant to Section 12.06(b), and all other claims of any
nature or description arising out of or connected with this Agreement or any
other Credit Document, irrespective of whether or not such Bank shall have made
any demand hereunder and although said Obligations, liabilities or claims, or
any of them, shall be contingent or unmatured.
12.03 Notices. Except as otherwise expressly provided herein,
-------
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile transmission or cable communication)
and mailed, telegraphed, telexed, facsimile transmitted, cabled or delivered, if
to any Credit Party, at the address specified opposite its signature below or in
the other relevant Credit Documents, as the case may be; if to any Bank, at its
address specified for such Bank on Annex II hereto; or, at such other address as
shall be designated by any party in a written notice to the other parties
hereto. All such notices and communications shall be mailed, telegraphed,
telexed, telecopied or cabled or sent by overnight courier, and shall be
effective when received.
12.04 Benefit of Agreement. (a) This Agreement shall be
--------------------
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided, that neither Holdings
--------
nor either Borrower may assign or transfer any of its rights or obligations
hereunder without the prior written consent of the Banks. Each Bank may at any
time grant participations in any of its rights hereunder or under its Notes to
another commercial bank, financial institution, mutual fund or any institutional
"accredited investor" (as defined in Regulation D of the Securities Act);
provided, that in the case of any such participation, the participant shall not
- --------
have any rights under this Agreement or any of the other Credit Documents (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto) and all amounts payable by the Borrowers hereunder
shall be determined as if such Bank had not sold such participation, except that
the participant shall be entitled to receive the additional amounts under
Sections 1.10, 1.11, 2.05 and 4.04 of this Agreement to, and only to, the extent
that such Bank would be entitled to such benefits if the participation had not
been entered into or sold; and provided further, that no Bank shall transfer,
-------- -------
grant or assign any participation under which the participant shall have rights
to approve any amendment to or waiver of this Agreement or any other Credit
Document except to the extent such amendment or waiver would (i) extend
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the final scheduled maturity of any Loan, Note or Letter of Credit (unless such
Letter of Credit is not extended beyond the Revolving Maturity Date) in which
such participant is participating (it being understood that any waiver of an
installment on, or the application of any prepayment or reduction or the method
of application of any prepayment or reduction to the amortization of the Loans
shall not constitute an extension of the final scheduled maturity date), or
reduce the rate or extend the time of payment of interest thereon (except in
connection with a waiver of the applicability of any post-default increase in
interest rates) or Fees, or reduce the principal amount thereof, or increase
such participant's participating interest in any Commitment over the amount
thereof then in effect (it being understood that a waiver of any Default or
Event of Default or of a mandatory reduction in the Total Commitment shall not
constitute a change in the terms of any Commitment and that an increase in any
Commitment shall be permitted without the consent of any participant if such
participant's participation is not increased as a result thereof) or (ii)
release all or substantially all of the Collateral or release any Guarantor from
any Guaranty (in each case except as expressly provided in the Credit
Documents).
(b) Notwithstanding the foregoing, (x) any Bank may assign all
or a portion of its Loans and/or Commitments and its rights and obligations
hereunder to a Bank Affiliate thereof and (y) with the consent of the
Administrative Agent (which consent shall not be unreasonably withheld), any
Bank may assign all or a portion of its Loans and/or Commitments and its rights
and obligations hereunder to one or more commercial banks or other financial
institutions (including one or more Banks), mutual funds or institutional
"accredited investors" (as defined in Regulation D of the Securities Act), which
assignments shall not be required to be pro rata among the Facilities except as
--- ----
provided below; provided, that any assignment of any part of a Bank's Revolving
--------
Loans shall include a ratable part of such Bank's Revolving Loan Commitment and
(ii) any assignment of B Term Loans or B Term Loan Commitment shall be required
to consist of a pro rata assignment of such Bank's B Term Loans and B Term Loan
--- ----
Commitment. No assignment pursuant to clause (y) of the immediately preceding
sentence shall be in an aggregate amount less than the minimum of $5,000,000. If
any Bank so sells or assigns all or a part of its rights hereunder or under any
of its Notes, any reference in this Agreement or such Note to such assigning
Bank shall thereafter refer to such Bank and to the respective assignee to the
extent of their respective interests and the respective assignee shall have, to
the extent of such assignment (unless otherwise provided therein), the same
rights and benefits as it would if it were such assigning Bank, except that the
assignee shall be entitled to receive the additional amounts under Section 4.04
of this Agreement to, and only to, the extent that the assigning Bank would be
entitled to such benefits if the assignment had not been entered into or made.
Each assignment pursuant to Section 12.04(b)(y) shall be effected by the
assigning Bank and the assignee Bank executing a Bank Assignment and Assumption
Agreement substantially in the form of Exhibit L (appropriately completed). At
the time of any such assignment pursuant to Section 12.04(b)(y), (i) Annex I
shall be deemed to be amended to reflect the Commitments of the respective
assignee (which shall result in a
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direct reduction to the Commitment of the assigning Bank) and of the other
Banks, (ii) if any such assignment occurs after the Initial Borrowing Date, the
Borrowers will issue new Notes to the respective assignee and to the assigning
Bank (upon delivery of the existing Notes of such assigning Bank) in conformity
with the requirements of Section 1.05 and (iii) the Administrative Agent shall
receive at the time of each such assignment, from the assigning or assignee
Bank, the payment of a nonrefundable assignment fee of $3,000.
(c) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 12.04, any Bank may
(without notice to any Borrower, the Administrative Agent or any other Bank and
without payment of any fee) assign and pledge all or any portion of its Loans
and its Notes to any Federal Reserve Bank as collateral security pursuant to
Regulation A and any "Operating Circular" issued by such Federal Reserve Bank.
No such assignment shall release the assigning Bank from its obligations
hereunder.
(d) Notwithstanding any other provisions of this Section
12.04, no transfer or assignment of the interests or obligations of any Bank
hereunder or any grant of participations therein shall be permitted if such
transfer, assignment or grant would require any Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any
State.
12.05 No Waiver; Remedies Cumulative. No failure or delay on
------------------------------
the part of the Administrative Agent or any Bank in exercising any right, power
or privilege hereunder or under any other Credit Document and no course of
dealing between any Credit Party and the Administrative Agent or any Bank shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Administrative Agent or any Bank would otherwise have. No notice to or demand on
any Credit Party in any case shall entitle any Credit Party to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Administrative Agent or the Banks to any other or
further action in any circumstances without notice or demand.
12.06 Payments Pro Rata. (a) The Administrative Agent agrees
-----------------
that promptly after its receipt of each payment from or on behalf of any Credit
Party in respect of any Obligations of such Credit Party, it shall, except as
otherwise provided in this Agreement, distribute such payment to the Banks
(other than any Bank that has consented in writing to waive its pro rata share
--- ----
of such payment) pro rata based upon their respective shares, if any, of the
--- ----
Obligations with respect to which such payment was received.
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<PAGE>
(b) Each of the Banks agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Banks is in a greater proportion than the total of such
Obligation then owed and due to such Bank bears to the total of such Obligation
then owed and due to all of the Banks immediately prior to such receipt, then
such Bank receiving such excess payment shall purchase for cash without recourse
or warranty from the other Banks an interest in the Obligations of the
respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all of the Banks in such amount; provided, that if
--------
all or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
12.07 Calculations; Computations. (a) The financial statements
--------------------------
to be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by Holdings to the Banks); provided, that except as otherwise specifically
--------
provided herein, all computations determining compliance with Section 8,
including definitions used therein, shall utilize accounting principles and
policies in effect at the time of the preparation of, and in conformity with
those used to prepare, the historical financial statements delivered to the
Banks pursuant to Section 6.10.
(b) All computations of interest and Fees hereunder shall be
made on the actual number of days elapsed over a year of 360 days.
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (A)
------------------------------------------------
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND THEREUNDER SHALL BE, EXCEPT AS OTHERWISE PROVIDED IN
THE MORTGAGES, CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND,
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, HOLDINGS AND EACH BORROWER HEREBY
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. HOLDINGS AND EACH
BORROWER HEREBY
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<PAGE>
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER
HOLDINGS OR EITHER BORROWER, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT
BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION
OVER HOLDINGS OR EITHER SUCH BORROWER. HOLDINGS AND EACH BORROWER IRREVOCABLY
CONSENT TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY
SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO HOLDINGS OR SUCH BORROWER, AS THE CASE MAY
BE, AT ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 12.03, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. HOLDINGS AND EACH BORROWER HEREBY
IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING
COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS
WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF
THE ADMINISTRATIVE AGENT, ANY BANK OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST HOLDINGS OR EITHER BORROWER IN ANY OTHER JURISDICTION.
(C) HOLDINGS AND EACH BORROWER HEREBY IRREVOCABLY WAIVE ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (A) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR
CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
12.09 Counterparts. This Agreement may be executed in any
------------
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A
complete set of counterparts executed by all the parties hereto shall be lodged
with each Borrower and the Administrative Agent.
12.10 Effectiveness. This Agreement shall become effective on
-------------
the date (the "Effective Date") on which Holdings, each Borrower, the
Administrative Agent and
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<PAGE>
each of the Banks shall have signed a copy hereof (whether the same or different
copies) and shall have delivered the same to the Administrative Agent at the
Notice Office or, in the case of the Banks, shall have given to the
Administrative Agent telephonic (confirmed in writing), written, telex or
facsimile notice (actually received) at such office that the same has been
signed and mailed to it. The Administrative Agent will give each Borrower and
each Bank prompt written notice of the occurrence of the Effective Date.
12.11 Headings Descriptive. The headings of the several
--------------------
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
12.12 Amendment or Waiver. (a) Neither this Agreement nor any
-------------------
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by each Borrower and the Required Banks; provided, that no
--------
such change, waiver, discharge or termination shall, without the consent of each
Bank affected thereby, (i) extend a Maturity Date (it being understood that the
application of any prepayment of or the method of application of any prepayment
to the amortization of, the Loans shall not constitute any such extension), or
reduce the rate or extend the time of payment of interest thereon (other than as
a result of waiving the applicability of any post-default increase in interest
rates) or Fees, or reduce the principal amount thereof, (ii) release a material
portion of the Collateral, except as expressly provided in the Credit Documents,
(iii) amend, modify or waive any provision of this Section, Section 3.03(c) or
Section 4.02(A)(b), (iv) reduce the percentage specified in, or otherwise
modify, the definition of, Required Banks (it being understood that, with the
consent of the Required Banks, additional extensions of credit pursuant to this
Agreement may be included in the determination of the Required Banks on
substantially the same basis as an extension of Loans and Revolving Commitments
are included on the Effective Date), (v) consent to the assignment or transfer
by either Borrower of any of its rights and obligations under this Agreement or
any other Credit Document except in accordance with the terms hereof or thereof,
or (vi) permit the express contractual subordination of the principal or
interest on the Loans; provided further, that no such change, waiver, discharge
-------- -------
or termination shall (x) increase the Commitments of any Bank over the amount
thereof then in effect without the consent of such Bank (it being understood
that waivers or modifications of conditions precedent, covenants, Defaults or
Events of Default or of a mandatory reduction in the Total Commitment shall not
constitute an increase of the Commitment of any Bank, and that an increase in
the available portion of any Commitment of any Bank shall not constitute an
increase in the Commitment of such Bank), (y) without the consent of the
Administrative Agent, amend, modify or waive any provision of Section 11 as same
applies to the Administrative Agent or any other provision as same relates to
the rights or obligations of the Administrative Agent or (z) without the consent
of the Collateral Agent, amend, modify or waive any provision relating to the
rights or obligations of the Collateral Agent.
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<PAGE>
(b) Notwithstanding anything to the contrary contained above
in this Section 12.12, the Collateral Agent may enter into amendments to the
Security Documents for the purpose of adding Subsidiaries of either Borrower as
parties thereto, or adding Subsidiaries of either Borrower to the Subsidiary
Guaranty, and Mortgages, guarantees, and other security documentation may be
entered into to satisfy the requirement of Section 7.13, in each case without
the consent of the Required Banks.
12.13 Survival. All indemnities set forth herein including,
--------
without limitation, in Section 1.10, 1.11, 2.05, 4.04, 11.07 or 12.01, shall
survive the execution and delivery of this Agreement and the making and
repayment of the Loans and the satisfaction of all other Obligations.
12.14 Domicile of Loans. Each Bank may transfer and carry its
-----------------
Loans at, to or for the account of any branch office, subsidiary or affiliate of
such Bank; provided, that the Borrowers shall not be responsible for costs
--------
arising under Section 1.10, 1.11 or 4.04 resulting from any such transfer (other
than a transfer pursuant to Section 1.12) to the extent such costs would not
otherwise be applicable to such Bank in the absence of such transfer.
12.15 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO
--------------------
THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
12.16 Credit Agreement. Holdings and the Borrowers hereby
----------------
acknowledge and agree with the Banks that this Agreement constitutes the "Credit
Agreement" under, and as defined in, the Senior Subordinated Notes.
SECTION 13. Guaranty.
--------
13.01 The Guaranty. In order to induce the Banks to enter into
------------
this Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by the Guarantors from the proceeds of the Loans, each
Guarantor hereby agrees with the Banks as follows: each Guarantor hereby
unconditionally and irrevocably, jointly and severally, guarantees as primary
obligor and not merely as surety the full and prompt payment and performance
when due, upon maturity, acceleration or otherwise, of any and all of the
Guaranteed Obligations of either Borrower (except, in the case of each Guarantor
which is a Borrower, indebtedness incurred directly by such Borrower) to the
Guaranteed Creditors; provided, that the maximum amount payable by any Borrower
--------
as a Guarantor under this Section 13 shall at no time exceed the Maximum Amount
of such Borrower. As
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<PAGE>
used herein, "Maximum Amount" of any Borrower means an amount equal to 90% of
the amount by which (i) the present fair saleable value of such Borrower's
assets exceeds (ii) the total liabilities of such Borrower (including
Obligations directly incurred by such Borrower and the maximum amount reasonably
expected to come due in respect of contingent liabilities, other than
contingent liabilities of such Borrower under this Section 13) in each case
determined on the Initial Borrowing Date or on the day any demand is made on
such Borrower under this Guaranty, whichever date results in the higher Maximum
Amount. If any or all of the Guaranteed Obligations of either Borrower to the
Guaranteed Creditors becomes due and payable, each Guarantor, jointly and
severally, unconditionally promises to pay such Guaranteed Obligations to the
Guaranteed Creditors or order, on demand, together with any and all expenses
which may be incurred by the Guaranteed Creditors in collecting any of the
Guaranteed Obligations. This is a guaranty of payment and not of collection.
13.02 Bankruptcy. Additionally, each Guarantor unconditionally
----------
and irrevocably, jointly and severally, guarantees the payment of any and all
of the Guaranteed Obligations of the Borrowers to the Guaranteed Creditors
whether or not due or payable by a Borrower upon the occurrence of any of the
events specified in Section 9.05, and unconditionally, jointly and severally,
and irrevocably promises to pay such Guaranteed Obligations to the Guaranteed
Creditors or order, on demand, in lawful money of the United States; provided,
--------
however, that the maximum amount payable by any Borrower as a Guarantor pursuant
- -------
to this Guaranty shall at no time exceed the Maximum Amount of such Borrower.
13.03 Nature of Liability. (a) The liability of each Guarantor
-------------------
hereunder is exclusive and independent of any security for or other guaranty of
the Guaranteed Obligations of the Borrowers whether executed by such Guarantor
or by any other party, and the liability of such Guarantor hereunder is not
affected or impaired by (i) any direction as to application of payment by a
Borrower or by any other party, or (ii) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
Guaranteed Obligations of a Borrower, or (iii) any payment on or in reduction of
any such other guaranty or undertaking, or (iv) any dissolution, termination or
increase, decrease or change in personnel of a Borrower, or (v) any payment made
to the Guaranteed Creditors on the Guaranteed Obligations which any such
Guaranteed Creditor repays to a Borrower pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and such Guarantor waives any right to the deferral or modification
of its obligations hereunder by reason of any such proceeding.
(b) If claim is ever made upon any Guaranteed Creditor for
repayment or recovery of any amount or amounts received in payment or on account
of any of the Guaranteed Obligations and any of the aforesaid payees repays all
or part of said amount
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<PAGE>
by reason of (i) any judgment, decree or order of any court or administrative
body having jurisdiction over such payee or any of its property or (ii) any
settlement or compromise of any such claim effected by such payee with any such
claimant (including any Borrower), then and in such event each Guarantor agrees
that any such judgment, decree, order, settlement or compromise shall be binding
upon such Guarantor, notwithstanding any revocation of this Guaranty or any
other instrument evidencing any liability of the Borrowers, and each Guarantor
shall be and remain jointly and severally liable to the aforesaid payees
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by any such payee.
13.04 Independent Obligation. The obligations of each
----------------------
Guarantor hereunder are independent of the obligations of any other guarantor,
any other party or the Borrowers, and a separate action or actions may be
brought and prosecuted against such Guarantor whether or not action is brought
against any other guarantor, any other party or a Borrower and whether or not
any other guarantor, any other party or either Borrower be joined in any such
action or actions. Each Guarantor waives, to the fullest extent permitted by
law, the benefit of any statute of limitations affecting its liability hereunder
or the enforcement thereof. Any payment by a Borrower or other circumstance
which operates to toll any statute of limitations as to such Borrower shall
operate to toll the statute of limitations as to any Guarantor.
13.05 Authorization. Each Guarantor authorizes the Guaranteed
-------------
Creditors without notice or demand (except as shall be required by applicable
statute and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to:
(a) change the manner, place or terms of payment of,
and/or change or extend the time of payment of, renew,
increase, accelerate or alter, any of the Guaranteed
Obligations (including any increase or decrease in the rate of
interest thereon), any security therefor, or any liability
incurred directly or indirectly in respect thereof, and the
Guaranty herein made shall apply to the Guaranteed Obligations
as so changed, extended, renewed or altered;
(b) take and hold security for the payment of the
Guaranteed Obligations and sell, exchange, release, surrender,
realize upon or otherwise deal with in any manner and in any
order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, the Guaranteed
Obligations or any liabilities (including any of those
hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights
against either Borrower or others or otherwise act or refrain
from acting;
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<PAGE>
(d) release or substitute any one or more endorsers,
guarantors, either Borrower or other obligors;
(e) settle or compromise any of the Guaranteed
Obligations, any security therefor or any liability (including
any of those hereunder) incurred directly or indirectly in
respect thereof or hereof, and may subordinate the payment of
all or any part thereof to the payment of any liability
(whether due or not) of either Borrower to its respective
creditors other than the Guaranteed Creditors;
(f) apply any sums by whomsoever paid or howsoever
realized to any liability or liabilities of either Borrower to
the Guaranteed Creditors regardless of what liability or
liabilities of any Guarantor or either Borrower remain unpaid;
(g) consent to or waive any breach of, or any act,
omission or default under, this Agreement or any of the
instruments or agreements referred to herein, or otherwise
amend, modify or supplement this Agreement or any of such
other instruments or agreements; and/or
(h) take any other action which would, under otherwise
applicable principles of common law, give rise to a legal or
equitable discharge of any Guarantor from its liabilities
under this Guaranty.
13.06 Reliance. It is not necessary for the Guaranteed
--------
Creditors to inquire into the capacity or powers of Holdings or its Subsidiaries
or the officers, directors, partners or agents acting or purporting to act on
their behalf, and any Guaranteed Obligations made or created in reliance upon
the professed exercise of such powers shall be guaranteed hereunder.
13.07 Subordination. Any indebtedness of the Borrowers now or
-------------
hereafter held by a Guarantor is hereby subordinated to the Guaranteed
Obligations of the Borrowers to the Guaranteed Creditors; and such indebtedness
of the Borrowers to a Guarantor, if the Administrative Agent, after an Event of
Default has occurred, so requests shall be collected, enforced and received by
such Guarantor as trustee for the Guaranteed Creditors and be paid over to the
Guaranteed Creditors on account of the Guaranteed Obligations of the Borrowers
to the Guaranteed Creditors, but without affecting or impairing in any manner
the liability of such Guarantor under the other provisions of this guaranty.
Prior to the transfer by a Guarantor of any note or negotiable instrument
evidencing any indebtedness of the Borrowers to a Guarantor, such Guarantor
shall mark such note or negotiable instrument with a legend that the same is
subject to this subordination.
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13.08 Waiver. Each Guarantor waives any right (except as shall
------
be required by applicable statute and cannot be waived) to require any
Guaranteed Creditor to (a) proceed against either Borrower, any other guarantor
or any other party; (b) proceed against or exhaust any security held from the
Borrowers; or (c) pursue any other remedy in any Guaranteed Creditor's power
whatsoever. Each Guarantor waives any defense based on or arising out of any
defense of either Borrower, any other guarantor or any other party other than
payment in full of the Guaranteed Obligations, including without limitation, any
defense based on or arising out of the disability of such Borrower, any other
guarantor or any other party or the unenforceability of the Guaranteed
Obligations or any part thereof from any cause, or the cessation from any cause
of the liability of such Borrower other than payment in full of the Guaranteed
Obligations. The Guaranteed Creditors may, at their election, foreclose on any
security held by the Administrative Agent or any other Guaranteed Creditor by
one or more judicial or nonjudicial sales, whether or not every aspect of any
such sale is commercially reasonable (to the extent such sale is permitted by
applicable law), or exercise any other right or remedy the Guaranteed Creditors
may have against either Borrower, or any security, without affecting or
impairing in any way the liability of any Guarantor hereunder except to the
extent the Guaranteed Obligations have been paid in full. Each Guarantor waives
any defense arising out of any such election by the Guaranteed Creditors, even
though such election operates to impair or extinguish any right of reimbursement
or subrogation or other right or remedy of such Guarantor against either
Borrower or any security. Each Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Each Guarantor assumes all responsibility for being and
keeping itself informed of the Borrowers' financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which such Guarantor
assumes and incurs hereunder, and agrees that the Guaranteed Creditors shall
have no duty to advise any Guarantor of information known to them regarding such
circumstances or risks.
* * *
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
Address:
- -------
512 Taylor Street OUTDOOR COMMUNICATIONS, INC.
Corinth, Mississippi 38834
Attention: John C. Stanley IV
Tel.: (601) 268-5523 By
Fax: (601) 287-7688 ----------------------------
Title:
3639 Cass Road OCI (N) CORP.
Traverse City, Michigan 49684
Attention: Richard W. Ebersole
Tel: (616) 941-0000 By
Fax: (616) 941-9113 ----------------------------
Title:
512 Taylor Street OCI (S) CORP.
Corinth, Mississippi 38834
Attention: John C. Stanley IV
Tel: (601) 268-5523 By
Fax: (601) 287-7688 ----------------------------
Title:
THE CHASE MANHATTAN BANK,
Individually, as Administrative
Agent and as Collateral Agent
By
----------------------------
Title:
<PAGE>
ANNEX I
-------
<TABLE>
<CAPTION>
LIST OF BANKS
-------------
B Term Loan Revolving Loan
Bank Commitment Commitment
- --------------------------------------------------------------------------------
<S> <C> <C>
The Chase Manhattan Bank
-------------- -----------------
Total: $ -0- $110,000,000.00
</TABLE>
<PAGE>
ANNEX II
--------
BANK ADDRESSES
--------------
<TABLE>
<CAPTION>
Bank Address
- ---- -------
<S> <C>
The Chase Manhattan Bank 270 Park Avenue
New York, New York 10017
Attention: James Kuster
Telephone: (212) 270-8945
Facsimile: (212) 270-
</TABLE>
<PAGE>
ANNEX III
---------
EXISTING LETTERS OF CREDIT
--------------------------
[Information to be provided by Holdings and Chase]
<PAGE>
ANNEX IV
--------
PROJECTIONS
-----------
[Information to be provided by Holdings]
<PAGE>
ANNEX V
-------
REAL PROPERTY
-------------
[Information to be provided by Holdings]
<PAGE>
ANNEX VI
--------
INSURANCE
---------
[Information to be provided by Holdings]
<PAGE>
ANNEX VI
--------
INSURANCE
---------
[Information to be provided by Holdings]
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Outdoor Communications, Inc.
We consent to the use of our reports related to 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. 333-28489) and related
Prospectus.
KPMG Peat Marwick LLP
East Lansing, Michigan
August 6, 1997
<PAGE>
EXHIBIT 23.3
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Outdoor Communications, Inc. 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. 333-28489) and
related Prospectus.
KPMG Peat Marwick LLP
East Lansing, Michigan
August 6, 1997
<PAGE>
EXHIBIT 23.4
ACCOUNTANTS' CONSENT
The Shareholders and Board of Directors
Outdoor Communications, Inc. and Subsidiaries:
We consent to the use of our report dated May 31, 1996, 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. 333-28489) and related
Prospectus.
KPMG Peat Marwick LLP
East Lansing, Michigan
August 6, 1997
<PAGE>
EXHIBIT 23.5
ACCOUNTANT'S CONSENT
The Shareholders and Board of Directors
Outdoor Communications, Inc. 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 Data" and "Experts" in
this Registration Statement (No. 333-28489) and related Prospectus.
Moore & Gray
Corinth, Mississippi
August 6, 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
August 6, 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. 333-28489) and related Prospectus of OCI Holdings
Corp. for the registration of its Senior Subordinated Notes.
/s/ Ernst & Young LLP
August 6, 1997
Birmingham, Alabama
<PAGE>
EXHIBIT 23.8
ACCOUNTANT'S CONSENT
To 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 statement 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-
28489) and related Prospectus.
McGladrey & Pullen, LLP
Duluth, Minnesota
August 6, 1997
<PAGE>
EXHIBIT 23.9
ACCOUNTANTS' CONSENT
As independent public accountants, we hereby consent to the use of our report
on the December 31, 1994 financial statements of Skoglund Communications, Inc.
and Skoglund Communications of St. Cloud, Inc. and to all references to our
firm included in or made a part of this registration statement.
Arthur Andersen LLP
Minneapolis, Minnesota
August 6, 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, 1996, 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. 333-28489) and related Prospectus.
Morrison and Smith
Tuscaloosa, Alabama
August 6, 1997
